Commissioner Of Income Tax, Delhi v. Chand Kanwarji, Alwar

M. R. A. ANSARI, J.

( 1 ) THE following question, which is common to both the assessment years under

reference, namely, 1960-61 and 1961 -62, has been referred to this Court by the

Income-tax Appellate Tribunal (Delhi Bench a) (hereinafter referred to as the

Tribunal under section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to

as the New Act) :-"whether on the facts and in the circumstances of the case the

Tribunal was legally justified in holding that it was a case of mere change of opinion

on the same facts and the assessment could not be reopened under section 147 (b)

of the Income-tax Act, 1961"

( 2 ) THE relevant facts may be briefly stated : The assessee in the case is Her

Highness Smt. Chand Kanwarji, the Maharani of Alwar, (hereinafter referred to as

the assessee ). Her assessment for the year 1960-61 was completed on 26th

October, 1962 on a total income of Rs. 48,394. 00 under section 23 (3) of the

Income-tax Act, 1922 (hereinafter referred to as the Old Act ). Similarly, the original

assessment on the assesses for the assessment year 1961-62 was completed on 3rd

January, 1963 on a total income of Rs. 55,930. 00 under Section 143 (3) of the New

Act. For these two assessments, the income derived by the assessee by way of

interest from bank deposits was treated as earned income and the Income-tax

Officer has also accepted the assessees claim of expenditure on the salary paid to

her daughter-in-law. Subsequently. the Revenue Audit staff working under the

Comptroller and Auditor General of India, while scrutinising these assessments,

brought to the notice of the Department that the Income-tax Officer had wrongly

treated the interest income as business income and also that the Income-tax

Officer had wrongly allowed the assessees claim with regard to the salary paid to

her da lighter-in-law.

( 3 ) ACTING upon this scrutiny note of the Revenue Audit, the Inspecting Assistant

Commissioner wrote to the Income-Tax Officer asking him to rectify these defects

by reopening the assessments under section 147 (b) of the New Act. The Incometax

Officer thereupon reopened the original assessments under section 147 (b) of

the New Act, and issued notice to the assessee. The assessee objected to the

reopening of the original assessments by the Income-tax Officer and contended that

all the relevant information was available to the Income-tax Officer at the time of

the original assessments and that the Income-tax Officer, after a consideration of

the said material, had come to a definite conclusion that the interest income

constituted earned income and also that the salary paid by the assessee to her

daughter-in-law was an allowable item of expenditure. The Income- tax Officer

overruled the assessees objections on both these points and treated the interest

income as unearned income and he also disallowed a major portion of the

assessees claim regarding the salary paid to her daughter-in-law.

( 4 ) THE assessee preferred appeals to the Appellate Assistant Commissioner and

again contended before him that the reopening of the original assessments under

section 147 (b) of the New Act was illegal, The Appellate Assistant Commissioner

accepted this contention and held that inasmuch as all the material facts were

before the Income-tax Officer at the time of the original assessments and he had,

after a consideration of these facts, arrived at a definite conclusion, he could not by

mere change of opinion reopen the original assessments. He, therefore, set aside

the re-assessments under section 147 (b) of the New Act,

( 5 ) AGAINST these orders of the Appellate Assistant Commissioner, the Revenue

preferred appeals before the Tribunal. It was pointed out to the Tribunal that the

scrutiny note of the Revenue Audit staff and the letter written by the Inspecting

Assisant Commissioner to the Income-tax Officer were not brought to the notice of

the Appellate Assistant Commissioner and it was contended that these documents

constituted information within the meaning of section 147 (b) of the New Act. The

Tribunal, however, did not accept this contention and agreed with the view of the

Appellate Assistant Commissioner that the Income-tax Officer had no information in

his possession which would justify the re-opening of the original assessments under

section 147 (b) of the New Act. The Tribunal, therefore, dismissed the appeals filed

by the Department. But at the latters instance, the Tribunal has referred the

question, as already stated, to this Court.

