1972 (7) TMI 12 - HC - Income Tax

Validity of proceedings under section 147(b) of the Income-tax Act tested against external information revealing mistakes apparent on record, upholding reassessment where such information exists.

Proceedings under section 147(b) were analysed with primary focus on whether information triggering reassessment existed. The text treats information as ... Validity of proceedings initiated u/s 147(b) - capital gains arising to the assessee on account of the transfer of a property - 'information' within the meaning of section 147(b) (34(1)(b) of the old Act) - Whether, the proceedings initiated u/s 147(b) of the Income-tax Act, 1961, are legal and valid? - HELD THAT:- Information, in the present case, is a communication from the audit party pointing out under the relevant provisions of the Act that it was wrong to have allowed the market value of the property, namely, to be substituted for the consideration paid and that the application of section 52(2) was not justified as the assessee neither possessed the property before January 1, 1954, nor received it as a gift from one who possessed it before January 1, 1954. It was also pointed out that the property having been purchased by the assessee in 1958, cost of improvements, if any, effected thereafter, alone could be deducted and the alleged improvements had been effected in 1957, when the assessee had no rights over the property. It was on this information, according to the revenue, that the Income-tax Officer entertained the plea that the income had escaped assessment. No decision was brought to our notice which would in so many terms restrict the scope of 'external source' to judgments or orders of courts and Tribunals under the Act. On the other hand, the courts have gone even to the extent of holding that mistakes pointed out by a subordinate or superior officer or an assessee would constitute information disclosed to the Income-tax Officer. To sum up, the position thus is that 'information', whether factual or as regards the state of the law, should be extraneous, extraneous in the sense that it should suggest itself to the Income-tax Officer otherwise than by his own subsequent re-thinking. A change of opinion on his own reappraisal of the facts already before him cannot constitute 'information' for the purpose of the section. But a mistake apparent on the face of the order of assessment would constitute 'information' whether someone else supplied that information to the Income-tax Officer or whether he informed himself. An item of information available in the papers filed before the Income-tax Officer will become 'information ' only when its existence is realised and its implications are understood. Issues Involved:1. Legality and validity of proceedings initiated under section 147(b) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Legality and Validity of Proceedings under Section 147(b):The core question referred to the High Court was whether the proceedings initiated under section 147(b) of the Income-tax Act, 1961, were legal and valid. The assessment year in question was 1963-64, with the original assessment completed on March 16, 1964. The Income-tax Officer reopened the assessment under section 147(b) on the ground that capital gains from the transfer of a property had not been taxed.The property in question, Machungal Purayidom, originally belonged to the assessee's wife and was bequeathed to her four daughters. Two daughters sold their shares to the assessee, who then sold his interest to another daughter. The reassessment aimed to tax the capital gains of Rs. 30,000, the difference between the selling price and the purchase price.The Income-tax Officer initially accepted the assessee's contentions about the property's value and improvements, resulting in a lower tax amount. However, during reassessment, the Officer concluded that the income had escaped assessment, leading to the taxation of Rs. 30,000 as capital gains.Section 147(b) stipulates that the Income-tax Officer can reassess income if he has 'reason to believe' that income chargeable to tax has escaped assessment due to information received after the original assessment. The definition of 'information' was central to this case.The information in this case was a communication from the audit party, pointing out errors in the original assessment. The Supreme Court in Commissioner of Income-tax v. A. Raman & Co. clarified that 'information' must come from an external source and not be a mere change of opinion by the Income-tax Officer.The revenue argued that information could come from any external source, including the audit department, while the assessee contended that it must come from a judicial authority. The Gujarat High Court in Kasturbai Lalbai v. R. K. Malhotra supported the latter view, while the Delhi High Court in Commissioner of Income-tax v. H. H. Smt. Chand Kanwarji supported the former.The Kerala High Court favored the Delhi High Court's view, stating that the Supreme Court did not limit 'external source' to judicial authorities. The Court emphasized that the information must lead the Income-tax Officer to believe that income had escaped assessment, regardless of whether the information could have been obtained during the original assessment.The Court cited several cases supporting the broader interpretation of 'information,' including Salem Provident Fund Society Ltd. v. Commissioner of Income-tax and United Mercantile Co. Ltd. v. Commissioner of Income-tax. These cases established that information could come from any source, including audit notes, and still be valid under section 147(b).In conclusion, the Kerala High Court held that the proceedings initiated under section 147(b) based on the audit note were legal and valid, answering the question in the affirmative. A copy of the judgment was directed to be sent to the Income-tax Appellate Tribunal, Cochin Bench.