http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: COMMISSIONER OF INCOME-TAX,ANDHRA PRADESH

       Vs.

RESPONDENT: MIS.  BHIKAJI DADABHAI & CO.

DATE OF JUDGMENT: 22/02/1961

BENCH: SHAH, J.C. BENCH: SHAH, J.C. KAPUR, J.L. HIDAYATULLAH, M.

CITATION:  1961 AIR 1265            1961 SCR  (3) 923  CITATOR INFO :  E          1968 SC 162  (11)  R          1975 SC1549  (22,55)

ACT: Income-tax-Assessment Proceedings pending-Hyderabad  Income- tax Act repealed-Penalty, whether an additional tax-If could be  imposed-Appellate Assistant  Commissioner-jurisdiction-- Assessment,  meaning  of-Hyderabad Income-tax  Act,  s.  40- Indian  Income-tax Act, 1922 (XI of 1922)-Finance Act,  1950 (XXV of 19,50), s. 13.

HEADNOTE: The Income-tax Officer found that the respondents’ books  of accounts  were  unreliable and after  assessing  income  for Fasli  year 1357, corresponding to the year 1946-47,  issued notice to the respondents on December 22, 1949, under s.  40 of  the Hyderabad Income-tax Act to show cause  why  penalty should not be levied in addition to the tax and by an  order dated  October  31,  1951,  directed  payment  of  the  said penalty.   The  State of Hyderabad merged  with  the  Indian Union  during  the pendency of the  proceedings  before  the Income-tax  Officer and by s. 13 of the Finance  Act,  1950, the  Hyderabad  Income-tax Act ceased to  have  effect  from April  1, 1950, but the operation of that Act in respect  of levy, assessment and collection of income-tax and  super-tax in  respect of periods prior thereto for which liability  to income-tax could not be imposed under the Indian  Income-tax Act, was saved.  The question was whether (a) the Income-tax Officer  had power on October 31, 1951, to impose a  penalty under  S.  40(1)  of the Hyderabad Income-tax  Act  and  (b) whether the assessee had a right to appeal against the order of  the Income-tax Officer imposing penalty and whether  the Appellate  Assistant Commissioner had jurisdiction  to  hear appeals or whether his order was a nullity. Held,  that the power of the Income-tax Officer to impose  a penalty  under s. 40(1) of the Hyderabad Income-tax  Act  in respect of the year preceding the date of the repeal of  the Hyderabad  Income-tax Act was not lost because by s.  13  of the  Finance Act, 1950,,for the operation by  the  Hyderabad Income-tax Act in respect of levy, assessment and collection of  income-tax and super-tax in respect of periods prior  to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

April, 1951, for which liability to income-tax could not  be imposed  under the Indian Income-tax Act, was saved  and  so the proceedings for imposing the penalty could be  continued after  the enactment of s. 13(1) of the Indian Finance  Act, 1950. Held,  that the appeal against the order of  the  Income-tax Officer on the ground that he was not competent to pass  the order did lie to the Appellate Assistant Commissioner, whose jurisdiction was not made conditional upon the competence of the 924 Income-tax Officer to pass the. orders made appealable; as a court  of  appeal  he  had  jurisdiction  to  determine  the soundness  of    the conclusions of the  Income-tax  Officer both  on  the question of fact and law and even  as  to  his jurisdiction  to  pass the order    appealed  from,  and his order was not a nullity.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 434 of 1960. Appeal  by special leave from the judgment and  order  dated October  4, 1956, of the Hyderabad High Court in I.T.R.  No. 116/5 of 1954-55. K.   N. Rajagopal Sastri and D. Gupta, for the appellant. A,  V.  Viswanatha Sastri, S.N. Andley,  J.  B.  Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondents. 1961.  February 22.  The Judgment of the Court was delivered by SHAH,  J.-M/s. Bhikaji Dadabhai & Co.-herein.  after  called the assessees-owned an oil mill at Khammamath in the area of the  former State of Hyderabad.  For the year of  assessment Fasli  1357  (October 1, 1946, to September 30,  1947),  the assessees  returned an income of Rs. 50,384/-.  The  Income- tax  Officer found that the books of account  maintained  by the  assessees  were  unreliable  and  by  his  order  dated February  10,  1950, he assessed their total income  at  Rs. 1,63,131/-.   The Income-tax Officer had, before  finalising the assessment, issued on December 22, 1949, a notice to the assessees  under  s.  40 of  the  Hyderabad  Income-tax  Act requiring  them  to  show cause why penalty  should  not  be imposed  upon  them  and by order dated  October  31,  1951, directed the assessees to pay by way of penalty Rs. 42,000/- in addition to the tax.  This order was confirmed in  appeal by  the  Appellate Assistant Commissioner.  In  appeal,  the Income-tax Appellate Tribunal observed that by virtue of the provisions of s. 13 (1) of the Indian Finance Act, 1950, the Hyderabad  Income-tax Act had ceased to have effect  and  as the  power  to impose penalty under s. 40 of  the  Hyderabad Income-tax Act was not saved, the order imposing penalty was without jurisdiction, The Tribunal observed;                             925               "  The  Income-tax Officer may  have  been  in               error  in imposing the penalty, but there  was               no appeal against the order of the  Income-tax               Officer    to    the    Appellate    Assistant               Commissioner.  Section 42(1) of the  Hyderabad               Income-tax Act gives a right to an assessee to               appeal  if he objects to an order under s.  40               made  by  an Income-tax Officer.   Section  40               ceased to have effect.  There can therefore be               neither  an  order under s. 40 nor  an  appeal               against the order if an order.has been wrongly               made.    The  remedy  of  the  assessee   lies

