KASTURBHAI LALBHAI Vs. MALHOTRA R K ITO

JUDGEMENT

(1.) THIS petition raises a short but interesting question of construction of S. 147(b) of the IT Act, 1961. The question is whether a certain intimation received by the ITO expressing the opinion of the audit Department as to the correct interpretation of S. 23(2) could be said to constitute "information" on which the ITO could act for the purpose of initiating proceedings for reassessment against the petitioner under S. 147(b). The petitioner is an assessee owning two immovable properties, one in Ahmedabad and the other in Bombay. During the relevant year of account, corresponding to the asst. year 1965 66, both the properties were occupied by the petitioner and, in the words of the ITO, they were "self occupied properties". The petitioner, in his assessment for the assessment year 1965 66, claimed that a sum of Rs. 4,052, being the municipal taxes, be deducted in determining the annual value of the properties under S. 23(2) and the ITO allowed the claim and deducted the sum of Rs. 4,052 in arriving at the annual value of the properties under s. 23(2) for the purpose of computing the income of the petitioner under the head "Income from house property". The order of assessment was made by the ITO on 14th March, 1966. Nothing transpired thereafter for a period of about 3 1/2 years until 15th July, 1969, when the ITO addressed a letter calling upon the petitioner to show cause why the amount of municipal taxes allowed as deduction should not be added back on the ground that it was wrongly allowed. The petitioner by his letter in reply dated 18th July, 1969, pointed out to the ITO that it was not competent to him to reopen the assessment of the petitioner under S. 147 and that, in any event, the amount of municipal taxes was validly allowed as a deduction in computing the income from self occupied properties. The ITO, however, did not seem to be satisfied with the explanation given by the petitioner and he, therefore, issued a notice dated 12th September, 1969, to the petitioner under S. 148 stating that whereas he had reason to believe that the income of the petitioner chargeable to tax for the assessment year 1965 66 had escaped assessment within the meaning of S. 147, he proposed to reassess the income for the said assessment year and requiring the petitioner to file a return of his income for the said assessment year within thirty days from the date of receipt of the notice. The petitioner thereupon filed the present petition challenging the validity of this notice issued by the ITO.

(2.) THE ITO against whom the petition was directed filed an affidavit in opposition to the petition and in the affidavit he made it clear that he proposed to reopen the assessment of the petitioner under S. 147(b). He also proceeded to state the information in consequence of which, according to him, he had reason to believe that the income of the petitioner had escaped assessment. He pointed out that the income tax assessments are subjected to audit by the office of the Comptroller and Auditor General of India and, while auditing the assessment of the petitioner for the asst. yr. 1965 66, the audit Department had pointed out that, on a true interpretation of S. 23(2), the deduction of municipal taxes in respect of self occupied properties was not admissible. This intimation received from the audit Department, according to the ITO,constituted "information" within the meaning of S. 147(b) and, in consequence of this information, the ITO had reason to believe that by reason of wrong allowance of deduction of municipal taxes, the income of the petitioner for the asst. year 1965 66 had escaped assessment. His case, therefore, was that the conditions precedent to the exercise of jurisdiction to issue the impugned notice under S. 148 r/w s. 147(b) were fulfilled and the impugned notice was a valid notice.

(3.) NOW it is well settled as a result of the decision of the Supreme Court in CIT vs. A. Raman and Co. (1968) 67 ITR 11 (SC), that "information" in the context in which it occurs in S. 147(b), must mean "instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment". Mere change of opinion on the part of the ITO cannot constitute "information" so as to entitle the ITO to initiate proceedings under S. 147(b). "Information" may be as to facts or particulars or it may be as to the correct state of the law but it must be "from an external source" as distinguished from a mere change of opinion. Now, as soon as it is said that "information" must be derived from "an external source", the question immediately arises : Would it suffice if it is received from any source ? If an opinion as to the state of the law is expressed by any person and the ITO comes to know about it, would it constitute "information" which would entitle the ITO to disturb the finality of an assessment and reopen it ? The argument of the learned Advocate General on behalf of the Revenue was that there was no limitation on the nature or character of the external source from which communication as to the state of the law may be derived by the ITO and we would be rewriting the section if we sought to read any such limitation in it. He urged that whatever be the source from which communication as to the state of the law is received by the ITO, whether it be the Supreme Court or the High Court or the Tribunal or the AAC or for the matter of that any person or authority, such communication would be "information" derived from an external source. Mr. Kaji, on behalf of the petitioner, however, contended that instruction or knowledge as to the state of the law must be received from some judicial authority such as the Supreme Court or the High Court which is competent to declare the law and whose decisions have the effect of binding precedents ; if it is received from any other external source, it would not be "information" as to the state of the law within the meaning of s. 147(b). Each of these two views canvassed before us represents an extreme contention and we do not think we can accept either of the two views as representing the correct interpretation of the word "information" in S. 147(b).