1. Vide 'Statement of the case' dated 18-2-1971, in R.A. Nos. 159 to 163 of 1970-71 and arising out of IT Appeal Nos. 854 to 858 of 1968-69, in relation to the assessment years 1961-62 to 1965-66, following two questions are referred to the Hon'ble High Court, for its esteemed opinion : 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the assessments made by the Income-tax Officer in pursuance of proceedings under Section 147(a) of the income-tax Act, 1961, against the assessee 2. If the answer to the first question is in the affirmative whether, on the facts and in the circumstances of the case, the Tribunal was right in not converting provisions of Section 147(a) into provisions of Section 147(6) of the Income-tax Act, 1961 2. Their Lordships of the Hon'ble Delhi High Court, vide judgment order dated 8-12-1980, answered Question No. 1 in favour of the assessee while the second question was answered in the negative, subject to the following directions : . . .As we have already observed above, all these contentions have not been considered by the Tribunal and the Tribunal has only held that it has no jurisdiction to convert or alter the assessments made by the ITO under Section 34(1)(a) to an assessment under Section 34(1)(b) and maintaining as such. Subject to the consideration of all these contentions by the Tribunal which the Tribunal will have to consider, we answer the second question in the negative, i.e., in favour of the department and against the assessee.
3. The observations of their Lordships as regards Question No. 2 are to the following effect : As regards Question No. 2 the contention of the learned counsel for the petitioner was that the assessments in any case are saved in view of the provisions of Section 147(6) of the Income-tax Act, 1961 as the information about the enhanced rent tantamounts to information within the meaning of Section 147(6) of the Act. The Tribunal did not go into the question whether the material conditions required for notice under Section 147(6) were fulfilled and negatived the case of the department on the ground that the Tribunal has no jurisdiction to convert or alter the assessment made by the Income-tax Officer under Section 34(1)(a) to an assessment under Section 34(1)(6) on the basis of the judgment of the Allahabad High Court in the case of Raghubar Dayal Ram Kishan v. CIT referred to above. In the Allahabad case there was a difference of opinion between the two learned judges and it was referred to the third learned judge. It was observed by the third learned judge that where an Income-tax Officer assessed an income under Section 34(1)(a) and the Appellate Tribunal on appeal came to the conclusion that it should have been assesseed under Section 34(1)(6) the Tribunal had no jurisdiction to convert or alter the assessment made by the Income-tax Officer under Section 34(1)(a) to an assessment under Section 34(1)(6) and maintain it as such. It was further observed that Clause (a) and Clause (6) of Section 34(1) contemplated two distinguished and mutually independent jurisdictions. It was also observed that two notices were separate and distinct from each other and that was apparent from the proviso (1) to Section 34 where specific reference was made to a notice under Clause (a) of Sub-section (1). This case was dissented to by the Calcutta High Court in the case of Mriganka Mohan Sur v. CIT [1974] 95 ITR 503 and the Calcutta High Court preferred to follow the minority view of Manchanda, J., given in that case. We are in respectful agreement with the view taken by the Calcutta High Court and the minority view of Manchanda, J., in the Allahabad case. The learned counsel for the assessee placed strong reliance on the case of Johri Lal (HUF) v. CIT [1973] 88 ITR 439. That was a case where notice under Section 34(1)(6) had been issued and it was sought to be justified by the Tribunal under clause (a) of Sub-section (1) of Section 34, their Lordships of the Supreme Court felt obvious difficulties in that matter. Their Lordships of the Supreme Court held in that case that a notice issued on the ground of clause (b) of Section 34(1) cannot be later treated as issued under clause (a) of Section 147 [under clause (a) of Section 34(1)] because certain specific and special conditions are required to be complied with in cases under Section 147(a) which normally and in ordinary cases are not required to be complied with in cases under Section 147(6). All these circumstances have been mentioned in the judgment. Thus the judgment is confined to the conversion of notice under clause (6) of Section 147 to clause (a) of Section 147. The Calcutta High Court in the case of ITO v. Eastern Coal Co. Ltd. [1975] 101 ITR 477 held that there was no impediment in treating the notice issued under clause (a) of Section 147 as one issued under clause (6) of that section provided the ingredients of Section 147(6) were fulfilled.
4. In respectful compliance of the above directions, the parties were heard, through their learned authorised representatives on 5-11-1982 and 28-1-1983 at length.
