judgement:
ax Reference Case Nos. 1 to 4 of 1973.
Income Tax Reference under section 257 of Income Tax Act 1961 made by T T. Appellate Tribunal Delhi Bench 'C ' in R.A. Nos.
491 to 494 of 1971 72 (I.T.A. NOS.
6992,19629 19631 of 1967 68).
445 V. section Desai, (Mrs.) A. M. Verma, A. N. Haskar an(3 J. B. Dadachanji for the appellant.
T. A. Ramachandran and Miss A. Subhashini for the respondent.
(Dr.) Devi Pal, Ravinder Narain and J. B. Dadachanji for the Intervener.
The Judgement of the Court was delivered by PATHAK, J. Can the view expressed by an internal audit party of the Income Tax Department on a point of law be regarded as ' 'information ' for the purpose of initiating proceedings under section 147(b) of the Income Tax Act, 1961 ? opinion on the question has been divided among the High Courts, and accordingly the present cases have been referred by the Income tax Appellate Tribunal under section 257 of the Act.
The assessee, Messrs. Indian and Eastern Newspaper Society, is a society registered under the Indian Companies Act.
It is a professional association of newspapers established with the principal object of promoting the welfare and interest of all newspapers.
The assessee owns a building in which a conference hall and rooms are let out on rent lo its members as well as to outsiders.
Certain other services are also provided to the members.
The income from that source was assessed to tax all along as income from business.
It was so assessed for the years 1960 61, 1961 62, 1962 63 and 1963 64 also.
The Income Tax Department includes an internal audit organisation whose function it is to examine income tax records and check mistakes made therein with a view ultimately to improve the quality of assessments.
In the course of auditing the income tax records pertaining to the assessee for the assessment years 1960 61 to 1963 64, the internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should not have been assessed as income from business.
It said that an assessment should have been made under the head "Income from property".
The Income Tax Officer treated the contents of the report as "information" in his possession for the purpose of section 147(b) of the Income Tax Act.
1961, and reassessed the income on that basis.
The Appellate Assistant Commissioner allowed the appeals filed by the assessee holding, inter alia, that in law it could not be said that the Income Tax officer had any "information" in his possession enabling him to take action under section 147(b).
On appeal by the Revenue, the Income Tax Appellate Tribunal, Delhi Bench noticed a conflict of judicial opinion on the question whether the internal audit 446 report could be treated as "information" for the purpose of section 147(b).
The Gujarat High Court in Kasturbhai Lalbhai vs R. K. 'Malhotra, Income tax Officer, Group Circle 11(1), Ahmedabad had held that an internal audit report could not be regarded as "information", while the Delhi High Court in Commissioner of Income tax vs H. H. Smt.
Chand Kanwarji Alwar has expressed a contrary view.
Following the view adopted by the Delhi High Court, the Tribunal held that the Income Tax officer had jurisdiction to proceed under section 147(b).
The assessee applied for a reference, and having regard to the difference between the High Courts on the point, the Tribunal has considered it expedient to refer the following question of law directly to this Court: "Whether, on the facts and in the circumstances of the case, the Income tax officer was legally justified in reopening the assessments under section 147 (b) for the years 1960 61, 1961 62, 1962 63 and 1963 64 on the basis of the view expressed by the Internal Audit party and received by him subsequent to the original assessment ?" Since then, the judgment of the Gujarat High Court in Kasturbhai Lalbhai 's case (supra) has, on appeal, been reversed by this Court in R. K. Malhotra, Income Tax Officer, Group Circle 11(1) Ahmedabad vs Kasturbhai Lalbhai.
It has been strenuously contended that the view taken by this Court calls for further consideration.
Having regard to the dimensions of the controversy and the importance of the question, we have been persuaded to take a fresh look at the point.
An assessment proceeding is a quasi judicial proceeding.
It acquires finality on the assessment order being made.
And the finality of such an order can be disturbed only in proceeding, and within the confines provided by law.
An appeal, revision and rectification are proceedings in which the finality may be questioned.
The assessment may also be reopened under section 147 of the Act.
It is a proceeding for assessing income which has "escaped assessment".
Section 147 reads: "147.
If (a) the Income Tax officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any 447 assessment year to the Income Tax officer or Lo disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income tax officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned." In cases falling under section 147(b), the expression "information" prescribes one of the conditions upon which a concluded assessment may be reopened under that provision.
It is an indispensable ingredient which must exist before the section can be availed of.
What does "information" in section 147(b) connote ? In Maharaj Karnal Singh vs Commissioner of Income tax this Court, construing the corresponding section 34(1) (b) of the Indian Income Tax Act, 1922 held the word "information" to mean not only facts or factual material but to include also information as to the true and correct state of the law and, therefore, information as to relevant judicial decisions.
Thereafter, in Commissioner of Income tax vs Raman & Company, the Court defined the expression "information" in section 147(b) of the Income Tax Act 1961 as "instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment.
" That definition has been reaffirmed in subsequent cases, and with it as the point of departure we shall now proceed.
In so far as the word "information" means instruction or know ledge concerning facts or particulars, there is little difficulty.
By its inherent nature, a fact has concrete existence.
It influences the determination of an issue by the mere circumstance of its relevance.
It requires no further authority to make it significant.
Its quint essential value lies in its definitive vitality.
448 But when "information" is regarded as meaning instruction or knowledge as to law the position is more complex.
When we speak of "law", we ordinarily speak of norms or guiding principles having legal effect and legal consequences.
To possess legal significance for that purpose, it must be enacted or declared by competent authority.
The legal sanction vivifying it imparts to it its force and validity and binding nature.
Law may be statutory law or, what is popularly described as, judge made law.
In the former case, it proceeds from enactment having its source in competent legislative authority.
Judge made law emanates from a declaration or exposition of the content of a legal principle or the interpretation of a statute, and may in particular cases extend to a definition of the status of a party or the legal relationship between parties, the declaration being rendered by a competent judicial or quasi judicial authority empowered to decide questions of law between contending parties.
