INDIAN AND EASTERN NEWSPAPER SOCIETY, NEW DELHI vs. COMMISSIONER OF INCOME TAX, NEW DELHI

TAX REFERENCE CASE No. 1/1973Supreme Court[1980] 1 S.C.R. 44231 August 1979Bench: 3 JudgesAuthor: P.N. BHAGWATI, V.D. TULZAPURKAR, R.S. PATHAK B14 pages
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What were the facts?

The assessee, Indian and Eastern Newspaper Society, had its income assessed for certain assessment years. The internal audit organization of the Income Tax Department, during its audit, opined that the assessee's income from letting out halls and rooms should have been assessed under the head 'Income from property' rather than as income from business. The Income Tax Officer, treating this opinion as 'information' under Section 147(b) of the Income Tax Act, 1961, reopened the assessment. The Appellate Assistant Commissioner reversed this order. However, the Appellate Tribunal held that the Income Tax Officer had the jurisdiction to proceed under Section 147(b). The matter was referred to the High Court on the question of the legality of reopening the assessment based on the internal audit party's view.

What did the Supreme Court hold?

The Tribunal held that 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. The Court reasoned that 'information' under Section 147(b) must be derived from a formal source, such as a legislative or judicial authority, which has the power to declare or define the law. The internal audit organization performs administrative or executive functions and is not empowered to declare the law. Its reports, therefore, do not have the status of a declaration of law binding on the Income Tax Officer. While knowledge of the law can be communicated by anyone, the Income Tax Officer must independently determine the effect of the law. The Court overruled previous decisions that held audit notes as 'information' for reopening assessments, including R. K. Malhotra v. Kasturbhai Lalbhai, and affirmed that the opinion of an internal audit party on a point of law is not 'information' under Section 147(b). The appeal was allowed, and the question was answered in the negative, in favour of the assessee.

What were the issues?

1. Whether the opinion of the Internal Audit party of the Income Tax Department, received subsequent to the original assessment, constitutes 'information' within the meaning of Section 147(b) of the Income Tax Act, 1961, justifying the reopening of assessment? (Question of law) Assessee's Contention: The judgment does not record specific contentions for the assessee, but the outcome implies they argued that the audit party's opinion was not legally valid 'information' for reopening. Revenue's Contention: The Revenue contended that the audit report constituted 'information' under Section 147(b), leading the Income Tax Officer to believe that income had escaped assessment. They relied on previous High Court decisions and, implicitly, the previous Supreme Court decision in R. K. Malhotra v. Kasturbhai Lalbhai.

Which sections of the Income-tax Act were involved?

Section 147(b)

AI-generated summary — verify with the full judgment below

A B c D E F G H 442 INDIAN AND EASTERN NEWSPAPER SOCIETY. NEW DELHI v. COMMISSIONER OF INCOME TAX, NEW DELHI August 31, 1979 [P. N. BHAGWATI, V. D. TuLZAPURKAR AND R. S. PATHAK, JJ.] Income Tax Act 1961--S. 147(b)--Scope of-"Information" "Reason to believe"-Meaning of-Opinion of audit party of Income Tax Department-If would comtitute "information".

Section 147(b) of the Income Tax Act, 1961 provides that if an Income Tax Officer has, in consequence of information in his possesaion, reason to believe that income chargeable to tax has escaped assessment for any asc;ess- ment year, he may assess or re~s such income. l he internal audit organisation of the income tax department, in the course of auditing the income tax records pertaining to the assessee for certain assess- ment. years stated that the assessee's in.come on account of letting out of halls and rooms should not have been assessed as income from business but an asses!- -ment should have been niade uiider the head "Income from property". Treating the report as,information in his possession under s.147(b) the Income Tax Officer re-t:lSseSsed the assessee's income. The Appellate Assistant ·Com.mi.1sio

The order continues below.

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