the Commissioner of Income-Tax v. Shapoorji Pallonji Mistry

Judgment

38.C.R. THE COMMISSIONER OF INCJME-TAX SHAPOORJI PALLONJI MISTRY (S. K. DAS, M. HmAYATULLAH and J.C. SHAH, JJ.) Income Tax-Power of Appellate Assistant Commissioner to enhance ass€ss1nent-ltems not mentioned in return or consi· dered by the Income Tax Officer-Whether new source,s of income could be taxed-Indian Income Tax Act, 1922, (11 of 1922), ss. 31(3)(a), 33B, 34. 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 assessn1ent year l946-47 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 'fax 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 Comlnissioner inter alia requesting him to assess the amount of Rs .. 40,000/-. 'fhe amount was assessed and included in the original assessment. On reference, the High Court answered that the Appellate Assistant Commissioner was not comp~tent 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 reco1-d in enhancing the assessment for any year. He/,d, 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 mentioned in the return of the asses see or considered by the Income Tax Officer in the order appealed from. He.ld, 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 1·1it Cor;,n,iuior.er 1/ lncornc•lax Shaj,oQrji l'allonji .\1 istr;• Hidayati.llah- J. under s. 31, bcc,1u~e if frt:sh sources of incon1c arc as~es~cd undr.r tha.t ~ection 1 the assc~sce \vill lie deprived of a finding Ly l\\'O tribunals, and one right to aµpccd. 'l'hc pu\vcrs of rcn1aud should be cxcrcisr.U. in ~uch casr.s. __ ;.\:arroJ.t 1/f.l.'/ Jlanorda .. ~s v. Cu1nuii.~-si•Jncr_ of lnc~11t'~·frt(,, !l9:>1j 31 1.1'.ll.

909,.Jayarnalli Th~rani v. G'o1nniissioner of lncl)11t•! 1'r1.r:, (1925j f.L.ll, 1t P..i.L JIJJ, (),1ja!a.}a,_i;hn1i Uinn,iny }"'~ctory v. (]1 .. Hnrni.s<;i1Jnt:1 of I 11,-:oni•:-ta.i.:, [I 952J 22 I :I'.({. 502, li1sh11:r11uzth l'ritsad JJ!uzyu-at J>r,i:;a<l v. Co11inn'ssio11,fr of /nOJllH:.- fux, [l9:)5J 2!) I:I'.ll. 74B ;u1tl. 1'hc ()onani,;;sioner of l11,r:o1nt·lri.c v. Mis. JfcJJil/an & Co. [l~"JBj S.C.R. 689, referred to. CIVIL Al'l'ELLATE Jt:HISD!CTION: Civil Appeal Xo. 420 of l!J6l. Appeal by ~pecial leavo from tho judgment and order dated ilhrch 14, 1958, of the Bombay High Court iu I.T.H. No. 54 of 195i. I(: N. Rajagopal &i~tri and D. Gupta, for the appellant. R. J, Kolah, D. Ii. Dw1srkcw.U1S, S. N. Andlcy, Rwne;;hunr Nath aud P.L. Vohra, for tho rcspondl•nt. l!lui. :l!'eburary 14. The Judgment of the Court was delivered by liIDAYATl:LLAll, J:-The asscssee, who is the respondent here, had received on July 20, l!l·Hl a a sum of Rs. 40,000/·.

In tho proceedings for assrlisment for the assessment ye.u, I 94tl . .i7, this came to the notice of tho Income·t<1x Officer. Since tho receipt fell within the accounting year rolative to tho assessment year, 1947-48, tlio Income-tax Officer <lid not assess the amount making a noto, "The question will however bo oonsidered again at tho time of 19i7--i8 assessment." In the return fil~d for the 8.sseesment year, l!J.!7-48, this amount was not shown by the a88essee. The Income-tax Oflicer also overlooked tho note at tho end of bi" order in the back yoar's 'lBsessrnent, with the result that this it.cm was omitted, The assessee appealed to Appellate Assistant Commissioner against his . assessment for the year, 1947-48. While the appeal was pending. the Income-tax Officer wrote a letter to the Appellate Assistant ComrniRsioner intimat- The Oommi<8foner of ing him th11t he would likf1 to he present, 1tnd n.lso 1 ""~.':'ax requesting him to asRess the :tmount of R8.

