judgement:
Civil Appeal Nos.
912 to 916 of 1971.
Appeals by Special Leave from the Judgment and Order dated the 2nd July 1969 of the Orissa High Court in Special Jurisdiction Cases Nos. 73, 74, 75 and 76 of 1964.
V. C. Mahajan and R. N. Sachthey: for Appellants (In CAs.
912 13/71) R. N. Sachthey; for Appellant in CAs.
914 16/71.
Gobind Das, amicus curiae for Respondent.
The Judgment of the Court was delivered by GOSWAMI, J.
Five quarters of assessment of sales tax are involved in these five appeals, by special leave, the period commencing from January 1, 1959 to March 31, 1960.
This judgment will govern all these appeals involving a common question.
The Assistant Sales Tax Officer, Cuttack, included in the turnover of the respondent the sale price of jeera, dhania (coriander), panmohuri, methi, postak and pipall and levied 5 per cent sales tax under the Orissa Sales Tax Act (briefly the State Act).
On appeal the Assistant Commissioner of Sales Tax, Puri, allowed the claim of the respondent and held that the above items are oil seeds within the meaning of section 14(vi) of the and gave the respondent the benefit of a lower tax of 2 per cent on the sale turnover of those goods instead of 5 per cent under the State Act.
On appeal by the State of Orissa to the Sales Tax Tribunal claiming 5 per cent on the sale turnover thereof under the provisions of the , the orders of the Assistant Commissioner were affirmed.
On application by the State for each of the five quarters, the Tribunal referred the following two common questions under section 24 of the State Act: "(1) Whether in the facts and circumstances of the case, the Sales Tax Tribunal is right in holding that jeera, dhania, panmohuri, methi, postak and pipali are oil seeds within the meaning of section 14 of the Central Act and the tax payable under the State Law in respect of the sale or purchase of these goods inside the State, cannot exceed 2 per cent of the sale or purchase price thereof.
(2) Whether the communication No. 4(8) ST/57 dated 31st January, 1958, issued by the Government of India which is only an official communication having no statutory sanction behind it can have any legal effect to hold the goods in question as oil seeds as understood in common parlance and whether such an official communication is binding on the State Government.
" We are not concerned with 'pipali ' in these appeals.
968 When these appeals came before us for hearing the respondent was not represented.
We, therefore, requested Mr. Gobind Das to act as amicus curiae in these appeals.
Before we may proceed further, we may immediately turn to section 14(vi) of the (briefly the Central Act): "14.
Certain goods to be special importance in inter State trade or commerce.
It is hereby declared that the following goods are of special importance in inter State trade or commence: (vi) Oil seeds, that is to say, seeds yielding non volatile oils used for human consumption, or in industry, or in the manufacture of varnishes, soaps and the like, or in lubrication, and volatile oils used chiefly in medicines, perfumes, cosmetics and the like".
The above definition is an explanatory one and uses mentioned therein cover a wide range.
If the particular items which are assessed under the State Act can be brought under the definition of "oil seeds", as given in the above provision, the assessee will be entitled to a lower levy of sales tax.
Mr. Mahajan appearing on behalf of the appellant sumbits that the Court should adopt the meaning given to these items in common parlance and by the people who use the articles.
He chiefly relies upon a decision of the Andhra Pradesh High Court in The State of Andhra Pradesh vs Kajjam Ramchandraiah Gari Anantaiah.
In that case the High Court was dealing, inter alia, with an identical item, viz., dhania (coriander) under item 3 of Schedule IV of the Andhra Pradesh General Sales Tax Act, 1957.
Item 3 is identical with item (vi) of section 14 of the Central Act giving the definition of "oil seeds".
The Andhra Pradesh High Court relied upon a letter from the Director of the National Chemical Laboratory, Poona, dated January 29, 1959, addressed to the Secretary, Council of Scientific and Industrial Research, New Delhi, as also upon another letter from the Central Food Technological Research Institute, Mysore, dated February 18, 1959, and came to the conclusion that, amongst other things, dhania (coriander) did not come "within the definition of oil seeds".
The High Court also held that it was not difficult to envisage with the increase in scientific knowledge and technological development that oil could be extracted from any seed which might not be known as an oil seed in common parlance.
That Court also observed that there was no evidence to show that any oil was extracted in this country or that the oil extracted from the seeds concerned was used commercially or industrially or could be bought in the market.
In this view of the matter the Andhra Pradesh High Court held that dhania and other seeds which came up for consideration were not oil seeds under item 3 of Schedule IV of the Andhra Pradesh Sales Tax Act.
It is interesting that on this finding of that Court coriander escaped altogether from assessment.
969 In Commissioner of Sales Tax, Madhya Pradesh, Indore, vs Bakhat Rai and Co., the Madhya Pradesh High Court also took the same view as that of the Andhra Pradesh High Court while dealing with item 3, Part II, Schedule 1 of the C.P. and Berar Sales Tax Act.
In the Madhya Pradesh case, however, the term 'oil seed ' has not been defined under the Act.
The Court, therefore, held that since it was an item of every day use it must be construed in its popular meaning, that is to say, in that sense which people conversant with the subject matter with which the statute was dealing would attribute to it.
The Division Bench of the Kerala High Court has also held in The Deputy Commissioner of Agricultural Income tax and Sales Tax, Kozikode vs V. Sreedhara Shenoy that dhania (coriander) and methi are not oil seeds under section 14(vi) of the Central Act.
Mr. Mahajan has strenuously submitted that the articles in question are spices to all indents and purposes and not "oil seeds".
He further submits that even if they are oil seeds in the sense that these yield non volatile oil to a certain extent, no evidence has been produced by the assessee that these are used for human consumption or in industry or in the manufacture of varnishes, soaps and the like, or in lubrication, or in medicines, perfumes, cosmetics and the like as mentioned in the definition.
Mr. Gobind Das, on the other hand, has drawn our attention to the fact that the High Court had before it the Condensed Chemical Dictionary (7th Edition) edited by Arther and Elizabeth Rose, from which the following informations regarding the seeds in question were available: "Dhania (coriander seed); botanical name coriandrum sativem.
Coriander oil is distilled from the coriander sativum a colourless or slightly yellowish, liquid having aromatic odour.
Jeera (cumin seed); Cumin oil is distilled from the cumin seed and is used for medicine, flavouring and perfumery.
It is a colourless or yellowish, limpid liquid having characteristic odour of cumin.
Postak (poppy seed); botanical name papover somniferum.
Poppy oil is a very pale, golden yellow liquid with pleasant taste and odour extracted from the seeds and it is used as food oil, artist 's colours, varnishes & lubrication.
