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Ambalal Jivabhai Patel v. Income-Tax Officer, Ahmedabad.
Factual and Procedural Background
The petitioner is an assessee who owned an immovable property in Nawrangpura, Ahmedabad. For the assessment year 1958-59 (previous year calendar year 1957) the petitioner returned a total income of Rs. 78,542, which included Rs. 3,553 as "Income from property" based on the rateable value fixed by the Municipal Corporation under the Bombay Provincial Municipal Corporations Act, 1949. The Income-tax Officer (ITO) accepted that figure and, by an assessment order dated 31 July 1959, assessed the petitioner's total income at Rs. 79,612 with income from property at Rs. 3,553. Subsequent year-to-year assessments up to 1962-63 continued to record and accept the same annual property income figure.
On 27 March 1963 the ITO issued a notice under section 148 of the Income-tax Act, 1961, stating he had reason to believe income chargeable to tax for 1958-59 had escaped assessment within the meaning of section 147 and requiring the petitioner to file a return. The notice did not specify what income had escaped or state the grounds for the ITO's belief. The petitioner protested by letter dated 26 April 1963, contending the notice was illegal and void for want of materials supporting any reason to believe escapement had occurred. The ITO replied (27 April 1963) asserting he was not obliged to disclose reasons for reopening and that he had sufficient materials. The petitioner filed the present petition challenging the validity of the notice. The ITO filed an affidavit in opposition, in which he disclosed that his reason for reopening arose from information received from the Assessor and Collector of Municipal Taxes, Ahmedabad Municipal Corporation, that rateable values for owner-occupied properties had been fixed on a concessional basis (not strictly on hypothetical rent), and that there was no fixed ratio of concession; on this basis he believed the earlier annual value accepted by the previous ITO was understated.
Legal Issues Presented
- Whether the intimation received by the Income-tax Officer from the Assessor and Collector of Municipal Taxes (Ahmedabad Municipal Corporation) constituted "information" within the meaning of section 147(b) of the Income-tax Act, 1961, such that the ITO could act to initiate reassessment proceedings.
- Whether the Income-tax Officer was under an obligation to inform the assessee, either before or at the time of issuing a notice under section 148, of (a) what part of the assessee's income was alleged to have escaped assessment and (b) the grounds or materials on which the ITO said he had reason to believe escapement had taken place, and if failure to disclose would invalidate the notice.
Arguments of the Parties
Petitioner's Arguments
- The ITO had no information in his possession in consequence of which he could reasonably believe that any income of the petitioner had escaped assessment; therefore the conditions of section 147(b) were not satisfied.
- The notice under section 148 was defective and void because the ITO did not specify what income had escaped assessment and did not disclose the grounds or materials on which he relied either before or at the time the notice was issued; if such particulars were not furnished the notice should be invalidated.
Income-tax Officer's Arguments
- The ITO contended he was not obliged by sections 147 or 148 to disclose the particulars of what income was alleged to have escaped or the grounds for his belief at the time of issuing the notice; the statutory requirement is only that he have reason to believe in consequence of information in his possession.
- In his affidavit the ITO disclosed that he had received information from the Assessor and Collector of Municipal Taxes that the Municipal Corporation had fixed rateable values for owner-occupied properties on a concessional basis rather than strictly on hypothetical rent (as contemplated by Rule 7 and the municipal definition of rateable value); on that basis he had reason to believe the earlier annual value accepted in assessment was incorrect and that income had escaped assessment, thus justifying the issue of the section 148 notice.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 I.T.R. 191 | Asserted that conditions specified in the provision corresponding to section 147(b) are conditions precedent to the exercise of jurisdiction. | The court noted the decision shows the conditions in section 147(b) are conditions precedent, but held that the Calcutta Discount case did not affect the question whether failure to disclose particulars in the notice invalidated the notice; the case did not persuade the court that the notice in the present matter was invalid for non-disclosure at the time of issuance. |
Court's Reasoning and Analysis
The court divided the issues into two strands and analyzed them in sequence:
- Disclosure obligation: The court examined whether sections 147 or 148 require the Income-tax Officer to furnish, before or at the time of issuing a section 148 notice, particulars of what income allegedly escaped assessment or the grounds for the ITO's belief. The court found no statutory requirement in either section obliging such disclosure. Section 148 directs what the notice should contain (it may include requirements like those in a notice under section 139(2)), but it does not mandate disclosure of the ITO's information or the grounds for his "reason to believe" at the pre-notice or notice stage. The court observed that although it is ordinarily desirable practice for the department to inform the assessee of the information on which the ITO relies, absence of such disclosure does not invalidate the notice. The court further noted that the ITO had in fact supplied the relevant information in his affidavit in reply. The court concluded that even if there were an enforceable obligation to disclose particulars, failure to disclose would be a matter the assessee could seek to remedy, but such failure would not nullify the validity of the initiating notice.
