Sankar Prasad Mitra, C.J:— This is an application under article 226 of the Constitution of India. By a judgment delivered on the 24th May, 1974, Masud J. referred the matter to a larger Bench under Chapter V, rule 2 of the Original Side Rules. An appeal was preferred against this judgment. The appellate court on the 23rd September, 1974*, dismissed the appeal although it did not agree with the learned trial judge's reasonings for reference to a larger Bench. Thereafter, the present Bench was constituted.

2. We shall briefly set out the facts of this case. On March 30, 1962, Shri B.M Birla created the “Chandralekha Trust” (hereinafter called “the Trust”) for the benefit of his son, Sri G.P Birla, the wife and children of Shri G.P Birla and others. The petitioners, Smt. Nirmala Birla, Kalachand Chatterjee and Onkarmal Somani, are the trustees of the Trust. The relevant valuation date for the Trust's wealth-tax for the assessment year 1968–69 was the 31st March, 1968. The assets of the Trust consisted of shares in public limited companies, etc.

3. The Trust, on the 28th December, 1968, filed its return under the Wealth-tax Act, 1957, for the assessment year 1968-69. On the relevant valuation date, that is, the 31st March, 1968, the Trust held 10,000 shares of the Central India Industries Ltd. The value of these 10,000 shares was stated to be Rs. 1,30,000 at the rate of Rs. 13 per share. The Trust also filed a letter dated the 27th December, 1968, along with this return. In this letter, inter alia, it was stated: “The values of quoted shares have been taken as per quotations on the recognised Stock Exchanges in India. Fair market value of unquoted shares has been taken as per valuation by approved valuers”. The shares of Central India Industries Ltd. were Page: 488included in the list of “quoted shares”. The case of the petitioners is that the shares were quoted at the Madhya Pradesh Stock Exchange at Indore.

4. On the 5th January, 1970, the Department of Company Affairs of the Government of India forwarded to the Secretary, Ministry of Finance, the report of Shri A.R Natarajan, Officer on Special Duty, regarding underassessed wealth of the shareholders of three closely held companies of the Birla Group. One of such companies was the Central India Industries Ltd. (vide page 17 of the annexures to the affidavit of Krishna Swami Srinivasan, Commissioner of Income-tax, West Bengal I, affirmed on the 27th May, 1975).

5. On the 3rd/4th February, 1970, R.R Chopra, Commissioner of Income-tax, West Bengal, forwarded to the I.A.C, Range I, Calcutta, four copies of the report of Natarajan with the request to pass them on to the Income-tax Officer dealing with the Birla Group of cases: (vide page 16 of the annexures to Srinivasan's affidavit.)

6. Natarajan's report is the first basic document we have to consider in this case. We would discuss the contents of this document later.

7. On the 20th February, 1970, Shri B.K Nahar, I.T.O, S.I.B, forwarded to I.A.C Range I “Brief notes on inspection of some companies of Birla Group carried out by the Special Cell of the Department of Company Affairs”. These inspection notes were forwarded to the Ministry of Finance on the 5th January, 1970 (Vide page 17 and 18 of the annexures to the affidavit of Srinivasan).

8. The inspection notes constitute collectively the second basic document to be considered in this case. We shall discuss its contents in due course.

9. On March 28, 1970, reassessment proceedings were initiated against the Trust and other assessees holding shares in Central India Industries Ltd., for the assessment year 1965–66, under section 17 of the Wealth-tax Act on the ground that the valuation of the shares was not correctly made at the original assessment and that the shares should be assessed as unquoted shares. Similar proceedings were taken against Shri G.P Birla as well.

10. On June 29, 1970, the Trust submitted its return for the assessment year 1965–66, under protest, in response to the notice under section 17 of the Act. The Trust also requested the Wealth-tax Officer to disclose the reasons for the reopening.

11. On the 11th August, 1970, a report was made by Shri D.R Chakraburtty, I.A.C Range I, on the basis of the reports of the Company Law Department already referred to (Vide pages 19 to 24 of the annexures to the affidavit of Srinivasan). This is the third basic document requiring our attention in this case. The contents of the report would be discussed at the proper time.

12. On 12th February, 1971, Shri D.R Chakraburtty, I.A.C, Range I, addressed a letter to Shri B.K Bagchi, Commissioner of Income-tax, West Bengal I, stating, inter alia, that the Directorate's enquiry as to the genuineness of the stock exchange quotations of the Central India Industries Ltd., was complete and the Directorate had come to a finding that the company was not either listed on the Indore Stock Exchange or the transactions were bogus (vide para. 3 of the letter dated February 12, 1971, at pages 8 to 9 of Srinivasan's affidavit). This is the fourth basic document which would be discussed further at the appropriate time.

13. On 23rd March, 1971, the Trust wrote to the Wealth-tax Officer, ‘M’ Ward, District V(1), that the assessments of various assessees for the year 1965–66 had been reopened. The ground for the reopening, according to the department, was that the fair market value of the shares should be taken at their break-up value instead of quoted value on the M.P Stock Exchange. As the Trust was holding 10,000 shares in Central India Industries Ltd., its assessments for the year 1965–66 was also reopened. One of the shareholders of the said company was Shri G.P Birla whose wealth-tax and income-tax assessments had been reopened for similar reasons. Shri G.P Birla made a petition to the Central Board of Direct Taxes. On the representation of Shri G.P Birla, the Board directed that the proceedings against him be dropped and at the direction of the Board the proceedings had been dropped. The Trust proposed that the proceedings against it should also be dropped in view of these facts.

14. The Wealth-tax Officer on the 17th May, 1971, wrote to the Trust that the reassessments proceedings for 1965–66 had been dropped. The petitioners' case is that the proceedings against the Trust and several other assessees were dropped as the Board was of opinion that the reopening could not be justified in law. The Law Ministry also agreed with that view. The Board, however, issued instruction to officers concerned to take the facts relating to valuation of shares of Central India Industries Ltd. and other companies into consideration in all pending and live assessments. The petitioners have made these submissions on the basis of a debate in the Rajya Sabha on these transactions held on the 14th March, 1972 (vide pages 160 to 173 of the Paper Book). Arguments were advanced before us by both the parties on the information contained in these debates. We do not propose to discuss those arguments in detail in view of the fact that in the course of the hearing of this application before us all the basic documents have been put on record.

15. On 7th January, 1972, the Wealth-tax Officer completed the assessment for the year 1968-69. He computed the value of the shares in Central India Industries Ltd. on the basis of quotations at the M.P Stock Exchange. The Rajya Sabha debate, as we have said, took place on the Page: 49014th March, 1972, and it appears from that debate that the Board gave directions to take into consideration new facts which came to the knowledge of the Board in all live and pending assessments. In spite of these directions in making assessment for the year 1968–69, the Wealth-tax Officer accepted the quotations of the M.P Stock Exchange.

16. More than a year after the completion of the assessment for the assessment year 1968–69, V.V Badami, Director of Inspection (Investigation) of a Special Cell of the Ministry of Finance addressed a long letter to A.C Mukherjee, Commissioner of Income-tax. In this letter details of investigation by the Directorate into the transactions relating to various shares including the shares of the Central India Industries Ltd. have been set out. The findings of the Directorate have also been mentioned. This is the fifth and last basic document on which the tax authorities have justified the reopening of the assessment for the year 1968–69, which is the subject matter of the present application.

17. On the 20th March, 1973, the Inspecting Assistant Commissioner of Income-tax made an endorsement on Badami's letter of the 14th March, 1973, to all Income-tax and Wealth-tax Officers “for favour of information and necessary action”. It was stated in this endorsement: “If there is any time barring action involved, it may please be taken well within limitation”.

18. On the 29th March, 1973, the Wealth-tax Officer issued notice to the Trust under section 17 of the Wealth-tax Act, 1957, for the reopening of the assessment for the year 1968-69. The notice does not state whether it is under section 17(1)(a) or section 17(1)(b). This is the notice which has been challenged in the present proceedings. The petitioners have asked for appropriate writs to quash or set aside this notice.

19. This court issued the rule nisi on the 11th April, 1973. There was a second debate in the Rajya Sabha relating to the reopening of assessment on May 15, 1973. In the course of the debate the Minister of State in the Ministry of Finance stated, inter alia, that the proceedings for reassessment of net wealth in the case of some of the members of the Birla family were dropped as it was found that the action taken was not in accordance with law. The Minister stated further that proceedings for reassessment had been initiated again on the basis of information which had since come into the possession of the Wealth-tax Officers. One of the Members of Parliament had put, inter alia, a specific question which was as follows:

“May I know what additional information has come to the notice of the Ministry of Finance when these cases of wealth-tax against the Birlas which were not maintainable had been reopened? What are the specific information?”

20. The Minister's reply was in the following terms:

“……… Now, Sir, when the Company Law Board conducted a study and certain conclusions were drawn in that study, on the basis of that study these assessments were reopened which were later closed. Now, Sir, as the House is aware—and I have informed the House a number of times—a Special Cell has been set up in the Finance Ministry under a Director of Investigation to go into the tax manipulations even of larger houses. Now, Sir, this Cell started functioning since August, 1972. Now, this Cell went into the question of the assessments in so far as the wealth-tax of the Birlas was concerned.

