The Judgment of the Court was delivered by

Balakrishna Eradi, C.J:— The Kerala Agricultural Income-tax Tribunal (hereinafter called “the Tribunal”) has by these three connected references referred to this court under s. 60(1) of the Kerala Agricultural Income-tax Act, 1950—for short, “the Act”—the following two common questions of law as arising out of the order passed by the Tribunal in A.I.T.A Nos. 326 to 328 of 1975 dated November 30, 1976.

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the initiation of proceedings under section 35 of the Act by the successor officer when the lease arrangement was considered and accepted by the predecessor officer who made the original assessment for the year 1971-72?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the assessments of the applicant for income derived from the leasehold land, when there was already an assessment on one of the lessees for the year 1970-71, which was confirmed in appeal by the Tribunal?”

2. The assessee at whose instance these references have been made is a cardamom planter, who had owned 34 acres and 15-⅔ cents of cardamon plantation in Udumbumcholla Taluq. The relevant assessment years with which we are concerned in these cases are 1970-71, 1971-72 and 1972-73. The assessee's accounting period was the period of 12 months ending 30th of April of the previous year. By two registered documents unilaterally executed by the assessee on October 14, 1968, the assessee purported to lease out 17 acres 17 cents from out of the aforesaid cardamom estate in favour of one Palani Ammal and another extent of 16 acres 83-⅔ cents in favour of one Chinnasuruliandy Gounder.

3. For the assessment year 1970-71, the assessee filed a return before the Agrl. ITO, Devicolam, showing only the income derived by him from the cardamom lands till the dates of the aforesaid documents of lease and the proportionate rent derived in respect of the lands from the lessees for the remaining portion of the year. The Agrl. ITO finalised the assessee's assessment for that year as per his proceedings dated December 11, 1970. In that assessment order he stated as follows:

“Of the total extent of 34′ 15-⅔ acres,. 17′ 17 acres were leased out to Smt. Palani Ammal, W/o. Sivanarayana Samy Gounder, Rayappanpatty for a period of 7 years and 7 months from 18-9-68, as per deed No. 602/68/14-10-68, of Sub-Registry Office, Devicolam, and 16. 83-⅔ acres to Sri Chinnasuruliandi Gounder, S/o. Kattairays Gounder, Cardamom Planter, South Street, Rayappanpatty P.O, for a period of 7 years and 7 months from 18-9-68, as per deed No. 603/68/14-10-68 of S.R.O, Devicolam. The annual lease amount is Rs. 2, 500 each in both the cases. He has received an advance of Rs. 1, 450 each from both the parties towards the lease amount on 18-9-68. Thus, he was in possession of the properties only for a period of 6½ months from 18-4-68 to 18-9-68, during the accounting year. The originals of the lease deeds have been produced and it is accepted. Hence, half of the income during the year from the properties will be assessed at the hands of the assessee and the remaining half at the hands of the lessees.”

4. After entering the said finding he proceeded to assess the net income derived from the estate to the best of his judgment and completed the assessment. In the course of the assessment proceedings for the following year 1971-72, the then Agrl. ITO, who had succeeded the Agrl. ITO who had made the assessment for 1970-71, entertained a suspicion about the bona fides of the two transactions of lease and conducted detailed investigations into the matter. He came to the conclusion that the two lease deeds executed by the assessee on October 14, 1968, were mere sham documents and the assessee himself was in possession and cultivation of the entirety of the cardamom plantation in question. The assessment for the year 1971-72 was, accordingly, made on the said basis charging the assessee to tax in respect of the income derived from the entire extent of 34.15-⅔ acres of cardamom plantation. In the light of the finding reached by him regarding the fictitious nature of the transactions of lease, the officer issued a notice to the assessee under s. 35 of the Act proposing to reopen the assessment made for the year 1970-71, on the ground that the income obtained by the assessee in respect of the portion of the estate covered by the two transactions of lease had escaped assessments. The assessee put forward his objections to the proposal contending, inter alia, that there was no ground whatever warranting initiation of proceedings against him under s. 35 of the Act. Those objections were overruled by the ITO and an order of reassessment was passed by him in respect of 1970-71, by estimating to the best of his judgment the income derivable from the entirety of the estate comprised in 34. 15-⅔ acres of cardamom plantation and charging the same to tax. The assessee took up the matter in appeal before the AAC reiterating his contention regarding the alleged illegality of the action taken under s. 35 of the Act and urging also that in any event the estimate of the income made by the assessing authority was arbitrary and excessive. The AAC rejected the first contention and held that the ITO was justified in law in reopening the assessment under s. 35 of the Act. On the merits of the assessment, the AAC effected a slight modification in the assessee's favour in regard to the quantification of the income derivable from the cardamom estate. The assessee then approached the Tribunal by filing a second appeal reiterating the contentions urged by him before the first appellate authority. The Tribunal agreed with the AAC on the question as to the legality of the proceedings taken against the assessee under s. 35 of the Act. A further reduction was effected by the Tribunal in the estimate of the income derivable from the plantation as refixed by the appellate authority and, subject to the grant of the limited relief, the appeal filed by the assessee was dismissed in other respects.