- Whether the municipal intimation amounted to "information" under section 147(b): The court identified the two statutory prerequisites under section 147(b): (i) the ITO must receive information after the original assessment; and (ii) in consequence of that information the ITO must reasonably believe that income chargeable to tax has escaped assessment. The court articulated the practical test distinguishing "information" from a mere change of opinion on the same facts: Was there new information received by the ITO, or was the action prompted only by a mere change of opinion on the material already before a prior assessing officer? Applying the test to the facts, the court concluded that the intimation from the Assessor and Collector of Municipal Taxes was new information. The court reviewed the municipal statutory framework: under section 2(54) of the Bombay Provincial Municipal Corporations Act, 1949, "rateable value" is defined as the value fixed under the Act and Rules for property tax assessment. Rule 7 provided that rateable value is derived from the annual rent which the building might reasonably be expected to fetch, less a 10% deduction (in lieu of allowances). That municipal rule aligns with the Income-tax Act's test for annual value of property (based on hypothetical rent). However, the ITO learned that in practice the Municipal Corporation had not adhered to that rent-based approach for owner-occupied properties and had given concessional assessments, without any fixed ratio relative to fair rent. That information, the court held, showed that the municipal rateable value previously accepted by the earlier ITO was not fixed on the hypothesised-rent basis and therefore understated the true annual value. Since this was new factual information (not merely a different view on the original material), the ITO had in consequence of that information a reason to believe income chargeable to tax had escaped assessment. Thus the first condition of section 147(b) (information after original assessment) was satisfied and the notice issued under section 148 was valid.
Holding and Implications
Core Ruling: The petition is dismissed. The court held that the notice under section 148 was valid because the intimation from the Assessor and Collector of Municipal Taxes constituted "information" within the meaning of section 147(b), and in consequence of that information the Income-tax Officer reasonably believed that income chargeable to tax had escaped assessment.
Direct consequences:
- The petition challenging the validity of the notice fails; the notice stands and reassessment proceedings may validly be pursued by the department.
- The court rejected the argument that failure to disclose particulars of the alleged escaped income or the grounds for the ITO's belief at the time of issuing the notice invalidated the notice; there is no statutory obligation in sections 147 or 148 requiring such pre- or contemporaneous disclosure.
Broader implications: The decision clarifies that an inter-departmental intimation revealing a new factual basis (here, that municipal rateable values for owner-occupied properties were concessional and not derived from hypothetical rent) can qualify as "information" for the purposes of section 147(b). The opinion does not state that a new precedent beyond the application to these facts was established; the court applied established tests distinguishing new information from a mere change of opinion, and dismissed the petition with costs.
