Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF INCOME-TAX
Vs.
RESPONDENT:
SHAPOORJI PALLONJI MISTRY
DATE OF JUDGMENT:
14/02/1962
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
DAS, S.K.
SHAH, J.C.
CITATION:
1962 AIR 1086 1962 SCR Supl. (3) 171
CITATOR INFO :
E 1968 SC 153 (4)
D 1976 SC1545 (18)
R 1978 SC 40 (3,6)
RF 1991 SC 241 (4)
ACT:
Income Tax-Power of Appellate Assistant Commissioner to
enhance assessment--Items not mentioned in return or consi-
dered by the Income Tax Officer--Whether new sources of
incomes could be taxed-Indian Income Tax Act,, 1922, (11 of
1922),ss. 31(3) (a), 33B, 34.
HEADNOTE:
The assessee had received in July 1946, a sum of Rs.
40,000/- which according to him represented a receipt of a
capital nature. This fact was brought to the notice of the
Income Tax Officer during the proceedings for the assessment
year 1946-47 and the Income Tax Officer made a note’ that
the question would be considered again at the time of 1947-
48 assessment. In the return filed for the assessment year
1947-48 this amount was not shown by the assessee and the
Income Tax Officer also overlooked his previous note, with
the result that this item was omitted. During the pendency
of the appeal by the assessee before the Appellate Assistant
Commissioner the Income Tax Officer wrote a letter to the
Appellate Assistant Commissioner inter alia requesting him
to assess the amount of Rs. 40,000/-. The amount was
assessed and included in the original assessment.
On reference, the High Court answered, that the Appellate
Assistant Commissioner was not competent to enhance the
assessment. The question is whether in an appeal filed by
an assessee, the Appellate Assistant Commissioner can find a
new source of income not considered by the Income-tax
Officer and assess it under his powers granted by s. 31 of
the Act and travel beyond the record in enhancing the
assessment for any year.
Held, that in view of the provisions of ss. 34 and 33B by
which escaped income can be brought to tax, the power of the
Appellate Assistant Commissioner is limited ; he has no
power to travel beyond the record to enhance the assessment
of any year by discovering new source of income not
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mentioned in the return of the assessee or considered by the
Income Tax Officer in the order appealed from.
Held, further, that provisions of ss. 33B and 34 enable
escaped income from new sources to be brought to tax after
following special procedure. Enhancement of assessment by
the discovery of new Sources of income is not contemplated
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under s, 3 1, because if fresh sources of income are
assessed under that section, the assessee will be deprived
of a finding by two tribunals, and one right to appeal. The
powers of remand should be exercised in such cases.
Narrondas Manordass v. Commissioner of Income-tax, [1957]
31 I.T.R. 909, Jagarnath Therani v. Commissioner of Income
Tax, (1925) I.L.R. 4 Pat. 385, Gajalakashmi Ginning Factory
v. Commissioner of Income-tax, [1952] 22 I.T.R. 502,
Bishwanath Prasad Bhagwat Prasad v. Commissioner of Income-
tax, [1953] 2 9 I.T. R. 748 and The Commissioner of Income-
tax V. M/8. McMillan & Co. [1958] S.C.R. 689, referred
to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 420 of 1961.
Appeal by special leave from the judgment and order dated
March 14, 1958, of the Bombay High Court in I.T.R. No. 54 of
1957.
K.N. Rajagopal Sastri and D. Gupta, for the appellant.
R.J. Kolah, D. H. Dwarkadas, S. N. Andley, Rameshwar Nath
and P.L. Vohra, for the respondent.
1962. Feburary 14. The Judgment of the Court was delivered
by
HIDAYATULLAH, J:-The assessee, who is the respondent here,
had received on July 20, 1946 a a sum of Rs. 40,000/-. In
the proceedings for assessment for the assessment year,
1946-47, this came to the notice of the Income-tax Officer.
Since the receipt fell within the accounting year relative
to the’ assessment year, 1947-48, the Income-tax Officer did
not assess the amount making a note, "The question will
however be considered again at the time of 1947-48
assessment." In the return filed for the assessment year,
1947-48, this amount was not shown by the assessee. The
Income-tax Officer also overlooked the note at the end of
his order in the back year’s assessment, with the result
that this item was omitted, The asseessee appealed to
Appellate Assistant Commissioner against his assessment for
the year, 1947-48. While the appeal
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was pending, the Income-tax Officer wrote a letter to the
Appellate Assistant Commissioner intimating him that he
would like to be present, and also requesting him to assess
the amount of Rs. 40.000/-. The Appellate Assistant
Commissioner, after issuing notice, assessed the amount and
included it in the original assessment The contention of the
assessee was that the amount of Rs. 40,000/- represented a
receipt of a capital nature, while it Was held to be a
receipt on the. revenue account. With this controversy, we
are not concerned. The Tribunal agreed with the Appellate
Assistant Commissioner, but on the application of the
assesse, referred two questions to the High Court under
s. (66 (1). These questions were :
" (1) Whether on the facts and in the
circumstances of- the cases the Appellate
Assistant Commissioner was competent to
enhance the assessment of the Appellant for
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the assessment year 1947-48 by’ a sum of Rs.
