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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 172 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  173 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               174               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 175 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.               176               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. 177 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.               178               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 179 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. 180