P.N Bhagwati, J.:— A short question arises on this petition, namely, whether a certain intimation received by the Income-tax Officer from the Assessor and Collector of Municipal Taxes, Municipal Corporation of Ahmedabad, could be said to constitute “information” on which the Income-tax Officer could act for the purpose of initiating proceedings for reassessment against the petitioner under section 147(b) of the Income-tax Act, 1961. The petitioner is an assessee owning an immovable property situate at Nawrangpura, Ahmedabad. In his assessment for the assessment year 1958-59 for which the corresponding previous year was the calendar year 1957, the petitioner returned a total income of Rs. 78,542 which included Rs. 3,553 under the head “Income from property”. The amount of Rs. 3,553 was shown in the return as income from property on the basis of the rateable value fixed by the Municipal Corporation under the provisions of the Bombay Provincial Municipal Corporations Act, 1949. The Income-tax Officer accepted the amount of Rs. 3,553 as representing the annual value of the said immovable property and by an order of assessment dated 31st July, 1959, assessed the total income of the petitioner at Rs. 79,612 on the basis of income under the head “Income from property” being Rs. 3,553. The petitioner was thereafter assessed from year to year up to the assessment year 1962-63 and throughout these assessments the income from property was shown by the petitioner at Rs. 3,553 and was accepted as such by the Income-tax Officer. On 27th March, 1963, however, the Income-tax Officer issued a notice to the petitioner under section 148 of the Act stating that whereas he had reason to believe that the income of the petitioner chargeable to tax for the assessment year 1958-59 had escaped assessment within the meaning of section 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 the receipt of the notice. Since it was not stated in the notice as to what income was alleged by the Income-tax Officer to have escaped assessment and what were the grounds on which the Income-tax Officer had reason to believe that such escapement had taken place nor was the notice preceded by any inquiry or correspondence affording indication to the petitioner as to what were the grounds on which the Income-tax Officer alleged that the income of the petitioner had escaped assessment, the petitioner addressed a letter dated 26th April, 1963, to the Income-tax Officer pointing out the aforesaid facts and contending that inasmuch as the Income-tax Officer had no materials on the basis of which he could have reason to believe that any income of the petitioner had escaped assessment the notice was illegal and void. The Income-tax Officer replied to the petitioner by his letter dated 27th April, 1963, in which he took up the stand that it was not obligatory on him to disclose the reasons for reopening the assessment and that he was entitled to issue the notice since he had sufficient materials and reasons to reopen the assessment in the interest of proper assessment of correct income according to law. The petitioner thereupon filed the present petition challenging the validity of the notice issued by the Income-tax Officer.
2. The Income-tax Officer against; whom the petition was directed filed an affidavit in opposition to the petition and in the affidavit he reiterated his stand that he was not bound to intimate to the petitioner as to what part of the income of the petitioner had escaped assessment and what were the grounds which led him to believe that such income had escaped assessment. He, however, proceeded to state the information in consequence of which, according to him, he has reason to believe that the income of the petitioner had escaped assessment. He pointed out that the annual value of the said immovable property was returned by the petitioner on the basis of the rateable value fixed by the Municipal Corporation and the previous Income-tax Officer accepted the same believing that it represented the correct annual value of the said immovable property. In or about 1962, however, on making detailed inquiries, he came to know from the Assessor and Collector of Municipal Taxes, Ahmedabad Municipal Corporation, that though according to the principles of rating, assessment of a property should be made by the Municipal Corporation on the basis of rent that a hypothetical tenant would pay if the property is let out from year to year, the Municipal Corporation did not strictly adhere to that principle in practice and in respect of properties occupied by owners, the Municipal Corporation had made concessional assessment as compared to rented properties. He also learnt from the Assessor and Collector of Municipal Taxes that in fixing the rateable value of properties occupied by owners, the Municipal Corporation did not observe any fixed ratio of concession in reference to the fair rental value. He pointed out that in consequence of this information which came into his possession from the Assessor and Collector of Municipal Taxes, he had reason to believe that the income of the petitioner from the said immovable property chargeable to tax had escaped assessment for the assessment year 1958-59 and he, consequently, issued the impugned notice. He contended that the conditions precedent to his jurisdiction to issue the impugned notice under section 147(b) were, therefore, fulfilled and the impugned notice was a valid notice.