( 6 ) BEFORE answering the question, it would be necessary to state the scope of

the question referred to us- From the order of the Appellate Assistant Commissioner

it would appear that the only contention which was urged before him on behalf of

the assessee and which was in the nature of a preliminary objection was that the

reopening of the original assessments under section 147 (b) of the New Act was

illegal in view of the fact that the entire material relevant to the two assessments

was before the Income-tax Officer making the original assessments, that the latter

had applied his mind to the material and duly considered that material and had

come to certain conclusions which were incorporated in the assessment orders and

that there was no new information which had come to his notice subsequently on

the basis of which action under section 147 (b) of the New Act could be. taken. The

learned Appellate Assistant Commissioner considered only this preliminary objection

and decided it in favour of the assesses and cancelled the re-assessments under

section 147 (b) of the New Act. He did not go into the merits of the assessees

appeals and did not record any findings on the two questions, namely,- (I) whether

the interest income constituted earned income or income under other sources

and (ii) whether the assessees claim for allowance of. the salary paid to her

daughter-in-law was allowable; if so, to what extent although in the appeals before

the Tribunal, the assessee appears to have challenged the Income-tax Officers

finding in the re-assessments on both these questions and although the Tribunal has

also made some stray remarks while narrating the assessees contentions regarding

the assessees claim, the Tribunal has not decided the appeals on merit. The

Tribunal has not in so many words held that interest income was in the nature of

earned income or that the assessees claim regarding the salary was allowable in its

entirety or to some extent. The "tribunal has decided the appeals entirely on the

basis of the legal contention urged on behalf of the assessee, namely, that the

scrutiny note of the Revenue Audit staff and the letter of the Inspecting Assistant

Commissioner did not constitute information within the meaning of section 147 (b)

of the New Act. It is, therefore, only this legal question which is to be decided by us

in this reference. Although the question framed by the Tribunal is in somewhat

general terms, the real question that arises for decision in this case is whether the

scrutiny note of the Revenue Audit and the letter of the Inspecting Assistant

Commissioner constitute information within the meaning of section 147 (b) of the

New Act.

( 7 ) WHAT constitutes information within the meaning of sections 34 (1) (b) of the

Old Act and 147 (b ). of the New Act has been a vaxed question and to borrow the

words of Banerjee. in Commissioner of Income-tax v. Kalayanji Mavji and Co. ,

(1969) 74. T. R. 107 "still remains a rich germinating ground for forensic

arguments". We have had occasion to notice the views expressed by the Supreme

Court and the different High Courts on this point in our judgment in Delhi Glass

Works (P) Ltd. v. Commissioner of Income Tax. , (1971) 51. T. R. 95. Some more

decisions have been brought to our notice by Shri G. C. Sharma, learned counsel for

the Revenue, which indicate that the divergence has not yet been reconciled. But it

is really not necessary for the purpose of this case to traverse the entire ground of

what constitutes information within the meaning of section 147 (b) of the New Act.

because the question before us lies with a narrow compass. It is admitted that all

the relevant facts regarding the two questions, namely. interest income and salary

paid to the assessees daughter-in-law, were available before the Income-tax Officer

at the time of the original assessment and that it was only on a consideration of

these facts that the Income-tax Officer had come to the conclusion that the interest

income was in the nature of earned income and also that the salary paid by the

assessee to her daughter-in-law was in the nature of allow- able expenditure. The

Income-tax Officer, however, on a consideration of the same facts subsequently,

came to a different conclusion. In a way, this may amount to a change of opinion on

the part of the Income-tax Officer. Does such a change of opinion under the circumstances of this case entitle the Income-tax Officer to reopen the original

assessments under section 147 (b) of the New Act There can be no doubt that

even a change of opinion under certain circumstances would entitle the Income-tax

Officer to reopen the assessments, under section 147 (b) of the New Act. Change of

opinion based on instruction or knowledge obtained by the Income-tax Officer

subsequent to the completion of the original assessments regarding the correct position of law would entitle the Income-tax Officer to reopen the assessment under

section 147 (b) of the New Act. Such instruction or knowledge may also be

regarding the correct position of facts or particulars. This is what the Supreme Court

held in Maharaj Kumar Kamal Singh v. Commissioner of Income-fax, (1959) 35. T.