The declaration or exposition is ordinarily set forth in the judgment of a court or the order of a tribunal.
Such declaration or exposition in itself bears the character of law.
In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority.
A statement by a person or body not competent to create or define the law cannot be regarded as law.
The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law.
They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as law.
The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status.
Perhaps the only exception is provided by the writings of publicists in international law, for in the law of nations the distinction between formal and material sources is difficult to maintain.
In that view, therefore, when section 147(b) of the Income Tax Act is read as referring to "information" as to law, what is contemplated is information as to the law created by a formal source.
It is law, we must remember, which because it issues from a competent legislature or a competent judicial or quasi judicial authority, influence the course of the assessment and decides any one or more of those matters which determine the assessee 's tax liability.
In determining the status of an internal audit report, it is necessary to consider the nature and scope of the functions of an internal audit party.
The internal audit organisation of the Income Tax Department was set up primarily for imposing a check over the arithmetical accuracy of the computation of income and the determination of tax, and now, 449 because of the audit of income tax receipts being entrusted to the A Comptroller and Auditor General of India from 1960, it is intended as an exercise in removing mistakes and errors in income tax records before they are submitted to the scrutiny of the Comptroller and Auditor General.
Consequently, the nature of its work and the scope of audit have assumed a dimension ca extensive with that of Receipt Audit.
The nature and scope of Receipt Audit are defined by section 16 of the Comptroller and Auditor General 's (Duties, Powers and Conditions of Services) Act, 1971.
Under that section, the audit by the Comptroller and Auditor General is principally intended for the purposes of satisfying him with regard to the sufficiency of the rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue.
He is entitled to examine the accounts in order to ascertain whether the rules and procedures are being duly observed, and he is required, upon such examination, to submit a report.
His powers in respect of the audit of income tax receipts and refunds are outlined in the Board 's Circular No. 14/19/ 56 II dated July 28, 1960.
Paragraph 2 of the Circular repeats the provisions of section 16 of the Comptroller and Auditor General 's (Duties, Powers and Conditions of Service) Act, 1971.
And paragraph 3 warns that "the Audit Department should not in any way substitute itself for the revenue authorities in the performance of their statutory duties.
" Paragraph 4 declares: "4.
Audit does not consider it any part of its duty to pass in review the judgment exercised or the decision taken in individual cases by officers entrusted with those duties, but it must be recognised that an examination of such cases may be an important factor in judging the effectiveness of assessment procedure .
It is however, to forming a general judgment rather than to the detection of individual errors of assessment, etc.
that the audit enquiries should be 450 directed.
The detection of individual errors is an incident rather than the object of audit." Other provisions stress that the primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient.
It is not intended that the purpose of audit should go any further.
Our attention has been invited to certain provisions of the Internal Audit Manual more specifically defining the functions of internal audit in the Income Tax Department.
While they speak of the need to check all assessments and refunds in the light of the relevant tax laws, the orders of the Commissioners of Income Tax and the instructions of the Central Board of Direct Taxes, nothing contained therein can be construed as conferring on the contents of an internal audit report the status of a declaration of law binding on the Income Tax Officer.
Whether it is the internal audit party of the Income Tax Department or an audit party of the Comptroller and Auditor General, they perform essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi judicial acts of income tax authorities.
The Income Tax Act does not contemplate such power in any internal audit organisation of the Income Tax Department; it recognises it in those authorities only which are specifically authorised to exercise adjudicatory functions.
Nor does section 16 of the Comptroller and Auditor General 's (Duties, Powers and Conditions of Service) Act, 1971 envisage such a power for the attainment of the objectives incorporated therein.
Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to "information" within the meaning of section 147(b) of the Income Tax Act, 1961.
But although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the Income Tax officer to it.
Law is one thing, and its communication another.
If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying section 147(b) may be avoided.
While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone.
No authority is required for the purpose.
In the present case, an internal audit party of the Income Tax Department expressed the view that the receipts from the occupation of the conference hall and rooms did not attract section 10 of the Act and that the assessment should have been made under section 9.
While 451 sections 9 and 10 can be described as law, the opinion of the audit A party in regard to their application is not law.
It is not a declaration by a body authorised to declare the law.
That part alone of the note of an audit party which mentions the law which escaped the notice of the Income Tax officer constitutes "information" within the meaning of section 147(b); the part which embodies the opinion of the audit parts in regard to the application or interpretation of the law cannot be taken into account by the Income Tax Officer.
In every case, the Income Tax officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment.
The basis of his belief must be the law of which he has now become aware.
The opinion rendered by the audit party in regard to the law cannot for the purpose of such belief, add to or colour the significance of such law.
In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax officer.
Now, in the case before us, the Income Tax officer had, when he made the original assessment, considered the provisions of sections 9 and 10.
Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion of material already considered by him.
The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b).
Reliance is placed on Kalyanji Mavji & Co. vs Commissioner of Income Tax, where a Bench of two learned Judges of this Court observed that a case where income had escaped assessment due to the "oversight, inadvertence or mistake" of the Income Tax officer must fall within section 34(1) (b) of the Indian Income Tax Act, 1922.
It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income Tax officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment.
In our opinion, an error discovered on a reconsideration of the same material (and not more) does not give him that power.
That was the view taken by this Court in Maharaj Kamal Singh vs Commissioner of Income Tax (supra), Commissioner of Income Tax vs Raman and Company (supra) and Bankipur Club Ltd. vs Commissioner of Income Tax.
and we do not believe that 452 the law has since taken a different course.
Any observations in Kalyanji Mavji & Co. v Commissioner of Income Tax (supra) suggesting the contrary do not, we say with respect, lay down the correct law.
A further submission raised by the Revenue on section 147(b) of the Act may be considered at this stage.
It is urged that the expression "information" in section 147(b) refers to the realisation by the Income Tax officer that he has committed an error when making the original assessment.
