Commissioner Of Wealth-Tax, Gujarat-Iii v. Smt. Arundhati Balkrishna Trust.

1. The question referred for the opinion of this court by the Income-tax Appellate Tribunal at the instance of the revenue under section 27(1) of the Wealth-tax Act, 1957, is as under :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in coming to a conclusion that in the instant case no new information had been found out which had not been obtained at the stage of original assessment and hence proceedings under section 17(1)(b) of the Wealth-tax Act were invalid in law ?"

2. For determination of the question referred to us, the following are the relevant facts. Smt. Arundhati Balakrishna Trust, Bombay, Shahibag, Ahmedabad, is the assessee. The year of assessment is 1960-61. The total net wealth was computed at Rs. 10,66,755 by the Wealth-tax Officer by his assessment order dated March 9, 1961, and it was directed that the whole of the net wealth as determined by him was to be assessed in the hands of the beneficiary, Smt. Arundhati Balkrishna. He directed issuance of demand notice accordingly. That led to the beneficiary, Smt. Arundhati Balkrishna, preferring an appeal before the assessing authority protesting against the assessment order. The successor Wealth-tax Officer felt that his predecessor had missed the point by treating the entire trust fund as belonging to Smt. Arundhati Balkrishna. He examined the trust deed and found that she had only a right over the corpus up to a maximum of 50 per cent. and that too after satisfying certain conditions as laid down in sub-clause (e) of clause 3 of the trust deed. He, therefore, revised the assessment made and issued notice under section 17(1)(b) of the Wealth-tax Act to the assessee. Thereafter, a fresh assessment order was passed by the Wealth-tax Officer by his order dated May 24, 1965. In this order the assessing authority held that :

"For the present no deduction in respect of life interest is allowed but the claim for deduction shall be considered when wealth-tax assessment of Smt. Arundhati Balkrishna for 1960-61 is finalised."

He computed the total wealth of the assessee at Rs. 10,66,755 as determined earlier by the order dated March 9, 1961, and ordered issue of demand notice and challan. That order of the Wealth-tax Officer was carried in appeal and the Appellate Assistant Commissioner allowed the appeal on the ground that the reopening of the assessment under section 17(1)(b) by the successor Wealth-tax Officer was bad. The revenue then unsuccessfully carried the matter in appeal before the Income-tax Appellate Tribunal and on the application made by the revenue under section 27(1), the question has been referred to us for our opinion.

3. Mr. G. N. Desai, learned counsel for the revenue, contended that the case squarely falls within the ambit of section 17(1)(b) inasmuch as there was "information" in the possession of the Wealth-tax Officer and that there has been escapement of assessment as a result of an error apparent on the face of the record which was not noticed by the Wealth-tax Officer who initially made the assessment directing issue of demand notice to Smt. Arundhati Balkrishna. section 17(1)(b) is in these terms :

"17. (1) If the Wealth-tax Officer - .......

(b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in clause (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under-assessment or assessment at too low a rate or otherwise;

he may, in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section."

4. The Appellate Assistant Commissioner and the Tribunal in holding that there was no escapement of assessment and the entire "information" was already in the possession of the Wealth-tax Officer, relied upon a decision of this court in Kasturbhai Lalbhai v. R. K. Malhotra, Income-tax Officer [1971] 80 ITR 188 (Guj). Mr. G. N. Desai, learned counsel for the revenue, contended that Kasturbhai Lalbhai case [1971] 80 ITR 188 (Guj) has been wrongly applied to the facts of the case and that what governs the facts of the case is the decision of the Supreme Court in Kalyanji Mavji & Co. v. Cit, West Bengal-Ii . [1976] 102 ITR 287 (SC).

5. The learned Advocate-General appearing for the respondent-assessee contended that the first assessment order made by the Wealth-tax Officer discloses that he had applied his mind to all the primary facts placed before him and also the relevant clauses of the trust deed and then held that the total net wealth should be assessed in the hands of the beneficiary, Smt. Arundhati Balkrishna and, therefore, on the same facts without any further "information" whatsoever, it is not open to the successor Wealth-tax Officer to revise the assessment on the ground that it is a case of escaped assessment.

6. We may, therefore, notice the relevant clauses (3)(b) and (3)(e), which read as under :

"(3) IT IS HEREBY AGREED AND DECLARED between the parties to these presents that the trustees shall stand and be possessed of the said shares described in the schedule hereunder written (and which shares and such stocks, funds, and securities which may under the trusts of these presents, be substituted or added in the execution of the said trusts, are herein designated as 'the said trust fund') upon trust to receive the annual and other income thereof and thereabout in the first place to reimburse themselves or pay and discharge all the costs and expenses incurred in or about the administration of the trusts of these presents and subject thereof : - ...

(b) From and after the 1st day of January, 1948, to pay the whole residue of such income of the trust fund to the said Arundhati, wife of Balkrishna Harivallabhdas, during her life at the end of every calendar year absolutely;........