Methi (Fenugreek); botanical name trigonella Foenumgraecum (vide p. 164, vol. 9 of the Encyclopaedia Britannica).
It is stated inter alia therein that it bears a sickle shaped pod, containing from 10 to 20 seeds, from which 6% of a foetid, fatty, and bitter oil can be extracted by ether".
Besides, the High Court also had before it the notification of the Ministry of Finance, Department of Economic Affairs, Government of India, dated January 3, 1959, wherein amongst other commodities 970 the following were stated to be included in the term "oil seeds" under item (vi) of section 14 of the Central Act: "(18)Poppy seed (Posta dana, Khaskhas); (37) Aniseed (saunf); (42) Coriander seeds (Dhania); (44) Cuminseed (Jeera, Safed Jeera); (49) Fenugreek seeds (Methi)".
Mr. Gobind Das also drew our attention to the Webster 's Third International Dictionary where coriander seed is described as "the ripened dried fruit of coriander used for flavouring especially of pickels, curries, confectioneries, and liquors.
" These appeals arise out of a decision in a reference under section 24 of the State Act under article 136 of the Constitution and we have to consider whether it is a fit case for interference with the order of the High Court when it held that the Sales Tax Tribunal was right in its conclusion.
It is true the High Court has rightly observed that the aforesaid notification of the Government of India has no statutory force and as such is not binding on the Sales Tax Officer.
It cannot, however, be denied that the Ministry of Finance, Department of Economic Affairs, is intimately conversant not only with the policy of legislation for the purpose of implementation of the provisions of the Central Act but is also familiar with the nature and quality of the commodities as also their use from time to time.
If, therefore, such an authority issued a notification including certain commodities under the head of 'oil seeds ', as defined under the Central Act, it cannot be said that the Tribunal and the High Court were not right in preferring such an opinion of the Government as good evidence for its conclusion, to the opinions relied upon by the Andhra Pradesh High Court on which great reliance has been placed by the appellant.
A persual of the contents of the letters referred to in the judgment of the Andhra Pradesh High Court would indicate that the opinions cannot be said to be very firm or even final.
Apart from this, it is not known whether all the uses which are mentioned in the definition of "oil seeds" were brought to the notice of the National Chemical Laboratory, Poona and of the Central Food Technological Research Institute, Mysore, in rendering their opinions.
If, therefore, the Tribunal in the facts and circumstances of the case held that the particular commodities came within the definition of clause (vi) of section 14 of the Central Act, it is not possible to hold that it was not right.
The answer to the first question by the High Court is, therefore, rightly in the affirmative.
We do not also see anything wrong in the High Court 's answering the second question in the way it did.
The appeals, therefore, fail and are dismissed.
There will be no order as to costs.
We are thankful to Mr. Gobind Das for assisting the Court as amicus curaie.
V.P.S. Appeals dismissed.

dataset_name: IN-Abs

summary/full:
Under section 14(vi), , among goods declared to be of special importance in inter State trade and commerce are mentioned oil seeds, that is to say, seeds yielding non volatile oils used for human consumption, or in industry, etc., or volatile oils used chiefly in medicines etc.
The Assistant Commissioner under the Orissa Sales Tax Act, the Tribunal, and the High Court on reference, held that jeera dhania, panmohuri, methi and postak are oil seeds within the meaning of section 14(vi) and liable to a lesser rate of tax.
The High Court relied on ordinary and technical dictionaries and a notification of the Ministry of Finance, Department of Economic Affairs, Government of India, dated January 3, 1959 for its conclusion.
In appeal to this Court under article 136, it was contended by the State, relying on State of Andhra Pradesh vs Kajjam Ramchandraiah Gari Anantaiah (1961) 12 STC 795, that the Court should adopt the meaning given to these articles in common parlance by people who use them, that so understood they are spices and not oil seeds, and that though they yield non volatile oil to a certain extent, there is no evidence that they fall within the description in section 14(vi).
Dismissing the appeal, ^ HELD: It cannot be said that the Tribunal was not right, and so it is not a fit case for interference under article 136, when the High Court held that the Tribunal was right.
[970C D, G] (a) Item 3, Schedule IV, A.P. General Sales Tax Act, 1957, is identical with section 14(vi) of the Central Act.
In Kajjam Ramachandriah 's case, the Andhra Pradesh High Court held that dhania did not come within the definition of oil seeds relying on some letters from (i) Director, National Chemical Laboratory, Poona, and (ii) Central Food Technological Research Institute, Mysore.
[968F] (b) The High Court was right in the present case in holding that the notification of the Government of India had no statutory force and was not binding on the Sales Tax Officer, but it cannot be said that the High Court and Tribunal were not right in preferring the opinion therein as good evidence for their conclusion to the opinions in the letters relied upon by the Andhra Pradesh High Court.
The Ministry of Finance, which issued the notification, is intimately conversant not only with the policy of legislation for the purpose of implementation of the provisions of the Central Act, but is also familiar with the nature and quality of the commodities and also their use from time to time.
[970D F] (c) Further, the letters of the Director, National Chemical Laboratory and the Central Food Technological Research Institute, do not indicate that the opinions expressed therein were firm or even final or whether all the uses mentioned in the definition of oil seeds were brought to their notice.
[970F] Commissioner of Sales Tax, Madhya Pradesh, Indore vs Bakhat Rai and Co. (1966) 18 Sales Tax Cases 285 and The Deputy Commissioner of Agricultural Income tax and Sales Tax, Kozhikode vs Sreedhara Shenoy (1973) 32 Sales Tax Cases 181, referred to. 967


judgement:
ivil Appeals Nos.
312 to 314 of 1972.
Appeals by Special Leave from the Judgment and Order dated the 19 3 71 of the Orissa High Court in C.W. Nos. 325 to 327/70.
Appellant No. 1 in person and D. N. Misra for the Appellants.
921 Gobind Das and G. section Chatterjee for the Respondent.
KRISHNA IYER, J. Three civil appeals, stemming from three revision petitions to the High Court of Orissa under the Orissa Estates Abolition Act, 1951 (Orissa Act I of 1952) (for short, the Act) have reached this Court, thanks to special leave granted to the appellant, who is common in all the cases.
The High Court, after deciding various issues, remanded the cases to the Compensation Officer under the Act, after over ruling most of the contentions pressed before it by the appellant.
Shri Achutananda Purohit, appellant, was the intermediary in respect of vast forests and other lands comprised in the estate of Jujumura in the district of Sambalpur.
This estate vested in the State on April 1, 1960 by force of the Act and the crucial question agitated before us, consequentially turns on the quantum of compensation awardable under Chapter V of the Act.
The appellant has received around Rs. 3,00,000/ but much more, according to him, is due and this controversy can be settled by examining his specific points.
