Janarthanam, J.
1. These two references relating to the assessment years 1973-74 and 1974-75 raise a common question of law.
2. The assessee, Chennai Murasu (P.) Ltd., Madras, it is said, had been purchasing newsprints for the purpose of printing and circulating newspapers to the public. The assessments for the relevant assessment years1973-74 and 1974-75 had been completed originally. Subsequently, in the course of the assessment proceedings for the year 1975-76, it was found that the wastage claimed by the assessee was excessive. In the course of survey operations under Section 133A of the Income-tax Act, 1961 (for short 'the Act'), a stock book (RG 16 register) maintained was taken. This register, it is said, was maintained to comply with the Central Excise Regulations. It showed that the real wastage recorded was far less than 5 per cent.
3. Information was also received from the Income-tax Officer, Tirunelveli, (the ITO), which revealed that in the case of another newspaper, Dina Malar, published from Tirunelveli, the wastage claim of that assessee was 4.4 per cent. for the assessment year 1973-74 and 5.5 per cent. for the assessment year 1974-75.
4. The assessee disclosed shortage of 9. 9 per cent. for the assessment year 1973-74 and 8.77 per cent. for the assessment year 1974-75. It was also found that the assessee had not been properly accounting for the sale of waste. On the basis of specific data gathered, it was found that there was substantial understatement of sale of waste. The assessee has not thus accounted for the sale of waste properly and fully.
5. In the assessment year 1975-76, it was found that the assessee diverted borrowed monies for making interest-free advances to concerns in which the managing director and his close relatives were interested and, consequently, the interest attributable to such advances was to be disallowed.
6. In the accounting year relevant to the assessment year 1975-74, the assessee also sought interest-free loans and no such interest was charged by the assessee, although interest payment to the extent of Rs. 41,441 was claimed. The sales to the extent of monies diverted for making interest-free advances, proportionate interest was omitted to be disallowed.
7. In consequence of the information so gathered, in the subsequent assessment year 1975-76, the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment; Consequently, a notice under Section 148 of the Income-tax Act had been issued for reassessment proceedings in the light of the facts subsequently gathered.
8. After hearing the assessee, reassessments were completed for the relevant assessment years.
9. On appeal, the Commissioner of Income-tax (Appeals), Madras-34, (the CIT) held that the information contained in the seized register did not constitute 'information' justifying the reopening of the assessments for the relevant assessment years and, accordingly, annulled the assessments.
10. The Revenue appealed to the Income-tax Appellate Tribunal, Madras Branch 'D', Madras (the Tribunal). It was contended by the Revenue before the Tribunal that there was: sufficient information to initiate proceedings under Section 147(b) of the Income-tax Act, whereas the contention of theassessee was that the information was irrelevant and had no nexus with the facts of the relevant assessment years for making the assessments.
11. The Appellate Tribunal, however, found that though the information related to modus operandi of the business, which admittedly remained the same and, therefore, though the information related to a later assessment year, it had nexus with the manner in which the business was conducted for the assessment years in question and, therefore, was relevant information for initiating assessment proceedings.
12. On these facts, the assessee raised a common question as to whether the finding that the belief of the Income-tax Officer that the income had escaped assessment was based on relevant materials, is valid in law.
13. The Tribunal, referred, for the opinion of this court, the question of law, as below :
'Whether, on the facts and in the circumstances of the case, the reassessments made under Section 147(b) of the Income-tax Act were valid in law ?'
14. Mr. R. Venkataraman, learned counsel appearing for the assessee, would strenuously contend that the information, on which a notice under Section 148 of the Income-tax Act, wa$ issued for reopening of the assessments under Section 147(b) thereof, must relate to the assessment year, to which that notice relates and mere change of opinion from this own record would not justify reopening of the completed assessments.
15. Mr. S. V. Subramaniam, learned senior standing counsel for income-tax cases, representing the Revenue, would, however, strike a discordant note and further submit that the assessments for the relevant assessment years were valid in law, as the information, on the basis of which the Income-tax Officer sought to reopen the assessment was based on subsequent facts, as also on the materials of the original assessments revealed by a more careful and closer investigation and that apart, he would say the facts discovered during the assessment proceedings of a subsequent year would constitute 'information' within the meaning of Section 147(b) of the Income-tax Act and reassessment proceedings based on such information are valid.
16. The tenability or otherwise of the rival submissions of either counsel may now fall for consideration in the arena of discussion. It is not as if the vexed or moot question as to what would constitute 'information' within Section 147(b) of the Act, which would enable the Assessing Officer to reopen the assessments arises for consideration for the first time before us. But the plain fact is that such a question had been canvassed before superior courts of jurisdiction--the apex and High Courts--and as a consequence, a catena of decisions in this regard came to prevail.