It is said that, when upon receipt of the audit note the Income Tax officer discovers or realizes that a mistake has been committed in the original assessment, the discovery of the mis take would be "information" within the meaning of section 147(b).
The submission appears to us inconsistent with the terms of section 147(b).
Plainly, the statutory provision envisages that the Income Tax officer must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment.
The realisation that income has escaped assessment is covered by the words "reason to believe '.
and it follows from the "information" received by the Income Tax officer.
The information is not the realisation, the information gives birth to the realisation.
The recent decision of this Court in R. K. Malhotra vs Kasturbhai Lalbhai (supra) may be examined now.
While making an assessment on a Hindu undivided family, the Income Tax officer allowed a deduction of municipal taxes in determining the annual value of two house properties occupied by the assessee.
Subsequently, the Income Tax officer re opened the assessment on receipt of a report from the office of the Comptroller and Auditor General of India that on a true interpretation of section 23(2) of the Income Tax Act, 1961, the deduction of municipal taxes was not admissible in the computation of the annual value of self occupied house properties.
The assessee contended that the report did not constitute "information" within the meaning of section 147(b) of the Act, and the Gujarat High Court accepted the plea in the view that information as to law would consist of a statement by a person, body or authority competent and authorised to pronounce upon the law and invested with the authority to do so, and that the Audit Department was not such competent or authorised authority.
On appeal by the Revenue, a Bench of two learned Judges of this Court, although endorsing the principle enunciated by the High Court, said that the audit department was the proper machinery to scrutinise assessments made by the Income Tax officer and to point out errors of law contained therein, and the High Court had 453 erred in taking the strict view which it did.
The Court rested its decision on Assistant Controller of Estate Duty vs Nawab Sir Mir Osman Ali Khan Bahadur, Commissioner of Income Tax vs H. H. Smt.
Chand Kanwarji (supra), Commissioner of Income Tax vs Kalukutty and Vashist Bhargava vs Income Tax officer.
In Assistant Controller of Estate Duty vs Nawab Sir Mir osman Ali Khan Bahadur (supra), this Court held the opinion of the Central Board of Revenue as regards the correct valuation of securities for the purpose of estate duty to be "information" within the meaning of section 59 of the on the basis of which the Controller of Estate Duty was held entitled to entertain a reasonable belief that property assessed to estate duty had been under valued.
The circumstance that the opinion of the Board was rendered in an appeal filed before it under the against the assessment made by the Assistant Controller of Estate Duty was apparently not brought to the notice of this Court when it heard R. K. Malhotra vs Kasturbhai Lalbhai (supra).
The opinion of the Board represented its view as a quasi judicial authority possessing jurisdiction to lay down the law.
Although the Board did not enhance the valuation of the securities in the appellate proceeding because of the argument advanced by the appellant, nonetheless its observations amounted to information as to the law.
It was not a case where the Board was functioning as an extrajudicial authority, performing administrative or executive functions, and not competent or authorised to pronounce upon the law.
The Delhi High Court in Commissioner of Income Tax vs H. H. Smt.
Chand Kanwarji (supra) held that the scrutiny note of Revenue Audit constituted "information" within the meaning of section 147(b) of the Income Tax Act because the Comptroller and Auditor General of India was empowered by statute to scrutinise the proceedings of the Income Tax Department and to point out defects and mistakes which adversely affected the Revenue.
The High Court considered that the view that information as to law could be gathered only from the decisions of judicial or quasi judicial authorities was unduly restrictive.
In Commissioner of Income tax vs Kalukutty (supra), the Kerala High Court also regarded the note put up by Audit as "information" within the meaning of section 147(b) of the Act, but it appears to have assumed, without anything more, that an audit note would fall within that expression.
As regards Vashist Bhargava vs Income Tax officer (supra) the "information" consisted in a note of the Revenue Audit 454 and the Ministry of Law that the payment of interest by the assessee was in fact made to his own account in the Provident Fund and, therefore, in law the money paid did not vest in the Government and, consequently, the original assessment was erroneous in so far as it allowed the deduction of the interest as expenditure made by the assessee.
The Delhi High Court upheld the reassessment on the finding that the note of the Revenue Audit and the Ministry of Law had to be taken into account by the Income Tax officer, because in his executive capacity he had to be guided by the advice rendered by the Ministry of Law and he had to pay due regard to the note of the Revenue Audit because the officers of the Audit Department were experts empowered to examine and check upon the work of the Income Tax officers.
It seems to us that the considerations on which the Delhi High Court rested its judgment are not correct.
But the decision of the case can be supported on the ground that the basic information warranting the re opening of the assessment was the fact that the payment of interest was made to the Provident Fund account of the assesses himself.
That the money so paid did not vest in the Government was a conclusion which followed automatically upon that fact, and no controversy in law could possibly arise on that point.
On the considerations prevailing with us, we are of opinion that the view taken by the Delhi High Court and the Kerala High Court in the aforementioned cases is wrong and we must, with great respect, hold that this Court was in error in the conclusion reached by it is.
R. K. Malhotra vs Kasturbhai Lalbhai (supra).
Our attention has been drawn to the further decision of the Kerala High Court in Muthukrishna Reddier vs Commissioner of Income Tax, Kerala and the decisions of the Allahabad High Court in Raj Kumar Shrawan Kumar vs Central Board of Direct Taxes & Anr and Elgin Mills Co. Ltd. vs Income Tax officer, Companies Circle, "A" Ward, Kanpur.
The Kerala High Court merely followed its earlier judgment in Commissioner of Income Tax vs Kalukutty (supra) and the Allahabad High Court was impressed by the same reasons substantially which persuaded the Delhi High Court and the Kerala High Court in the cases referred to above.