(e) Notwithstanding anything contained to the contrary in these presents the trustees shall after the said Arundhati, wife of Balkrishna Harivallabhdas, shall attain her age of majority and after the birth of the first child of the said Arundhati, wife of Balkrishna Harivallabhdas, when and so often as may be required by the said Arundhati, wife of Balkrishna Harivallabhdas, pay not exceeding in the whole one-half thereof to the said Arundhati, wife of Balkrishna Harivallabhdas, absolutely freed and discharged from the trusts and provisions of these presents."

7. These clauses, according to the learned Advocate-General, were noticed by the assessing authority and it was only thereafter that he passed the original assessment order dated March 9, 1961. To substantiate his argument that the Wealth-tax Officer was fully aware of the rights of Smt. Arundhati Balkrishna and the extent of her share in the trust property, the learned Advocate-General relied upon paragraph 3 of the assessment order for assessment year 1957-58, dated September 27, 1958. This paragraph is in these terms :

"3. As per sub-clause (e) of clause (iii) of section 3 of the trust deed, the life-beneficiary, on her attaining majority, has a right in the corpus of the trust or trust funds. The conditions laid down therein are satisfactorily fulfilled. Sub-clause (b), in the same clause and section as above, has further clarified the same. As she has a right and interest in the trust funds or corpus, it is not necessary to ascertain the value of her life-interest in the trust. I hold that during her life-time, the entire value of the trust corpus should be assessed in her own (personal case) hands irrespective of the fact that any of her vested right is exercised by her or not."

This finding of the Wealth-tax Officer is strongly relied upon by the learned Advocate-General to contend that on a consideration of the relevant clauses the Wealth-tax Officer had made the order and such an order cannot be revised by taking recourse to section 17(1)(b) of the Act.

What constitutes "information" and "escaped assessment" has been the topic for discussion in several decisions of the High Courts and the Supreme Court. The meaning of the expression "information" was considered in Kasturbhai Lalbhai's case [1971] 80 ITR 188 (Guj). Bhagwati C.J., as he then was of this court, speaking for the court, was of the opinion that :

"'Information', in the context in which it occurs in section 147(b) of the Income-tax Act, 1961, 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 Income-tax Officer cannot constitute 'information' so as to entitle him to initiate proceedings under section 147(b)."

8. In that case the learned judges were of the view that two conditions must be satisfied before the Income-tax Officer can resort to section 147(b) - (i) that he 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. "Information" according to them must be instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment.

9. The Supreme Court, in Kalyanji Mavji & Co.'s case [1976] 102 ITR 287 (SC), though it does not refer to Kasturbhai Lalbhai's case [1971] 80 ITR 188 (Guj), is not of the view that the Income-tax Officer should receive "information" from an external source after the original assessment as held by Bhagwati C.J. In Kalyanji Mavji & Co.'s case [1976] 102 ITR 287, 297 (SC) the Supreme Court was considering the scope of section 34(1)(b) of the Indian Income-tax Act, 1922, which is almost identical to section 17(1)(b) of the Wealth-tax Act. According to the learned judges of the Supreme Court, the word "information" is of the widest amplitude and comprehends a variety of factors. The power is only limited or controlled by the words "reason to believe". According to the learned judges, "information" may come from external sources or even from the materials already on record or may be derived from the discovery of new and important matter or fresh facts. Two of the four categories referred to by them may be profitably relied upon :

(1) Where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer; and (2) Where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law.

10. Therefore, it is manifest from what the Supreme Court has ruled that it is not necessary, as has been laid down by this court in Kasturbhai Lalbhai's case [1971] 80 ITR 188 (Guj) that the Income-tax Officer should receive "information" from an external source. All that is required is, whether he had "information" relating to escaped assessment on the material already on record after the original assessment. That "information" may consist of oversight or inadvertent mistake committee by the Income-tax Officer or he may discover an error apparent on the face of the record from further enquiry or research into facts and law. The expression "information" is of wider amplitude than construed by this court in Kasturbhai Lalbhai's case [1971] 80 ITR 188 (Guj), the only limitation or restriction on the authority of the Income-tax Officer being that he must have reason to believe that it is a case of escaped assessment. It would then be open to the Wealth-tax Officer to proceed under section 17(1)(b).

11. What has to be considered in a case like this is, whether it is a case of mere change of opinion on the same set of facts or whether the first Wealth-tax Officer committed an error apparent on the face of the record justifying reopening of the assessment under section 17(1)(b). In commissioner of Income-tax v. Kelukutty [1972] 85 ITR 102 (Ker), the Kerala High Court held that the note put up by the audit to the effect that the assessment ought to have been made on the reconstituted firm for the entire income of the two periods and, therefore, the Income-tax Officer committed an error, was instruction or knowledge derived from an external source and so it would constitute "information" within the meaning of the term in section 147(b) and in that view held that the Income-tax Officer was perfectly competent to institute proceedings under section 147(b). A mistake apparent on the face of the record would itself constitute "information". The question whether the "information" came from an outside agency or the officer himself discovered the "information" from the material is not quite relevant. All that is required is that it must be an item of "information" in his possession.