40,000/- ?
(2)Whether on the facts and circumstances of
the case the said sum of Rs. 40,000/is a
revenue receipt anti assessable to tax in the
assessment year 1947-48 ?"
The High Court answered the first question against the
Department, and declined to answer the second, in a much as
it become academic. This appeal has been filed with special
leave, against the judgment of the High Court of Bombay.
The question which arises in this appeal may be formulated
thus : whether in an appeal filed by assesee, the Appellate
Assistance Commissioner can find a new source of income not
considered by the Income-tax Officer and assess it under his
powers granted by s. 31 of the Income-tax Act ? Section 31
reads as follows :
"31. (1) The Appellate Assistant Commissioner
shall fix a day and place for the
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bearing of the appeal, and may from time to
time adjourn the hearing.
(2)The Appellate Assistant Commissioner
may, before disposing of any appeal, make such
further inquiry as he thinks fit or cause
further inquiry to be made by the Income-tax
Officer.
(3)in disposing of an appeal the Appellate
Assistant Commissioner may, in the case of an
order of assessment,-
(a) confirm, reduce, enhance or annul the
assessment,
(b) set aside the assessment and direct the
Income-tax- Officer to make a fresh assessment
after making such further inquiry as the
Income-tax Officer thinks fit or the Appellate
Assistant Commissioner may direct and the
Income-tax Officer shall thereupon proceed to
make such fresh assessment and determine where
necessary the amount of tax payable on the
basis of such fresh assessment...
There is no doubt that the Appellate Assistant Commissioner
can "enhance the assessment." It is admitted- also by the
assessee that within the four corners of the sources
processed by the Income-tax officer, the Appellate Assistant
Commissioner can enhance the assessment. This power must,
at least, fall within the words ""enhance the assessment",
if they are not to be rendered wholly nugatory. The
controversy in this case is about his discovering now
sources, not mentioned in the return and not considered by
the Income-tax Officer. The High Court held, following its
earlier
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view in Narrondas Manordas v. Commissioner of Income-tax
(1), that the Appellate Assistant Commissioner has
revisional powers, but that they are confined to what was
before the Income-tax Officer and considered by the latter.
The correctness of this view is challenged in this appeal by
the Commissioner of Income-tax, Bombay.
The earliest case which considered the meaning of s. 31(3),
was Jagarnath Therani v. Commissioner of Income-tax
(")decided by the Patna High Court. In that case, the
assessee had three businesses at Purnea, Jalpaiguri and
Calcutta. His income from Purnea only was assessed by the
Income-tax Officer. On appeal by the assessee the Appellate
Assistant Commissioner assessed him with regard to the
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income from the other two businesses. The head of income
was the same with s. 6 of the; Income-tax Act, but the
sources of income were different. The Patna High Court
observed :
"Now this section relating to appeals is
enacted for the benefit of the subject and
also to the limited extent therein stated, for
the benefit of the Crown. But the subject-
mater of the appeal is the assessment and the
scope of the appeal must in my opinion be
limited by the "subject-matter". The
appellate authority has no power to travel
beyond the subject-matter of the assessment
and, for all the reasons advanced by the
appellant, is in my opinion not entitled to
assess new sources of income."
The view of the Patna High Court receives support from a
decision of the Madras High Court in Gajalakshmi Ginning
Factory v. Commissioner of Income-taxwhere the Divisional
Bench observed as follows
"Of course, it would not be. open to the
(1) [1957] 31 1. T. R, 909.
(2) [1925] 1. I. R. 4 Pat. 385.
(3) [1942] 22 T. T. R. 502 510.
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Appellate Assistant Commissioner to introduce
into the assessment new sources, as his power
of enhancement should be restricted only to
the income which was the subject matter of
consideration for purposes of assessment by
the Income-tax Officer." ’
In Bishwanath Prasad Bhagwat Prasad v. Commissioner of
Income-tax (1) the Appellate Assistant commissioner had
actually remanded the case, but while considering the powers
of the Appellate Assistant Commissioner, the Divisional
Bench appears to have approved of the above-quoted passage
from Madras case. the observations in that case may be
treated as obiter. In Narrondas Manodas v. Commissioner of
Income-tax (2) is to be, found the earlier case of the
Bombay High Court which was followed in the judgment under
appeal. In that case , the assesse was carrying on business
in ’Bombay and also in Rajkot. The profits from the Rajkot
business were assessed by the Income-tax Officer-at Rs-
1,17,643/-. The Income-tax Officer also found remittances
to the extent of Rs. 4 lakhs from Rajkot to Bombay, but did
not include that amount in the assessment in view of the
concession allowed by the Part B States Taxation Concession
Order. The assessee appealed with respect to the sum of Rs.
