JUDGMENT
K. Shivashankar Bhat, J.
1. The two question referred under the provisions of the income-tax Act, 1961, read thus :
“(1) Whether, on the facts and in the circumstances of the case, the proceedings under section 147(b) were validly commenced ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 1,74,773 was assessable in the assessment year 1975-76 ?”
2. The relevant facts and the history of the case require to be stated a bit elaborately. The assessee-firm deals in cotton. Messrs. Chunnilal Prajivandas and Co., Hubli (for short, “Chunnilal”) was purchasing cotton from the assessee. There was some doubt about the liability under the Central Sales Tax Act, arising out of those transactions; hence the parties entered into an agreement dated September 1, 1968. As per this agreement, Chunnilal was to retain a part of the sale price, as deposit, with interest thereon at bank rates for a period of five years; in case sales tax had to be paid out of the deposit; if no sales tax was payable, the amount held in deposit shall be refunded to the assessee, after five years from the date of the year in which sale of cotton took place. Consequently, during the several assessment years, the sale price received by the assessee was equated to the actual amount received by the assessee (de hors the amount held in deposit by Chunnilal).
3. On November 5, 1972, Chunnilal gave a credit note to the assessee for a sum of Rs. 3,24,065.55 out of which a sum of Rs. 1,14,772 was attributable to the sales effected during the accounting year 1968-69. The entire amount of Rs. 3,24,056.55 was taxed by the Income-tax Officer during the assessment year 1973-74. The Commissioner (Appeals) deleted this addition holding that, in view of the terms of the agreement, these amounts relate to the periods 1967-68 and 1968-69, out of which Rs. 29,426.67 related to 1967-68. He further observed that since the refund has to be made by Chunnilal five years after the accounting year in which the sales took place and the amounts were retained in deposit. The amount for the year 1968-69 was held to be Rs. 1,14,772.21 which could be taxed only during the assessment year 1975-76, as per the Appellate Commissioner; at any rate, they are not to be included during 1973-74. (This order of the Appellate Commissioner made in respect of the assessment year 1973-74 is referred to hereinafter as the earlier order of the Appellate Commissioner). The Revenue went in appeal to the Appellate Tribunal. However, during the pendency of the said appeal, the Income-tax Officer initiated proceedings under section 147(b) to include this sum for the assessment year 1975-76 and ultimately made the order of reassessment on August 22, 1981. By that time, the Appellate Tribunal had affirmed the earlier order of the Appellate Commissioner on March 20, 1981, even though, on some aspects, the Appellate Tribunal made the observations differing from the observations of the Commissioner. The Appellate Tribunal held on March 20, 1981 (which is referred to hereinafter as the previous order of the Appellate Tribunal) :
(1) The sales tax liability, if any, arising out of the transaction between the assessee and Chunnilal was that of the latter and hence the assessee could not have claimed any deduction towards the said liability; hence, this was not a case of cessation of liability to attract section 41. In fact, no such deduction was given to the assessee during any earlier years; and therefore section 41 was inapplicable.
(2) The amount retained by Chunnilal belongs to the assessee as part of the sale price; it was held in deposit bearing interest by Chunnilal. Therefore, the amounts refunded to the assessee were to be treated as part of the sale price, which can be brought to tax as a trading receipt only in the year in which the sale had taken place but not in the assessment year 1973-74, when the credit note was received.
4. While making the present reassessment order under section 147(b), the Income-tax Officer does not refer to the previous order of the Appellate Tribunal. He held that there was a cessation of liability by the appropriation of the refunded amounts by the assessee and, accordingly, the amount in question was brought to tax as income for the assessment year 1975-76 as cessation of liability.
5. The Appellate Commissioner upheld this order by holding that, in the earlier order of the Appellate Commissioner, there is a clear finding that the receipt in question was taxable during the assessment year 1975-76 and, therefore, section 153(3) of the Act came into play. It is not clear whether this finding was in connection with the saving of limitation or as a direction given to the Income-tax Officer by the Appellate Commissioner. The Appellate Tribunal affirmed the application of section 153(3) to the reassessment order. Before considering other questions involved in this reference, we may straightaway reject the Revenue’s reliance on section 153(3).
6. The earlier order of the Appellate Commissioner was regarding the year 1973-74. While considering an appeal in respect of an assessment year, a direction regarding another assessment year does not fall within section 153(3). The purpose of section 153(3) is to lift the bar of limitation to make an effective order of assessment, consequent upon an appellate order. Section 153(3) does not create a new power or jurisdiction. Section 153(2) imposes a bar of limitation to make orders under section 147; the same is removed under section 153(3). Therefore, section 153(3) is attracted to the cases falling within section 153(2) [we are not concerned here with the case falling under section 153(1)]. In fact, clause (ii) of section 153(3) highlights the purpose of this provision.