17. We shall now endeavour to find out the answer to the knotty question so posed, by making a survey of the various decisions of the superiorcourts, providing necessary guidelines for the reopening of the assessment under Section 147(b) of the Income-tax Act.
18. In Ramkrishna Ramnath v. ITO : [1970]77ITR995(Bom) , the question that arose for consideration was as to whether the 'information' must relate to the particular year for which notice was issued.
19. In answering the query so posed, what their Lordships of the Bombay High Court said is relevant and the same is couched as below (headnote) : 'The information which is relied upon by the Income-tax Officer for issuing the notice under Section 148 must be information which he has obtained aliunde and not merely by looking at his own order made in proceedings for a subsequent year.
20. The information on which a notice under Section 147(b) is issued must relate to the assessment year to which that notice relates though, of course, it might very well have been obtained at any time subsequent thereto and may have, come to the knowledge of the Income-tax Officer in the course of the assessment proceedings relating to a subsequent assessment year. If from information which relates to a subsequent assessment year, the respondent sought to resort to proceedings under Section 147, Clause (b), against the petitioner in respect of earlier years, he could not be said, even prima facie, to have had reason to believe that income chargeable to tax had escaped assessment in the years to which the impugned notices relate.
21. The court may, in the exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information, and may also determine, whether from that information the Income-tax Officer may have reason to believe that income chargeable to tax had escaped assessment, though it is not open to the High Court, exercising powers under Article 226 of the Constitution, to set aside or vacate the notice for reassessment on a reappraisal of the evidence.'
22. In CIT v. H. Holck Larsen : [1972]85ITR467(Bom) , the question that fell for consideration before the Bombay High Court was as to whether information within the meaning of Section 34(1)(b) of the Indian Income-tax Act, 1922 (comparable to the provisions of Section 147(b) of the Income-tax Act, 1961) may be obtained by the Income-tax Officer from his own record for reopening of the assessment
23. In order to understand the implications of the question so posed, better it is, we rather feel to relate the facts in an incisive and sharp fashion.
24. In the assessments of the assessee for the assessment years 1957-58 and 1959-60, the Income-tax Officer had accepted, as in previous years, the assessee's case that he held the shares of the company L & T as investment and that the profits arising from the sales of the shares of that company were capital gains. The very same Income-tax Officer, in his assessment proceedings of the assessee for the assessment years 1959-60 and 1960-61,reviewed the entire course of transactions from the year 1946 and held that, though the assessee was an investor till March 31, 1954, he had converted his investment shares into stock-in-trade after April 1, 1954, and had become a dealer in shares, and brought to tax the profit made by the assessee by the sale of shares in the assessment years 1959-60 and 1960-61 as business profits. In the light of the finding recorded by him in the assessment years 1959-60 and 1960-61, the Income-tax Officer reopened the assessments of the assessment years 1957-58 and 1958-59 under Section 34(1)(b) of the Indian Income-tax Act, 1922, and held that the assessee was a dealer in those two assessment years.
25. On appeal, the Appellate Assistant Commissioner set aside the fresh orders of assessments.
26. The Appellate Tribunal agreed with the Appellate Assistant Commissioner.
27. On a reference, the Bombay High Court held as below (headnote) :
'The fact that the Income-tax Officer had recorded a different decision in the assessment proceedings of subsequent years could not constitute 'information' within the meaning of Section 34(1)(b) so as to give him jurisdiction to reopen the assessment. The information must have come into the possession of the Income-tax Officer after the previous assessment. In the instant case, the facts and circumstances on which the Income-tax Officer purported to act under Section 34(1)(b) were already before him during the original assessment proceedings of 1957-58 and 1958-59. He had consciously applied his mind to that data and he had co-related the various facts. In other words, he was not only aware of that data but he had realised its implications. It was, therefore, not open to him to fall back upon the same facts and circumstances and reopen the assessments. The only subsequent 'information', which the Income-tax Officer had was that in later assessments he had himself taken a different view of the same facts. Informing oneself of one's own subsequent decision, a decision that has yielded no new facts, is based on no new law nor has revealed a new awareness of what already was law, is not receiving 'information' such as would justify the reopening of an assessment.'
28. In Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) , a sum of Rs. 43,116 being interest paid by the appellant-firm on amounts borrowed by it was allowed as a deduction. During the course of the assessment proceedings for the assessment year 1958-59, the Income-tax Officer discovered that the appellant had not utilised the entire borrowed money for the purpose of its business but had given interest-free loans to its partners for clearing up their income-tax dues.
