1988 PLP 994 (PTD)

G. G. SOHANI, J.-- By this reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this Court for its opinion:- (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the re assessment proceedings were validly initiated under section 147 (b) of the Income-tax Act, 1961? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that rental income of the exempted palace did not fall within the ambit of provision of subsection (19-A) of section 10 of the Income-tax Act, 1961 The material facts giving rise to this reference, briefly, are as follows: The assessee is an erstwhile ruler of Ratlam. While framing the assessment of the assessee for the assessment years 1973-74 and 1974-75, the Income-tax. Officer held that the rental income from "Ranjit Vilas Palace" owned by the assessee was exempt from tax under the Act. Thereafter, in view of the objections taken by the audit party that as a part of the palace had been let out by the assessee, the rental income therefrom was not exempt from tax, the assessments were re-opened and fresh assessment orders were passed. On appeal, the Commissioner of Income-tax (Appeals) overruled the objection taken by the assessee to the jurisdiction of the Income-tax' Officer to re-open the assessment on basis of report of the audit party. The second appeal preferred by the assessee, before the Tribunal was also dismissed. Hence, at the instance of the assessee, the Tribunal has referred the aforesaid questions of law to this) Court for its opinion. When the matter came up for hearing before a Division Bench of this Court, the Division Bench, by its order dated January 29, 1982, directed the Tribunal to furnish a supplementary statement of case stating the reasons on the basis of which the Income-tax Officer had re-opened the assessment. In pursuance of that direction, the Tribunal has sent a copy of the original assessment order and a copy of the letter sent by the Income-tax Officer to the assessee intimating that as a portion of the palace was let out, the income from that property would not qualify for exemption under section 10(19.4) of the Act. This is how the case has now come up before us for consideration. The first contention advanced by Shri Chapheker, learned counsel for the assessee, was that the Income-tax Officer had re-opened the assessment on the basis of the opinion of the audit party that as the palace was partly let out, the rental income therefrom was not exempt from tax and that the opinion of the audit party did not constitute "information" within the meaning of section 147 (b) of the Act, conferring jurisdiction on the Income-tax Officer to re-open the assessment. In reply, Shri Mukati, learned counsel for the Revenue contended that the audit party had merely brought to the notice of the Income-tax Officer the relevant provision of law under which the income in question could not be held to be exempt from tax and that the Tribunal was justified in holding that the Income-tax Officer had jurisdiction to re-open the assessments. Now, it is significant to note that at the relevant time, when the income of the palace was not held to be chargeable to tax by the income-tax Officer, the only relevant provision of the Act, which had a bearing on that question was clause (19A) of section 10 of the Act. The opinion of the audit party that the provisions of clause (19A) of section 10 of the Act were not attracted because the palace of the assessee was partly let out, as laid down by the Supreme Court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, constitute "information" within the meaning of section 147(b) of the Act, conferring jurisdiction on the Income-tax Officer to re-open the assessment. The contention urged on behalf of the Revenue that` the audit party had merely drawn the attention of the Income-tax Officer to the relevant provision of law which had escaped the notice of the income-tax Officer and that the note of the audit party constituted "information" within the meaning of section 147 (b) of the Act cannot be upheld. The opinion of the audit party that the provisions of section 10 (19A) of the Act were not attracted in view of the fact that the palace of the assessee was partly let out cannot be held to be merely communication of law. The following observations of the Supreme Court in Indian and Eastern Newspaper Society [1979] 119 ITR 996 are pertinent at page 1004" "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 sections 9 and 10 can be described as law, the opinion of the audit 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 party 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 only provision enabling the Income-tax Officer to hold that income from the palace of the assessee was not chargeable to tax was section 10(9A) of the Act. Any different view taken by him afterwards on the applicability of that provision would amount to change of opinion on material already considered by him. As held by the Supreme Court in Indian and Eastern. Newspaper Society's case [1979] 119 ITR 996, an error discovered on a reconsideration of the same material and no more, does not give power to the" Income-tax officer to re-open an assessment under section 147(b) of the Act. Under the circumstances, it must be held that the Tribunal was not justified in holding that the reassessment proceedings were validly initiated under section 147 (b) of the Act. Learned counsel for the parties conceded that if our answer to the first question referred to this Court was in the negative, it was not necessary to answer the second question. For all these reasons, our answer to the first question referred to this Court is in the negative and against the Revenue. In this r1l.view of the matter, it is not necessary to answer second question. Reference answered accordingly. In the circumstances of the case, parties shall bear their own costs of this reference. M.B.A./548/T Reference answered.