Now, Sir, in the course of getting all the facts and making necessary enquiries, they conducted certain survey operations. They investigated the whole thing. And after the investigation the Cell came to the conclusion that the questioned Stock Exchange quotations were colourable and collusive. On the basis of the evidence which was before the Cell, the Board of Direct Taxation decided to reopen these proceedings.”

21. In further elaborating the point the Minister in the course of his speech stated as under:

“from the Company Law Board Study certain inferences were drawn. Now, the Special Cell has gone much deeper into the facts……… We have gone and collected evidence and the entire procedure has been gone through and there is much more available with the Special Cell……”(Vide pages 176, 178 and 184 of the Paper Book).

22. The respondent's case, therefore, clearly appears to be that the reopening of the assessment for the year 1965–66 was due to the conclusions that the Company Law Board had reached on the basis of investigations which they conducted. These proceedings were dropped under legal advice. Later on, a Special Cell of the Finance Ministry under a Director of Investigation probed thoroughly into the stock exchange transactions, collected necessary evidence and examined the procedure adopted in carrying on these transactions. An array of new facts came to the knowledge of the Board and it is on the basis of these new facts that the reopening of assessment for 1968–69 was resorted to.

23. On the 4th June, 1973, the Trust filed under protest its return for 1968–69 in response to the notice under section 17. The Trust requested the Wealth-tax Officer to disclose the reasons for reopening. The proceedings in this court had already started and the application, as we have seen, eventually came up before Masud J.

24. Before proceeding any further let us recapitulate the provisions of section 17(1)(a) and (b) of the Wealth-tax Act, 1957:

“17(1). If the Wealth-tax Officer,—

(a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under section 14 of his net wealth Page: 492or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of under-assessment or assessment at too low a rate or otherwise; or

(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 subsection (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.”

25. The notice in the instant case does not specify whether it is under section 17(1)(a) or under section 17(1)(b); but Mr. R.C Deb, learned counsel for the petitioners, has drawn our attention to paragraph 4(d) of the affidavit-in-opposition of Shri Malay Kumar Ganguly, the Wealth-tax Officer, affirmed on September 4, 1973. In clauses (a) to (c) of paragraph 4 the deponent has fully set out the information contained in the aforesaid letter of the 14th March, 1973. In clause (d) he proceeds to state as follows:

“After carefully perusing paras. 12 to 16 of the letter dated the 14th March, 1973, containing the report of the Directorate of Inspection (Investigation) and taking into account, the data then available with me (for the purpose of calculating net wealth escaping assessment) I applied my mind to the facts of this case and bona fide had reasons to believe that the petitioners had failed to disclose fully and truly all material facts pertaining to the value of the shares held in Central India Industries Ltd. on the relevant valuation date and that as a result the net wealth chargeable to tax for the assessment year 1968–69 escaped assessment. Moreover, in any event, in consequence of the information in my possession, namely, the aforesaid letter dated 14th March, 1973, and the data relevant to the calculation of the true value of the wealth escaping assessment, I had also reason to believe that the net wealth chargeable to tax had escaped assessment for the said assessment year.”

26. Mr. Deb's contention is that the Wealth-tax Officer must have reason to believe either under section 17(1)(a) or under section 17(1)(b). In him there Page: 493cannot be a dichotomy of belief. He cannot say that he believes that wealth has escaped assessment by reason of non-disclosure of material facts and at the same time hold the belief that even if there was no omission or failure to disclose, wealth has escaped assessment. In other words, beliefs under clauses (a) and (b) cannot be concurrently held. Belief under section 17(1)(a), according to Mr. Deb, excludes belief under section 17(1)(b). The Wealth-tax Officer must proceed on one belief. Two beliefs at the same time cannot operate on his mind. In that situation his belief is no belief at all and it is a mere pretence. Mr. Deb relied on the judgment of the Allahabad High Court in Raghubar Dayal Ram Kishan v. Commissioner Of Income-Tax, U.P [1967] 63 ITR 572 (All). In this case, it appears, there was a difference of opinion between Desai C.J and Manchanda J. The matter was referred to R.S Pathak J. The third judge has taken the view that where an Income-tax Officer assesses an income under section 34(1)(a) and the Appellate Tribunal, on appeal, comes to the conclusion that it should have been assessed under section 34(1)(b), the Tribunal has no jurisdiction to convert or alter the assessment made by the Income-tax Officer under section 34(1)(a) to an assessment under section 34(1)(b) and maintain it as such. In the opinion of R.S Pathak J. clauses (a) and (b) of section 34(1) contemplate two distinct and mutually independent jurisdictions. (Needless to say, there is similarity of language in the relevant provisions of the Wealth-tax Act).

27. The view of the Allahabad High Court is not shared by our court. But before we come to reported decisions a few general observations appear to be apposite. It is true that the relevant provisions of the Income-tax Act and the Wealth-tax Act are. more or less the same. In the Income-tax Act, however, when assessment is sought to be reopened, sanction of the Commissioner has to be obtained in certain circumstances on reasons recorded by the Income-tax Officer. There are no such restrictions under the Wealth-tax Act. Secondly, both section 17(1)(a) and section 17(1)(b) deal with “escaped assessment” except that action under section 17(1)(a) can be taken within 8 years and under section 17(1)(b) within four years. In the case of “escaped assessment”, which is reopened within four years, the Wealth-tax Officer is free to rely either on clause (a) or on clause (b) of section 17(1). The question is whether he can rely on both the clauses. This question has been dealt with by the Calcutta High Court in P.R Mukherjee…Applicant; v. Commissioner Of Income-Tax West Bengal…. [1956] 30 ITR 535 (Cal). This is a decision of an Income-tax Reference Bench consisting of Chakravartti C.J and Sarkar J. At page 546 Chakravartti C.J observes:

“The statute does not prescribe any form in which the notice contemplated by section 34 should be issued. The principal fact in both clause (a) Page: 494and clause (b) of section 34(1) is that income has escaped assessment for any year or has been under-assessed or assessed at too low a rate. That fact is common to both the clauses. The difference between the two clauses is that clause (a) contemplates a case where the assessment or under-assessment was caused by an omission or failure on the part of the assessee to do certain things and clause (b) contemplates a case where such escape from assessment or under-assessment occurred in spite of there having been no such omission or failure. The practical consequence of the presence of such omission or failure in one case and the absence thereof in the other is that, in the first case, the period within which the notice contemplated by the section can be issued is longer. I do not see how that difference makes it necessary or imperative that the notice itself must specify under which of the two clauses of the section it is being issued. All that the section itself says is that the Income-tax Officer may ‘serve on the assessee…… a notice under sub-section (2) of section 22’. The main notice to be issued is, therefore, a notice under section 22(2) of the Act and section 34 only authorises the issue of such a notice in spite of there having been a previous assessment or in spite of the time for the issue of a notce in the normal way having expired. It is true that when answering a notice issued under the section, the assessee may take a plea of limitation and for the purposes of such a plea, it may be necessary for him to know whether his case is being treated as one under clause (a) or one under clause (b). It appears to me, however, that whether the case is treated as coming under one clause or the other will transpire in the course of the assessment proceedings and it is neither required of the Income-tax Officer, nor is it necessary, that he should specify the clause in the notice itself. Even when a clause is specified, it is conceivable that when making the actual assessment, the Income-tax Officer may come to hold that it comes under the other clause. Suppose a notice issued under the section specifies clause (a) on the basis of a belief of the Income-tax Officer that the assessee has omitted or failed to disclose fully and truly all material facts. To recall an illustration I gave in the course of the argument, an assessee may have a relative living in a distant country who may die leaving to the assessee under his will a house property situated within the taxable territories. The Income-tax Officer may come to know of the legacy and if he finds that the income from that property was not included in the return he may issue a notice under section 34 and let me assume that he specifies in the notice clause (a) as the clause under which it is being issued. It is quite possible that, when appearing before him in compliance with such a notice, the assessee may satisfy the Income-tax Officer that he was totally unaware that any legacy had been left to him by his relative and he could not possibly have disclosed an income accruing to him of which he did not know. The Income-tax Officer may well accept that explanation. Can it Page: 495be said that in such a case as that, if the explanation is accepted, the Income-tax Officer will be prevented from making an assessment on the basis that the case comes under clause (b) of section 34(1) provided he is within time for the purposes of that clause? Whether or not there had been an omission or failure to disclose the income, the fact that the income had escaped assessment will remain and if income which ought to have been assessed is discovered as having remained unassessed, that will be a sufficient ground for proceeding to its assessment, provided, however, the period of limitation has not already expired. I am giving that illustration only for the purpose of pointing out that the Income-tax Officer cannot possibly be tied down to the section or the clause which he mentioned in the notice and if he be free to make an assessment, provided there is some escaped or under-assessed income and provided that the time for making an assessment has not run out, it cannot be essential to the validity of a notice that a particular clause of section 34(1) should be specified……”

28. We have extensively quoted the views of Chakravartti C.J as we are in agreement with them. In our case the notice that was issued for reassessment was a notice under section 14(2) of the Wealth-tax Act. Section 17 provides the machinery for the issue of that notice. The machinery must be made workable to satisfy the object of the legislature. The view of Chakravartti C.J that the notice to be issued in a case under section 34, is a notice under section 22(2), and section 34 merely authorises the issue of such a notice and the notice need not specify under which clause of section 34(1) the notice has been issued, has received the support of the Supreme Court in Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer [1967] 63 ITR 638, 640 (SC). The Supreme Court says:

“The notice issued by the Income-tax Officer did not specifically refer to section 34(1)(a) of the Income-tax Act: it did not set out the clause under which it was issued. But on that account the proceeding under section 34 is not vitiated. It was held by the Calcutta High Court in P.R Mukherjee…Applicant; v. Commissioner Of Income-Tax West Bengal…. [1956] 30 ITR 535 (Cal) that it is not necessary or imperative that a notice under section 34 must specify under which of the two clauses, clause (a) or clause (b) of sub-section (1) of section 34, the notice is issued. The main notice to be issued in a case under section 34 is the notice under section 22(2), and section 34 merely authorises the issue of such a notice.”