3. Though the main question canvassed before us was that there was no information in the possession of the Income-tax Officer in consequence of which he could be said to have reason to believe that income of the petitioner had escaped assessment, a subsidiary question was also raised before us by Mr. Kaji, learned advocate appearing on behalf of the petitioners, and we will examine that question first. The contention of Mr. Kaji in regard to that question was that the Income-tax Officer had not given intimation to the petitioner as to what part of the income of the petitioner had escaped assessment and what were the materials on the basis of which he had reason to believe that such escapement had taken place, and that the notice issued by the Income-tax Officer was, therefore, illegal and void. The argument was that the Income-tax Officer was under an obligation to furnish the aforesaid information to the petitioner either before the issue of the notice or at the latest at the time of the issue of the notice and if such information was not furnished it had the effect of invalidating the notice. Now it is true that in the present case the Income-tax Officer did not give any information to the petitioner as to what was the income which according to him had escaped assessment and what were the grounds on which he had reason to believe that such escapement had taken place but we do not see how that can have the effect of invalidating the notice. There is nothing in section 147 or section 148 which requires that before a notice is issued under section 148 or at the time when such notice is issued, the Income-tax Officer must furnish to the assessee information as to what part of the income of the assessee has escaped assessment or as to what are the grounds on the basis of which he has reason to believe that such income has escaped assessment. The first step which the Income-tax Officer is required to take under the sections is to issue a notice under section 148 when he has in consequence of information in his possession reason to believe that income of the assessee chargeable to tax has escaped assessment. What the contents of the notice should be, is set out in section 148. That section says that the notice shall contain all or any of the requirements which may be included in a notice under section 139(2). There is, therefore, no statutory obligation on the Income-tax Officer to give any intimation to the assessee either before issuing the notice or at the time of issuing notice as to what part of the income of the assessee has escaped assessment or what is the information in his possession in consequence of which he has reason to believe that such escapement has taken place. Of course ordinarily the Income-tax Officer does intimate to the assessee, and we think it a desirable practice which should in the absence of any special circumstances be followed by the department, what is the information in his possession in consequence of which he has reason to believe that a particular part of the income of the assessee has escaped assessment but there is no legal obligation on him to do so. Mr. Kaji then contended that in any event the Income-tax Officer was under an obligation to supply the aforesaid information to the petitioner after the issue of the notice and since he declined to do so, the notice was invalidated. It is not necessary for us to decide in this petition whether there was any obligation on the Income-tax Officer to supply the aforesaid information to the petitioner after the issue of the notice because in fact we find that in the affidavit in reply such information has been supplied to the petitioner. Moreover, the only challenge preferred in the petition is against the validity of the notice and we do not see how any failure on the part of the Income-tax Officer to fulfil his obligation, if any, to supply information to the petitioner in regard to the aforesaid matters can have the effect of invalidating the notice. If there is an obligation on the Income-tax Officer to supply such information to the assessee and such obligation is not carried out by the Income-tax Officer, the assessee may seek to enforce such obligation but the validity of the notice would not be affected. Mr. Kaji cited before us a decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 I.T.R 191, to show that the conditions specified in section 147(b) are conditions precedent to the exercise of jurisdiction under that sub-section but we do not see how that proposition has any bearing on the question before us. It may be that if those conditions are conditions precedent, the fulfilment of which can be tested in a court of law, the Income-tax Officer may be under an obligation to furnish information to the petitioner showing the fulfilment of those conditions before he reassesses the income of the assessee, but that cannot have any bearing on the question of the validity of the notice by which the proceedings are initiated. This contention of Mr. Kaji must, therefore, be rejected.
4. Turning to the second question raised before us it was common ground between the parties that in issuing the impugned notice, the Income-tax Officer was proceeding to act under section 147(b). Now it is clear from the language of section 147(b) that assessment or reassessment of the escaped income of an assessee under that sub-section can be made by the Income-tax Officer only if the Income-tax Officer has in consequence of information in his possession reason to believe that such income has escaped assessment. Two conditions must be satisfied before the Income-tax Officer can take action under section 147(b): (i) the Income-tax Officer should receive information after the original assessment; and (ii) in consequence of such information he should reasonably believe that income chargeable to tax has escaped assessment. Both these conditions were disputed by the petitioner but the question that arises in this petition is in regard to the first condition. The contention of Mr. Kaji on behalf of the petitioner was that the first condition was not fulfilled in the present case since there was no information; received by the Income-tax Officer in consequence of which he could be said to have reason to believe that any income of the petitioner chargeable to tax had escaped assessment. The information relied on by the Income-tax Officer was the intimation received by him from the Assessor and Collector of Municipal Taxes which we have already set out above. The question which, therefore, arises for determination is whether this intimation could be said to be information within the meaning of section 147(b).