40.000/-. s1,apoo•ji Pallonji The Appellate Assisf,ant Commissioner. after issuing Mistry notice, :tssessed the amount :md included it in the llido;atu/laf,J. original asses~ment.. The oontPntion of the ltSsessee was th:it the amount of Rs. 4.0,000/- represented 11, receipt of a capital nature, while it wits he Id to he a receipt on the nwenue account. With thi~ controversy,. we 11,re not concerned. The Tribunal agreed with the Anpelhte Assist.ant C')mmissioner, hut on the application of the assessee, referred two questions to the High ·court under s. (i6 (l}. These quesf.ions-were: " ( 1) Whether on the facts and in the circumstancPs of the case, the Appellate Assistant CommissionN w1ts compPtent to enh:tncc the 1tssessment of the Appellant for the assAssment year 1947-48 hy a sum of Rs. 40,0(10/-? (2) Whether on the facts and circnmstances of the case the said sum of Rs. 40,000/- is a revenue rPceipt anr-J assessable to tnx in the assessment year 1947-48 ?''

The High Court answered the first qnrstion against the Department, 1tnd declined to nN<WAr the secon<l, in a much as it become aca<lPmic. This apnral has heen filed with special leave, against the judgment of the High Court of Bombay. Tne question whirh arises in this appeal may be formulated thus: whether in an appeal filed hy 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 : ".11. ( l} The Appellate Assistant Commissioner shall fi.x a day and place for the Tiu Ccmmissior." of lncomt-Tox SMpoo1ji Pal/m:Ji A1i1try hearing of the appeal, and may from time to time adjourn the hearing. (2)

The Appellate Assistant Commissioner may, before disposing of anJ appeal, make Ruch further inquiry as he thinks fit, or came further inquiry to he made Ly tho Jncorne·tnx Officer. x x x x (3) in disposing of an appeal the Appellate A8sistant.Commissioner may, in the case of nn ordC'r of as~<>~sment,- (a) confirm, reducP, enhance or annnl the asseRSment, (h) set aside the as.~essment and direct the Income-tax Officer to make a fresh assessment aftBr makinl! such fm ther inquiry as the Income-tax Officer thinks fit or the Appellate Assi;tant Commissioner may direct, and the Income-tax Officf'r shall thereupon proceed to mak<' surh fresh assr.ssment and determine whcro necessary the amount of tax pay. ah le on the hasis of such fresh asse~smcnt. .. There is nn doubt that the Appellate Assistant Commissioner can "enh~nce the assessment."

It is admitted al~o hy the asRe8sre that. within the four cornerR of the sources proccssrcl hy the Income· tax Officer, the Appellate Assistant Ccimmissioner can enhance the assessm('nt. This power must, at least, fall within the words "enhance the asspssmcnt", if they are not to ho rend" red \I holly nuga.f.ory. The contro,·crsy in this case is about hi;- di,;c.,vering new sources, not mentioned in the rrt11rn a!Hl not considered by the Ineomr-tax Officer. Tho High Court held, following its earlier view in N arron!las M anordass v. Commissioner of Ineome-tax ('),that the Appellate Assistant CommiR- sioner has revisional powers, but that they are confined to what was before the Income·tax Officer and considered bv the latter. The correctness of this view is challenged in this appeal by the Commissioner of Income-tax, Born bay. The earliest caso, which considered 'the meaning of s. 31(3), was Jagarnath ThPrani v. Commissioner of Income-tax (2) decided by the Patna High Court.

In that case, the assessee had three businesses atPurnea, Jalpaiguri and Calcutta. Hi~ income from Purnea only was assessed by the Income-tax Officer. On appeal by the assessee, the Appellate Assist:i.nt Commissioner assessed him with regard to the 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 limitcrl by the "subject-matter". The appe!l1ttc authrity 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 Ginninq Factory v. Commissioner of Income-tax(') where the Divisional Benchobserved as follows: "Of course, it would not be open to the (!) [1957] 31 I. T. R. 909. (21 [1925] I. I, R. 4 Pat. 385. 13) [ 1942] 22 J. T. R. 502, 5(0. J96t The Commissiorier .1f lnco~·Tax Shapoo~ji Pal/onji Mistry Tl.e Commfrsione1 of Jn,ome-T ax Sh(lpoorji Po Jlon;'i ,\Jistry llida;•atullah J. 176 SUPREME COURT REPORT8 [1962] SUPP. Appellate Assistant Commissioner to introduce into thA assessml'nt new sources, as his P"''"~r of enhancement should be restrirtcj nn 1,v to the income whirh was the rnbjectmaftl'f of eonsidl•ration for purposes of asseffment b~· the Income-tax Officer." In R,"s1111.·wna.th Pmsn.rl Bhaq11mt Prasad v. Commi~­ sionPr of T111:omP.-f1J.r (1), the ApncllatA AsRistant CommiR•ionpr had act.uitll~· rcmandPd the case, bnt whill' con•irforing the powers of the Appl'llate Assistant Commissioner, the Divisional Bench anpP'Lr• to h'lvA apnrovP<l of thn, above-rp1oted na••n.go from Madras casA.