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

             elsewhere, and not by way of an appeal to  the               Appellate Assistant Commissioner," and  on that view dismissed the appeal.  At the instance  of the assessees, the following questions were referred by  the Tribunal to the High Court of Judicature at Hyderabad 1.   Whether   on   31-10-1951,  the   Income-tax   Officer, Warrangal Circle, had the power to impose a penalty under s. 40(1)  of  the Hyderabad Income-tax Act in  respect  of  the assessment for the year 1357 F. ? 2.   Whether the assessee had a right to appeal against  the order of the Income-tax Officer imposing the penalty ? 3.   If  the Appellate Assistant Commissioner did  not  have jurisdiction  to hear the appeal, whether the order  of  the Appellate Assistant Commissioner is a nullity and  therefore the order of the Income-tax Officer erroneous, though it may stand until it is set aside by a competent authority ? The High Court answered the first and the third questions in the  negative  and the second question in  the  affirmative. The  High  Court  observed  that  the  Appellate   Assistant Commissioner had power to entertain the appeal in which  the question of the power of the Income-tax Officer to impose  a penalty  was challenged, and the decision of  the  Appellate Assistant  Commissioner was not without  jurisdiction.   The High Court also proceeded in a petition separately filed  by the assessees to direct the Income-tax Appellate Tribunal to set  aside  the order of the Income-tax Officer  imposing  a penalty as a logical 926 consequence of the view the Tribunal had taken regarding the absence  of  power  in  the Income-tax  Officer  to  levy  a penalty.   Against the order passed by the High Court,  this appeal with special leave is preferred. We  are in agreement with the High Court that the appeal  to the Appellate Assistant Commissioner was competent.  Even if the  Income-tax  Officer committed an error in  passing  the order imposing penalty because the conditions necessary  for invoking  that jurisdiction were absent, an  appeal  against his  order on the ground that he was not competent  to  pass the  order did lie to the Appellate Assistant  Commissioner. The  Appellate  Assistant  Commissioner  is  under  the  Act constituted an appellate authority against certain orders of the Income-tax Officer, and exercise of that jurisdiction is not  made conditional upon the competence of the  Income-tax Officer  to pass the orders made appealable.  The  Appellate Assistant Commissioner had as a court of appeal jurisdiction to determine the soundness of the conclusions of the Income- tax Officer both on questions of fact and law and even as to his jurisdiction to pass the order appealed from. We  are, however, unable to agree with the High  Court  that because of the repeal of the Hyderabad Income-tax Act by the Finance Act, 1950, the power to impose a penalty in  respect of  the  years preceding the date of repeal was  lost.   The State  of Hyderabad merged with the Indian Union during  the pendency  of the proceedings before the Income-tax  Officer. Thereafter  the Indian Legislature enacted the Finance  Act, 1950,  which by sub-section (1) of s. 13 in so far as it  is material provided:               " If immediately before the 1st day of  April,               1950,  there  is  in  force  in  any  part   B               State....  any law relating to  income-tax  or               super-tax....  that  law shall cease  to  have               effect  except for the purposes of  the  levy,               assessment  and collection of  income-tax  and               super-tax   in  respect  of  any  period   not               included in the previous year for the purposes