R. l, The position was reiterated by the Supreme Court in a later case, namely,

Assistant Controller of Estate Duty v. Nawab Sir Mir Osman All Khan Bahadur,

(1969) 72. T. R. 376, in which it was held that the opinion of the Central Board of

Revenue regarding the correct valuation of securities for the purposes of estate duty

was information within the meaning of section 59 of the Estate Duty Act, 1953

which is analogous to section 147 (b) of the New Act. It is no doubt true that such

information regarding the correct facts or particulars has to come from an external

source as held by the Supreme Court in Commissioner of Income-tax v. A. Roman

and Co. , (1968) 67. T. R. ll (^ ). But then the question arises what is the nature of

the "external source" from which the Income-tax Officer has derived instructions or

knowledge concerning facts or particulars. The Tribunal has taken the view that the

external source should be the judgement of courts like the Privy Council, the

Supreme Court or the High Courts or of appellate bodies under the Income-tax Act

like the Appellate Assistant Commissioner or the Tribunal and that the external

source cannot be of the nature of the scrutiny note by the Revenue Audit or a letter

of the Inspecting Assistant Commissioner. We have to examine the correctness of

this view.

( 8 ) THERE appears to be no decision directly on this point and, there- fore, this

question is in the nature of res-integra. But in deciding this question, we have

naturally to seek guidance from the decisions of the Supreme Court and the various

High Courts, which have a bearing on this point. The Supreme Court has not in any

manner qualified the words "external source" in A. Roman and Co. /s case. It has

not held that the external source must either be a judgment of a Court or the

judgment of an appellate authority under the Income-tax Act. Although in the case

of Nawab Sir Mir Osman Ali Khan Bahadur the external source which was held to be

information was the opinion expressed by the Central Board of Revenue in an aopeal

under the Estate Duty Act. the Supreme Court has not held that the view expressed

by the Central Board of Revenue was information only because the view

was expressed in an appeal under the Estate Duty Act. The opinion of the Central

Board of Revenue was held to be information from an external source because the

Income-tax Officer had not acted on his own initiative or on a change of his own

opinion but because the correct position was brought to his notice by the decision of

the Central Board of Revenue. In R. B. Bansilal Abir- chand Firm v. Commissioner of

Income-tax, (1968) 70. T. R. 74 the Supreme Court has held that the income-tax

Officer had not acted on his own initiative or on the change of his own opinion when

he took proceedings under section 34 (l) (b) of the Old Act and that the correct

position had been brought to his notice by the decision of the Tribunal and the High

Court and that must be held to be information as a consequence of which he came

to believe that the provisions of section 34 (l) (b) of the Old Act were attracted. In

our view, the emphasis laid by the Supreme Court in these two cases does not

appear to be on the character of the external source as a court or a tribunal. but the

emphasis appears to be on the fact tliat the Income-tax Officer bad not acted on his

own initiative or on the change of his own opinion but acted on the basis of the

correct position brought to his notice by some other authority. The correct

significance of the words "external source" has been explained by the Bombay High

Court in Rarnkrishna Ramnath v. Income-tax officer, (1970) 77. T. R. 995, in the

following words :-"the information which is relied upon by the Income-tax Officer for

issuing the notice under section 148 must be information which he has obtained

aliunde and not merely by looking at his own order made in the proceeding for a

subsequent year. "it is no doubt true that no case has come to our notice in which

proceedings under section 147 (b) of the New Act were initiated on the basis of the

information or finding of a body or authority other than the Supreme Court, the High

Courts, the Tribunal or the appellate authorities under the Income-tax Act. But, at

the same time. none of these decisions has in so many words restricted. the scope

of "external source" to courts or the tribunals under the Act. The Tribunal has

referred to the decision of the Allahabad High Court in Jawahur Lal Mani Ram v.