The observations in 1hilt ""R" mav ht> t.rpated as oln'ter. In Nr1rro11das Mm1orrl~ .... V,. enmmis.'!'i011er of Tncome-tax (') is to h" fmmrl t.h" "nlicr casP of t.hri Bomlnv High Court which w:iA followP<l in the judgment under appe11.l. 'Tn thnt en•<', th<> :i••PRACll wa• carrving on husinAss in TI om hav :in<l also in 'Rajkot.. Tho profits from th!' R:i.ilrnt bminPSS w"rf' a11.~esscrl hy the Tncomet11.x Officer at. Rs- 1, l 7.fl4:l/-. TbP Income-tax OfficPr also fonnrl rcmittancPs t.o the ex!Rnt of Rs. 4 lnkhq from 'R•,jk01 t.o Tiomhay, but did not inclncll' t.hnt amount in the aSBl'Asment in Yil'w of t.hr> concession a llo,.-cd hy the Part 13 Stntl'S 'l'nxat.ion ConccRsion OrdP.r. Th" assPssee anpPnlNl with rr>snnct to th<' sum of Rs. 1,17,643/, c.ontenrlin[! that the Tbjkot lmsincRs h td no profits hut nnh- ]Oi<S. Th<'

Appnllatc Assistant Commissionc•r ~cceptc-<l thi" conf Pnf.ion, but sr't aAide the R ssc••ment nnrl rnmanrlP<l the P<~sc to tho Incometn.x Officer for n•assPssmcnt with n. virlw to :\SSPSB- incr tl1P snm of Rs. 4 lakhs. Tn rlealin!! with tho cn;c. th<> High Court helrl that tho powers of rl'm,rnrl wNl' ext.rcmel~· wi<lP,. hut it. quokd with anprnval the dPrision of the Patna. Hi!!h Court in .ln.'frtmrt.f.11, Thr.rani v. Comm,"s«irmrr of lncnm•-t,n: (') and also t.h" ahm·e obs,,rv:ttion of tho :lfadras High C•mrt. The leuned Chief ,Justice on the occasion ( 11 [I Q5'] 31 I. T. R. !JOQ, (2) [ 192;] I. L. R. 4 Pat. I Ii. (I) [ 1952] 22 I. T. R. 502, 510. added that there was a distinction between the subject.matter of the appeal and the subjectmatter of the assessment, and that the Appellant Assistant Commissioner's powers nnder 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 matter also came before this Court in The Oomn-tissioner of Income·tax v. M/s. McMillan & Oo. ( 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 Chagla, C. J., in Narrondas Manordas.s v. Oommi- 88ioner of Income-tax ( ') to the following effect:

"It is clear that the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Incometax Officer; a revising authority not in the narrow sense of revising what is the subjectmatter 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 a.mount which is liable to tax, but he is entitled to revise the various decisions given by the Income-tax Officer in the cvurse of the ass· essment and also the various incomes or (I) [1958] S. C.R. 689, 701. (2) [1925] I. L. R. 4 Pat. 380. Thi Commissioner of Income-Ta Shapoorji Pallonji Mistry Hii•1stullah J. The CornmWi4ner of Income-Tax Shapoorji ·Paiknji Mistry HiJJJy•tullah J. I I 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 ca.se. In our opinion, this Court must be hold 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 thats. 31 of the Income-tax Act confers not only appellate powers upon the Appellate Assistant Commissioner in so far ae he is moved by an assessee but also a revieional 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 aesessment 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 asseseee must pay, regard being had to the charging section and his total income. In this view, it is said that the words "enhance the assessment" 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 that there are other provisions like s. 34 and 33B which enable escaped income from new sources to be bronght to tax after following a special procedure.

The as& .eSBee contends that the powers of the Appellate i 79 Assistant Commissioner extend to matters considered by the Income-tax Officer, and if a· new so11rce 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 whioh 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 costH. The Commissionet oj lncome .. Tox Shapoorii Paltonji Mistry Hidapatul !ah J. Appeal dismissed. , .