29. The Income-tax Officer reopened the assessment for the year 1956-57, under Section 34(1)(b) of the Indian Income-tax Act, 1922, and disallowed the interest paid.
30. The Appellate Tribunal held that the Income-tax Officer had merely changed his opinion on the basis of the very materials that were before him when the original assessment was made and that was not sufficient to attract Section 34(1)(b).
31. On a reference, the High Court held that the reassessment was valid in law as the information on the basis of which the officer sought to re-open the assessment was based on subsequent facts as also on the materials of the original assessment revealed by a more careful and closer investigation.
32. On appeal, the Supreme Court held, affirming the decision of the High Court, that the reassessment under Section 34(1)(b) was valid in law inasmuch as the Income-tax Officer proceeded on the basis of information which came to him after the original assessment by fresh facts revealed in the assessment proceedings for the year 1958-59.
33. The word 'information' in Section 34(1)(b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under Section 34(1)(b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled by the words 'reason to believe'. Information may come from external sources or even from the materials already on record or may be derived from the discovery of new and important matter or fresh facts.
34. Section 34(1)(b) would apply to the following categories of cases :
(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 ;
(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 original assessment ; and
(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.
35. Where, however, 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)(b) would have no application.
36. In Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , the question posed for consideration was (page 999) ;
'Can the view expressed by an internal audit party of the Income-tax Department on a point of law be regarded as 'information' for the purpose of initiating proceedings under Section 147(b) of the Income-tax Act'.
37. The short facts may also be related in order to understand the implications of the question so posed.
38. The assessee-society, registered under the Companies Act, 1956, a professional association of newspapers established with the principal object of promoting the welfare and interest of all newspapers, owned a building, in which a conference hall and rooms were let out on rent to its members as well as to outsiders, and also provided certain services to its members. All along, the assessee's income from that source was assessed to tax as 'income from business' and it was so assessed for the assessment years 1960-61 to 1963-64 also.
39. In the course of audit, the internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed as 'income from property' and not as 'business income'. Treating the contents of the audit report as 'information', the Income-tax Officer initiated proceedings for reassessment for those four years under Section 147(b) of the Income-tax Act.
40. On appeal, the Appellate Assistant Commissioner held that it could not in law be said that the Income-tax Officer had any 'information' in his possession enabling him to take action under Section 147(b).
41. But, on further appeal, the Tribunal, after noticing a difference of opinion between the High Courts, followed the decision of the Delhi High Court in the case of Smt. Chand Kanwarji : [1972]84ITR584(Delhi) and held that the internal audit report should be regarded as 'information'.
42. On a direct reference, the Supreme Court held that the opinion of the audit party, on a point of law, could not be regarded as 'information' enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b). The Income-tax Officer had, when he made the original assessment, considered the provisions of Sections 9 and 10 of the Indian Income-tax Act, 1922. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on materials already considered by him.
43. The Supreme Court, in so holding, said that the proposition in the decision of the Supreme Court in the case of Kalyanji Mavji and Co. : [1976]102ITR287(SC) to the effect that a case where income had escaped assessment due to 'oversight, inadvertence or mistake' of the Income-tax Officer, must fall within Section 34(1)(b) of the Indian Income-tax Act, 1922, 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 re-appraising 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. An error discovered on a reconsideration of the same material (and no more) does not give him that power.
44. The Supreme Court further said that the opinion of an internal audit party of the Income-tax Department on a point of law, cannot be regarded as 'information' within the meaning of Section 147(b) of the Income-tax Act, for the purpose of reopening an assessment. But although an audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the Income-tax Officer to it. Law is one thing, and its communication is another. If the distinction between the source of the law and the communication of the law is carefully maintained, the confusion which often results in applying Section 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose. That part alone of the note of an audit party which mentions the law which escaped the notice of the Income-tax Officer constitutes 'information' within the meaning of Section 147(b) ; the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income-tax Officer. In every case, the Income-tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer.
45. In every case, a declaration or exposition to be law, must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text-books and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of law and in themselves possess no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status.
46. In Virudhunagar Co-operative Milk Supply Society Ltd. v. CIT : [1990]183ITR545(Mad) , the question that posed for consideration was as to whether the facts discovered during the assessment proceedings of a subsequent year would constitute 'information' within the meaning of Section 147(b) of the Income-tax Act.
47. In answering the question so posed, a Division Bench of this court held that facts discovered during the assessment proceedings of a subsequent year would constitute 'information' within the meaning of Section 147(b)of the Income-tax Act, 1961, and reassessment proceedings based on such 'information', are valid.