Shri Purohit, appellant, is an Advocate by profession and is 83 years old.
He has argued in person and with passion.
We have listened with patience to all his submissions, good, bad and indifferent.
If we may anticipate ourselves, none of the nine submissions has appealed to us, save to the extent the High Court has upheld.
Even so, a minimal narration of the facts and a brief consideration of each argument is necessary and we proceed to do so.
While his arguments did not impress us, we were touched by his concluding words that he had been born and had grown in an adivasi village, in the only brahmin family and, in his evening years of life, proposed to give a substantial part of the compensation the State would give him for adivasi welfare.
Although he waxed sentimentally on this note, he did not convince us on his contentions.
With these prefatory observations, we proceed to formulate the many points urged and give our findings and reasons, one after the other.
We are directly concerned with the issue of compensation which is dealt with, as earlier stated, in Chapter V of the Act.
The Compensation Officer is charged with fixing the quantum in the prescribed manner.
A compensation assessment roll containing the gross asset and net income of each estate, together with the compensation payable in respect of such estate, has to be prepared by him.
Of course, when there is joint ownership, section 24 stipulates that the compensation shall be determined for the estate as a whole and not separately for each of the shares therein.
Section 26 has great relevance as it lays down the method of arriving at the gross asset and section 27 has like significance as it focuses on the manner in which the net income from an estate shall be computed by deducting certain items from the gross asset of the estate.
Section 28 states how the amount of compensation is to be determined and the methodology of payment.
There are a few other sections in Chapter VI which deal with payment of compensation.
The Act also provides for appeal, second appeal and 922 revision, the last being to the High Court and the earlier ones being to the Collector and a Board constituted under section 22.
The rule making power is vested in the government under section 47 and there is a routine 'removal of difficulties ' clause contained in section 50.
These furnish in bare outline the provisions with which we are directly concerned.
Against the background of law just projected, we may set out Shri Purohit 's points which, if we may say so, are substantially the same as have been argued by him in revision before the High Court with partial success.
For convenience of reference, we may extract the statement by the High Court of the contentions urged before it (and repeated before us) by the appellant: "(1) The provisions of section 37(3) read with section 26(2) (b) (v) of the Act make it clear that the date of vesting is the last date by which the calculation of compensation should have been made.
As admittedly compensation had not been calculated by the date of vesting, the Compensation Officer lost his statutory jurisdiction to do so.
It is this Court which, by its order dated 10 4 1969 in Civil Revisions 201, 202 and 203 of 1968 conferred new jurisdiction on the Compensation Officer to deal freshly with the case and therefore notwithstanding anything contained in the Act, the compensation has to be calculated according to the directions given by the Court; (2) The Court was fully aware of the statutory provision in section 26(2) (b) (v) of the Act, but in spite of it, the direction was that the Divisional Forest Officer should make the appraisement.
There was no direction that this report of the D.F.O. should be further subject to the approval of the Chief Conservator of Forests.
The calculation made by the Chief Conservator of Forests therefore has no statutory force but could be just a piece of evidence.
But as the Court directed that no further evidence on behalf of the State should be received, Ext.
A/1 is inadmissible in evidence.
(3) Assuming that in spite of the directions of the court the Compensation Officer is entitled to follow the procedure laid down in Section 26(2)(b)(v), the expression 'subject to the approval of the Chief Conservator of Forests ' does not refer to the appraisement made by the D.F.O. but refers to his appointment.
(4) Assuming that section 26(2) (b) (v) would have full force, what it contemplates is that the appraisement must be made by the D.F.O., and it is subject to the approval by the Chief Conservator of Forests.
But what has happened here is that the Chief Conservator himself made the appraisement without referring to the appraisement made by the D.F.O. and as such the appraisement made by the Chief Conservator is invalid.
(5) The report of the Chief Conservator of Forests is also invalid because of the fact that the appraisement is made 923 only with reference to the area of the disputed forests without taking into consideration the density of growth therein; (6) Unlike in case of fisheries etc., where the actual income is to be included in the gross assets, in the case of forests, the assumed income and not the actual income is to be included.
During the agricultural year immediately preceding the abolition, the petitioners had not actually derived any income from the forests and as such they were under no obligation to pay any income tax on such income.
Therefore, deduction of income tax from the gross assets is illegal and unwarranted.
(7) The slab system of calculation of compensation in the Act providing smaller multiples for estates yielding larger income is unconstitutional.
(8) Compensation money should be so calculated that the purchasing power of the amount of compensation to be paid on the date of actual payment will not be less than its purchasing power on the date of vesting; and (9) Interest should be calculated at not less than 12% per annum from the date of vesting till payment.
" The meat of the matter, the primary question agitated in the appeal, lopping off the fringe issues of lesser import, consists in the statutory methodology and functionaries prescribed by the Act for quantifying the compensation and the compliance therewith by the statutory machinery in the case of the appellant.
But before examining this essential issue we may dispose of the minor points pressed, so that the deck may be cleared for dealing with what deserves to be dealt with.
Point No. 9, in the catalogue already given, relates to the claim for 12% interest on the amount of compensation as against the statutory rate of 2 1/2%.
The policy of the law of agrarian reform postulates the extinguishment of ancient privileges and cornering of land resources, and the socio economic yardstick is different from what applies to ordinary purchases of real estate and this is manifest in the special provisions contained in article 31A and article 31B of the Constitution.
A similar principle applies to the award of interest which may sometimes be notional when feudal interests are puffed out.
We cannot import the notion of prevailing bank rates in such situations.
The dynamic rule of law, with a social mission, makes a meaningful distinction between rights steeped in the old system and compensation for deprivation of those interests, on the one hand, and the ordinary commercial transactions or regulation of rights untinged by social transformation urges, on the other.
This gives rationality to the seeming disparity.
Holmes once commented: 'It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV '.
Here there is good reason to depart from the old rule of full compensation and it perhaps legitimates the reduced rate of recompense.
Moreover, the High Court has rightly pointed 924 out that the validity of section 37(3) of the Act which fixes a small rate of interest on the compensation amount has been upheld by the Supreme Court in Gajapati Narayan 's Case(1).
Point No. 8 has only to be stated to be rejected.
The contention is that on the date of vesting, which was well over two decades ago, the purchasing power of the rupee was much higher than its present value.
It is more or less a world phenomenon that the erosi on in value of the unit of currency has been taking place, but this invisible devaluation owing to the inflationary spiral does not affect the quantum of monetary compensation prescribed by statute.
For the purposes of the law, the rupee of long ago is the same as the rupee of today, although for the purposes of the market place and cost of living, the housewife 's answer may be different.
Law is sometimes blind.
