1982 PLP 235 (PTD)

AVADAH BEHARI, J.‑The petitioner, Shri A. K. Sen, is a senior Advocate. He was enrolled as an Advocate in the Calcutta High Court in March, 1941. Very soon he was in large practice. Soon he was in the front rank. He had a substantial professional income and was being assessed to Income‑tax. In April, 19`7, he became the Minister of Law in the Central Government. This post he continued to hold till January, 1966. When the petitioner joined the Government of India his income dwindled. His main source of income was salary as a minister. For the assessment year 1962‑63, he filed his return showing. a salary income of Rs. 30,300 property income of 2/3rds of Rs. 9,000 and interest income of Rs. 2,795 and professional and royalty income of Rs. 8,005.42. On this return, the I. T. O. assessed him and determined the tax which the petitioner paid. A notice dated 7th August, 1974, was issued to the petitioner. The I. T. O. proposed to reassess the petitioner's income for the assessment year 1962‑63, on the ground that he had reason .to believe that income for that assessment year had escaped assessment within the meaning of section 147 of the

1. T. Act, 1961 (the Act). The petitioner was informed that a notice under section 147/148 of the Act dated 24th March, 1971, was issued to him and was served on him. The petitioner denied the service of the notice. Thereupon, the I. T. O. gave him a copy of the notice dated 24th March, 1971. On 21st August, 1974; the petitioner wrote to the I. T. O. objecting to the notice and the reassessment proceedings proposed to be taken for the assessment year 1962‑63. lie, however, filed under protest a fresh return for the year 1962‑63, repeating the same income as had been shown in the first return and objecting at the same time to the jurisdiction of the I. T. O. to initiate reassessment proceedings against him. A notice dated 9th September, 1974, was issued to the petitioner. The I. T. O. intimated to him that after deducting other expenses, there was only a sum of Rs. 9,930 for the petitioner's domestic expenses but on the contrary domestic and household expenses for the earlier years were of the order of Rs. 40,000 to Rs. 50,000 per year. He was requested to intimate to the I. T. O. his household and personal expenses and the source from which they were met. This notice was. served on the petitioner on 12th September, 1974. On 24th September, 1974, the petitioner brought a writ petition under Article 226 of the Constitution challenging the validity of proceedings taken pursuant to the notice dated 24th March, 1971, 7th August, 1974, and 9th September, 1974. The petitioner's case is that there is no material for the issue of the notice dated March 24, 1971, under section 147 of the Act and for initiating proceedings for reopening the assessment for the year 1962‑

63. The purport and object of the three notices is to reopen the assessment proceedings for the year 1962‑63, on the ground that the income had escaped assessment. The ground for such belief as stated by the I. T. J. in his counter‑affidavit dated 8th November, 1974, is that he was of the opinion that inasmuch as in the preceding years personal and household expenses of the petitioner were to the tune of Rs. 40,000 to Rs. 50,000 a year, it was difficult to believe that in the previous year relevant to the assessment year 1962‑63, the petitioner had been able to meet all his household expenses from out of his net income of Rs. 9,930 and as such there was reason to believe that income chargeable to tax had escaped assessment. The single question for decision is whether the I. T. O. had reasonable cause to believe that income chargeable to tax had escaped assessment under section 147(a). On behalf of the petitioner, it is urged in the first place that it is incorrect that the petitioner's personal and domestic expenses for the earlier years were between Rs. 40,000 to Rs. 50,000 or that the same were his expenses after he had become, a Minister in the Government. During the relevant assessment year 1962‑63, the petitioner was a Minister and in that capacity he enjoyed free accommodation including free water and electricity, free use of staff car for his duties and the services of a secretary and four personal assistants, several peons all orderlies. As a Cabinet Minister he was also in receipt of a sumptuary allowance of Rs. 500 per month, t. e. Rs. 6,000 per year, of which four‑fifths, i. e. Rs: 4,860, was free of tax and was not included in the Income‑tar, return. n the second place, it is said that all the primary and necessary facts were stated by the petitioner in his return and the accompanying statements and all other relevant and necessary information was furnished by him to the