12. The meaning to be given to the expression "information" occurring in section 11A of the C.P. and Berar Sales Tax Act, 1947, a similar provision to section 17(1)(b), was considered by Hegde J. in Anandji Haridas & Co v. S. P. Kushare [1968] 21 STC 326 (SC). An argument that the "information" contemplated by section 11A should be from outside source was repelled by the learned judges in that case. Relying upon an earlier decision of the court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax [1959] 35 ITR 1 (SC), they held that the word "information" in section 34(1)(b) would include information as to the true and correct state of the law and so would cover information as to the relevant judicial decisions. That information need not be about any fact; it may be even as to the legal position. In other words, the term "information" in section 34(1)(b) of the Indian Income-tax Act, 1922, really means knowledge. They also approved the ratio in Salem Provident Fund Society Ltd. v. Commissioner of Income-tax [1961] 42 ITR 547 (Mad), where the scope of the words "information which has come into his possession" were considered.

13. In S. Srinivasan v. Commissioner of Income-tax [1975] 101 ITR 94 (Mad), a similar argument as in this case that there was no fresh information and it was a case only of mere change of view was raised and it was repelled by the learned judges. The claim of the assessee was that as the assessment of the company had been completed long prior to the completion of the original assessment on the assessee by the same Income-tax Officer, the reassessment was not valid as there was no fresh information. The High Court negatived that contention holding that the Income-tax Officer had not considered the matter in the original assessment of the assessee and, therefore, it could not be said that there was change in the opinion of the Income-tax Officer.

14. The learned Advocate-General, however, invited our attention to the decision of the Bombay High Court in Commissioner of Income-tax v. Bai Savitagouri [1975] 100 ITR 680 (Bom). In that case there was a trust deed as in this case which was also before the Income-tax Officer. The discovery by the Income-tax Officer that the beneficiaries would get the rights only from a later date and assessment should have been made under section 3 at the rate applicable to the total income was held to be not "information" coming within the requirements of section 34(1)(b) of the Indian Income-tax Act, 1922. The learned judges were of the view that all the material for correct assessment was already on record even at the original assessment. Therefore, the reopening of the assessment by issuing a notice under section 34(1)(b) was not valid. That was a case where the officer was aware of the fact that there were two sons and that the younger son would attain 21 years of age only in 1964. The contention of the revenue that the Income-tax Officer received information that the younger son would complete 21 yeas only in 1961 was not accepted in view of the fact that the recitals in the trust deed specifically showed that the younger son would be 21 years of age only in 1964 and not before that. The apart, the learned judges have not referred to any decision of the Supreme Court or other courts as to the meaning of the expression "in consequence of any information in his possession". That was case decided on the peculiar facts of the case and, therefore, that case cannot afford any guidance is so far as the facts of the present case are concerned.

15. It is not necessary to multiply the decisions of the Supreme Court or other High Courts for the purpose of determining the question referred to us. The recitals in the trust deed to which we have made reference are clear and unambiguous that Smt. Arundhati Balkrishna is not entitled to the whole of the corpus and that the right does not exceed one-half of the corpus is manifest from clauses (3)(e). There is nothing in the order of the Wealth-tax Officer which we have quoted supra to show that he had applied his mind to the relevant clauses or that he was aware of the right of Smt. Arundhati Balkrishna only to the extent stated therein, that is, not exceeding in the whole one-half thereof in the corpus. Therefore, it is a clear case of error apparent on the face of the record which the Wealth-tax Officer has obviously missed at the time of the original assessment.

16. Chandrachud J. in Commissioner of Income-tax v. H. Holck Larsen [1972] 85 ITR 467, 479 (Bom), after a review of the authorities of this court and other High Courts, observed as follows :

"What is obligatory in order to apply section 34(1)(b) is that he must have 'information' in his possession in consequence of which he has reason to believe that the income his escaped assessment or is under-assessed, etc. The distinction really consists in a change of opinion unsupported by subsequent information on the one hand and a change of opinion based on information subsequently obtained, on the other. In the former class of cases, the assessment proceedings are attempted to be reopened without the discovery of an error and without receiving any information as to fact or law.... Such a reopening is based on a 'mere' change of opinion and is without jurisdiction...... In the latter class of cases, the reopening is based on information leading to the requisite belief and is, therefore, within the jurisdiction of the officer."

17. That distinction between a

"change of opinion unsupported by subsequent information and a change of opinion based on information subsequently obtained"

is manifest in this case. That apart, Smt. Arundhati Balkrishna had preferred an appeal against the original assessment order under which the entire wealth-tax assessed was to be collected from her. Therefore, it is not a case of reopening based on mere change of opinion. If it is a case of mere change of opinion on the same set of material or facts, the Wealth-tax Officer would have had no jurisdiction to act under section 17(1)(b) of the Act. Though the learned judges in Kalyanji Mavji; s case [1976] 102 ITR 287 (SC) had not expressed any final opinion on what was observed by Chandrachud J., referred to above, they were inclined to agree with the view expressed by him.

18. We, therefore, answer the question in the negative and in favour of the department with costs.