The next point in the reverse order is equally unsubstantial and may be disposed of right away.
The appellant challenges the slab system of compensation provided in the Act which awards smaller multiples for estates yielding larger incomes, on the score of violation of the fundamental rights under the Constitution.
The short answer is that article 31(3) read with article 31(2) bars any challenge to the amount of compensation on acquisition by the State subject to compliance with the prescriptions in the said sub Articles, on the ground that the amount so fixed or determined is not adequate.
Presidential assent has been accorded to this State Act and so the ban operates.
Moreover, article 31A repels the applicability of articles 14, 19 and 31 to the acquisition by the State of any estate or of any rights therein etc.
This provision directly demolishes the contention of the appellant.
Point No. 6 in the list of contentions earlier reproduced is also bereft of force and we may make short shrift of it.
The argument is that for certain reasons the appellant could not derive and actual income from the forests taken over by the State from him and therefore there was no income tax payable on any agricultural income from these forests.
The contention is that therefore in arriving at the next income the deduction of income tax is not permissible.
Here again, the flaw in the submission consists in mis reading section 27 of the Act which expressly states that the net income from an estate shall be computed by deducting from the gross assets of such estate any sum 'which was payable by the intermediary as income tax in respect of any income . . derived from such estate for the previous agricultural year '.
No income, therefore no income tax, and therefore no deduction, is the syllogism of Shri Purohit.
He forgets that in the case of forests it is the assumed income and not the actual income that forms the basis of calculation of compensation.
Indeed, if the actual income were to be the foundation for computation of compensation on the premise that not actual income has accrued, the compensation might be zero.
On the other hand, statutory compensation is provided for on the formula of assumed income in the previous year.
Similarly, an assumed income tax also has to be worked out and deducted.
If 925 a notional income on the assumed basis can be used for fixing compensation, a notional income tax can be calculated and deducted.
The confusion that vitiates the argument is prompted by a circular letter of government regarding non deductability of income tax due to the State from the amount of compensation lying to the credit of estateholders.
We have examined the circular letter and are satisfied that it has no relevance to a situation like the present and it deals with a totally different matter.
In short, section 27 properly construed, can not lend itself to the meaning imputed to it by the appellant.
The serious question that survives for consideration is covered by the remaining points which more or less overlap.
The statutory scheme of compensation for forest lands consists of a machinery for assessment of the net income which is multiplied on a sliding scale and the method of challenge to the determination by the aggrieved owner of State.
Section 26(2) (b) (v) is relevant here and may be set out: "26(2) 'gross asset ' when used with reference to an estate means the aggregate of the rents, including all cesses, which were payable in respect of the estate for the previous agricultural year (b) by the raiyats or any other persons cultivating the land other than the land settled with the intermediary or intermidaris under Sub section (1) of Section 7 and includes: (v) gross income from forests calculated on the basis of the appraisement made of annual yield of the forests on the date of vesting by a Forest Officer subject to the approval of the Chief Conservator of Forests, such Forest Officer being not below the rank of a Divisional Forest Officer to be appointed in this behalf by the State Government.
" The expression 'Forest Officer ', used here, has been explained in section 26.
So the first step is for the Government to appoint Forest Officers from out of D.F.Os.
in the Forest Department, for the purposes of the Act.
Those Officers ascertain the income from the forest concerned and the figure so fixed is subject to the approval of the C.C.F. (Chief Conservator of Forests), presumably the top expert in the department.
The power to approve implies the power to disapprove or modify but not to report or arrive at an income de hors the Forest Officer 's Report altogether.
The section is clear that the gross income from forests must be calculated on the basis of appraisal of the annual yield on the date of vesting firstly, by a Forest Officer and, secondly, by the Chief Conservator of Forests screening it and approving it.
Indeed, preliminary to the appraisal operation, the intermediary receives a notice in Form 'D ' (rule 13) and he is expected to furnish a return of the relevant particulars and supporting information to enable correct appraisement.
In the present case, the appellant did submit the 'D ' return to the Compensation Officer and adduced some evidence to substantiate it.
The Compensation Officer passed an order adverse to the appellant, where upon he filed an appeal to the Collector which was rejected.
A Second 926 Appeal followed before the Board of Revenue which was dismissed.
Later, revision petition were filed before the High Court and G. K. Misra J., set aside the order disallowing the inclusion of the income from forests for ascertainment of compensation and directed a remand to the Compensation Officer.
The said order (the relevant portion of which we are concerned) runs thus: "He would immediately call upon the Divisional Forest Officer to make appraisement within three months from the receipt of the record.
The appraisement can be scientifically done by looking to the age of the trees as they stand now.
It is open to the petitioners to give evidence that after the date of vesting many of the trees and forest produce have been removed.
Besides the evidence already on record would be taken into consideration.
The Divisional Forest Officer who would make the appraisement will be examined as a witness for the Compensation Officer and would be subjected to cross examination.
No other evidence would be permissible as the State has not chosen to give any other evidence.
Under Rule 13(1 c) of the Orissa Estates Abolition Rules, 1952 the compensation officer may rely upon such other materials as may otherwise be ascertained by him.
But in such a case the materials must be brought to the notice of the petitioners who would be entitled to cross examine the witnesses connected therewith and may give rebutting evidence.
The compensation case is to be disposed of by the compensation officer within six months from today (10 4 1969) with intimation to this Court.
" Strictly speaking, the statutory requirement is for initial appraisal of the annual income by the Forest Officer.
The use of the expression 'Divisional Forest Officers is erroneous although Forest Officers are appointed from among Divisional Forest Officers.
Equally clearly, a slight error has crept into the Judge 's order because he does not make any reference specifically to the statutory requirement of approval of the Chief Conservator of Forests of the appraisement made by the Forest Officer.
However, what followed is interesting though erroneous.
The District Forest Officer (who, incidentally, happens to be a Forest Officer under the Act, having been appointed as required thereunder) made his appraisal of the annual income and submitted to the Chief Conservator who altered the annual yield and reduced it substantially.
But he pointed out that the Forest Officer had omitted to include the income from kendu leaves and added that sum to the income from forests.
Even so, the total figure was less than what the Divisional Forest Officer had recommended.
The Compensation officer accepted the report of the Chief Conservator and made the statutory calculation on that date.
Both the State and the appellant filed appeals to the Collector which were dismissed.
A second appeal was filed by the appellant before the Board of Revenue without success.
Then followed three revision petitions to the High Court which led to the order of remand now attacked before us in the present appeals.
927 From this narrative, what follows is that the Chief Conservator had substituted his appraisement which was accepted by the statutory tribunal.
Indeed, there was a fundamental difference in the basis adopted by the Forest Officer and the Chief Conservator in the matter of assessing the income of the forests in question.
