TaxTMI 
TaxTMI 
1979 (8) TMI 1
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....h a conference hall and rooms are let out on rent to its members as well as to outsiders. Certain other services are also provided to the members. The income from that source was assessed to tax all along as income from business. It was so assessed for the years 1960-61, 1961-62, 1962-63 and 1963-64 also. 3. The Income Tax Department includes an internal audit organisation whose function it is to examine income-tax records and check mistakes made therein with a view ultimately to improve the quality of assessments. In the course of auditing the income-tax records pertaining to the assessee for the assessment years 1960-61 to 1963-64, the internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should not have been assessed as income from business. It said that an assessment should have been made under the head "Income from property". The Income Tax Officer treated the contents of the report as "information" in his possession for the purpose of Section 147(b) of the Income Tax Act. 1961, and reassessed the income on that basis. The Appellate Assistant Commissioner allowed the appeals filed by the a....
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.... has "escaped assessment". Section 147 reads:- 147. If- (a) the Income Tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income Tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned. 6. In cases falling under Section 147(b), the expression "information" prescribes one of the conditions upon which a concluded assessment may be reopened under that provision. It is an indispensable ingredient which must exist before the section can be availed of. What does "informat....
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....bears the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status. Perhaps the only exception is provided by the writings of publicists in, international law, for in the law of nations the distinction between formal and material sources is difficult to maintain. 9. In that view, therefore, when Section 147(b) of the Income Tax Act is read as referring to "information" as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which because it issues from a competent legislature or a competent judicial or quasi-judicial authority, influences the cou....
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....he Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971. And paragraph 3 warns that "the Audit Department should not in any way substitute itself for the revenue authorities in the performance of their statutory duties." Paragraph 4 declares : 4. Audit does not consider it any part of its duty to pass in review the judgment exercised or the decision taken in individual cases by officers entrusted with those duties, but it must be recognised that an examination of such cases may be an important factor in judging the effectiveness of assessment procedure .... It is however, to forming a general judgment rather than to the detection of individual errors of assessment, etc. that the audit enquiries should be directed. The detection of individual errors is an incident rather than the object of audit. Other provisions stress that the primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient. It is not intended that the purpose of audit should go any further. Our attention has been invited to certain provisions of the Internal Audit Manual more specifically defi....
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....laration by a body authorised to declare the law. That part alone of the note of an audit party which mentions the law which escaped the notice of the Income Tax Officer constitutes "information" within the meaning of Section 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income Tax Officer. In every case, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. 14. Now, in the case before us, the Income Tax Officer had, when he made the original assessment, considered the provisions of Sections 9 and 10. Any different view take....
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.... to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words "reason to believe", and it follows from the "information" received by the Income Tax Officer. The information is not the realisation, the information gives birth to the realisation. . 16. The recent decision of this Court in R. K. Malhotra v. Kasturbhai Lalbhai (supra) may be examined now While making an assessment on a Hindu undivided family, the Income Tax. Officer allowed a deduction of municipal taxes in determining the annual value of two house properties occupied by the assessee. Subsequently, the Income Tax Officer re-opened the assessment on receipt of a report from the office of the Comptroller and Auditor-General of India that on a true interpretation of Section 23(2) of the Income Tax Act, 1961, the deduction of municipal taxes was not admissible in the computation of the annual value of self-occupied house properties. The assessee contended that the report did not constitute "information" within the meaning of Section 147(b) of the Act, and the Gujarat High Court accepted the plea in the view that information as to law would consist of a statement....
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....f the Income Tax Act because the Comptroller and Auditor-General of India was empowered by statute to scrutinise the proceedings of the Income Tax Department and to point out defects and mistakes which adversely affected the Revenue. The High Court considered that the view that information as to law could be gathered only from the decisions of judicial or quasi-judicial authorities was unduly restrictive. In Commissioner of Income-tax v. Kalukutty (supra), the Kerala High Court also regarded the note put up by Audit as "information" within the meaning of Section 147(b) of the Act, but it appears to have Assumed, without anything more, that an audit note would fall within that expression. As regards Vashist Bhargava v. Income Tax Officer (supra), the "information" consisted in a note of the Revenue Audit and the Ministry of Law that the payment of interest by the assesses was in fact made to his own account in the Provident Fund and, therefore, in law the money paid did not vest in the Government and, consequently, the original assessment was erroneous in so far as it allowed the deduction of the interest as expenditure made by the assessee. The Delhi High Court upheld the reassessm....