1. T. O. who had assessed him for the year in question. That in the preceding years personal and household expenses of the petitioner were to the tune of Rs. 40,000 to Rs. 50,000 per year is not au, pinion which has any foundation on facts. It is a conjectural opinion. A pure guess‑work. A convenient assumption that overlooks known facts. More a product of the I. T. O's imagination than of factual belief. It is more a hypothetical construction without a known counterpart in reality. But the Act requires that there must exist reasonable grounds, known to the Officer, before he can validly exercise the power conferred by the section. There is nothing to show that the petitioner disclosed to the authorities that he was spending Rs. 40,000 to Rs. 50,000 per year. Nor it is shown specifically what are those "preceding years" in which his expenses were of that order. It is a vague assertion, an invention of the imagination. After the petitioner became a minister in the Government his income declined. But he was in enjoyment of allowances, comforts, amenities and perquisities as a minister. If the petitioner enjoyed free residential accommodation, free use of staff car and the services of personal assistance, peons and orderlies, it cannot be assumed with any show of reasons that his household expenses continued to be the same as when he was practising as a lawyer. The words "if the Income‑tax Officer has reason to believe" used in section 147(a) suggest that the belief must be that of an honest and reason able person based upon reasonable grounds and that the

1. T. O. may act under this section on direct or circumstantial evidence but not on mere suspicion, gossip rumour. The powers under this section are not plenary. They are subject to judicial review. The I. T. O. in his affidavit has mere stated his belief but has not set out any material on the basis of which h formed such belief. There is nothing in the affidavit to suggest that the

1. T. O. had any material before him that would warrant a belief that a par of the income of the petitioner bad escaped assessment by reason of hi failure to make to true and full disclosure of the materials facts. (See Income tax Officer v. Madanani Engineering Works Ltd. (1979 1181 T R 1 (S C)). The words "reason to believe" appear in most modern statutes. Words such as "reasonable cause to believe" or "has reason to believe" are com monly found when a Legislature or law‑making authority confers powers on a minister or official. As Lord Redcliffe said (1980) 2 W L R 1 (22) (H L): "However read, they must be intended to verve in some sense as a condition limiting the exercise of an otherwise arbitrary power Nakhuda All v. Jayaratne (1951) 66 A C 77 (P C)". These words do not make conclusive the Officer's own honest opinion that he had reasonable cause for the prescribed belief. The grounds on which the Officer acted must be sufficient to induce in a reasonable person the required belief before he can validly reopen a com pleted assessment under section 147(a). In England, the majority to Liversidge v. Anderson ((1942) A C 497 (H L)), held that the belief entertained by the Officer was not justiciable. Lord Atkin dissented. Now, it has been held by the House of Lords in the recent tax decision of

1. R. C. v. Rosssminster Ltd. ((1980) 2 W L R 1(49) (H L)), that Lord Atkin was right and that the majority were wrong. Lord Diplock has said: "...I think the time has come to acknowledge openly that the majority of this House in Liversidge v. Anderson were expediently and at that time, perhaps, excusably, wrong and the dissenting speech of Lord Atkin was right." Lord Scarman at p. 104 of (1980) 1 All. E R said that the ghost of Liversidge v. Anderson no longer flutters in the pages of our books and need no longer haunt the law. It was laid to rest by Lord Radcliffe in Nakkuda Alt v. Jayaratne and no one has sought to revive it. it is now beyond recall. The Supreme Court in a long line of decision has held that the matter is justiciable. See Income‑tax Officer v. Madnani Engineering Works. We are, therefore, not satisfied on the affidavit of the I. T. O. that there was any material before him on which he could have formed the required belief for reopening the assessment proceedings. The notice under sec tion 147(a) of the Act for the reopening of the assessment must in the circumstances be held to be void. We, accordingly, allow the writ petition and quash the notices dated March 24, 1971, August 7, 1974, and September 9, 1974, and the proceed ings initiated thereunder. We, however, make no order as to costs. Petition allowed.