Therefore, whether considered on the basis that the.
nature and scope of the functions of the internal audit organisation of the Income Tax Department are co extensive with that of Receipt Audit or on the 455 basis of the provisions specifically detailing its functions in the Internal Audit Manual, we hold that the opinion of an internal audit party of the Income Tax Department on a point of law cannot be regarded as "information" within the meaning of section 147(b) of the Income Tax Act, 1961.
The question referred by the Income Tax Appellate Tribunal is answered in the negative, in favour of the assessee and against the Revenue The assessee is entitled to one set of costs in these appeals.
P.B.R. Appeals allowed .

summary:
Section 147(b) of the Income Tax Act, 1961 provides that if an Income Tax officer has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income.
The internal audit organisation of the income tax department, in the course of auditing the income tax records pertaining to the assessee for certain assessment years stated that the assessee 's income on account of letting out of halls and rooms should not have been assessed as income from business but an assessment should have been made under the head "Income from property".
Treating the report as information in his possession under section 147(b) the Income Tax officer re assessed the assessee 's income The Appellate Assistant Commissioner reversed the Income Tax officers order.
On the other hand, the Appellate Tribunal took the view that the Income Tax officer had jurisdiction to proceed under s.147(b).
In a reference under s.257 of the Income Tax Act the question was whether the Income Tax officer was legally justified in reopening the assessment under section 147(b) on the basis of the view expressed by the Internal Audit party received by him subsequent to the original assessment.
Allowing the appeal, ^ HELD: The opinion of the internal audit organization of the Department on a point of law cannot be regarded as information within the meaning of section 147(b) of the Act.
[455A].
(a) An assessment proceeding, which is a quasi judicial proceeding, acquires finality on the assessment order being made.
The finality of such an order can be disturbed only in proceedings, and within the confines, provided by law.
An appeal, revision and rectification are proceedings in which the finality of the assessment may be questioned.
Section 147, under which an assessment may be reopened, is a proceeding for assessing income which has escaped assessment.
[446F G] 2.
In cases falling under section 147(b) "information" is an indispensable ingredient.
The word ' 'information ' ' has been interpreted by this Court to mean not only facts or factual material but include information as to the true and correct state of the law and, therefore, information as to relevant judicial decisions.
The term is also defined as "instruction" or Knowledge derived from an external source concerning facts or particular, or as to law, relating to n matter bearing on the assessment.
[447D F] Mahaaraj Kamal Singh vs Commissioner of Income Tax [1959] Sup.
I SCR 10, Commissioner of Income Tax vs Raman & Company 67 I.T.R. Il(SC)=[1968] I SCR 10, referred to.
443 3.(a) By its inherent nature, a fact has concrete existence.
It influences the determination of an issue by the mere circumstance of its relevance.
It requires no further authority to make it significant.
[447 H].
(b) The term 'law ' is used in the sense of norms or guiding principles having legal effect and legal consequences.
To possess legal significance for that purpose, law must be enacted or declared by a competent authority.
The legal sanction vivifying it imparts to it its force and validity and binding nature.
Law may be statutory law enacted by a competent legislative authority, or it may be judge made law emanating from a declaration or exposition of the content of a legal principle or the interpretation of a statue and may in particular cases extend to a definition of the status of a party or the legal relationship between the parties, the declaration being rendered by a competent judicial or quasi judicial authority empowered to decide questions of law between contending parties.
The declaration or exposition is ordinarily set forth in the judgment of a court or the order of a tribunal.
Such declaration or exposition in itself bears the character of law.
In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority.
A statement by a person or body not competent to create, or define the law cannot be regarded as law.
[448A D] (c) Where section 147(b) is read as referring to 'information ' as to law, what is contemplated is 'information ' as to the law created by a formal source.
It is law which, because it issues from a competent legislature or a competent judicial or quasi judicial authority, influences the course of the assessment and decides any one or more of these matters which determine the assessee 's tax liability [448G] 4.
The Internal Audit organisation of the Income Tax Department was set up primarily for imposing a check over the arithmetical accuracy of the computation of income and the determination of tax.
The audit of income tax receipts having been entrusted to the Comptroller and Auditor General of India, it is intended as an exercise in removing mistakes and errors in income tax records before they are submitted to the scrutiny of the Comptroller and Auditor General.
The audit by the Comptroller and Auditor General is, by virtue of section 16 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 intended to ensure the sufficiency or otherwise of the rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue and to ascertain whether the rules and procedure are being fully observed and L nothing more.
Therefore the contents of an internal audit report cannot be construed as enjoying the status of a declaration of law binding on the Income Tax Officer.
Both the internal audit party of the Income Tax Department and the Audit report of the Comptroller and Auditor General perform essentially administrative or executive functions and cannot be attributed the power of judicial supervision over the quasi judicial acts of income tax authorities.
The statute does not contemplate such power The opinion of the audit party in regard to the application of one section of the Income Tax Act instead of another by the Income Tax officer is not law because it is rot a declaration by a body authorised to declare the law.
[450B F] 444 5.
While the law may be enacted or laid down only by a. body or person with authority in that behalf, knowledge or awareness of the law may be communicated by any one.
No authority is required for the purpose of communicating knowledge or awareness of the law.
[450G] 6 (a) In every case the Income Tax officer must determine for himself what the effect and consequence of the law mentioned in the audit note are and whether in consequence of the law which has come to his notice he can reasonably believe that income had escaped assessment.
The basis of his belief must be the law of which he has now become aware.
The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax officer.
[451C D] Maharaj Kamal Singh vs Commissioner of Income Tax 35 I.T.R. I (SC)= [1959] Sup.
I SCR 10, Commissioner of Income Tax vs Raman & Company 1 SCR 10, Bankipur Club Ltd. vs Commissioner of Income Tax followed R. K. Malhotra, Income Tax officer, Croup Circle 11(1), Ahmedabad vs Kasturbhai Lalbhai, , Kalyanji Mavji & Co. vs Commissioner of Income Tax, , over ruled.
Assistant Controller of Estate Duty Y. Nawab Sir Mir Osman Ali Khan Bahadur, referred to.