7. Further, the Appellate Commissioner, in the present proceedings, while negativing the assessee’s contention that section 147(b) could not have been invoked, held in paragraph 8 of his order :
“It may be true that the Income-tax Officer was very well aware of the fact that there was a cessation of liability to the tune of Rs. 1,74,773. It is also possible that in the original assessment the Income-tax Officer had come to the decision that this amount was not assessable under section 41(1). However, in view of finding/direction given by the Commissioner of Income-tax (Appeals) which has been referred to earlier, it is clear that no option was left to the income-tax Officer and he had to take action under section 148/147(b). In this case, it is not a question of change of opinion on the part of the Income-tax Officer after the completion of the original assessment. This is a case where the Commissioner of Income-tax (Appeals) has given findings/directions in his appellate order and these findings/directions are binding on the Income-tax Officer. He has no say in the matter except to give effect to the findings/directions of the Commissioner of Income-tax (Appeals) and as such, it cannot be said the reassessment proceedings in this case are as a result of change of opinion by the Income-tax Officer.”
8. The Appellate Tribunal also proceeded on the assumption that the reassessment was done “on the basis of the finding or direction of the Commissioner (Appeals)”. This assumption runs through its order and governs its findings in paragraphs 6, 7 and 8.
9. On the merits of taxability, the Appellate Tribunal held that, since, during the earlier years, the assessee had claimed and obtained deduction of liability towards sales tax liability payable by it on behalf of Chunnilal, the amount refunded out of the deposit would automatically become taxable.
10. The first question involves the applicability of section 147(b) of the Act to the facts of the case. In Kalyani Mavji and Co.’s case , during the two assessment years, the assessee’s claim for deduction was allowed; but during the third year, the Income-tax Officer held it as non-deductible; the deduction claimed pertained to the interest paid on the borrowings. Consequently, the Income-tax Officer reopened the earlier two years’ assessments. The assessee contended that the entire set of facts including the relevant documents were already before the Income-tax Officer when assessment orders were made by him earlier and, therefore, reopening of those orders was based on a mere change of opinion. The assessee’s contention was rejected by the Supreme Court on the ground that three additional facts came into existence after the earlier two years’ assessments, viz., (1) the claim for deduction was disallowed during the third year; (2) the assessee failed to prove the borrowings as incurred for purposes of the business; (3) the conduct of the assessee in not clearing the doubt of the Income-tax Officer when he was asked about the principle of law applicable. Basically, all these three facts flowed from the first fact itself, i.e., the refusal of the Income-tax Officer to accept the assessee’s case during the third year. The Supreme Court held that the word “information” was quite wide, so as to include information as to the finding given by a superior court as to the correctness of the basis of the earlier years’s assessment. The Supreme Court pointed out that “the object of the Act was to see that the tax collecting machinery is made as perfect and effective as possible so that the taxpayer is not allowed to get away with escaped income-tax”. Further tests and principles were formulated to determine the applicability of section 34(1)(b) which is similar to the present section 147(b), at page 208 (at 296 of 102 ITR) :
“(1) Where the information is as to the true and correct state of the law derived from relevant judicial decisions;
(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority;
(3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment;
(4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law.
If these conditions are satisfied, then the Income-tax Officer would have completed jurisdiction to reopen the original assessment. It is obvious that where the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1) would have no application.”
11. In Indian and Eastern Newspaper Society v. CIT (for short referred as “IENS” case, hereafter), the question arose as to whether the opinion expressed by the Internal Audit Organisation would form “information” entitling the Income-tax Officer to invoke section 147(b). The Supreme Court held that such an opinion cannot be an “information” as the functions of the Internal Audit Department were purely administrative and its opinion on the merits of a case cannot be “information.” An opinion pointing out the existence of the law relevant to the facts, it was held, will be information as to the law, but the meaning given to the statute and the opinion expressed as to the applicability of one of two sections of the statute, is not such information. At page 1963, the Supreme Court held (page 1001 of 199 ITR) :
“In so far as the word ‘information’ means instruction or knowledge concerning facts or particulars, there is little difficulty. By its inherent nature, a fact has concrete existence. It influence the determination of an issue by the make it significant. Its quintessential value lies in its definitive vitality.”