5. Mr. Kaji referred us to several decisions of various High Courts in connection with this question but it is not necessary to refer to them in detail since all of them lay down the same principle, namely, that before an Income-tax Officer could act under section 34(1)(b) which was the section in the Indian Income-tax Act, 1922, corresponding to the present section 147(b), he must receive information after the original assessment and in consequence of such information he must have reason to believe that income has escaped assessment. Such information may be information as to a fact or it may even include information as to the state of the law. But a mere change of opinion on the same facts or law cannot be said to amount to such information. Most of the cases cited before us were cases where the question was debated whether what was relied upon as information by the Income-tax Officer seeking to reopen the assessment proceedings was information within the meaning of the section or was a mere change of opinion and, having regard to the facts of each particular case, the High Courts decided the matter one way or the other. These decisions cannot help us in determining whether the intimation received by the Income-tax Officer in the present case could be said to be information within the meaning of the section, since each case must turn on its own facts. The test which has to be applied is a simple test, namely, whether any information was received by the Income-tax Officer or whether what prompted the Income-tax Officer to initiate the proceedings for reassessment was a mere change of opinion.
6. Applying this test it is clear that the intimation received by the Income-tax Officer in the present case from the Assessor and Collector of Municipal Taxes was information within the meaning of section 147(b). The annual value of the immovable property belonging to the petitioner was accepted by the previous Income-tax Officer at the figure returned by the petitioner on the basis of the rateable value fixed by the Municipal Corporation. Now rateable value is defined by section 2(54) of the Bombay Provincial Municipal Corporations Act, 1949, to mean the value of any building or land fixed in accordance with the provisions of the Act and the Rules for the purpose of assessment to property tax. Rule 7 of the Rules in Chapter VII of the Schedule to the said Act provides that in order to fix the rateable value of any building or land assessable to property tax, there shall be deducted from the amount of the annual rent for which such building or land might reasonably be expected to be let from year to year a sum equal to ten per cent, of the said annual rent, and the said deduction shall be in lieu of all allowance for repairs or on any other account whatever. It is clear from this rule that the annual value of a building for the purposes of the said Act is based on the amount of the annual rent for which the building might reasonably be expected to be let from year to year and that is the same test which has been laid down in the Income-tax Act for determining the annual value of the property under the head “Income from property”. The Income-tax Officer, therefore, relied on the rateable value of the said immovable property fixed by the Municipal Corporation and accepted the same as correctly representing the annual value of the said immovable property for the purpose of assessment. In 1962, however, the Income-tax Officer came to learn that the rateable value of properties occupied by owners was not fixed by the Municipal Corporation on the basis set out in rule 7 but concessional assessment was made in respect of such properties. This information received by the Income-tax Officer clearly showed that the annual value of the said immovable property taken by the Income-tax Officer at the time of making the original assessment was not a correct annual value and that the correct annual value was higher than the figure adopted by him. In consequence of this information received by him the Income-tax Officer had, therefore, reason to believe that the income of the petitioner from the said immovable property had escaped assessment. Here there was no question of any change of opinion on the same facts or law. It is not as if on the same material which was there before the previous Income-tax Officer, the present Income-tax Officer arrived at a different opinion and, therefore, wanted to reassess the income of the petitioner. The present Income-tax Officer found as a result of the information received by him that the entire basis on which the annual value of the said immovable property was arrived at by the previous Income-tax Officer was wrong inasmuch as the rateable value fixed by the Municipal Corporation was not on the basis of the hypothetical rent which the said immovable property would fetch from year to year but was on a concessional basis. We are, therefore, of the view that the intimation received by the Income-tax Officer from the Assessor and Collector of Municipal Taxes was information within the meaning of section 147(b) on the basis of which the Income-tax Officer had reason to believe that the income of the petitioner from the said immovable property had escaped assessment and the first condition of section 147(b) was satisfied. The notice impugned in the present petition was accordingly a valid notice.
7. In the result the petition fails and will be dismissed with costs.
8. Petition dismissed.
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