Commissioner of Income Tax vs H. H. Smt.
Chand Kanwarji Alwar , Commissioner of Income Tax vs Kalukutty , Vashist Bharghava vs Income Tax officer, , Muthukrishna Reddier v Com missioner of Income Tax, Kerala, , Raj Kumar Shrawan Kumar vs Central Board of Direct Taxes & Anr. , Elgin Mills Co. Ltd., vs Income Tax officer, Companies Circle, 'A ' Ward, Kanpur, not approved.
(b) The error discovered by the Income Tax Officer on a. reconsideration of the same material (and nothing more) does not give the Income Tax Officer the power to reopen the assessment.
[451G] (c) The submission of the Revenue that upon receipt of the audit note the Income Tax officer discovers or realises that a mistake has been committed in the original assessment and therefore the discovery of the mistake would be "information" within the meaning of section 147(b) is inconsistent with the terms of the section.
What the section envisages is that the Income Tax officer must first have information in his possession and then in consequence of such information he must have reason to believe that income has 'escaped assessment.
The realisation that income has escaped assessment is covered by the words "reason to believe", and it follows from the "information" received by him.
The information is not the realisation; the information gives birth to the realisation.
[452C D]


judgement:
: Criminal Appeal No. 98 of 1973.
Appeal by Special Leave from the Judgment and Order dated 16 8 1972 of the Calcutta High Court in Criminal Revision No. 85/72.
M.M. Kshatriya, G.S. Chatterjee and D.N. Mukherjee for the Appellant.
A.K. Gupta for Respondents 1 and 3.
H.K. Puri for Respondents 2 and 4.
The Judgment of the Court was delivered by SARKARIA, J.
Whether the giving of fire arms by a person holding a licence for repairing and dealing in fire arms for repairs to mechanic who holds no such licence, but does the repair job at his workshop at a place different from the factory or place of business of the licence holder, amounts to "delivery of those arms into the possession of another person" within the contemplation of Section 29(b) of the (For short, called the 'Act '), is the principal question that falls to be answered in this appeal by special leave directed against a judgment, dated August 16, 1972, of the High Court of Calcutta.
It arises in these circumstances: On or about April 17, 1971, the Calcutta Police while investigating a case, went to premises No. 4, Ram Kanai Adhikari Lane in Calcutta, and, on the ground floor of the building, they discovered a workshop run by Mrityunjoy Dutta, who was then working on a re 326 volver.
In the said premises, the police found several other guns, revolvers and rifles.
All these fire arms were seized by the police.
Mrityunjoy Dutta claimed to have received one of the guns so seized from one Matiar Rahaman gun licensee and the rest from respondents 1 to 4 for repairs.
Mrityunjoy Dutta had no valid licence to keep or repair these fire arms under the Act.
Respondents 1 to 4, however, were holding licences under the Act to run the business of repairing and dealing in fire arms.
On April 17, 1970, the police charge sheeted Mrityunjoy Dutta, Matiar Rahaman and respondents 1 to 4 to stand their trial in the Court of the Presidency Magistrate, in respect of offences under Sections 25(1) (a) and 27 of the Act.
The trial Magistrate, while considering the question of framing charges, held that there were materials to make out a prima facie case under Section 25(1) (c) of the Act against Mrityunjoy Dutta and under Section 29(b) of the Act against Matiar Rahaman, and charged them accordingly.
So far as respondents 1 to 4 are concerned, the Magistrate took the view that the giving of the arms to the accused Dutta, by respondents 1 to 4 for the limited purpose of repairs, did not amount to delivery of possession of those arms within the meaning of Section 29(b) of the (Act IV/1959), and in the result, he discharged the respondents by an order, dated November 17, 1971.
Aggrieved, the State of West Bengal filed a Criminal Revision against the Magistrate 's order before the High Court, contending that delivery of the arms, into the possession of a person who did not have a valid licence for repairs of fire arms, is not only a contravention of the provisions of Section 5 of the Act, but also amounts to delivery of fire arms by the respondents into the possession of Mrityunjoy Dutta and, as such, the respondents were prima facie liable for an offence under Section 29(b) of the Act.
The Division Bench of the High Court, who heard the Revision, dismissed it with the reasoning, that Respondents 1 to 4, could not be said to have delivered the fire arms, concerned into the possession of Mrityunjoy Dutta within the meaning of Section 29(b) of the Act, because the respondents who possessed valid licences for repairs as well as for sale of fire arms, had given only temporary custody of those arms to Mrityunjoy Dutta for the limited purpose of carrying the repair job, while the effective control over those arms all the time remained with the respondents.
In its view, there is no delivery of possession of the fire arms so long as control over the arms and the authority to use those arms is not transferred to the custodian.
327 Hence, this appeal.
The whole case pivots around the interpretation and application of the term "possession", used in Section 29(b) of the Act.
Learned counsel for the appellant State contends that the question whether a person is in possession of an arm or had transferred and delivered it to another, is largely one of fact.
It is submitted that in the instant case, there were three stark facts which more than any other, unmistakably showed that the respondents had given possession of these fire arms to Mrityunjoy Dutta: (a) Mrityunjoy Dutta was not a servant or employee of the respondents, but was running his own business of repairing fire arms.
(b) The fire arms were handed over to Mrityunjoy Dutta to be repaired at his own residence cum workshop which was not the respondents licensed place of business, and was in the exclusive control and occupation of Dutta.
(c) Mrityunjoy Dutta had no licence for repairing or keeping fire arms and the respondents were either aware of this fact or did not ascertain it before delivering the fire arms to him.
It is maintained that "possession, within the purview of Section 29(b) means immediate possession, and consequently, delivery of even temporary possession and control to an unauthorised person falls within the mischief of the Section.
It is further urged that the delivery of fire arms for repairs to the unlicensed mechanic for repairs, to be carried out at a place other than the factory or place of business specified in the licence of the owners, will amount to an offence under Section 30 read with Section 5 of the Act also.