1,17,64311, contending that the Rajkot business had no
profits but only loss. The Appellate Assistant Commissioner
accepted this contention, but set aside the assessment and
remanded the case to the Income-tax Officer for reassessment
with a view to assessing the sum of Rs. 4 lakhs. In dealing
with the case, the High Court held that the powers of remand
were extremely wide, but- it quoted with approval the
decision of the Patna High Court in Jaqarnath Therani v.
Commissioner of Income-tax (3) and also the above
observation of the Madras High Court. The learned Chief
Justice on the occasion
(1) [1957] 31 T. T. R. 909
(2) [1925] 1. L. R. 4 Pat.
(1) [1952] 22 1. T. R. 502, 510.
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added that there was a distinction between the subject-
matter of the appeal and the subject matter of the
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assessment, and that the Appellant Assistant Commissioner’,s
powers under s. .31 were not confined to the subject-matter
of the appeal but extended to the subject-matter of the
assessment. Those powers included a power of remand to
include in the assessment something which ought to have been
so included by the Income-tax Officer, and a remand in that
case was, therefore, proper.
The Commissioner of Income-tax v. M/s McMillan & Co. (1);
but the question, with which we are concerned, was left
open. There is, however, a passage in the judgment,
approving of the observations of Chaola, C. J., in Narrondas
Manordass v. Commissioner of Income-tax (2) to the following
effect:
"It is clear that the Appellate Assistant
Commissioner has been constituted a revising
authority against the decisions of the Income-
tax Officer; a revising authority not in the
narrow sense of revising what is the subject
matter of the appeal, not in the sense of
revising those ’matters about which the
assessee makes a grievance, but a revising
authority in the sense that once the appeal is
before him he can revise not only the ultimate
computation arrived at by the Income-tax
Officer but he can revise every process which
led to the ultimate computation or assessment.
In other words, what he can revise is not
merely the ultimate amount which is liable to
tax, but he is entitled to revise the various
decisions given by the Income-tax. Officer in
the course of the assessment and also the
various incomes or
(1) [1958] S. C. R. 689,701.
(2) [1925] 1. L. R. 4 Pat. 385.
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deductions which came in for consideration of
the Income-tax Officer."
The learned Chief Justice in the judgment under appeal
considers that this Court has thus given approval to his
view and also the view of the Patna High court in the
earlier case.
In our opinion, this Court must be held not to have
expressed its final opinion on the point "arising here, in
view of what was stated at pp. 709 and 710 of the Report.
This Court, however, gave approval to the opinion of the
learned Chief Justice of the Bombay High Court that s. 31 of
the Income-tax Act confers not only appellate powers upon
the Appellate Assistant Commissioner in so far as he is
moved by an assessee but also a revisional jurisdiction to
revise the assessment with power to enhance the assessment.
So much, of course, follows from the language of the section
itself. The only question is whether in enhancing the
assessment for any year he can travel outside the record,
that is to say, the return made by the assessee and the
assessment order passed by the Income-tax Officer with a
view to finding out new sources of income, not disclosed in
either. It is contended by the Commissioner of Income-tax
that the word "’assessment" here means the ultimate amount
which an assessee must pay, regard being had to the charging
section and his total income. In this view, it is said that
the words "enhance the assessments are not confined to the
assessment reached through a particular process but the
amount which ought to have been computed if the true total
income had been found. There is no doubt that this view is
also possible. On the other hand, it must not be overlooked
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that there are other provisions like s. 34 and 33B which
enable escaped income from new sources to be brought to tax
after following a special procedure. The assessee contends
that the powers of the Appellate
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Assistant Commissioner extend to matters considered by the
Income-tax Officer, and if a new source is to be considered,
then the power of remand should be exercised. By the
exercise of the power to assess fresh sources of income, the
assessee is deprived of a finding by two tribunals and one
right of appeal.
The question is whether we should accept the interpretation
suggested by the Commissioner. in preference to the one,
which has held the field for nearly 37 years. In view of
the provisions of ss. 34 and 33B by which escaped income can
be brought to tax, there is reason to think that the view
expressed uniformly about the limits of the powers of the
Appellate Assistant Commissioner to enhance the assessment
has been accepted by the legislature as the true exposition
of the words of the section. If it were not, one would
expect that the legislature would have amended s. 31 and
specified the other intention in express words. The Income-
tax Act was amended several times in the last 37 years, but
no amendment of s. 31(3) was undertaken to nullify the
rulings, to which we have referred. In view of this, we do
not think that we should interpret, s. 31 differently from
what has been accepted in India as its true import,
particularly as that view is also reasonably possible.
The appeal is, therefore, dismissed; but in the
circumstances of the case, we make no order about costs.
Appeal dismissed.
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