We need not go into this detail except for the purpose of noticing that what the Chief Conservator did was not to approve wholly or in a modified form what the Forest Officer did but to make his own appraisal independently and without reference to the report of the statutory functionary, viz., the Forest Officer.
This was wrong and contrary to section 26, as was contended by the appellant and in a way accepted by the High Court.
We are in agreement with the course adopted by the High Court and the reasoning which has prevailed with it.
The direction given by the learned Judge in the remand order is correct although it may require a little clarification.
Having heard the appellant at some length, we see no flaw in the High Court 's order on this aspect of the matter.
It is astonishing that anyone should urge, as the appellant did, that the date of vesting is the last date by which the calculation of compensation should have been made and since that had not been done, the Compensation Officer had become functus officio in awarding compensation.
Before the date of vesting the State never can, nor does, fix the compensation through the Compensation officer in any of the agrarian reform laws, and these compensation operations are poststatutory exercises.
Therefore there is no substance in the functus officio argument.
If the officer had no jurisdiction, the land would be gone because of the vesting provision and no compensation would be forthcoming for want of jurisdiction a consequence the appellant never wants.
Technicality can be frightened away by technicality.
Nor is it right to contend, as the appellant did, that the Compensation Officer 's jurisdiction was created by the order of remand by the High Court.
No, it was created by the statute and canalised by the order of remand.
It follows that, after the present second remand, the re appraisal of the annual net income cannot be done solely by the Forest Officer without securing the approval of the Chief Conservator.
Nor can the Compensation Officer by pass the Chief Conservator on the misunderstood strength of the High Court 's first order of remand.
The true legal drill is and this holds good after the second remand order that the Forest officer will do the appraisement of the annual income, forward his report to the Chief Conservator of Forests who will take the said report into consideration and, if necessary, make modifications therein or approve it with such changes as he deems fit.
Certainly the Chief Conservator cannot be ignored by the Compensation Officer nor can the Chief Conservator ignore the assessment made by the Forest Officer and go through an independent exercise.
The integrated process has already been explained by us and will be followed in the proceedings to ensue on remand.
We may make it clear that now that a Forest officer has made an appraisement, the Chief Conservator of Forests will apply his mind to it and approve it as a whole or with such modifications as he thinks necessary and forward it to the Compensation Officer.
This will, among other things, save time.
Thereafter, the appropriate statutory course will follow.
Substantially, this 928 is what has been done by the learned Judge when allowing the revisions and remitting the case back to the Compensation Officer.
The take over of the forests of the appellant was effected as early as 1960 and 16 years have passed without the intermediary being out of the litigative woods.
The High Court has stated that a large part of the delay has been 'due to laches committed from time to time by the Officers who have been charged with the duty to calculate the compensation.
It is again due to mistakes committed by the authorities concerned that the matter is being remitted back to the Compensation Officer for disposal '.
The force of these observations constrains us to direct that the proceedings before the Compensation Officer shall be completed within six months from today.
In this context, it is perhaps not irrelevant to remember that the appellant, a freedom fighter, is an 83 year old man and, at this stage of his life, the State should show commisseration not merely in quickly disposing of the proceedings but also in not being cantankerous in awarding and disbursing the balance compensation.
With these directions and observations we affirm the orders under appeal but, while dismissing the appeals, direct the parties to bear their costs in this Court.
P.H.P. Appeals dismissed.

summary/full:
The appellant was the intermediary in respect of vast forest and other lands in the State of Orissa.
The estates vested in the State in April 1960 by force of the Orissa Estates Abolition Act, 1951.
The appellant submitted necessary return for compensation as provided by the Act.
The Compensation Officer passed an order adverse to the appellant whereupon the appellant filed an appeal to the Collector which was rejected.
A second appeal filed before the Board of Revenue was dismissed.
Later on, Revision Petitions were filed in the High Court.
The High Court set aside the order and directed remand to the Compensation Officer.
Thereafter, the District Forest Officer made his appraisal of the annual income and submitted to the Chief Conservator of Forests who altered the actual yield and reduced it substantially.
Both the State and the appellant filed appeals to the Collector which were dismissed.
A second appeal was filed by the appellant before the Board of Revenue without success.
In the Revision Applications filed before the High Court which led to the remand now challenged in the present appeals the appellant contended before this Court: (1) The interest ought to have been awarded at 12 per cent as against the statutory rate of 2 1/2 per cent from the date of the vesting till payment.
(2) Compensation money should be so calculated that the purchasing power of the amount of compensation to be paid on the date of actual payment will not be less than the purchasing power on the date of vesting.
(3) The slab system of calculation of compensation in the Act providing smaller multiples for estates yielding larger income is unconstitutional.
(4) Unlike in case of fisheries etc., where the actual income is to be included in the gross assets, in the case of forests, the assumed income and not the actual income is to be included.
During the agricultural year immediately preceding the abolition, the petitioners had not actually derived any income from the forests and as such they were under no obligation to pay any income tax on such income.
Therefore, deduction of income tax from the gross assets is illegal and unwarranted.
(5) The compensation has not been computed in accordance with the scheme of the Act.
(6) The date of vesting is the last date by which the calculation of compensation should have been made and since that had not been done the Compensation Officer had become functus officio in awarding compensation.
Dismissing the appeals, ^ HELD: 1.
The policy of the law of agrarian reforms postulates the extinguishment of ancient privileges and cornering of land resources and the socio economic yardstick is different from what applies to ordinary purchases of real estate and this is manifest in the special provisions contained in Article 31A and 31B of the Constitution.
A similar principle applies to the award of interest which may sometimes be notional when feudal interests are puffed out.
The 920 dynamic rule of law with a social mission makes a meaningful distinction between rights steeped in the old system and compensation for deprivation of those interests on the one hand and the ordinary commercial transactions on the other.
[923 F G] 2.
It is more or less a world phenomenon that the erosion in value of the unit of currency has been taking place.
But this invisible devaluation owing to the inflationary spiral does not affect the quantum of monetary compensation prescribed by statute.
For the purposes of the law, the rupee of long ago is the same as the rupee of today although for the purposes of the, market place and cost of living, the housewife 's answer may be different.
[924B C] 3.
Article 31(3) read with Article 31(2) bars any challenge to the amount of compensation on acquisition by the State subject to the compliance with the prescriptions in the said sub articles on the ground that the amount so fixed or determined is not adequate.
Presidential assent has been accorded to this State Act and so the ban operates.
[924C D] 4.
The submission of the appellant proceeds on a misreading of section 27.
In the case of forests it is the assumed and not the actual income that forms the basis for calculation of compensation.