29. These pronouncements were followed by another decision of this court which may in this connection be referred to. In Mriganka Mohan Sur v. Commissioner Of Income-Tax, West Bengal Iii [1974] 95 ITR 503 (Cal) this court has held that where a reassessment made under section 34(1)(a) of the Indian Income-tax Act, 1922, is set aside by the Appellate Tribunal it is open to the Tribunal to treat the reassessment Page: 496as one properly made under section 34(1)(b) provided that on the materials on record all the necessary conditions under section 34(1)(b) are satisfied.

30. It is, therefore, clear that there is no bar to a notice under clause (a) being treated as a notice under clause (b). If having launched reassessment proceedings under clause (a) the Income-tax Officer may proceed under clause (b), it does not appear to be logical to argue that he cannot form alternative beliefs. He cannot proceed under clause (b) unless he notionally forms a belief under that clause. The basic assumption in the cases reported in P.R Mukherjee…Applicant; v. Commissioner Of Income-Tax West Bengal…. [1956] 30 ITR 535 (Cal), Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer [1967] 63 ITR 638 (SC) and Mriganka Mohan Sur v. Commissioner Of Income-Tax, West Bengal Iii [1974] 95 ITR 503 (Cal) is that it is possible to form alternative beliefs. It is true that clauses (a) and (b) of section 34(1) contemplate two separate and mutually exclusive jurisdictions (Vide Commissioner of Income-tax v. Sundaram Co. (P.) Ltd. [1970] 78 ITR 162 (Mad).). In other words, the situations to which these clauses are applicable exclude each other. But that does not mean that the same set of facts cannot constitute inference under clause (a) and information under clause (b) when they come to the knowledge of a Wealth tax or Income-tax Officer which leads him to believe that wealth or income has escaped assessment. He may believe that the escapement was due to omission or failure of the assessee to disclose fully or truly all material facts. He may also believe that even if there was no failure or omission on the part of the assessee, the new facts compose information in his possession which call for reassessment of escaped wealth or income.

31. For all these reasons we are of the opinion that the notice of reassessment in the instant case cannot be struck down on the ground that the Wealth-tax Officer held alternative beliefs.

32. Incidentally, we may mention in this connection that elaborate arguments were advanced before us by both the parties on whether or not the facts in the instant case can be brought under section 17(1)(a) or section 17(1)(b). For instance, Mr. R.C Deb, learned counsel for the petitioners, urged that the assessees at the time of the original assessment on the 7th January, 1972, relied on Stock Exchange quotations to establish the value of the shares of the Central India Industries Ltd. That was all the information it was possible for the assessees to disclose. The tax authorities on the basis of the report of the Company Law Board knew at that time that these stock exchange quotations were not reliable. By virtue of information so received the Wealth-tax Officer might have taken the view that the Stock Exchange quotations were not acceptable, but it could not be argued Page: 497that there was any omission or failure on the part of the assessees. The learned Additional Solicitor-General on the other hand contended, inter alia, that the duty of the assessees was to disclose that the stock exchange transactions were not concluded by deliveries and only differences were paid or received. According to the learned Additional Solicitor-General the failure to disclose these facts brings this case within the purview of section 17(1)(a).

33. In this judgment it is not necessary for us-to enter into these controversies. If we find that some information did come to the knowledge of the Wealth-tax Officer which was not known to him before and on the new facts that were brought to light a belief either under clause (a) or (b) could be formed, we cannot strike down the notice under section 17. Assuming that it is doubtful as to whether the case comes under section 17(1)(a), the new information will constitute information under section 17(1)(b). We might have been inclined to go into this question if any point of limitation was involved. But, since the proceedings have been reopened within four years, consideration of these matters has become irrelevant. If at the hearing it is found that the proceedings could not be reopened under section 17(1)(a), the Wealth-tax Officer would be free to reassess under section 17(1)(b). We will discuss the matter further when we come to the facts of this case in detail.

34. The next argument of Mr. R.C Deb is that under section 17 the Wealth-tax Officer must apply his own mind and must have his own reason to believe. In the instant case there is complete non-application of mind. The Wealth-tax Officer did not form his own opinion. He merely carried out the decision of superior authorities. There is, therefore, malice in law in reopening the assessment. Mr. Deb referred us to the Rajya Sabha debate of the 15th May, 1973, at pages 174 to 178 of the Paper Book. The Minister of Finance said: “Now, Sir, in the course of getting all the facts and making necessary enquiries, they conducted certain survey operations. They investigated the whole thing. After the investigation the cell (of the Directorate of Inspection) came to the conclusion that the questioned Stock Exchange quotations were colourable and collusive. On the basis of the evidence which was before the cell, the Board of Direct Taxes decided to reopen the proceedings.” The Minister's statement, therefore, is that the decision to reopen was not that of the Wealth-tax Officer but of the Board of Direct Taxes. But the basic documents containing the directions of the Board, says Mr. Deb, have not been disclosed in these proceedings.

35. Mr. Deb drew our attention to paragraph 6 of D.R Chakraborty's letter of the 12th February, 1971, at page 9 of the annexures to the affidavit of Srinivasan. In this paragraph D.R Chakraborty writes to the Page: 498Commissioner of Income-tax: “The proceedings for the years 1961–62 and 1965–66 were reopened last year by the Income-tax Officer on the specific direction of the Central Board of Direct Taxes conveyed by telex. It may now kindly be decided whether the proceedings for the intervening years should be reopened.” Mr. Deb also referred us to various other documents in the annexures to Srinivasan's affidavit at pages 16, 24 and 37 to show that the assessments for the years 1961–62 and 1965–66 were reopened on the specific directions of the Central Board of Direct Taxes and the Wealth-tax Officer had no independent role to play.

36. Learned Counsel submits that the procedure followed on previous occasions is clear. Assessments were reopened for 1961–62 and 1965–66, under the directions of the Central Board of Direct Taxes and were also dropped under the directions of the same authority. It is unbelievable that similar directions were not issued with regard to the assessment for 1968–69, particularly in view of the Minister's admission (at page 178) that “the Board of Direct Taxes decided to reopen these proceedings.” What is relevant, therefore, is to see the instructions of the Board; but these instructions have not been disclosed. But since the Minister has spoken of a decision of the Board the reasonable inference is that the Central Board of Direct Taxes had communicated these directions to the Wealth-tax Officer following the earlier procedure.

37. In any event, Mr. Deb contends that Badami's letter dated the 14th March, 1973, contained directions of a superior authority to the Wealth-tax Officer “whose application of mind” is excluded by these directions. No option or choice was left to him. Badami in paragraph 18 of his letter (vide page 69 of the paper book) states: “The above findings warrant the following actions. You may consider them and pass them to the Wealth-tax Officer and Income-tax Officer concerned so that they may apply their mind and take or initiate appropriate actions which for the sake of convenience are enumerated below”. One of the actions “enumerated below” was as follows:

“In all cases which were not reopened earlier, but in which the assessments have been completed, the assessment may now be reopened on the basis of the material gathered by the Special Cell. The reopening may be done under section 17(1)(a) of the Wealth-tax Act. For the assessment years 1968–69 onwards, however, the reopening may be done under section 17(1)(b), also of the Wealth-tax Act, as a protective measure. The Commissioner of Income-tax endorsed Badami's letter to the Wealth-tax Officer “for favour of information and necessary action” (vide page 71 of the Paper Book). These documents clearly establish, according to Mr. Deb, that the reopening was nothing but a command performance.