5. For ready reference, the background facts of the case as found out from paragraphs 3 and 4 of the order dated 4-5-1970 made by Bench 'A' of the Tribunal, Delhi Benches, on regular appeals by the assessee, stand reproduced hereunder : The facts in the present case are that the assessee owned a building known as Radha Krishna Bhavan, Daryaganj, Delhi. The building was let out to American Embassy for some years and the assessee was charging rent of Rs. 3,212.50 per month. During the accounting year relevant to the assessment year 1961-62, the Embassy vacated the building and it was requisitioned by the Government for its own use.
While submitting the return of income, the assessee appended the following note in connection with property of Radha Krishna Bhavan : The company's building known as Radha Krishna Bhavan at Daryaganj, Delhi, has been occupied by the Government authorities, having been requisitioned by the Collector. The question of monthly rent is under dispute and no rent is being received. Previously this building had been leased out to American Embassy at Rs. 3,212.50 per month which was an exceptional transaction. We are not certain as to what would ultimately be settled. We have, therefore, not returned any rental of this building. If the same must be included, then it is requested that it would be safe to take it at Rs. 2,500 per month. The balance can be assessed in the hands of the company at the time of the actual receipt on settlement of the dispute. In case, despite the above submission, the rental is assessed at the rate of Rs. 3,212.50 per month it is submitted that it may please be specifically stated in the assessment order that on the actual settlement of the dispute in respect of the rent, the excess shall be included or the deficiency shall be allowed by revising the assessment order under Section 35 of the Income-tax Act or else the full amount of deficiency shall be allowed as irrecoverable rent in the year of actual receipt and similarly excess received, if any, shall also be taxed in the year of receipt.
In the proceedings for the assessment of tax under the original assessments on facts found by him., the TTO calculated annual letting value of the property on the basis of the rent of Rs. 3,212.50 per month. After completion of the assessments the TTO found that the rent fixed by the Government in respect of the aforesaid building was Rs. 4,658 per month and the ITO initiated proceedings under Section 147(a) of the Income-tax Act, 1961 ('the Act') and charged to tax the difference between the revised figure and the original figure in the assessments under dispute.
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).
Explanation 1: For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922) ; or (d) where excessive loss or depreciation allowance has been computed.
Explanation 2 : Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.
7. For our purposes Section 147(6) is material and it postulates that in cases where there has been no failure on the part of the assessee to make a return of his income and to disclose fully and truly all material facts necessary for his assessment, the ITO is authorised to reopen the completed assessment but following two conditions must be satisfied before the ITO can take action under clause (b) of Section 147 : 1. The Income-tax Officer should have reason to believe that income has escaped assessment; and 2. It should be in consequence of information received after the original assessment that the Income-tax Officer should have reason so to believe.
8. From the above it follows that if either of the above two conditions is not satisfied, the ITO's action is not warranted in law.
9. Now on the facts of the assessee's case, the ITO calculated annual letting value of the property on the basis of monthly rent of Rs. 3,212.50 and it has to be examined whether the annual letting value taken by the ITO at the original assessment stage results in the income having escaped assessment.
10. Section 23 of the Act deals with the subject-matter-'Annual value how determined'.
11. The said section as is relevant for the assessment years under appeal, stood as under : (1) For the purposes of Section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year : Provided that where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property are, under the law authorising such levy, payable wholly by the owner, or partly by the owner and partly by the tenant, a deduction shall be made equal to the part, if any, of the tenant's liability borne by the owner.
Explanation : For the purposes of this Sub-section in the case of a property the construction of which was completed before the 1st day of April, 1950, the total amount of such taxes and in the case of any other property, one-half of the total amount of such taxes shall be deemed to be the tenant's liability : Provided further that in the case of a building comprising one or more residential units the erection of which is begun and completed after the 1st day of April, 1961, the annual value as determined under this subsection shall, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so determined, does not exceed six hundred rupees, by the amount of such annual value ; (ii) in respect of any residential unit whose annual value as so determined exceeds six hundred rupees, by an amount of six hundred rupees; so, however, that the income in respect of any residential unit is in no (2) Where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall first be determined as in Sub-section (1) and further be reduced by one half of the amount so determined or one thousand eight hundred rupees, whichever is less : Provided that where the sum so arrived at exceeds ten per cent of the total income of the owner (the total income for this purpose being computed without including therein any income from such property and before making any deduction under Chapter VI-A of Section 280-O), the excess shall be disregarded.
Explanation : Where any such residential unit as is referred to in the second proviso to Sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit.