12. The difficulty is to find out when “instruction” or knowledge as to law becomes “information”. The Supreme Court proceeded to say (at page 1001 of 119 ITR) :
“When we speak of ‘law’, we ordinarily speak of norms or guiding principles having legal effect and legal consequences. To possess legal significance for that purpose, it must be enacted or declared by competent authority. The legal sanction vivifying it imparts to it is force and validity and binding nature. Law may be statutory law or, what is popularly described as judge-made law. In the former case, it proceeds from enactment having its source in competent legislative authority. Judge-made law emanates to definition of the status of a party or the legal relationship between parties, the declaration being rendered by a competent judicial or quasi-judicial authority empowered to decide question of law et forth in the judgment of court or the order of a Tribunal. Such declaration or exposition in itself bear the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority.”
13. Again at page 1964 (page 1002 of 119 ITR) :
“….. when section 147(b) of the Income-tax Act, 1961, is read as referring to ‘information’ as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which, because it issues from a competent Legislature or a competent judicial or quasi-judicial authority, influences the course of the assessment and decides any one or more or those matters which determine the assessee’s tax liability.”
14. While referring to Kalyanji Mavji’s case , the court observed at page 1965 (page 1004 of 119 ITR) :
“Reliance is placed on Kalyanji Mavji and Co. v. CIT , where a Bench of two learned judges of this court observed that a case where income had income had escaped assessment due to the ‘oversight, inadvertence or mistake’ of the Income-tax Officer must fall within section 34(1)(b) of the Indian Income-tax Act, 1992. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income-tax Officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power.”
15. The words, “oversight, inadvertence or a mistake” are found in the second test laid down in Kalyanji Mavji’s case and this test was stated as too wide. Thereafter, while referring to the contention that any realisation of the mistake could give rise to an assessment under section 147(b), it was held at page 1996 (page 1005 of 119 ITR) :
“Plainly, the statutory provision envisages that the Income-tax Officer must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words ‘reason to believe’, and it follows from the ‘information’ received by the Income-tax Officer. The information is not the realisation, the information gives birth to the realisation.”
16. Sri Prasad contended that this decision of the Supreme Court squarely applies to the facts of the instant case because, here, on the same set of facts and on the same material, the Income-tax Officer has formed a different opinion for which he had no “information”.
17. The words in the bracket “(and no more)” in the above passage in Indian and Eastern Newspaper Society’s case , cannot be ignored. In addition to the reconsideration of the same material, there should be something more for the Income-tax Officer to believe that income has escaped assessment during the assessment year in question; it is this information that leads the Income-tax Officer to realise the escapement of income. In the instant case, the realisation came from the earlier order of the Appellate Commissioner; the said order is the “information”. The reassessment done here is not merely because of the reconsideration of the same material and a change of opinion by the Income-tax Officer, but something more, and the latter fact is the realisation flowing out of the findings given by the Appellate Commissioner. The Appellate Commissioner is functioning as a quasi-judicial authority and his opinion found in an internal audit report. The Appellate Commissioner is competent to decide the question of law between the assessee and the Revenue to the extent the said question governs the facts of the case. In the instant case, the effect of the agreement between the assessee and Chunnilal and its interpretation are quite relevant and the Appellate Commissioner had competence to decide them. Therefore, the findings of the Appellate Commissioner, when they came to the knowledge of the Income-tax Officer, became information concerning the facts and legal principles governing them.
18. The principle is, again, reiterated in a recent decision in A.L. A. Firm v. CIT .
19. A decision of the High Court which was in existence and which had a direct bearing on the assessment was not brought to the notice, the Income-tax Officer; when the decision came to his notice, the Income-tax Officer invoked section 147(b) to reassess. In this context, the Supreme Court was “information” and Supreme Court held that it was “information”. The observations in Indian and Eastern Newspaper Society’s case , that the second test formulated in Kalyanji Mavji’s case was too widely stated was relied upon by the assessee in Indian and Eastern Newspaper Society’s case . The Supreme Court, at the outset, held that, assuming the assessee’s contention is correct, even then, the case would fall within the fourth test laid down in Kalyanji Mavji’s case . As to the fourth test, Indian and Eastern Newspaper Society’s case [1979] 119 said at page 16 of [1991] 2 JT 7 (page 297 of 189 ITR) :
“This proposition clearly envisages a formation to opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on ‘information’ in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of. To give a couple of illustrations, suppose an Income-tax Officer, in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently, he finds, in the forest of papers filed in connection with the assessment, several instances of earlier sales of house property by the assessee. That would be a case where the Income-tax Officer derives information from the record on an investigation or enquiry into facts not originally under taken. Again, suppose an Income-tax Officer accepts the plea of an assessee that a particular receipt is not Income-tax Officer accepts the plea of an assessee that a particular receipt is not income liable to tax. But, on further research into law he finds that there was a direct decision holding that that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147(b) by virtue of proposition (4) of Kalyanji Mavji’s case . The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there, would not affect the position because the information that such facts or decisions existed, comes to him only much later.