The decisions, if any, taken by the Central Board of Direct Taxes are not before us. But the documents already on record show that a Special Cell of the Directorate of Inspection (Investigation) which was set up in August, 1972, made a report in January, 1973. The details gathered by the Special Cell were communicated by Badami to the Commissioner of Income-tax on the 14th March, 1973 (vide pages 59 to 70 of the paper book). The Commissioner of Income-tax endorsed Badami's letter to the Wealth-tax Officer on the 20th March, 1973 (vide page 71 of the paper book). So far as the Wealth-tax Officer is concerned these two were the only relevant documents to consider whether he had any choice or option in the matter or any scope for forming his own belief required under section 17. The decision of the Central Board, if any, may have been communicated to the Director of Investigation or the Commissioner of Income-tax who were subordinate to the Board. But it is not suggested by Mr. Deb that there was any direct communication to the Wealth-tax Officer which, in the ordinary course, is not expected. Our concern is to see what was communicated to the Wealth-tax Officer himself by his superior authority. For this purpose, as we have stated, the two relevant documents are (i) Badami's letter of the 14th March, 1973 (page 59) and (ii) the Commissioner's endorsement of the 20th March, 1973 (page 71). In Badami's letter in paragraph 18 it is stated that the findings of the Special Cell of the Directorate of Inspection (Investigation) are to be passed on to the Wealth-tax Officers who “may apply their mind and take or initiate appropriate actions”. The actions which could be taken or initiated have also been indicated. The Commissioner endorsed Badami's letter to the Wealth-tax Officer “for favour of information and necessary action”. In these documents we do not find any language to justify the conclusion that any specific orders or directions were communicated to the Wealth-tax Officer. On the contrary, Malay Kumar Ganguly, the Wealth-tax Officer, in his affidavit-in-opposition affirmed on the 4th September, 1973, has made certain statements which we have to take note of In paragraph 4(d) of his affidavit (at page 50) he says: “After carefully perusing paras. 12 to 16 of the letter dated the 14th March, 1973, containing the report of the Directorate of Inspection (Investigation) and taking it into account, the data then available to me (for the purpose of calculating net wealth escaping assessment) I applied my mind to the facts of the case and bona fide had reasons to believe……”

38. Then, again, in paragraph 13 of the petition specific charges have been made against the Wealth-tax Officer, namely, (i) he had issued the notices under section 17 “at the behest and/or dictates of his superiors” and (ii) he did not apply his own mind and/or exercise his own independent judgment before initiating the proceedings. These allegations have been answered in paragraph 16 of the affidavit-in-opposition (at page 54). The Wealth-tax Page: 500Officer apart from denying the allegations in paragraph 13 of the petition has made the positive statement that on the materials which came into his possession subsequent to the completion of the original assessment he initiated the proceedings after satisfying himself as to the fulfilment of the statutory conditions of section 17 of the Wealth-tax Act.

39. We are inclined to accept these statements of the Wealth-tax Officer on oath, particularly in view of the internal evidence of his application of mind in this case. We have already stated that one of the actions which Badami had proposed was that in all cases which were not reopened earlier but in which assessments had been completed, the assessments might be reopened on the basis of the materials gathered by the Special Cell. The reopening, according to Badami, might be made under section 17(1)(a). Badami suggested further that for the assessment year 1968–69 onwards the reopening might be done under section 17(1)(b) also “as a protective measure”. We have already seen that the Wealth-tax Officer did not reopen under section 17(1)(b) “as a protective measure”. On the contrary, in paragraph 4(d) of his affidavit-in-opposition (page 50 of the paper book) he speaks of his alternative belief under section 17(1)(b).

40. On the evidence on record, therefore, we are unable to hold that this was a “command performance” as urged by Mr. Deb. In this connection it may be relevant to refer to two decisions which have discussed the subject of orders or directions of superior authorities.

41. In Commissioner of Police v. Gordhandas Bhanji AIR 1952 SC 16 the respondent wanted to build a cinema house. He obtained the permission of the Commissioner of Police, in exercise of discretion vested in him to grant a licence, under section 22 of the City of Bombay Police Act, 1902. Later on the permission was suspended by the Commissioner and the respondent was told to await the orders of the Government. Thereafter, the Commissioner sent to the respondent the following communication: “I am directed by the Government to inform you that the permission to erect a cinema granted to you is hereby cancelled.” In a writ petition challenging the order of cancellation the Supreme Court considered the relevant statutory provisions and the rules thereunder and held that the Commissioner had been invested with the absolute discretion at any time to cancel or suspend any licence which had been granted under the rules. But the power was vested in the Commissioner and not in the State Government and could only be exercised by him at his discretion. The Supreme Court held that the order of cancellation in that case was not an order by the Commissioner but merely intimation by him of an order passed by another authority, namely, the Government of Bombay. As the only person who could effect the cancellation was the Commissioner of Police, there was no valid order Page: 501of cancellation and the licence was still in force. At page 19 in paragraph 12 of the judgment the Supreme Court says AIR 1952 SC 16, 19:

“We are clear that this round-about language would not have been used if the order of cancellation had been that of the Commissioner. We do not mean to suggest that it would have been improper for him to take into consideration the views and wishes of the Government provided he did not surrender his own judgment and provided he made the order, but we hold on the material before us that the order of cancellation came from the Government and that the Commissioner acted only as a transmitting agent.”

42. In a case under section 17 of the Wealth-tax Act the Wealth-tax Officer must have his own reasons for beliefs. It may not be improper for him to take into consideration the views and wishes of his superior authority; but he must not surrender his own judgment and act merely as an instrument to carry out the orders of the superior authority. In our case on the documents on record and the affidavit-in-opposition of the Wealth-tax Officer, we cannot say that he failed to apply his mind or to come to his independent conclusion despite the views of the superior authority communicated to him, which he had taken into consideration.

43. In Sri Luxmi Janardan Jew v. Stale of West Bengal AIR 1959 Cal 402, this court was considering the provisions of section 3 of the West Bengal Land (Requisition and Acquisition) Act of 1948. The section was as follows:

“3. Power to requisition.—(i) If in the opinion of the Provincial Government or any person authorised in this behalf by the Provincial Government it is necessary so to do for maintaining supplies and services essential to the life of the community or for providing proper facilities for transport, communication, irrigation or drainage, the Provincial Government or the persons so authorised, as the case may be, may, by order in writing, requisition any land and may make such further orders as appear to it or to him to be necessary or expedient in connection with the requisitioning:

Provided that no land used for the purpose of religious worship shall be requisitioned under this section.”

44. This court has considered the Supreme Court's decision in Gordhandas' case AIR 1952 SC 16, 19 and has held that it is one of the pre-conditions that the Provincial Government or its delegate must form an opinion that the land was necessary for the objects mentioned therein. Where it is the delegate who exercised the power, it is the delegate who must form the opinion. If it can be established that he did not form any opinion but merely acted under orders of the Government then, indeed, the order would be invalid. In that case the Assistant Secretary to the Government wrote to the Collector of Page: 502Hooghly to take steps under the Act, but there was nothing to show that the Collector, upon the materials placed before him, did not himself arrive at the opinion. In our case also on the materials placed before us we are unable to hold that the Wealth-tax Officer did not form his own belief. We overrule the contention that this was a case in which the Wealth-tax Officer did not apply his own mind.

45. We now come to the main controversy in this petition. That controversy is whether there was any new material before the Wealth-tax Officer unknown to him previously which could provide the reasons for his belief under sections 17(1)(a) or 17(1)(b) when he reopened the assessment on the 7th January, 1972, for the assessment year 1968-69. We have already indicated that we have now before us the five basic documents on which the controversy can be resolved. The first document is the report dated 27th December, 1969, of A.R Natarajan, Officer on Special Duty, Department of Company Affairs (Special Cell). The materials for the report were collected from the books of account and other papers relating to 26 companies inspected up to the 15th December, 1969, including the books of account of the Central India Industries Ltd. So far as we are concerned, according to this report, a substantial portion of the shareholding of the Central India Industries Ltd. is closely held by the members of the Birla family (vide paragraph 41 of the report). Secondly, shares of Central India Industries Ltd., Indore Exporting and Importing Company Ltd. and the Punjab Produce &. Trading Co. Ltd. have been listed by the Delhi and Indore Stock Exchanges. The quotations of the stock exchanges have formed the basis of wealth-tax assessments of the shareholders of these companies who belong to the Birla family (para. 4.1). Thirdly, the unrealistic nature of the market quotation is evident on a scrutiny of the balance-sheets of these companies. In the case of the Central India Industries Ltd., the company had reserves of the order of Rs. 1.36 crores on March 31, 1969. But the market quotation was only Rs. 14 per share of Rs. 10 (paragraph 4.1). Fourthly, the shares of the Punjab Produce & Trading Co. Ltd. and Central India Industries Ltd. were listed on the Delhi and Indore Stock Exchanges. After such listings quotations have been obtained on the basis of a few fringe dealings in these shares or on the basis of enquiry in stock exchange by the stock-brokers (paragraph 9.8).

46. On the basis of these findings of facts the Special Cell of the Department of Company Affairs came to certain conclusions. The first conclusion is that the share transactions in Indore Exporting & Importing Co. Ltd. and the Punjab Produce & Trading Co. Ltd. on which quotations have been based are colourable (paragraphs 4.2 and 4.3). The second conclusion is that one has to look to the wealth-tax angle for finding out the reasons for obtaining the listing in the stock exchange for these closely held shares and Page: 503having certain transactions through nominees for securing a quotation.. This is a general conclusion applicable to all the shares: vide paragraph 44. From this general conclusion the Special Cell is of the view that the wealth-tax assessment of the members of the Birla family who held shares in these closely held companies would appear to have been made on the basis of market quotations that are clearly questionable (paragraph 4.4).