As against this, Mr. Anil Kumar Gupta has addressed lengthy arguments to support the judgments of the Courts below.
The sum and substance of his arguments is that the mechanic, Dutta, was only in temporary custody of these arms for the limited purpose of repairing them, as an agent of the owners, who being licensees in Form IX entitled to repair and keep these fire arms, throughout remained in their lawful possession and control.
It is maintained that the delivery of possession contemplated by Section 29(b) is something more than entrusting the arms to an agent for the limited purpose of repairs.
In support of this contention, Mr. Gupta has cited several decisions.
Particular reliance has been placed on Manzur Hussain vs Emperor Sadh Ram vs State; Emperor vs Harpal Rai; A. Malcom vs Emperor; Emperor vs Koya Hansji; Parmeshwar Singh vs 328 Emperor; Gunwantlal vs State of Madhya Pradesh; and Sullivan vs Earl of Caithness.
Reference was also made to Halsbury 's Laws of England, Vol. 25, Third Edition, page 874, and Salmond 's Jurisprudence, 11th Edition.
It was next contended that even if the term "possession" in Section 29(b) is susceptible of two interpretations, the one favourable to the accused be adopted.
In this connection reference has been made to Woodage vs Moss.
The last submission of Mr. Gupta is that since these criminal proceedings have been brooding over the heads of the respondents for the last eight years, this Court should not, even if it reverses the opinion of the courts below, direct the Magistrate to frame charges against the respondents and to proceed with the trial.
It is emphasised that in any event, the offence disclosed against the respondents was purely technical.
"Possession" is a polymorphous term which may have different meanings in different contexts.
It is impossible to work out a completely logical and precise definition of "possession" uniformly applicable to all situations in the contexts of all statutes.
Dias & Hughes in their book on Jurisprudence say that if a topic ever suffered from too much theorizing it is that of "possession".
Much of this difficulty and confusion is (as pointed out in Salmond 's Jurisprudence, 12th Edition, 1966) caused by the fact the possession is not purely a legal concept.
"Possession", implies a right and a fact; the right to enjoy annexed to the right of property and the fact of the real intention.
It involves power of control and intent to control.
(See Dias and Hughes, ibid) According to Pollock & Wright "when a person is in such a relation to a thing that, so far as regards the thing, he can assume, exercise or resume manual control of it at pleasure, and so far as regards other persons, the thing is under the protection of his personal presence, or in or on a house or land occupied by him or in any receptacle belonging to him and under his control, he is in physical possession of the thing".
While recognising that "possession" is not a purely legal concept but also a matter of fact; Salmond (12th Edition, page 52) describes "possession, in fact", as a relationship between a person and a thing.
329 According to the learned author the test for determining "whether a person is in possession of anything is whether he is in general control of it".
In Gunwantlal (ibid), this Court while noting that the concept of possession is not easy to comprehend, held that in the context of Section 25(a) of the , the possession of a fire arm must have, firstly, the element of consciousness or knowledge of that possession in the person charged with such offence, and secondly, he has either the actual physical possession of the fire arm, or where he has not such physical possession, he has nonetheless a power or control over that weapon.
It was further recognised that whether or not the accused had such control or dominion to constitute his possession of the fire arm, is a question of fact depending on the facts of each case.
In that connection, it was observed: "In any disputed question of possession, specific facts admitted or proved will alone establish the existence of the de facto relation of control or the dominion of the person over it necessary to determine whether that person was or was not in possession of the thing in question".
With this guiding criterion in mind, the Magistrate had to see whether the facts alleged and sought to be proved by the prosecution prima facie disclose the delivery of the fire arms by the respondents into the possession of Mrityunjoy Dutta, without previously ascertaining whether the recipient had any licence to retain and repair those fire arms within the contemplation of Section 29(b).
It may be remembered that the case was at the stage of framing charges; the prosecution evidence had not yet commenced.
The Magistrate had therefore, to consider the above question on a general consideration of the materials placed before him by the investigating police officer.
At this stage, as was pointed out by this Court in State of Bihar vs Ramesh Singh, the truth, veracity and effect of the evidence which the prosecutor proposes to adduce are not to be meticulously judged.
The standard of test, proof and judgment which is to be applied finally before finding the accused guilty or otherwise, is not exactly to be applied at the stage of Section 227 or 228 of the Code of Criminal Procedure, 1973.
At this stage, even a very strong suspicion founded upon materials before the Magistrate, which leads him to form a presumptive opinion as the existence of the factual ingredients constituting the offence alleged; may justify the framing of charge against the accused in respect of the commission of the offence.
330 Now, in the instant case, at that initial stage, it was apparent from the materials before the Magistrate, that the basic facts proposed to be proved by the prosecution against the accused respondents were as follows: (a) That the respondents held licences, inter alia, in Form IX for repairing and dealing in fire arms at the place of business, factory or shop specified in the Column 3 of their licences.
(i) The respondents handed over the fire arms in question to Mrityunjoy Dutta for repairs.
(ii) Mrityunjoy Dutta did not have any license for repairing or dealing in fire arms; (iii) (a) Mrityunjoy Dutta was doing the repair job in respect of these fire arms at his own residence cum workshop which was situated at a place different from the business places specified in the licences of the respondents.
(b) The fire arms in question were seized from the workshop cum house in the occupation and control of Mrityunjoy Dutta, when the latter was actually in the act of repairing working on a revolver.
There is nothing in these materials to show that at the time of the seizure of these fire arms, any of the respondents or any Manager of their concerns, was found present and personally supervising the repair work that was being done by the mechanic, Mrityunjoy Dutta.
These positive and negative facts, in conjunction with other subsidiary facts, appearing expressly or by implication from the materials which were before the Magistrate at that initial stage were, at least, sufficient to show that there were grounds for presuming that the accused respondents had committed offences under Sections 29(b) and 30 of the Act.