Commissioner of Income-tax (1963) 48. T. R. 837 in support of its view that only

judicial decisions of the Appellate Assistant Commissioner or the Income-tax

Appellate Tribunal are information within the meaning of expression "external

source" used in section 34 (l) (b) of the Old Act. We have carefully read the report

of the judgment of the Allahabad High Court, but we find that while the High Court

has held that decisions of A. A. C. or the Tribunal constituted information within the

meaning of section 34 (1) (b) of the Old Act, it has no where held that only such

decisions constituted such information. Therefore, in our view, the expression

"external source" used by the Supreme Court in A. Raman and Co; s case cannot be

restricted to opinions expressed or findings given by Courts of law or the Tribunal or

other authorities under the Income-tax Act.

( 9 ) IT is not necessary for us for the purpose of this case to define the exact scope

of the words "external source". We arc concerned in this case only with the question

whether the scrutiny note of the Revenue Audit and the letter of the Inspecting

Assistant Commissioner would come within the scope of "external source" The

Comptroller and Auditor General of India has the statutory right to scrutinise the

proceedings of all departments of the Government including the Income-tax

Department and to point out any defects or mistakes in such proceedings which

adversely affect the revenues of the State- It is in the exercise of this statutory

power that the Comptroller and Auditor General of India, acting through his

Revenue Audit staff, pointed Out what he considered to be- the errors committed by

the Income-tax Officer in the original assessments. On the basis of this scrutiny note

by the Revenue Audit, the Inspecting Assistant Commissioner, who had the

authority under the Income-tax Act, to supervise the work of the Income-tax Officer,

including the assessments made by them, brought these errors pointed out by the

Revenue Staff to the notice of the Income-tax Officer. It was only on the basis of

the scrutiny note and the letter of the Inspecting Assistant Commissioner that the

Income-tax Officer came to the conclusion that the interest income had been

wrongly treated as earned income and that the full claim of the assessee regarding

the salary paid to her daughter- in-law had been wrongly allowed. Although this

might amount to a change of opinion by the Income-tax Officer, it was not a change

of opinion on his own initiative and on his own re-consideration of the available

material; but it was a change of opinion brought about as a result of information

from an "external source" which came into his possession subsequent to the original

assessments. This information, in our view, satisfies the tests laid down by the

Supreme Court in A Roman and Co. s case as well as the case of Nawab Sir Mir

Osman Ali Khan.

( 10 ) BEFORE concluding, we may refer to another finding of the Tribunal which

has apparently weighed with the Tribunal in rejecting the Departments appeals. The

Tribunal has held that the change of opinion was indirectly forced upon the. T. O. by

the. A. C. and that the. T. O. was asked to do within a period of four years what the

Commissioner of Income-tax could do under section 263 (b) of the New Act within

the time-limit of only two years. These, in our view, are not relevant considerations.

Whether the re-assessment proceedings under setion 147 (b) of the New Act were

initiated voluntarily by the Income-tax Officer or whether the Income-tax Officer was

persuaded by his superior officers to do so, will have no bearing upon the question.

Again, the fact that the error committed by the Income- tax Officer in the original

assessments could have been corrected by the Commissioner of Income-tax under

section 263 (b) of the New Act but the Commissioner had failed to do so, is also not

relevant. In Maharaj Kumar Kamal Singhs case, the Supreme Court has observed as

follows:-"it is then contended that sections 33b and 35 confer ample powers on the

specified authorities to revise the Income-tax Officers orders and to rectify mistakes

respectively and so it would be legitimate to construe the word information in

section 34 (1) (b) strictly and to confine it to information in regard to facts or

particulars. This argument also is not valid. If the word information in its plain

grammatical meaning includes information as to facts as well as information as to

the state of the law, it would be unreasonable to limit it to information as to the

facts on the extraneous consideration that some cases of assessment which need to

be revised or rectified on the ground of mistake of law may conceivably be covered

by sections 33b and 35. Besides, the application of these two sections is subject to

the limitations prescribed by them; and so the fact that the said sections confer

powers for revision or rectification would not be relevant and material in construing

section 34 (1) (b ). "

( 11 ) AS a result of our discussion, we answer the question referred to us in the

negative,. e. , for the Revenue and against the assessee. The Tribunal will now have

to decide the departmental appeals on merits. The Revenue will also get the costs of

this reference. Pleaders fee is fixed Rs. 250. 00.