47. In annexure “C” to the report of the Special Cell there is a working average of the break up value of shares and the capitalised value arrived at by applying a rate of yield of 9% of maintainable profits. This is contrasted so far as Central India Industries Ltd. is concerned with the quoted maximum of Rs. 14 per share. According to this calculation the value per share is Rs. 156 whereas the quoted maximum is Rs. 14. The shares have been under-valued, therefore, to the extent of Rs. 142 per share.

48. The facts emerging from the report of the Special Cell of the Department of Company Affairs, therefore, inter alia, are (a) the shares of Central India Industries Ltd. were listed in the Indore Stock Exchange, (b) quotations were obtained on the basis of a few fringe dealings or on the basis of enquiries by stock-brokers and (c) there is a vast difference between the break-up value and the quoted value.

49. The next basic document is brief notes on inspection containing report of the inspecting officers of the Special Cell of the Company Law Board forwarded to the Ministry of Finance on 5th January, 1970 (p. 17 of Srinivasan's affidavit) and to Inspecting Assistant Commissioner, Range I, on 20th February, 1970 (p. 18 of Srinivasan's affidavit). These brief notes indicate that the total number of companies inspected by the Birla Cell was 26 up to 20th December, 1969, including the Central India Industries Ltd. The unquoted shares were frequently transferred from one company to another at arbitrary prices, that is, prices below or above the break-up or fair value (paragraph 4). The names of ultimate purchaser or seller could not be ascertained as the transactions were routed through brokers whose books could not be inspected in view of section 209(4). In these notes it is suggested that a commission of enquiry would be better able to enquire into the identity of the purchasers and sellers and look into the books of brokers. The reason is that the commission would be able to ascertain the real motive behind such transactions (paragraph 4).

50. The note further suggests that shares have been acquired by closely held investment companies at advantageous prices. This fact leads to suspicion which requires further enquiry (paragraph 5).

51. The next suggestion is that the circumstances under which closely held investment companies including the Central India Industries Ltd. were promoted and the time and price at which shares were ultimately Page: 504transferred to the Birla family at prices much below the real value requires to be investigated (paragraph 6).

52. In paragraph 7 of these notes it is stated that the shares of some closely held investment companies have been listed in the recognised stock exchanges mainly at Indore and Delhi and some sample transactions of sale and purchase have also been got through at nominal peices in order to enable the stock exchange to publish the transactions in the official bulletins on the basis of such quotations. The shareholders of these companies have disclosed the value of these shares in their wealth-tax returns only at those prices and in view of the evidence of the quotations of recognised stock exchange, the Wealth-tax Officers have accepted that valuation as their market value.

53. At page 17 in paragraph 3 it is stated, inter alia:

“As these purchases were mostly made through the share-brokers, it was not possible to go deep into these transactions to find out the actual seller. In the absence of these particulars it was not possible for the inspectors to find out the motive for selling the shares at such low rates. In view of this position, it is perhaps difficult to come to any conclusion as to whether any tax or revenue on these purchases and sales of shares have been avoided by the various companies.”

54. In paragraph 4 at pages 17 and 18 it is pointed out on the other hand that shares of some companies, including Central India Industries Ltd., were caused to be listed in recognised stock exchanges. The share transactions were manipulated in such a way as to get nominal quotations usually just below or above the nominal value and the assessee shareholders belonging to the Birla family got these quotations accepted by the wealth-tax authorities.

55. At pages 18 and 19 of the document various suggestions have been made regarding procedures for valuation of quoted shares and procedure for listing and delisting of shares by stock exchanges.

56. At pages 41 to 43 of this document in paragraph 4 the list of shares on recognised stock exchanges have been discussed. It is pointed out that in Central India Industries Ltd., when the quoted price is slightly above the paid up value of Rs. 10 per share, the break-up value was about Rs. 328 per share.

57. At page 73 (paragraph 19) it is observed: “In Central India Industries which is an important company, Sarva Shri A.L Goenka, D.R Marda, S.N Gupta, K.C Chatterjee, G.D Thirani, all top executives of the Birla Group are each holding 10,000 equity shares of Rs. 10 each. Further, Shri Gangadas Jhavar, a share-broker, and his eight relatives (nine shareholders) are holding about 8,000 shares. It therefore appears that the number of shareholders are expanded by Page: 505showing shares in the names of top executives as to meet the requirements of the stock exchange regarding listing of shares.”

58. At pages 75 to 76 of this “Brief Note” (paragraph 22) the conclusion has been stated. The conclusion is that it is apparent that the Birla group has gained considerably from getting the shares of its closely held investment companies quoted on recognised stock exchange and by using this as a device for reducing wealth-tax liability of members of the Birla family or their nominees holding shares in such companies. It is, therefore, necessary to take up the matter about listing of the shares of such closely held companies as Punjab Produce, Central India Industries Ltd. and Indore Exporting & Importing Co. Ltd. with the appropriate stock exchange authorities at Indore and at Delhi as to how the shares in these companies were permitted to be listed. It is suggested that there is a strong case for the delisting of shares of such companies in view of the undue advantage taken by them and the colossal loss of wealth-tax involved. It is suggested further that the Central Government may take up the matter with the respective stock exchanges.

59. One has to read these brief notes along with the report of the Special Cell which came into the hands of the tax authorities in February, 1970. It appears from these two documents that on examination of share transactions of some of the closely held companies of the Birla group including the Central India Industries Ltd., it has been found that a few stock exchange transactions have been put through at nominal rates or advantageous prices with a view to reduction of wealth-tax liability. But the Inspectors of the Department of Company Affairs suggested that a thorough enquiry should be made to ascertain the real motive behind the transactions. In other words, without further probing into the matter the suspicions aroused by the facts discovered would not be confirmed. The Inspectors also suggested that enquiries should be made of stock exchange authorities as to how these shares came to be listed and steps should be taken for delisting the shares.

60. We now come to the third basic document in this case. This is the letter of D.R Chakraborty, Inspecting Assistant Commissioner, Range I, dated the 11th August, 1970, to R.R Chopra, Commissioner of Income-tax, West Bengal 1, enclosing “a report in duplicate on reports of Company Law Department dated February 20, 1970, and February 3, 1970.”

61. The document enclosed bears the heading: “Reports of Company Law Department dated February 20, 1970, and February 3, 1970—effect on wealth-tax assessments—advisability of their application” (vide pages 19 to 24 of Srinivasan's affidavit). In this document it is stated that the Company Law Department in their report suggest that the break-up value of shares should be adopted in wealth-tax assessment of the shareholders. Page: 506This suggestion is based on the observation that “the market quotation is a manipulated one based on collusive transactions”. According to the tax authorities two facts have to be established before the break-up value can be adopted. These facts are: (1) evidence of manipulation, and (2) evidence of collusive transactions. It is said that enquiries are already in progress to collect evidence on these two points and market value cannot be discarded without collecting the said evidence. This suggestion, it is stated further, presents no problem as the decision would rest on the weight of evidence collected (vide page 20 of Srinivasan's affidavit paragraph 4).

62. At page 22 of Srinivasan's affidavit in paragraph 7 the tax authorities state that in the case of Central India Industries Ltd., the break-up value, according to the Central Board of Direct Taxes' Circular for 1968–69, would be Rs. 92.40 against the market value of Rs. 13, whereas the break-up value according to the Company Law Department is Rs. 156. The difference is due to the Company Law Department ignoring the maintainable profit of the last five years. According to the Central Board of Direct Taxes' Circular the Wealth-tax Officer is to take, the average of the two, namely, (1) break-up value, and (2) average of the last five years' maintainable profit. Here again, market quotations of shares exist and these quotations can be brushed aside only when evidence of collusive transactions can be established.

63. This third basic document is of great importance for purposes of the present application. This document contains the reactions of the tax authorities to the Company Law Department's report. The tax authorities in August, 1970, observed the difference between the break-up value and the market value of the shares in Central India Industries Ltd. They have taken into consideration the view of the Company Law Department that the market quotations are manipulated and based on collusive transactions: They are of the view that in spite of all that has been found the market quotations cannot be ignored in the absence of evidence of manipulation and evidence of collusive transactions. The search for this evidence began at this stage as we shall see from the fourth and the fifth basic documents before us.

64. The fourth basic document is the letter dated the 12th February, 1971, from D.R Chakraborty, Inspecting Assistant Commissioner, Range I, to B.K Bagchi, Commissioner of Income-tax, West Bengal I (vide pages 8 to 9 of Srinivasan's affidavit). In this letter various other documents have been referred to, copies whereof have also been annexed to Srinivasan's affidavit. D.R Chakraborty states in this letter that as regards Central India Industries Ltd., the enquiry of the Directorate as to the genuineness of stock exchange transactions has been completed and the Directorate has Page: 507come to a finding that these were “either not listed on Delhi and Indore stock exchanges or the transactions were bogus” (vide para. 3 of the letter dated February 12, 1971, at pages 8 to 9 of Srinivasan's affidavit).