Facts (iii) (a) & (b) listed above, inferentially show that by handing over the fire arms to Mrityunjoy Dutta to be repaired at the latter 's independent workshop, the respondents had divested themselves, for the time being, not only of physical possession but also of effective control over those fire arms.
There is nothing in those materials to show that before handing over those fire arms to Mrityunjoy Dutta for repairs, the respondents had done anything to ascertain that Mrityunjoy Dutta was legally authorised to retain those arms even for the limited purpose of repairing them.
Thus, prima facie the materials before the Magistrate showed that the respondents had delivered the fire arms in question into the possession of Mrityunjoy Dutta, without previously ascertaining that he was legally authorised to have the same in his pos 331 session, and as such, the respondents appeared to have committed and offence under Section 29(b) of the Act.
Further, by allowing the fire arms to be removed to a place other than the places of their business or factory specified in Column 3 of their licences in Form IX, the respondents appear to have contravened condition 1(c) of their licence, the material part of which reads as under: "(c) This licence is valid only so long as the licensee carries on the trade or business in the permises shown in Column 3 thereof. " Contravention of any condition of the licence amounts to an offence punishable under Section 30 of the Act.
In sum, the materials before the Magistrate, prima facie disclosed the commission of offences under Sections 29(b) and 30 of the Act by respondents 1 to 4.
The Magistrate was thus clearly in error in discharging these accused respondents.
We do not think it necessary to notice and discuss in detail the various decisions cited by the counsel at the bar, because, as mentioned earlier, the question whether a particular person is or continues to be in possession of an arm (in the context of the Act) is, to a substantial extent, one of fact.
This question, often resolves into the issue: whether that person is or continues to be, at the material time, in physical possession or effective control of that arm.
This issue, in turn, is a mixed issue of fact and law, depending on proof of specific facts or definite circumstances by the prosecution.
At this preliminary stage, therefore, when the prosecution has yet to lead evidence to prove all the facts relevant to substantiate the ingredients of the charge under Section 29(b) levelled against these respondents, a detailed discussion of the principles enunciated in the cited decisions, is apt to partake of the character of a speculative exercise.
It will be sufficient to say in passing that almost all the decisions of the High Courts cited before us were cases under the 'Old ' (Act 11 of 1878).
The ratio of cases decided under the 'Old ' Act should not be blindly applied to cases under the Act of 1959 which has, in several aspects modified or changed the law relating to the regulation of arms.
For instance under the 'Old ' Act, repairing of arms without a licence, was not punishable, as 'repair ' was different and distinct 332 from manufacture.
In Murli vs Crown and Tola Ram vs Crown it was held that a person in temporary possession of arms without a licence, for repairing purposes was not guilty under Section 19 of the Act of 1878.
But section 5 of the present Act of 1959, has materially altered this position by requiring the obtaining of a licence for repairing fire arms (or other arms if so prescribed).
Further, the word "keep" occurring in Section 5 of the 'Old ' Act has been replaced by the words "have in his possession" in the present Section.
Then in three of these cases, namely, Manzur Husain, Sadh Ram vs State, Emperor vs Harpal Rai, the license holder sent his licensed firearm for repairs through a person who had the license holders ' oral authority, expressly or impliedly given, to carry it to the repairer.
It was held that the carrier, though he held no licence to keep the fire arm, could not be said to be in "possession" of it, nor could the license holder be said to have parted with the "possession" of the fire arm or delivered its possession to an unauthorised person.
Similarly, in one of the cases cited, the license holder sent his fire arm to the Magistrate through his servant or agent for getting the licence renewed.
In that case also, it was held that the servant was not guilty of any offence for having in his possession or "carrying" a gun without a licence.
The possession was held to be still with the license holder owner of the weapon.
The rule enunciated in these decisions has been given a limited recognition in the Proviso to Section 3 of the Act of 1959.
Under this Proviso, if a licensed weapon is carried to an authorised repairer by another having no licence, he will not be guilty for carrying that fire arm, if he has a written authority of the license holder for carrying that weapon to a repairer.
Similarly, for carrying a licensed fire arm to the appropriate authority for renewal of the license, written authority of the owner of the weapon is essential to bring him within the protection of the Proviso.
In some of these cases referred to by the counsel, a person was carrying or was in custody of a licensed weapon for use by the licensee.
Now, the Proviso to Section 3 of the present Act, protects such carriers or custodians of weapons for use by the license holder, only if they do so in the presence of the license holder concerned.
We have referred, by way of example, some of these changes brought about by the Act of 1959, only to impress on the trial court that in considering the application of the ratio of the cases decided under the Act of 1878, to those under the present Act great caution and discernment is necessary.
333 For all the reasons aforesaid, we allow this appeal and set aside the orders of the Courts below whereby respondents 1 to 4, herein, were discharged.
Although offences under Section 29(b) and 30 of the Act are summons cases, the Magistrate has followed the warrant procedure, obviously because an offence under Section 25 of the Act, for which Mrityunjoy Dutta was being jointly tried with Respondents 1 to 4, was a warrant case.
Moreover, trial of a summons case as a warrant case does not amount to an illegality, but is a mere irregularity that does not vitiate the trial unless there is prejudice.
We therefore, send the case back to the trial Magistrate with the direction that he should frame charges in respect of offences under Sections 29(b) and Section 30 of the Act against the accused respondents 1 to 4 and proceed further with the trial in accordance with law.
We decline the submission made on behalf of these respondents that on account of their prolonged harassment and expense, which are the necessary concomitants of protracted criminal proceedings extending over eight years, they should not be put on trial now for offences which, according to the counsel, are merely technical.
Even so, we think, this is a circumstance to be taken into consideration by the trial court in fixing the nature and quantum of sentence, in the event of the accused being found guilty.
Before parting, with this judgment, we will however, set it down by way of caution that the Magistrate while assessing the evidence and recording his findings on its basis with regard to proof or otherwise the factual ingredients of the offences with which the accused may stand charged, shall not allow himself to be unduly influenced by anything said in this judgment in regard to the merits of the case.
