JUDGMENT
G.P. Singh, C.J.
1. This is a case stated by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax referring for our answer the following questions of law :
” 1. Whether, on the facts and in the circumstances of the case, the Income-tax Officer was competent to reopen the assessment under Section 147(b) on the basis of the finding contained in the Appellate Assistant Commissioner’s order dated March 21, 1973, for taxing the income under the head ‘ Capital gains’ ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Officer’s action in initiating proceedings under Section 147(b) for taxing the amount of compensation under the head ‘ Capital gains ‘ amounted to an attempt to destroy the finality of the assessment ?”
2. The facts briefly stated are that in the accounting period relevant to the assessment year 1970-71, the assessee received Rs. 41,300 as compensation under the Motor Vehicles Act, 1939, consequent upon the nationalisation of certain routes. The ITO, in the assessment proceedings for the year 1970-71, held the said amount to be the business income of the assessee and included the same in the total income. The assessee filed an appeal to the AAC who allowed the appeal by his order dated 21st March, 1973, holding that the amount of compensation received by the assessee was in the nature of a capital receipt and should, therefore, be deleted from the total income. There was no further appeal against this order. The ITO however, started reassessment proceedings under Section 147(b) of the I.T. Act, 1961. According to him, the order of the AAC holding that the amount of Rs. 41,300 constituted capital receipt was information in his possession from which he had reason to believe that the income chargeable to tax as capital gains had escaped assessment. In reassessment proceedings, the ITO included the amount of Rs. 41,300 as capital gains. In appeal, the AAC held that the action of the ITO in taking proceedings under Section 147(b) on the basis of the appellate order in assessment proceedings was void and the said order could not give him reason to believe that the income had escaped assessment. In further appeal to the Tribunal, the view taken by the AAC was upheld and it was observed that the ITO could not destroy the finality of the assessment as concluded by the order of the AAC dated 21st March, 1973.
3. The provisions of Section 147 of the I.T. Act, 1961, depart from the normal rule that there should be, subject to any right of appeal and revision that may be available, finality of orders made in judicial and quasi-judicial proceedings : [ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, 448 (SC) ]. Section 147(b) authorises the ITO to start reassessment proceedings if he had, ” in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year”. This section has been construed in a number of cases by the Supreme Court. The word ” information “, as occurring here, means not only facts or factual material but includes also information as to the true and correct state of law and, therefore, information as to the relevant judicial decisions. The word has been defined to connote “instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment “. But the information as to law, to fall within Section 147(b), must be from a formal source, i.e., a competent Legislature or a competent judicial or quasi-judicial authority: [Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, 1000 & 1002 (SC)]. Decisions of superior authorities under the I.T. Act constitute information relating to law for reopening an assessment under Section 147(b) : [CIT v. Gurbux Rai Harbux Rai [1972] 83 ITR 86, 91 (SC)]. The ITO in the assessment proceedings took the view that the compensation received by the assessee constituted its business income. It was on this footing that the amount received as compensation was ineluded in the total income of the assessec. The AAC. by his order dated 2lst March, 1973, in appeal against the assessment order, held that the amount of compensation constituted a capital receipt and, therefore, had to be deleted from the total income. The legal position, that the amount of compensation constituted capital receipt, came to the knowledge of the ITO from the order of the AAC and he could have reason to believe from this information that the income chargeable to tax as capital gains escaped assessment. The ITO, in our opinion, therefore, was justified in starting reassessment proceedings on the basis of the information received from the order of the AAC.
4. The argument of the learned counsel for the assessee is that the order of the AAC dated 21st March, 1973, directed the deletion of the amount of compensation from the total income and, therefore, it was impliedly hold that the amount could not be taxed even as capital gains and that the said order could not, therefore, constitute information under Section 147(b). We have carefully read the entire order of the AAC. There is absolutely no discussion in that order on the point whether the amount of compensation could be taxed as capital gains, as this point was not at all noticed or argued. The entire discussion is on the point whether it constituted business income and could be taxed as such. It is true that the AAC, after holding that the amount of compensation constituted capital receipt, directed that it be deleted from the total income. But this direction was given entirely on the footing that the amount did not constitute the business income of the assessee, The question whether the amounts could be taxed as capital gains was neither mentioned nor decided by the AAC and no implied finding on that point can be inferred from his order. In such a situation, it cannot be said that as the AAC deleted the amount from the total income, the ITO could not use the order of the AAC as information for reopening the assessment and for bringing to tax the amount as capital gains. The view that we have taken is fully supported by a Division Bench decision of the Delhi High Court in Hari Brothers P. Ltd. v. ITO, AIR 1967 Delhi 146. In that case, the ITO had included In the assessment a certain amount of profits from sale of shares and a certain amount realised on the sale of the right to subscribe to shares as the business income of the assessee. The AAC confirmed the order of the ITO but, in further appeal, the Tribunal held that the aforesaid amounts were in the nature of capital receipts and could not be taxed as income. The ITO, thereafter, started reassessment proceedings under Section 34(1 )(b) o-f the 1922 Act, to tax the said amounts as capital gains and the question before the High Court was whether the order of the Tribunal could constitute information within the meaning of that provision for starting reassessment proceedings. A Division Bench of the Delhi High Court consisting of Dua, Acting Chief Justice, and H. R. Khanna J. (as they then were), held that the Tribunal’s order constituted information for taking action to reassess the said amounts as capital gains. In holding so, the learned judges observed as follows (p. 150, col. 2);