65. The statement aforesaid in paragraph 3 is based on the Income-tax Officer, S.I.B Calcutta's letter, dated February 3, 1971, enclosing copy of the Deputy Director of Inspection's (Investigation) letter dated November 24, 1970, together with copies of its enclosures (vide page 29 of Srinivasan's affidavit).

66. A copy of the D.D.I's letter dated November 24, 1970, mentioned in the letter dated February 3, 1971, is at pages 30 and 31 of Srinivasan's affidavit. In this letter in paragraph 3 the D.D.I, wrote to the Additional Commissioner of Income-tax, West Bengal, that the transactions in Central India Industries Ltd. were bogus. He also enclosed copies of letters of the Income-tax Officer and the Inspecting Assistant Commissioner, Indore.

67. The letters of the Inspecting Assistant Commissioner and the Income-tax Officer, Indore, are both dated the 2nd September, 1970 (copies of these letters are at pages 33 and 34 of Srinivasan's affidavit).

68. In Inspecting Assistant Commissioner, Indore's letter, dated September 2, it is stated that the Income-tax Officer made enquiries of a broker called “Pushkarlal” who refused to supply any information. But on a summons being issued-under section 131 of the Income-tax Act, 1961, his books were produced on August 21, 1970, and were examined by the Income-tax Officer. The Inspecting Assistant Commissioner states that it is clear from the report of the Income-tax Officer that the first transaction was made on March 26, 1962, when the broker himself purchased 100 shares of Central India Industries Ltd. at Rs. 12.60 from Sri Kissen Jhawar of Indore and these were sold by him to Mulchand Goda two days later at Rs. 12.65 per share. It would be noticed, says the Inspecting Assistant Commissioner, that the shares sold by M/s. Bansidhar Sitaram & Co. on August 10, 1966, were returned to them within a period of 14 days after having passed through the hands of Ramnarayan Agarwalla of Indore and M/s. Nandalal & Co. of Calcutta. Says the Inspecting Assistant Commissioner “the bogus nature of the transactions is self-evident” (vide page 33 of Srinivasan's affidavit).

69. The report of the Income-tax Officer, Indore, in his letter dated the 2nd September 1970, (vide page 34 of Srinivasan's affidavit), on which the opinion of the Inspecting Assistant Commissioner is based, states the following facts:

1. That the transactions in the case of shares of Central India Industries Ltd. were made through M/s. Pushkarlal & Co., Indore, whose account books were called for and examined under section 131.

2. The account books revealed the following transactions:

(a) March 26, 1962—Pushkarlal Agarwalla purchased 100 shares of Central India from Srikissen Jhawar of Indore at Rs. 12.60 per share.

(b) March 28, 1962—Pushkarlal Agarwalla sold these 100 shares to Mulchand Goda of Indore at Rs. 12.65 per share.

(c) August 10, 1966—Banshidhar Sitaram & Co., Share Brokers, Calcutta, sold 200 shares of Central India to Pushkarlal & Co. at Rs. 13 per share.

(d) August 10, 1966—Pushkarlal sold these 200 shares to Ramnarayan Agarwalla at Indore at Rs. 13 per share.

(e) August 24, 1966—Ramnarayan Agarwalla sold these 200 shares to Nandalal & Co., Calcutta, at Rs. 13 per share.

(f) August 24, 1966—Nandalal & Co. sold these 200 shares to Banshidhar Sitaram & Co. at Rs. 13.25 per share.

70. The Income-tax Officer, Indore, says that on the basis of these transactions the shares were quoted in the stock exchange.

71. It is to be noted that the statement in paragraph 3 of the letter of D.R Chakraborty dated the 12th February, 1971 (page 8 of Srinivasan's affidavit) that the Directorate had come to a finding that the two companies (Central India Industries Ltd. and Central India General Agents) were either not listed at Delhi or Indore stock exchanges or the transactions were bogus, the statement in the letter of the Deputy Director of Inspection dated the 24th November, 1970 (page 30 of Srinivasan's affidavit) that the transactions about the quotations of the shares of the Central India Industries Ltd. have been found to be bogus, and the statement in the letter of the Inspecting Assistant Commissioner dated 2nd September, 1970 (page 33 of Srinivasan's affidavit), that the bogus nature of the transactions is self-evident, are all based on the information contained in the Income-tax Officer's letter of September 2, 1970 (page 34 of Srinivasan's affidavit).

72. The report of the Income-tax Officer sets out a number of transactions put through the stock exchange, gives the names of the parties who were buying and selling the shares of Central India Industries Ltd. and the rates at which the transactions had taken place.

73. The information conveyed by the Income-tax Officer's report of 2nd September, 1970 (page 34 of Srinivasan's affidavit), may lead one to suspect that the transactions were bogus or manipulated but no clinching evidence of the collusive nature of the transactions was, it appears, found by the income-tax authorities up to the 12th February, 1971. In other words, the conclusions that the different officers mentioned above had reached were not backed by adequate or convincing evidence. Strictly speaking, they were surmises or conjectures and in order to confirm them further evidence was necessary.

74. It is in this context that the Wealth-tax Officer completed the petitioners' assessment for 1968–69 on the basis of the stock-exchange quotations which the petitioners were relying on. In other words, his opinion was that the relevant quotations represented the price the shares would fetch if sold in the open market on the valuation date: vide section 7(1) of the Wealth-tax Act, 1957. There is a difference between “conclusion” and “facts or materials for conclusion”. The conclusion of the Wealth-tax Officer's superior authorities might have been that the transactions were bogus. But the requisite facts or materials for that conclusion were not on record. In these circumstances, it seems to us, that the Wealth-tax Officer who has to make the assessment upon drawing inferences from the primary facts disclosed by the assessee and other facts discovered by him would be justified in completing the assessment by accepting the quoted value of the shares in a recognised stock exchange.

75. Let us now examine the fifth and the last basic document which, according to the Wealth-tax Officer, made him reopen the assessment for the year 1968–69 on the 29th March, 1973. This fifth basic document is the letter dated the 14th March, 1973, from V.V Badami, Director of Inspection (Investigation), Special Cell, to A.C Mukherjee, Commissioner of Income-tax, West Bengal (vide pages 59 to 71 of the paper book). As we have observed, the Wealth-tax Officer's case is that facts found by Badami formed the basis of his belief under section 17 of the Wealth-tax Act that the petitioners' wealth had escaped assessment. We have, therefore to scrutinise this letter carefully with a view to investigate whether any facts unknown to the tax authorities on the 7th January, 1972—when the wealth-tax assessment for 1968–69 was completed—came to their knowledge by reason of what Badami had discovered. In other words, we have to see whether Badami's letter discloses facts which provide evidence of manipulation and evidence of collusive transactions which the income-tax authorities were looking for since February, 1970 (vide page 19 of Srinivasan's affidavit).

76. The Special Cell of the Directorate of Inspection (Investigation) was constituted in August, 1972, and it started investigations from January, 1973 (see paragraph 4(b) and (c) of the affidavit of Malay Kumar Ganguly, the Wealth-tax Officer, affirmed on the 4th September, 1973, at page 46 of the paper book).

77. The Special. Cell examined the books of account of the share-brokers concerned in the transactions of the investment companies including Central India Industries Ltd. and also examined the share-brokers and other connected persons on oath under section 131 of the Income-tax Act, 1961 (see paragraph 2 of Badami's letter dated the 14th March, 1973, at page 60 of the paper book.)

78. We will now discuss one by one the transactions which the Special Cell had examined and the evidence which the Special Cell collected with respect to each of them.

79. The first transaction is dated the 10th August, 1966. Pushkarlal of Indore shows purchase of 200 shares of Central India Industries Ltd. from Messrs. Bansidhar Sitaram of Calcutta at Rs. 13 per share and sale of these 200 shares to Messrs. Ramnarayan Agarwalla of Indore on 10th August, 1966, at Rs. 13 per share. Pushkarlal admits that he has not received any deliveries in respect of these shares at Indore (from Messrs. Bansidhar Sitaram) and is unable to show any correspondence in which any instructions in this regard were given. Shri Ramnarayan Agarwalla's books when examined show that there were no entries showing sales from Pushkarlal to Ramnarayan Agarwalla of Indore on August 10, 1966. Moreover, Ramnarayan Agarwalla stated on oath that he had not entered into any transaction with Pushkarlal for purchasing these shares (paragraphs 12 and 13 of the letter dated 14th March, 1973, at pages 66 to 67). On this evidence on record the nature of the transactions is apparent until facts to the contrary are proved.

80. The second transaction is dated the 24th August, 1966. Pushkarlal on this day is shown to have purchased 200 shares from Ramnarayan Agarwalla at Rs. 13 per share and sold them to Bansidhar Sitaram on the same day at Rs. 13.25 per share. There is no entry relating to this sale in the books of Ramnarayan Agarwalla who had stated on oath that he had not entered into any such transactions with Pushkarlal. Pushkarlal stated that a transaction did take place and that he had made payment of Rs. 20 being the difference by cheque. On enquiry it is found to be a bearer cheque which is realised by one Shri Shantilal Agarwalla who is yet to be traced (paragraph 13 of the letter dated March 14, 1973, at page 67 of the paper book).