Similarly an assumed income tax also has to be worked out and deducted.
[924F G] 5.
The scheme of the Act is that the compensation must be calculated on the basis of appraisal of the annual yield of the forests on the date of vesting firstly by a Forest Officer and secondly by the Chief Conservator of Forests,screening it and approving it.
In the present case, the Chief Conservator had substituted his appraisement which was accepted by the statutory Tribunal.
There was a fundamental difference in the basis adopted by the Forest Officer and the Chief Conservator of Forests in the matter of assessing in the income of the Forest in question.
What the Chief Conservator did was not to approve wholly or in a modified form what the Forest Officer did but to make his own appraisal independently and without reference to the report of the statutory functionary.
This was wrong and contrary to section 26.
This Court is in agreement with the course adopted by the High Court and the reasoning which has prevailed with it.
[925C, 927A B] 6.
Before the date of vesting the State never can nor does fix the compensation through the Compensation Officer in any of the agrarian reform laws and these compensation operations are post statutory exercises.
Therefore, there is no substance in the funtcus officio argument.
If the officer had no jurisdiction the land would be gone because of the vesting provision and no compensation would be forthcoming for want of jurisdiction; a consequence the appellant never wants.
Technicality can be frightened away by technicality.
[927D E] 7.
After remand the Forest Officer will do the appraisement of the annual income, forward his report to the Chief Conservator of Forests who will take the said report into consideration and, if necessary, make the modifications therein or approve it with such changes as he deems fit.
Certainly, the Chief Conservator cannot be ignored by the Compensation Officer nor can the Chief Conservator ignore the assessment made by the Forest Officer and go through an independent exercise.
The take over of the forest of the appellant was effected as early as in 1960.
The High Court has stated that a large part of the delay has been due to laches committed from time to time by the officers charged with the duty to calculate the compensation.
It is therefore directed that the proceedings before the Compensation Officer shall be completed within six months from today.
[927F H, 928A B]


judgement:
Civil Appeal No. 2526 of 1972.
Appeal from the Judgment and Order dated the 13th January, 1972 of the Calcutta High Court in Matter No. 326 of 1967.
G. C. Sharma and section P. Nayar, for the Appellant.
D. Pal, B. Sen, (Mrs.) Leila Seth, P. K. Pal, section R. Agarwala and Parveen Kumar for the Respondent.
The Judgment of the Court was delivered by KHANNA, J.
This appeal on certificate is against the Full Bench judgment of the Calcutta High Court whereby on petition under article 226 of the Constitution of India filed by the respondent that court by majority quashed notice under section 148 of the Income tax Act, 1961 (hereinafter referred to as the Act) issued by appeallant No. 2 (Income tax Officer E Ward, Hundi Circle, Calcutta) (hereinafter referred to 958 as the appellant) for the purpose of reopening assessment of the income of the respondent for the assessment year 1958 59.
The respondent was assessed for the assessment year 1958 59 under section 23(3) of the Indian Income tax Act, 1922 on June 14, 1960.
His total income was assessed to be Rs. 37,872.
While making the assessment the Income tax Officer allowed deduction of a sum of Rs. 15,991 by way of expenses claimed by the respondent.
The expenses included Rs. 10,494/4 As/3 Pies by way of interest.
According to the respondent, he produced through his authorised representative all books of accounts, bank statements and other necessary documents in connection with the return.
On March 14, 1967 the respondent received notice dated March 8, 1967 issued by the appellant under section 148 of the Act stating that the appellant had reason to believe that the respondent 's income which was chargeable to tax for the assessment year 1958 59 had escaped assessment within the meaning of section 147 of the Act and that the notice was being issued after obtaining the necessary satisfaction of the Commissioner of Income tax.
The respondent was called upon to submit within 30 days from the date of the service of the notice a return in the prescribed form of his income for the assessment year 1958 59.
On May 2, 1967 the respondent through his lawyer stated that there was no material on which the appellant had reason to believe that the respondent 's income had escaped assessment and, therefore, the condition precedent for the assumption of jurisdiction by the appellant had not been satisfied.
The appellant was said to have no competence or jurisdiction to re open the assessment under section 147 of the Act on a mere change of opinion.
The appellant was also called upon to furnish all the materials on which he had reason to believe that income had escaped assessment.
As, according to the respondent, there was no satisfactory response from the appellant, he filed petition under article 226 of the Constitution for quashing the impugned notice.
It was denied in the affidavit on behalf of the appellant that all materials relevant and necessary for the assessment of the respondent 's income for the assessment year 1958 59 had been produced before the Income tax Officer at the time of the original assessment.
It was further stated: "Subsequent to the assessment for the assessment year 1958 59, it was discovered, inter alia, that some of the loans shown to have been taken and interests alleged to have been paid thereon by the petitioner during the relevant assessment year were not genuine.
The Income tax Officer had reason to believe and bona fide believed that the said alleged loans and the interest alleged to have been paid thereon are not genuine.
If necessary, I crave leave to produce before the hon 'ble Judge hearing the application, the relevant records on the basis of which the said Income tax Officer had reason to believe that the income of the petitioner escaped assessment as aforesaid at the hearing of the application.
" During the pendency of the proceedings the High Court directed that a copy of the report made by the appellant to the Commissioner of 959 Income tax for obtaining latter 's sanction under section 147 be produced.
The report was accordingly produced, and the same reads as under: "There are hundi loan credits in the name of Narayan singh Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., who are known name lenders, and also hundi loan credit in the name, Mohansingh Kanayalal, who has since confessed he was doing only name lending.
In the original assessment these credits were not investigated in detail.
As the information regarding the bogus nature of these credits is since known, action under section 147 (a) is called for to reopen the assessment and assess these credits as the undisclosed income of the assessee.
The assessee is still claiming that the credits are genuine in the assessment proceedings for 1962 63.
Commissioner 's sanction is solicited to reopen the assessment for 1958 59, under section 147(a).
" All the three Judges who constituted the Full Bench found that the assessee was not being charged with omission to disclose all facts: he was charged for having made an untrue disclosure because the assessee had stated that he had received certain sums of money from certain persons as loans when, in fact, he had not received any sum at all from these persons.
It was also stated by the assessee at the time of the original assessment that he had paid interest to certain persons when, in fact, he had not, if the information received later was true.
The duty of the assessee, it was held, was not only to make a full disclosure of all material facts, his duty was also to make a true disclosure of facts and not to mislead the assessing officer by disclosing certain things which did not represent facts.
The High Court accordingly held that once an assessee infringes this rule, any subsequent discovery of fact by the assessing officer which would raise a resonable belief in his mind that the assessee had not made a true and correct disclosure of the facts and had thereby been responsible for escapement of his income from assessment would attract section 147 of the Act.