” Argument has then been advanced on behalf of the appellant-company that according to the observations of the Supreme Court in the case of Maharaj Kunar Kamal Singh [1959] 35 ITR 1 ; AIR 1959 SC 257, the information on the basis of which the Income-tax Officer initiates action under section 34(l)(b), must be subsequent to the original assessment order. It is urged that the information, which led the Income-tax Officer to initiate action, was already available when the case was argued before the Income-tax Tribunal, The remedy of the department, it is submitted, was to represent to the Tribunal to make the assessment on the basis that the receipt of the amounts was capital gain. In this respect we are of the view that what constitutes information in the present case is not the argument advanced before the Tribunal but this actual order of the Tribunal. Till such time as the Tribunal had expressed its view on the nature of receipt by giving its decision, it cannot be said that the information was available to the income-tax authorities. As the order of the Tribunal was subsequent to the order of the Income-tax Officer, the information must be held to have been derived subsequent to the original assessment order. The contention, that the original assessment order made by the Income-tax Officer had merged in the order of the Tribunal and, therefore, the information cannot be regarded to be subsequent, has not impressed us. The information referred to by Section 34(1)(b)is that which is in the possession of the Income-tax Officer. The facts of the case indicate that the Income-tax Officer did not have that information earlier when he made the original assessment order and that he got it when the Appellate Tribunal laid down the true import of the transaction in law. As such we find no force in the contention that the information on the basis of which the Income-tax Officer took action was not subsequent. ”
5. A perusal of the facts of the case of Hari Brothers, AIR 1967 Delhi 146, goes to show that the Tribunal in that case had also held that the amounts were not business income but capital receipt and, therefore, not chargeable as income. Still it was held that the order of the Tribunal could be used as information for reopening the assessment on the footing that the amounts were chargeable to tax as capital gains. Another case which is similar on facts is the decision of the Allahabad High Court in CIT v. India Reconstruction Corpn. Ltd. [1968] 67 ITR 204. In that case, the asscssee disclosed certain amount as profits on account of sale of securities, The, ITO held the said amount to be the business income of the assessee. The AAC also took the same view. The Tribunal, in further appeal, held that the amount constituted capital receipt and that it should be excluded from the assessable business income of the assessee. Deriving information from the Tribunal’s order, the ITO started reassessment proceedings under Section 34{l)(b) of the 1922 Act to tax the same amount on the basis that it represented capital gains. The course so adopted by the ITO was held to be valid.
6. Learned counsel for the assessee submitted before us that against the order of the AAC dated 21st March, 1973, the department should have gone up in appeal and the finality of the order could not be defeated by reassessment proceedings. Learned counsel, in this connection, relied upon the Supreme Court decision in CIT v. Rao Thakur Narayan Singh [1955] 56 ITR 234 (SC). In that case, reassessment proceedings were started for bringing to tax certain forest income and interest income. In appeal before the Appellate Tribunal, objection was taken to the jurisdiction of the ITO to initiate reassessment proceedings in respect of the forest income on the ground that he had knowledge of such income when the original assessment was made. The Appellate Tribunal upheld the assessee’s contention but by mistake set aside the entire reassessment order and restored the original assessment order. Thereafter, the ITO initiated fresh reassessment proceedings with respect to the interest income. On these facts it was held that the order of the Tribunal became final and the finding of the Tribunal, even though by mistake, that the ITO could not initiate reassessment proceedings in respect of the interest income, also was binding on the ITO and he could not reopen the assessment over again to include the interest income. It will be seen from the facts of that case that reassessment proceedings once taken by the ITO to tax forest income and interest income were held to be without jurisdiction by the Tribunal although the Tribunal was obviously in error so far as the interest income was concerned. Still, as the Tribunal’s order was final, it was held that the ITO could not start fresh reassessment proceedings to tax the same interest income. The facts of this case bear no analogy to the facts of the case before us. As already pointed out by us, the order of the AAC dated 21st March, 1973, cannot be read as holding that the amount received as compensation could not be taxed as capital gains. It only held that it could not be taxed as business income. As regards the finality of assessment, there can be no doubt that it can be destroyed if the conditions under Section 147 for reassessment are satisfied.
7. Learned counsel also submitted on the basis of the ruling in Lakhmani Mewal Das’ case [1976] 103 ITR 437 (SC), that the information which can be used by the ITO for reopening an assessment under Section 147(b) must have a rational connection or relevant bearing to the formation of the belief that income has escaped assessment and that the order of the AAC was not an information of this nature. We are unable to agree with this submission also. The said order of the AAC could reasonably give rise to the belief that the amount of compensation was taxable as capital gains and had escaped assessment as was the case in the Delhi and Allahabad decisions referred to above.
8. For the reasons given above, we answer both the questions in favour of the department and against the assessee as follows :
1. The ITO was competent to reopen the assessment under Section 147(b) on the basis of the finding contained in the AAC’s order dated 21st March, 1973, for taxing the amount of compensation as income under the head “Capital gains”.
2. The ITO’s action in initiating proceedings under Section 147(b) was legal even though ultimately it may affect the finality of the assessment.
9. There will be no order as to costs.