81. With regard to Pushkarlal's sale of 200 shares to Bansidar Sitaram on August 24, 1966, at Rs. 13.25 per share, Pushkarlal admits that he has not given any delivery in respect of these shares in Indore and he is unable to show any correspondence as to whether any instructions as to delivery were at all given. Pushkarlal admits that he would have directed parties at Calcutta to settle delivery mutually, but, on the other hand, there is a letter by Bansidhar Sitaram stating that they were remitting a sum of Rs. 50 being the difference (vide paragraph 12 of the letter dated March 14, 1973 (at page 66 of the paper book).

82. It is to be noted that these transactions of the 10th August, 1966, and the 24th August, 1966, were also examined by the Income-tax Officer, Indore, and he had mentioned them in his letter dated 2nd September, 1970 (page 34 of Srinivasan's affidavit). The Special Cell of the Directorate of Page: 511Inspection examined these transactions thoroughly and discovered facts which in the absence of evidence to the contrary provide ample proof of the bogus nature of these transactions.

83. The next transaction is dated the 11th August, 1966, between Pushkarlal of Indore and Nandalal & Co. of Calcutta. This transaction was not noticed in the report of the Income-tax Officer, Indore, in his letter of 2nd September, 1970 (vide page 34 of Srinivasan's affidavit). Puskharlal has shown sale of 200 shares to Nandalal & Co., on August 11, 1966 at Rs. 13.25 per share. He has also shown purchase of similar number of shares from Nandalal & Co. on August 24, 1966, at Rs. 13 per share. The latter transaction has not also been noticed by the Income-tax Officer, Indore. Pushkarlal admitted that he had not given and received any delivery in respect of these shares in Indore and he was unable to produce any correspondence to show whether instructions as to delivery were given to the party at Calcutta (vide paragraph 12 of the letter dated March 14, 1973, at page 66 of the paper book). These are absolutely new facts which came to light as a result of investigation carried out by the Special Cell of the Directorate of Inspection.

84. Apart from what is stated above, the Special Cell of the Directorate of Inspection discovered certain other features of share transactions in Central India Industries Ltd., which were not known to the tax authorities at any time prior to this investigation. These other features are as follows:

1. Pushkarlal admitted that the transactions which took place in Indore in March, 1962, between him and Ramnaryan Agarwalla and one Srikissen Jhawar were settled without giving or taking actual delivery of shares (paragraph 12 of the letter dated March 14, 1973, at page 67 of the paper book.)

2. Enquiries in Calcutta revealed that Messrs. Bansidhar Sitaram and Nandalal & Co. were closely inter-connected; both had tables adjoining each other in a hall; the proprietor of Nandalal & Co. (Sri Nandalal Pasari) was a sub-tenant of Messrs. Bansidhar Sitaram & Co.; and one of the partners of Bansidhar Sitaram & Co. (Sri Purushottamdas Pasari) was a cousin of Nandalal Pasari (paragragh 14 of the letter dated March 14, 1973, at pages 67 and 68 of the paper book.)

3. Nowhere are the distinctive numbers of shares alleged to have been bought and sold mentioned—not even in the books of account of Bansidhar Sitaram and Nandalal & Co. (paragraph 15 of the letter dated March 14, 1973, at page 68 of the paper book.)

4. Messrs. Bansidhar Sitaram and Messrs. Nandalal & Co. were mostly dealing in shares of Birla companies. Their respective partners/proprietors were associated with the Birla group, and Bansidhar Sitaram themselves held 7,100 shares in 1967 in Central India Industries Ltd., Page: 512and were interested in manipulating the value of shares in order to evade the levy of wealth-tax in cases of their partners (paragraph 15 of the letter dated March 14, 1973, at page 68 of the paper book.)

5. Apart from the transactions of March, 1962, and August, 1966, it appeared there were no other dealings or transactions between 1963 and 1969 (para. 16 of the letter dated March 14, 1973, at page 68 of the paper book).

85. On an analysis of the five basic documents referred to above it is clear that prior to the 14th March, 1973, the tax authorities were suspecting that the transactions in the Indore Stock Exchange in the shares of the Central India Industries Ltd. were manipulated and collusive to evade wealth-tax liabilities. They noticed the difference between the quoted value and the break-up value of the shares. But in the absence of positive evidence they were unable to brush aside stock exchange quotations and to proceed with their own valuation of these shares. The report of the Special Cell of the Directorate of Inspection (Investigation) found staggering facts unknown to the tax authorities at any prior point of time which in the absence of evidence to the contrary point to the conclusion that the stock exchange transactions were collusive and manipulated to persuade the wealth-tax authorities to accept the quotations in the stock exchange in preference to the break-up value of these shares. The Wealth-tax Officer has stated on oath that after carefully perusing paragraphs 12 to 16 of the letter of the 14th March, 1973, containing the report of the Directorate of Inspection (Investigation) and taking into account the data then available to him he had reasons to believe that the wealth of the assessees had escaped assessment, and decided upon reopening the assessment for the year 1968-69. The notice that he gave was a notice under section 17 of the Wealth-tax Act, without referring to the clause under which he had “reason to believe”.

86. In a recent judgment of the Supreme Court in Gemini Leather Stores v. Income-tax Officer [1975] 100 ITR 1 (SC), the provisions of sections 147(a) and 148 of the Income-tax Act, 1961, were again considered. While making a best judgment. assessment the Income-tax Officer had discovered certain transactions evidenced by the drafts which the assessee had not disclosed.. In spite of this discovery and the knowledge of all the material facts the Income-tax Officer did not make necessary enquiries and draw inferences as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. It was held that it was plainly a case of oversight and the Income-tax Officer could not take recourse to section 147(a) to remedy the error resulting from his own oversight and that, therefore, the notice under section 148 should Page: 513be quashed. In our case prior to the 14th March, 1973, the tax authorities were stating that the stock exchange transactions were bogus; but they could not secure convincing evidence of collusion or manipulation to satisfy themselves that the quotations in the stock exchange should be discarded and some other methods of valuation adopted. Enquiries were carried on to discover evidence and as soon as definite evidence was available they reopened the assessment for 1968-69. Since reopening was based on the new facts discovered by the Special Cell of the Directorate of Inspection (Investigation) we are unable to hold that there was no justification for the reopening. On the facts and in the circumstances of this case we cannot say that there was any negligence on the part of the tax authorities. At every stage they were trying to discover the full facts which became available to them only as a result of the Special Cell's investigation. The facts discovered before the 14th March, 1973, were not sufficient to displace the quotations on the sanctity of which strong reliance was placed by counsel for the petitioners particularly with reference to rule 1A(1) of the Wealth-tax Rules, 1957. This clause gives the definition of “unquoted shares”. “An unquoted share means an equity share or preference share of a company, other than any such share the value of which is regularly quoted at any recognised stock exchange.” The Indore Stock Exchange, it is common case, was a recognised stock exchange. The Wealth-tax Officer accepted the quotations in the stock exchange in the absence of positive evidence displacing the quotations and necessitating the adoption of another method of valuation. The moment facts were discovered pointing to the unreliability of the quotations, the Wealth-tax Officer proceeded to reopen the assessment. We cannot on these facts strike down the instant notice under section 17 of the Wealth-tax Act. It is true that on a mere change of opinion an assessment cannot be reopened. But there is a distinction between change of opinion unsupported by new information and a change of opinion supported by new information. The instant case is a case of change of opinion supported by new facts or materials or information hitherto unknown to the Wealth-tax Officer. If it be ultimately found that the notice cannot be supported under section 17(1)(a) there is no doubt that it is a valid notice under section 17(1)(b).

87. In the leading case of the Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I [1961] 41 ITR 191 (SC), the Supreme Court has said that from the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of facts disclosed, or otherwise, the assessing authority has to draw inference as regards certain other facts and ultimately from the primary facts and further facts inferred from them, the authority has to draw the proper legal inferences. The Supreme Court has said Page: 514further that once all the primary facts are before the assessing authority he requires no further assistance by way of disclosure. In this case on the 7th January, 1972, the Wealth-tax Officer had the quotations in the stock exchange which the assessees placed before him and the four other basic documents we have referred to. To disbelieve the quotations it was not enough for him that some of the authorities were taking the view that the stock exchange transactions were bogus. He required firm and cogent evidence to repudiate the quotations which was not available to him. In these premises he adopted the stock exchange quotations for ascertaining the valuation of the shares for wealth-tax purposes. We cannot say that he was guilty of negligence or oversight.

88. In the result, this application is dismissed. The rule nisi is discharged. All interim orders, if any, are vacated. There will be no order as to costs.