5. We have already referred to the fact that for the year 1971-72, the ITO treated the assessee as having been in possession of the entirety of the extent of 34. 15-⅔ acres of cardamom plantation and completed the assessment on the said basis. Similarly, in respect of 1972-73 also, the assessing authority adopted the same basis that the assessee was in possession of the entire extent of 3415-⅔ acres. Both those assessments were made on the basis of best judgment estimate of the income derivable from the said extent of plantation. The assessee took up those orders of assessment before the AAC by filing appeals. These two appeals were disposed of by the AAC along with the appeal filed by the assessee against the reassessment order made in respect of 1970-71, but the taxable income fixed by the ITO was revised by the first appellate authority by allowing to the assessee a further deduction in respect of cultivation expenses than what had been originally allowed by the assessing authority. Against the orders so passed by the AAC in respect of those two years also, the assessee filed second appeals before the Tribunal. Those second appeals were disposed of by the Tribunal along with the second appeal arising out of the reassessment proceedings for the year 1970-71 by a common order. As already noticed, while dealing with the facts pertaining to the assessment made for 1970-71, the Tribunal made a further reduction in respect of the taxable income of the assessee by reducing the estimated income as originally fixed by the ITO and modified to some extent by the appellate authority.

6. Being dissatisfied with the relief, so granted by the Tribunal the assessee moved the Tribunal for making these references to this court and that is how these matters have now come before us.

7. The first question that arises for consideration is whether the initiation of proceedings against the assessee by the ITO under s. 35 of the Act was valid and justified in law. We have already extracted the relevant portion of the assessment order dated December 11, 1970, originally made in respect of the assessee for the year 1970-71. It is clear therefrom that all the facts pertaining to the two documents of lease were fully before the then ITO, and he had applied his mind to the question whether the assessee had ceased to be in possession of the respective portions of the land covered by the documents of lease with effect from the dates of those transactions and whether the lease could be accepted as genuine and true. After the consideration of the said matter, he had recorded a finding that the lands were in the possession of the assessee only till October 14, 1968, that the lease deeds were genuine and acceptable, that the assessee could be assessed in respect of those lands only for the period till October 14, 1968, and that for the rest of the accounting period the two leases were liable to be assessed for the income derived from the portions leased out to them. These findings might be right or might be wholly wrong, but they were findings arrived at by the Agrl. ITO on the basis of the opinion formed by him after a consideration of the relevant materials. What has transpired in this case is that his successor, while effecting the assessment for the year 1971-72, re-examined the said matter and came to a totally different conclusion, namely, that the lease deeds were sham documents and that the assessee himself had throughout continued in possession of the entirety of the cardamom plantation. This was a mere change of opinion on the part of the successor-officer in respect of a question, on which a finding had been entered by his predecessor on the same materials. It is now well established that such a mere change of opinion on the part of either the same officer or his successor in regard to any relevant matter concerning the tax liability of the assessee will not justify resort being taken to the power conferred by s. 35 of the Act. We find from the order of the Tribunal that one of the aspects relied on by it for sustaining the legality of the action taken by the assessing authority under s. 35 of the Act, is that the two transactions of lease had been entered into in violation of s. 74 of the Kerala Land Reforms Act, 1963 (Act 1 of 1964), and were, therefore, null and void in the eye of law. This information was not at all available before the ITO who initiated the proceedings under s. 35 of the Act and the only ground on which he had proceeded to reopen the assessment was that the lease deeds had been found by him to be sham and fraudulent transactions on an examination of the relevant materials. The legality of the action taken by the ITO has to be judged with reference to the grounds on which he proceeded to act under s. 35 and the Tribunal cannot add to those grounds by relying on some additional facts which might have constituted “information” in the hands of the ITO—we express no opinion at all on that aspect—had those matters come to his knowledge at the appropriate time and made the basis of initiation of proceedings for reopening the assessment under s. 35. On the facts and circumstances of the case set out above, we have no hesitation to uphold the contention put forward by the assessee that there were no valid grounds at all justifying the initiation of proceedings against the assessee for reopening the assessment for the year 1970-71 under s. 35 of the Act.

8. We find no merit at all in the contention, put forward by the assessee in relation to the assessments for the years 1971-72 and 1972-73 that the Tribunal was wrong in upholding the finding of the subordinate taxing authorities that the lease deeds in question were sham and nominal and the assessee himself continued to be in possession of the entire extent of the plantation subsequent to October 14, 1968. The question is purely one of fact and valid reasons have been stated by the Tribunal for upholding the conclusion concurrently arrived at by the assessing authority and the AAC that the lease deeds in question were absolutely sham and fraudulent documents and they were created only for the purpose of evading tax liability.

9. In the result, in the light of what we have said in relation to the validity of the reassessment proceedings taken for the year 1970-71, we answer question No. 1 in the negative, i.e, in favour of the assessee and against the department. We answer question No. 2 by holding that the Tribunal was right in upholding the assessments made against the assessee for the years 1971-72 and 1972-73. The parties will bear their respective costs.

10. A copy of this judgment, under the seal of this court and the signature of the Registrar, will be forwarded to the Tribunal as required by law.