48. The said Division Bench of this court brought out, in a clinching fashion, the effect of the decision of the Supreme Court in the case of Kal-yanji Mavji and Co. : [1976]102ITR287(SC) and the subsequent decision of the apex court in the case of Indian and Eastern Newspaper Society : [1979]119ITR996(SC) . What the Division Bench said in this regard is getting reflected in the relevant paragraph at page 549, as below :
'We may now notice Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where the Supreme Court has pointed out at page 1004, referring to Kalyanji Mavji's case : [1976]102ITR287(SC) , that the categorisation in that decision under category (2) thereof, i. e., that income liable to tax has escaped assessment due to oversight, inadvertence or mistake would also fall within Section 34(1)(b) of the Indian Income-tax Act, 1922, has been stated rather too widely and broadly and goes even further beyond what is warranted by the statute and that an error discovered, would not give the officer the power to resort to a reopening under Section 147(b) of the Act. Though Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , has taken the view that oversight, inadvertence or mistake, would not fall within Section 34(1)(b) of the Indian Income-tax Act, 1922, nothing has been said by way of disapproval of the other categories enumerated in Kalyanji Mavji's case : [1976]102ITR287(SC) . . . .'
49. From the survey of the decisions as above, we are able to discern a common denominator running through them. Such common denominator reflects three factors, namely, (1) that the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment ; (2) that it is in consequence of information that he has reason to believe ; and (3) that the information, which furnished the basis for reason to believe, may be obtained from his own record or from an external source, not only relat-able to the assessment year in question ; but also relatable to subsequent assessment years.
50. Reverting to the facts of the instant case, the information, which furnished the reason to believe that the income assessable to tax for the relevant assessment years in question 1973-74 and 1974-75 had escaped assessment was procured by the Assessing Officer not only from the materials available on record, during the course of assessment proceedings for the assessment year 1975-76, but also from an external source in the shape of the Income-tax Officer, Tirunelveli, furnishing the necessary and requisite information relatable to wastage of newspaper in the process of printing, pertaining to other newspaper concern, namely, Dina Malar. The internal information available to the Assessing Officer, in the course of the assessment proceedings for the assessment year 1975-76 was none else than the stock book (RG 16 Register) maintained to comply with the Central Excise Regulations.
51. It is not as if the modus operandi of the business changed from year to year and the sordid fact is that it remained the same for the relevant assessment years 1973-74 and 1974-75 and 1975-76 as well. The assessee admittedly was not maintaining any stock register containing the relevant particulars as to newsprints, such as opening stock, newsprint consumption in the process of printing, closing stock and other relevant particulars as to wastage, maintaining separate account thereof for the relevant assessment year. The assessee has been purchasing newsprint in terms of weight and newspapers printed were quantified in terms of numbers and weight determined for the consumption of papers in the process of printing, adopting a standard formally. In such process, as already adverted to, the assessee calculated the wastage at 9. 9 per cent. for the assessment year1973-74 and 8.77 per cent for the assessment year 1974-75.
52. During the course of the assessment proceedings for the assessment year 1975-76, the Assessing Officer was able to discern from the stock book and other accounts maintained that the real wastage recorded was less than 5 per cent. The Assessing Officer also received information through external source that a similar newspaper concern, namely, Dina Malar, published from Tirunelveli, claimed wastage at 4,4 per cent. for the assessment year 1973-74 and 5.5 per cent. for the assessment year 1974-75. That apart, the Assessing Officer gathered specific data to the effect that there was substantial understatement of the sale of wastage. Thus, from the additional materials or fresh facts so gathered, either from internal or external source, the Assessing Officer had reason to believe that the income chargeable to tax for the relevant assessment years 1973-74 and1974-75 has escaped assessment from tax.
53. Such reassessment proceedings can, by no stretch of imagination, be stated to be a change of opinion of the Assessing Officer on the same facts, which fell for consideration during the course of the original assessments he had made. Further, though the facts gathered relate to subsequent assessment year, yet, it could not be stated that from those facts, it is well nigh not possible to legitimately infer that the assessee claimed wastage far in excess of the real wastage or permissible limit of wastage incurred by similar concern, when especially, the information related to the modus operandi of the business, which admittedly remained the same not only for the relevant assessment years 1973-74 and 1974-75, but also for the subsequent year 1975-76 as well. In such a situation, we rather feel that we are not far wrong in stating that the facts of the instant cases fall within categories 3 and 4 of Kalyanji Mavji's case : [1976]102ITR287(SC) .
54. We, therefore, answer the question referred to us in the affirmative and against the assessee. There shall, however, be no order as to costs, on the facts and in the circumstances of these cases.