Sabyasachi Mukharji, J.:— I have had the advantage of reading the judgment in draft which has been delivered by my Lord the Chief Justice. It is not necessary to set out the facts in this case as these have been extensively dealt with in the judgment delivered by my Lord. We are concerned in this case with the reopening of assessment under the Wealth-tax Act, 1957, for the assessment year 1968–69, by the notice dated 29th of March, 1973. The first ground urged on behalf of the petitioners in this case was that, for the purpose of reopening, the Wealth-tax Officer could not hold dichotomy of beliefs or in other words he could not have entertained alternative beliefs based either on section 17(1)(a) or under section 17(1)(b) of the Wealth-tax Act, 1957. He must come to a positive belief on the grounds mentioned in either of the two clauses (a) or (b) of section 17(1) of the said Act. On the basis of the authorities which have been referred to in the judgment delivered by my Lord the Chief Justice and on the construction of the section I am of the opinion that the construction urged on behalf of the petitioners cannot be accepted. In this connection the non-obstante expression in clause (b) of section 17(1) is significant. It does not say “notwithstanding that there has been no belief as referred to in clause (a)”. I am also of the opinion that the language of the section does not warrant the contention urged on behalf of the petitioners. Psychologically, it is not an impossibility for a person to have alternative beliefs on certain facts. For the reasons mentioned before I adhere to the ratio of the decision in the case of Mriganka Mohan Sur v. Commissioner Of Income-Tax, West Bengal Iii [1974] 95 ITR 503 (Cal), to which I was a party. I, therefore, respectfully agree with the conclusions arrived at by my Lord the Chief Justice on this point.

89. The next contention urged was that the Wealth-tax Officer did not form his own belief and take action as he was required to do on his own but the issuance of the notice was a command performance. The facts have been extensively dealt with by my Lord the Chief Justice and though it is true that there are reasons to think that the Wealth-tax Officer might have been influenced to a certain extent by the observations and expression of opinion of his superior authorities and other authorities, in view of the clear averments made by the Wealth-tax Officer in his affidavit-in-opposition filed in these proceedings, it cannot be accepted that the Wealth-tax Officer surrendered his judgment and the reopening was only at the behest of the other authorities. There is nothing improper in law for an authority who is to take action on his own to take into consideration the expressions of opinion by other authorities provided he exercises the discretion which the statute vests upon him. I agree that it has not been clearly established that that discretion was not exercised.

90. The main ground of challenge in this case is, however, whether there were materials either under clause (a) or under clause (b) of section 17(1) of the Wealth-tax Act, 1957, for the reopening of the assessment. We are concerned here with the valuation given by the assessee in respect of his holding of the shares in Central India Industries Ltd. The original assessment was completed on the 7th of January, 1972. In respect of these shares the valuation had been on the basis of the quotations in Madhya Pradesh Stock Exchange at Indore. The Act enjoins under section 7(1) that the Wealth-tax Officer should estimate the value of the asset on the basis of the price which in the opinion of the Wealth-tax Officer the asset would fetch if sold on the relevant valuation date in the open market. The relevant valuation date in this case was 31st of March, 1968. The assessee had stated that these shares were quoted at Madhya Pradesh Stock Exchange at Indore and had given the valuation as appearing in the stock exchange quotation. Rule 1(A)(1) of the Wealth-tax Rules, 1957, provides the definition of “unquoted share”. It means an equity share or preference share of a company other than such share the value of which is regularly quoted at any recognised stock exchange. Therefore, a share which is regularly quoted at a recognised stock exchange is “quoted share”. Rule 1(D) of the Wealth-tax Rules provides for the computation of the value of unquoted shares. There is no specific rule or direction in the Act or in the Rules which enjoins that under section 7(1) of the Wealth-tax Act, 1957, the Wealth-tax Officer should estimate the price of the share that it would fetch if sold in the open market on the valuation date, if the said share is a quoted share. Normally, however, if the share is a “quoted share”, the Wealth-tax Officer proceeds on the basis of the quotation of the stock exchange because transactions have taken place on that basis. Page: 516The rules of the various stock exchanges to which our attention was drawn in essence postulate that there should be transactions before a share is allowed to be quoted at a particular stock exchange. There were good deal of arguments whether the stock exchange quotation of Madhya Pradesh Stock Exchange in respect of the Central India Industries Ltd. was really. quotation of the shares or merely statement of transactions which had taken place long prior thereto and included in the lists of the stock exchange. Before a person or an assessee could be proceeded against under section 17(1)(a) of the Act there must either be a failure to make a return or a failure to disclose fully and truly all material facts necessary for his assessment of the net wealth. It is not necessary to find out whether the assessee had disclosed all the facts that were possible for him to disclose. What is necessary to find out is whether the assessee had disclosed all the basic and primary facts required to be disclosed. I am inclined to think that the assessee in this case was not guilty of non-disclosure of the basic primary facts. The assessee had stated that the shares were quoted at the Madhya Pradesh Stock Exchange at Indore. It was open for the Wealth-tax Officer to have rejected the said quotations in view of the fact that the quotation was in respect of transactions long anterior to the relevant valuation date. Where a share continues in the quotation list of a stock exchange I am doubtful whether it could be said that there was any further duty for the assessee to disclose the basis of the transaction upon which that quotation was made. If, therefore, the validity of this notice had to be judged solely on the grounds mentioned in clause (a) of sub-section (1) of section 17 of the Act, I would have found it difficult to uphold the said notice in the facts and circumstances of this case in view of the materials which were already on record as disclosed in the four basic documents, when the Wealth-tax Officer completed the original assessment for the relevant assessment year, namely, 7th January, 1972. It is, however, in my opinion not necessary to express any definite conclusion under clause (a) of section 17(1) of the Act.

91. Where a notice for reopening is challenged, on the materials adduced before the court, the court must be satisfied that there were materials either under clause (a) or under clause (b) of section 17(1) of the Act to sustain a notice. The information which must lead to the belief that there was an escapement of income must come into the possession of the Wealth-tax Officer subsequent to the original assessment. In this case the information, on the basis of which the reopening was made, was that the transactions upon which the quotation of the shares of Central India Industries Ltd. in Madhya Pradesh Stock Exchange were based, were colourable and collusive, and this information was contained in what has been described by my Lord the Chief Justice, as five basic documents. The contents of these five basic Page: 517documents have also been extensively set out and it is not necessary to repeat the same. In this connection it may be relevant to note that the original assessment for the assessment year 1968–69 was completed on the 7th of January, 1972. At that time four of these basic documents and the information contained in those documents were already in the possession of the Wealth-tax Officer and there was a direction of the Board prior to 7th of January, 1972, that the pending and alive assessments should be completed on the basis of the information then existing. Therefore, it has to be presumed that when the assessment for the assessment year 1968–69 was completed on the 7th of January, 1972, the same was on the basis of the information contained in the four basic documents. The further informations are alleged to be contained in the letter of Sri Badami, which is based on the report of the Special Cell of the Ministry of Finance. The contents of these five basic documents as mentioned hereinbefore have been extensively set out. Counsel for the petitioner contended that from the informations contained in the four documents which were already in his possession at the time of the original assessment, if the Wealth-tax Officer wanted he could have inferred or formed the belief that the transactions in respect of the shares of Central India Industries Ltd. were colourable and collusive and as such the quotation in respect of those shares based on those transactions could not be relied upon. There was according to counsel for the petitioner no further or new information in the fifth document or in the letter of Sri Badami or in the report of the Special Cell of the Finance Ministry. It appears to me, however, that there were certain materials which could be described as facts which go to establish or corroborate the belief that the transactions were colourable and collusive, and can be treated as new information. How far new facts affect the quality of knowledge so as to constitute new information, is a question which is not easy of solution. But when my Lords have taken the view that there was new information contained in the fifth basic document, I am content to agree, though not without some doubts, that this was a case of change of opinion supported by new facts, which is permissible in law. In the premises, I would uphold the notice under clause (b) of sub-section (1) of section (17) of the Act. I, therefore, agree with the order proposed by my Lord.

Saul Kumar Datta, J.:— I agree with the conclusions arrived at by the learned Chief Justice as also the reasons in support thereof and the order proposed.

92. I am, however, unable to agree with my learned brother, Mukharji J. in his tentative conclusion that once the assessee has disclosed the quotations of shares of a recognised stock exchange such disclosure is to be accepted as full and true disclosure under the Act of all basic primary facts Page: 518regarding the valuation of assets on a particular date. The daily stock exchange quotations set out in official quotations under its rules and as is obvious represent the rates at which transactions have been done. Such quotations of shares published by the stock exchange of daily transactions also contain a compilation of quotations of various securities and shares not necessarily quoted in the daily quotation in the absence of transactions but based on past transactions and the date of the last transaction is also set out therein. To enable the assessee to avail of the quotation of shares of a stock exchange for purposes of valuation under the Act, it is necessary that such shares must be regularly quoted at any recognised stock exchange. “Regularly quoted” in rule 1A(1) in my opinion means a quotation of shares with regularity, the last quotation being within a reasonably proximate time of the date of the valuation. If there is a quotation of a share in the stock exchange on a date in 1962 or even in 1966 when the date of valuation is March 31, 1968, it will not be a quoted share as implied by the definition under the said clause but it will be “unquoted share” as therein defined in the absence of regular quotation of regular transactions. If the assessee, therefore, simply relies on such quotations of shares of a date much earlier than reasonably proximate date as in the instant case, such action will not amount to, as it appears to me, a true and full disclosure of all material facts necessary for assessment of his net wealth as required under section 14 of the Wealth-tax Act, 1957, attracting operation of section 17(1)(a).

93. As already stated, I concur with my Lords for the reasons stated in the judgment of the learned Chief Justice that the rule should be discharged and all interim orders vacated as proposed.