12. From the above provision of law, viz., Section 23, the annual value has to be determined in relation to the sum for which the property might reasonably be expected to let from year to year. The assessee in its note appended with the original income-tax return, contended that, previously this property had been leased out to American Embassy at Rs. 3,212.50 per month which was an exceptional transaction. The assessee as such, requested the ITO to take the monthly rent at Rs. 2,500 per month. The reassessment order made under Section 143(3)/47(a) of the Act which is dated 28-2-1967 speaks of the fact that at the original assessment stage, in relation to the assessment year 1961-62, the property stood separately assessed in respect of Radha Krishna Bhavan at Rs. 38,550, i.e., at the rate of Rs. 3,212.50 per month. According to the ITO as per the award of the learned arbitrator (Shri J.R.Luther, P.C.S. Judge, Small Causes Court, Delhi) which is dated 13-5-1965 but was made effective retrospectively from 21-7-1959, the rent of the property has been fixed at Rs. 4,658, hence the said award was an information within the meaning of Section 147(b). But the point for determination is as to whether the said sum can, be the basis or can be the sum for which the property might reasonably be expected to let from year to year, more so, in the face of the fact that the same property was leased out to American Embassy at the rate of Rs. 3,212.50 per month as rental. The reply is in the negative, since it is not the actual amount of rent that has to be taken into account but the sum for which the property might reasonably be expected to let from year to year as provided in Section 23. Under the charging section of the Act, the tax is to be payable by the assessee in respect of the bona fide annual value of the property and irrespective of the question whether he receives that value or not since the income from property is an artificial one and defined income and the liability arises from the fact that the assessee is the owner of the property. The liability does not depend on the power of the owner to let the property since it also does not depend on the capacity of the owner to receive the bona fide annual value. For the above proposition C.J. George v. CIT [1973] 92 ITR 137(Ker.) and D.M. Vakil v. CIT [1946] 14 ITR 298 (Bom.) are in point. That apart, in the case of Ganesh Chandra Khan v. ITO [1978] 111 ITR 934, their Lordships of the Calcutta High Court held that where the assessee filed return and included therein the income from his house property which was in occupation of tenant at standard rent of Rs. 484 per month and this house property was requisitioned by the Government and an award fixing rent-compensation at Rs. 2,118 was made, subsequent to the filing of the return by the assessee, there cannot be said to be any information since the annual value of the property has to be the sum, for which the property is to be deemed to be reasonably let out for, from year to year. Their Lordships further observed that in this case even if anything in excess of Rs. 484 was being received by the assessee, the income from the property could not be computed anything more than, Rs. 484 per month and the annual letting value has to be based on that rental figure of Rs. 484 per month, since that is the annual value for which the property could be said to be let out for, reasonably, from year to year.
13. There is no controversy that annual value as per Section 23 has to be determined not on the basis of actual rent received by the owner of the property but on the basis of a notional rent and a hypothetic one, since the annual value has to be based and determined on the basis of sum for which the property might reasonably be expected to let from year to year. Actual rent being not a definite criterion in relation to the determination of the annual value, on the facts and in the circumstances of the assessee's case, with which we are presently seized of, the annual value had to be determined on the basis of reasonable sum for which the properly could be let out and this sum could not have been more than Rs. 3,212.50 per month, since previously the property has been leased out to the American Embassy, by the assessee at the said monthly rental.
14. The issue as to determination of annual letting value stands concluded by the ratio of the decision of the Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor v. NDMC [1980] 122 ITR 700 and in the case of Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 and following respectfully the same ratio, we do hold that the annual letting out value has to be worked out on the basis of sum for which the building might reasonably be expected to let from year to year and this sum may be less than the actual amount received or receivable by the landlord from the tenant and in this view of the matter, we do further hold, that within the meaning of Section 147(6), for the assessment years under appeal, there is no material to hold that any income has escaped assessment and since this vital and all important pre-requisite is lacking there cannot be said to be any information within the meaning of Section 147(6) vis-a-vis the Award, hence Section 147(6) has no applicability. We hold accordingly.
15. Since the necessary ingredients and pre-requisite of Section 147(6) are not fulfilled, we do hold that notices issued by the ITO under Section I47(a) have to be treated as such and since the Hon'ble High Court has answered Question No. 1 in favour of the assessee, the assessments made in an action under Section 147 which have already been cancelled by the Tribunal, stands reiterated.
16. This order is made under Section 260(1) read with Section 254(1) of the Act.