N.V.K. Appeal allowed.

dataset_name: IN-Abs

summary:
The prosecution alleged that the police officers of the appellant state while investigating a case discovered a workshop run by a mechanic who was then actually working on a revolver.
Several other guns, revolvers and rifles were found in the workshop and all these fire arms were seized.
The mechanic claimed to have received one of the guns so seized from a gun licensee and the rest from respondents 1 to 4 for repairs.
The mechanic had no valid licence under the to keep or repair these fire arms but respondent No. 4 however possessed licences under the Act to run the business of repairing and dealing in fire arms.
The police charge sheeted the mechanic, the gun licensee and respondents 1 to 4, for having committed offences under Sections 25(1)(a) and 27 of the Act.
The Magistrate held that there were materials to make out a prima facie case under section 25(1)(c) of the Act against the gun licensee and under section 29(b) of the Act against the mechanic and charged them accordingly.
As regards Respondents 1 to 4 taking the view that giving of the arms to the mechanic by the respondents for the limited purpose of repairs, did not amount to delivery of 'possession ' of those arms within the meaning of section 29(b) of the Act, he discharged the said respondents.
The appellant 's criminal revision against the said order, was dismissed, the High Court holding that Respondents 1 to 4 could not be said to have delivered the fire arms into the 'possession ' of the mechanic within the meaning of section 29(b) of the Act, because the respondents possessed valid licences for repairs as well as for sale of fire arms and had given only 'temporary ' custody of those arms to the mechanic for the limited purpose of carrying out the repair job, while the effective control over those arms all the time remained with the respondents.
In appeal to this Court it was contended on behalf of the appellant State that the question whether a person is in possession of a fire arm or had transferred and delivered it to another, is largely one of fact; that in the instant case, the mechanic was not a servant or employee of the respondents but was independently running his own business of repairing fire arms; that the fire arms were handed over by the respondents to the mechanic to be repaired at the latter 's residence cum workshop which was not the respondent 's licensed place 324 of business; that the mechanic had no licence for repairing or keeping fire arms and the respondents were either aware of this fact or did not ascertain it before delivering the fire arms to him, that 'possession ' within the purview of section 29(b) means immediate possession and consequently, delivery of even temporary possession and control to an unauthorised person falls within the mischief of the section; that in the circumstances of the instant case there was a clear prima facie case not only under section 29(b) but also under section 30 read with section 5 of the Act, against the Respondents and consequently the Magistrate was not justified in discharging them.
On behalf of the Respondents it was contended that the mechanic was only in temporary custody of the fire arms for the limited purpose of repairing them, as an agent of the owners, who being licencees in Form IX entitled to repair and keep these fire arms, throughout remained in their lawful possession and control.
The delivery of possession contemplated by section 29(b) is something more than entrusting the arms to an 'agent ' for the limited purpose of repairs.
Allowing the appeal, ^ HELD: 1.
"Possession" is a polymorphous term which may have different meanings in different contexts.
It is impossible to work out a completely logical and precise definition of "possession" uniformly applicable to all situations in the contexts of all statutes.
"Possession" implies a right and a fact; the right to enjoy annexed to the right of property and the fact of the real intention.
It involves power of control and intent to control.
[328D E] "Possession" is not a purely legal concept but also a matter of fact, and the broad test for determining whether a person is in possession of anything is whether he is in general control of it.
[328H 329A] Salmond 's Jurisprudence 11th Edn.
p. 52 referred to.
In the instant case although the respondents held licences in Form IX for repairing and dealing in fire arms at the place of business, factory or shop which was specified in Column 3 of their licences, they handed over the fire arms to the mechanic who had no such licence to be repaired at the latters own workshop.
Since that workshop and the repairing business being run therein, was in the exclusive control and occupation of the mechanic, the inference would be that by handing over the fire arms to the mechanic for repair the respondents had divested themselves for the time being not only of physical possession but also of effective control over those fire arms.
The respondents had not done anything to ascertain whether the mechanic was legally authorised to retain those fire arms even for the limited purpose of repairing them.
Prima facie the materials before the Magistrate showed that the respondents had delivered the fire arms in question into the possession of the mechanic without previously ascertaining that he was legally authorised to have the same in his possession, and as such, they appeared to have committed an offence under section 29(b) of the Act.
[330B C, 330G 331A] 3.
By allowing the fire arms to be removed to a place other than the place of business or factory specified in Column 3 of the licences in Form IX, the respondents contravened condition (1)(c) of the licence, amounting to an offence punishable under section 30 of the Act.
[331 B C] 325 The materials before the Magistrate, prima facie disclosed the commission of offences under Sections 29(b) and 30 of the Act by Respondents 1 to 4.
The Magistrate was thus clearly in error in discharging these respondents.
[331D] 4.
The ratio of cases decided under the Old (Act 11 of 1878) should not be blindly applied to cases under the Act of 1959 which has in several aspects modified or changed the law relating to the regulation of arms.
[331H] 5.
Trial of summons case as a warrant case does not amount to an illegality but is a mere irregularity that does not vitiate the trial unless there is a prejudice.
[333 B] 6.
Case remitted to trial Magistrate with direction to frame charges in respect of offences under Sections 29(b) and 30 of the Act against Respondents 1 to 4 and to proceed further with the trial.
[333C] Manzur Hussain vs Emperor, AIR 1928 All.
55(1); Sadh Ram vs State, AIR 1953 HP 121; Emperor vs Harpal Raj, ILR XXIV All. 454; A. Malcom vs Emperor, AIR 1933 Cal.
218; Emperor vs Koya Hansji, ; Parmeshwar Singh vs Emperor, AIR 1933 Pat.
600; Murli vs Crown, AIR 1929 All. 720; Tola Ram vs Crown, ILR 16 All.
276; held inapplicable.