Two of the learned Judges, A. K. Mukherjea and section K. Mukherjea JJ., however, took the view that the conditions precedent for the exercise of jurisdiction by the Income tax Officer under section 147 of the Income tax Act were not fulfilled in the case as the report submitted by the Income tax Officer to the Commissioner for sanction under section 147(a) was defective.
The defects in the report, in the opinion of the High Court, were the same as had been pointed out by this Court in the case of Chhugamal Rajpal vs section P. Chaliha.(1) The Commissioner, while according permission for taking action under section 147, it was observed, acted mechanically because the Commissioner had not expressly stated that he was satisfied that this was a fit case for the issue of notice under section 148.
As against the majority, Sabyasachi Mukherji J. held that notice under section 148 of the Act was valid and did not suffer from any infirmity.
It was 960 also observed that the Commissioner of Income tax had not acted improperly in giving sanction.
In the result, by majority the High Court quashed the notice issued by the appellant to the respondent.
In appeal before us Mr. Sharma on behalf of the appellants has assailed the judgment of the majority of the learned Judges in so far as they have held that the report submitted by the Income tax Officer to the Commissioner of Income tax for sanction was defective.
As against that, Dr. Pal on behalf of the assessee respondent has canvassed for the correctness of the view taken by the majority regarding the defective nature of the report.
Dr. Pal has in his own turn assailed the finding of all the three learned Judges of the High Court in so far as they have held that the assessee was being charged with omission to disclose true facts.
Contention has also been advanced by Dr. Pal that the material on the basis of which the Income tax Officer initiated these proceedings for reopening the assessment did not have a rational connection with the formation of the belief that the assessee had not made a true disclosure of the facts at the time of the original assessment.
Before dealing with the points of controversy, it would be useful to reproduce the relevant provisions of the Act.
Sections 147 and 148 which deal with income escaping assessment and issue of notice where income has escaped assessment read as under: "147.
Income escaping assessment.
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 assessment year to the Income tax Officer or to 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 section 148 to 153, assess or ressess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year).
Explanation 1.
For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) where income chargeable to tax has been under assessed; or 961 (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income tax Act, 1922 (XI of 1922); or (d) where excessive loss or depreciation allowance has been computed.
Explanation 2.
Production before the Income tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income tax Officer will not necessarily amount to disclosure within the meaning of this section.
Issue of notice where income has escaped assessment. (1) Before making the assessment, reassessment or recomputation under section 147, the Income tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub section.
(2) The Income tax Officer shall, before issuing any notice under this section, record his reason for doing so.
" Sub section (1) of section 149 prescribes the time limit for notice and reads as under: "(1) No notice under section 148 shall be issued" (a) in cases falling under clause (a) of section 147 (i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub clause (ii); (ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year; (b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year.
" Section 151 pertains to the sanction for issue of notice and reads as under: "151.
Sanction for issue of notice. (1) No notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income tax Officer that it is a fit case for the issue of such notice.
962 (2) No notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income tax Officer that it is a fit case for the issue of such notice.
" The provisions of sections 147 to 153 of the Act correspond to those of section 34 of the Indian Income tax Act, 1922.
There have been some points of departure from the old law, but it is not necessary for the purpose of the present case to refer to them.
It would appear from the perusal of the provisions reproduced above that two conditions have to be satisfied before an Income tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (1) the Income tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the Income tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year.
Both these conditions must co exist in order to confer jurisdiction on the Income tax Officer.
It is also imperative for the Income tax Officer to record his reasons before initiating proceedings as required by section 148(2).
Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income tax Officer that it is a fit case for the issue of such notice.
We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment.
Production before the Income tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income tax Officer will not necessarily amount to disclosure contemplated by law.
The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts.
Once he has done that his duty ends.
It is for the Income tax Officer to draw the correct inference from the primary facts.
It is no responsibility of the assessee to advise the Income tax Officer with regard to the inference which he should draw from the primary facts.
If an Income tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.
The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts.
Once there exist reasonable grounds for the Income tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice.
Whether the grounds are adequate or not is not a matter for the court to investigate.
The 963 sufficiency of grounds which induce the Income tax Officer to act is, therefore, not a justiciable issue.
It is, of course, open to the assessee to contend that the Income tax Officer did not hold the belief that there had been such non disclosure.
The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief.
The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income tax Officer.
The reason must be held in good faith.
It cannot be merely a pretence.
It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section.
To this limited extent, the action of the Income tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law [see observations of this Court in the cases of Calcutta Discount Co. Ltd. vs Income tax Officer and section Narayanappa & Ors.
vs Commissioner of Income tax while dealing with corresponding provisions of the Indian Income tax Act, 1922].
Keeping the above principles in view, we may now turn our attention to the facts of the present case.
Two grounds were mentioned in the report made by the Income tax Officer for reopening the assessment of the assessee respondent with a view to show that his income had been under assessed because of his failure to disclose fully and truly material facts necessary for the assessment.
One was that Mohansingh Kanayalal, who was shown to be one of the creditors of the assessee, had since confessed that he was doing only name lending.
The other ground was that Narayansingh Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., whose names too were mentioned in the list of the creditors of the assessee, were known name lenders.
So far as the second ground is concerned, neither the majority of the Judges of the High Court nor the learned Judge who was in the minority relied upon that ground.
Regarding that ground, the learned Judge who was in the minority observed that no basis had been indicated as to how it became known that those creditors were known namelenders and when it was known.
The majority while not relying upon that ground placed reliance upon the case of Chhugamal Rajpal (supra).
In that case the Income tax Officer while submitting a report to the Commissioner of Income tax for obtaining his sanction with a view to issue notice under section 148 of the Act stated: "During the year the assessee has shown to have taken loans from various parties of Calcutta.
From D.I. 's Inv.
No. A/P/Misc.
(5) D.I./63 64/5623 dated August 13, 1965, forwarded to this office under C.I.T., Bihar and Orissa, Patna 's letter No. Inv.
(Inv.) 15/65 66/1953 2017 dated Patna September 24, 1965 it appears that these persons are name lenders and the transactions are bogus.
Hence, proper investigation regarding these loans is necessary.
The names of some of the persons from whom money is alleged to have been taken on loan on hundis are: 1.
Seth Bhagwan Singh Sricharan 964 2.
Lakha Singh Lal Singh 3.
Radhakissen Shyam Sunder The amount of escapement involved amounts to Rs. 1,00,000.
" In dealing with that report this Court observed: "From the report submitted by the Income tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee 's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year, nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year.
We are not satisfied that the Income tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147.
Therefore he could not have issued a notice under section 148".