What then, is the difference between the situations envisaged in propositions (2) and (4) of Kalyanji Mavji’s case The difference, if one keeps in mind the trend of the judicial decisions, in this. Proposition (4) refers to a case where the Income-tax Officer initiates reassessment proceedings in the light of ‘information’ obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, for e.g., as in the two Madras decisions referred to earler. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also case in which the Income-tax Officer, having considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earler and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a conclusion that an item of income which he had earlier consciously left out from the earlier assessment should have been brought to tax. In other words, as pointed out in India and Eastern Newspaper Society’s case , it also ropes in case of a ‘bare or mere change of opinion’ where the Income-tax Officer (very often a successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor Income-tax Officer) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the Indian and Eastern Newspaper Society’s case has warned that this line of case cannot be taken to have been overruled by Kalyanji Mavji’s case . The second paragraph from the judgment in the Indian and Eastern Newspaper Society’s case . Even making allowance for this limitation placed on the observations in Kalyanji Mavji’s case ; the position as summarised by the High Court in the following words represents, in our view, the correct position in law (at page 629 of 102 ITR) :
‘The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act.'”
20. In Indian and Eastern Newspaper Society’s case , it was pointed out that judicial and quasi-judicial decisions can be the source of information and the findings given in those decisions which are binding could be taken as “information”. The finding given in the earlier order of the Appellate Commissioner, therefore, can be valid “information” leading to the requisite belief referred to in section 147(b). But the path of the Revenue is not yet smooth. Under section 147(b), the opinion to be formed is of the Income-tax Officer; it should be his own opinion; he may be influenced by the “information” leading him to further investigation. The requirement of section 147(b) is that the Income-tax Officer should have reason to believe that income has escaped assessment; this realisation may be the result of the information. As the Supreme Court had observed in Indian and Eastern Newspaper Society’s case , “the information is not the realisation, the information gives birth to the realisation”. In the instant case, “information” is the “direction” of the Appellate Commissioner and the Appellate Commissioner in his present order states that the Income-tax Officer had no option except to comply with previous order of the Appellate Commissioner. Thus, the jurisdiction exercised by the Income-tax Officer in the instant case is a jurisdiction in the nature of a consequential jurisdiction to give effect to the findings of an appellate order falling within the subjects referred in section 153(3)(ii); such a power could be exercised only when the superior order (i.e., the previous appellate order in the instant case) was made in continuation of the original proceedings and the order in the original priceedings requires modification, amendment, etc. Therefore, in the facts and circumstances of the case, the purported exercise of the power under section 147(b) was clearly erroneous. The answer to the first question, therefore, is in the negative and against the Revenue.
21. The second question becomes academic. However, we proceed to answer it on the assumption that the proceedings under section 147(b) was properly commenced.
22. The amount in question was received by the assessee during the year ending Deepavali 1972, that is to say, during the accounting year 1971-72. The relevant assessment year will be 1973-74. One of the reasons given by the Appellate Tribunal held that this receipt was not taxable during the assessment year 1973-74. One on the reasons given the Appellate Tribunal was that the amount in question was a trading receipt of the assessee relatable to the year 1968-69, since it was part of the sale price for which goods were sold by the assessee during the said year when Chunnilal retained the amount in deposit as per the agreement. This reasoning has been completely ignored by the Appellate Tribunal when it made its present order leading to this reference.
23. There is no dispute that the method of accounting of the assessee is mercantile. If so, the receipt in question accrued to the assessee when the trading transaction took place. The fact that the assessee resorted to make its own entires in the books of account would not alter the real nature of the receipt. The income accrued during the year 1968-69. If the actual date of the receipt is to be taken, then it accrued when it was paid during 1972-73; there cannot be a third period when the income could be deemed as having accrued to the assessee. Therefore, on this short ground, we conclude that the amount in question was not assessable in the assessment year 1975-76.
24. The second question also is answered in the negative and against the Revenue.
25. Reference answered accordingly.