Reference to the names of Narayansingh Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., in the report of the Income tax Officer to the Commissioner of Income tax in the instant case does not stand on a better footing than the reference to the three names in the report made by the Income tax Officer in the case of Chuugamal Rajpal.
We would, therefore, hold that the second ground mentioned by the Income tax Officer, i.e., reference to the names of Narayansingh Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., could not have led to the formation of the belief that the income of the respondent assessee chargeable to tax had escaped assessment for that year because of the failure or omission of the assessee to disclose fully and truly all material facts.
All the three learned Judges of the High Court, in our opinion, were justified in excluding the second ground from consideration.
We may now deal with the first ground mentioned in the report of the Income tax Officer to the Commissioner of Income tax.
This ground relates to Mohansingh Kanayalal, against whose name there was an entry about the payment of Rs. 74 Annas 3 as interest in the books of the assessee, having made a confession that he was doing only name lending.
There is nothing to show that the above confession related to a loan to the assessee and not to someone else, much less to the loan of Rs. 2,500 which was shown to have been advanced by that person to the assessee respondent.
There is also no indication as to when that confession was made and whether it relates to the period from April 1, 1957 to March 31, 1958 which is the subject matter of the assessment sought to be reopened.
The report was made on February 13, 1967.
In the absence of the date of the alleged confession, it would not be unreasonable to assume that the confession was made a few weeks or months before the report.
To infer from that confession that it relates to the period from April 1, 1957 to March 965 31, 1958 and that it pertains to the loan shown to have been advanced to the assessee, in our opinion, would be rather far fetched.
As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief.
Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts.
It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income tax Officer on the point as to whether action should be initiated for reopening assessment.
At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.
The fact that the words "definite information" which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, far fetched and remote.
The reason for the formation of the belief must be held in good faith and should not be a mere pretence.
The powers of the Income tax Officer to reopen assessment though wide are not plenary.
The words of the statute are "reason to believe" and not "reason to suspect".
The reopening of the assessment after the lapse of many years is a serious matter.
The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment.
The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income tax authorities after the assessment has been completed.
The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi judicial proceedings.
It is, therefore, essential that before such action is taken the requirements of the law should be satisfied.
The live link or close nexus which should be there between the material before the Income tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter 's failure or omission to disclose fully and truly all material facts was missing in the case.
In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment.
The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts.
We would, therefore, uphold the view of the majority and dismiss the appeal with costs.
P.B.R. Appeal dismissed.

summary/full:
In March 1967, after obtaining the satisfaction of the Commissioner the appellant issued a notice under section 148 of the Income Tax Act, 1961 stating that he had reason to believe that the respondent 's income chargeable to tax for the assessment year 1958 59 had escaped assessment.
The respondent replied that the I.T.O. had no competence or jurisdiction to reopen the assessment under section 147 of the Act on a mere change of opinion.
Since there was no reply from the appellant, the respondent moved the High Court for a writ.
The High Court held that the conditions precedent for the exercise of jurisdiction by the Income Tax Officer were not fulfilled because the report submitted by the Income Tax Officer to the Commissioner under section 147(a) was defective.
On appeal to this Court it was contended that the High Court was not right in holding that the Income Tax Officer 's report was defective.
Dismissing the appeal, ^ HELD: The High Court was right in holding that the material before the Income Tax Officer could not have led to the formation of the belief that the income of the assessee had escaped assessment because of his failure or omission to disclose fully and truly all material facts.
[965H] 1.
(a) The two conditions required to be satisfied before the Income Tax Officer issued a notice under section 148 of the Income Tax Act are that he must have reason to believe (i) that the income chargeable to tax had escaped assessment and (ii) that such income had escaped assessment by reason of the omission or failure on the part of assessee, to disclose fully and truly material facts necessary for assessment for that year.
Both these conditions must co exist in order to confer jurisdiction on the Income Tax Officer.
Further the Income Tax Officer should record his reasons before initiating proceedings under section 148(2); before issuing the notice after the expiry of four years from the end of the relevant assessment year, the Commissioner should be satisfied on the reasons recorded by the Income Tax Officer that it was a fit case for the issue of such notice.
[962C D] (b) The duty cast upon the assessee does not extend beyond making a true and full disclosure of the primary facts.
It is then for the Income Tax Officer to draw the correct inference from the primary facts.
Where his inference subsequently appears to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening the assessment.
[962F G] (c) The grounds or reasons leading to the formation of the belief under section 147(a) must have a material bearing on the question of escapement of income.
Once there exist reasonable grounds for the Income Tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice.
While the sufficiency of grounds which induce the Income Tax Officer to act is not justiciable, it is open to the assessee to contend that the Income Tax Officer did not hold the belief that there was such non disclosure.
The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income Tax Officer.
It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section.
[962H] 957 Chhugamal Rajpal vs section P. Chaliha , Calcutta Discount Co. Ltd. vs Income Tax Officer, 41 I.T.R. 191 and section Narayanappa & Ors.
vs Commissioner of Income Tax followed.
In the instant case the grounds given by the Income Tax Officer for reopening the assessment were (i) that the three persons whose names were mentioned in the list of creditors, were known name lenders and (ii) that another person shown as a creditor of the assessee had since confessed that he was doing only name lending.
The first ground mentioned by the Income Tax Officer could not have led to the formation of the belief that the income of the respondent had escaped assessment for that year because of his failure or omission to disclose fully and truly all material facts.
The High Court was justified in excluding that ground from consideration.
[963D E] As regards the second ground there is nothing to show that the confession of another person related to a loan to the assessee and not to someone else.
There is no indication as to when the confession was made and whether it related to the assessment year sought to be re opened.
To infer from that confession that it related to the period of assessment and that it pertained to the loan shown to have been advanced to the assessee would be far fetched.
[964G] 2(a).
Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there had been escapement of income of the assessee from assessment in the particular year.
It is not any and every material, howsoever vague and indefinite or distant, remote and far fetched which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.
The fact that the words "definite information" in section 34 of 1922 Act before its amendment in 1948 do not find a place in section 147 would not lead to the conclusion that action could now be taken for reopening assessment even if the information was wholly vague, indefinite, far fetched and remote.
[965B D] (b) The powers of the Income Tax Officer to reopen assessment, though wide, are not plenary.
The words are "reason to believe" and not "reason to suspect".
The provisions of the Act depart from the normal rule that there should be finality about orders made in judicial and quasi judicial proceedings.
It is, therefore, essential that before such action is taken the requirement of the law should be satisfied.
[965E F] In the instant case the live link or close nexus between the material before the Income Tax Officer and the belief which he was to form regarding the escapement of the income was missing or at any rate the link was too tenuous to provide a legally sound basis for reopening the assessment.