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

             of assessment under the Indian Income-tax Act,               1922..." 927 Manifestly, by s. 13, the Hyderabad Income-tax Act ceased to have  effect  as from April 1, 1950.  But the  operation  of that  Act in respect of levy, assessment and  collection  of income-tax and super-tax in respect of periods prior thereto for which liability to Income-tax could not be imposed under the  Indian Income-tax Act, 1922, was saved.   The  Judicial Committee  of the Privy Council in Commissioner  of  Income- tax, Bombay Presidency and Aden v. Messrs.  Khemchand Ramdas observed:               " One of the peculiarities of most  Income-tax               Acts is that the word ’assessment’ is used  as               meaning  sometimes the computation of  income,               sometimes  the determination of the amount  of               tax payable and sometimes the whole  procedure               laid  down in the Act for  imposing  liability               upon the tax payer." The  Hyderabad  Income-tax  Act also  used  the  expression" assessment " in different senses.  In certain sections,  for instance  ss.  31 and 39 the expression is used  as  in  the sense of mere computation of income; in other sections it is used  in  the  sense of determination of  liability  and  in certain  other  sections  in  the  sense  of  machinery  for imposing  liability  and procedure in  that  behalf."By  the Finance   Act,  1950,  the  Hyderabad  Income-tax  Act   was expressly kept alive in respect of periods which include the assessment year in question for purposes of levy, assessment and collection of income-tax.  The High Court expressed  the view  that the word "assessment" in S. 13 (1)  included  the whole procedure for imposing liability upon the taxpayer but not  to the procedure for imposing a penalty.  They  thought that  the Hyderabad Income-tax Act dealt with  liability  to pay  income-tax  and penalty in  distinct  provisions,  both relating  to  imposition  and  recovery  and  that  if   the Legislature had intended to keep alive the Hyderabad Income- tax Act for all purposes including the levy of penalty  with respect  to any particular year or years of  assessment,  it could have said so in terms clear and unambiguous instead of limiting  the  operation  only to  "  levy,  assessment  and collection."  In the view of the High Court,  imposition  of penalty (1)  (1938) L.R. 65 I.A. 236; [1938] 6 I.T.R. 414. 928 was  not a necessary concomitant or incident of the  process of assessment, levy and collection of tax. The  High Court proceeded upon the view that by  saving  the Hyderabad   Income-tax  Act  for  the  purposes.  of   levy, assessment   and  collection  of  income-tax,   the   entire procedure  for  imposing  liability  to  pay  tax  and.  for collection  of  tax was saved, but penalty  not  being  tax, provisions  relating  to  imposition of  and  collection  of penalty did not survive the repeal of the Hyderabad  Income- tax Act. This  Court  considered in C. A. Abraham v.  The  Income-tax Officer,  Kottayam(1) the question whether the expression  " assessment  " as used in s. 44 of the Indian Income-tax  Act included the procedure for imposition of penalty in  respect of a dissolved firm and it was observed:               "The  expression  ’assessment’ used  in  these               sections (provisions of Ch.  IV of the  Indian               Income-tax  Act)  is not used  merely  in  the               sense of computation of income and there is in               our  judgment no ground for holding that  when

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

             by s. 44, it is declared that the partners  or               members  of the association shall  be  jointly               and severally liable to assessment, it is only               intended   to   declare   the   liability   to               computation  of income under s. 23 and not  to               the   application   of   the   procedure   for               declaration  and imposition of  tax  liability               and the machinery for enforcement thereof.  By               s.  28,  the liability to pay  additional  tax               which is designated penalty is imposed in view               of  the dishonest or contumacious  conduct  of               the assessee." This  court  regarded penalty as an additional  tax  imposed upon  a  person  in view of his  dishonest  or  contumacious conduct.   It  is true that under the  Hyderabad  Income-tax Act,  distinct provisions are made for recovery of  tax  due and  penalty,  but that in our judgment does not  alter  the true  character of penalty imposed under the two Acts.   Nor are  we  able to agree that because in respect of  the  Sea, Customs  Act,  1878, the Indian Tariff Act, 1934,  the  Land Customs  Act, 1924, the Central Excise and Salt  Act,  1944, and the Indian Post Offices Act, 1898, which were extended (1)  [1961] 2 S.C.R. 765. 929 to the whole of India by s. 11 of the Finance Act, 1950, and the  provisions corresponding thereto were repealed  by  the proviso,  and  it was expressly provided that  the  previous operation   of  the  corresponding  law  or   any   penalty, forfeiture  or punishment ordered in respect of  an  offence committed  against any such law or any investigation,  legal proceeding or remedy in respect of such penalty,  forfeiture or punishment or any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty,  forfeiture or punishment may be imposed as if  the Act  had not been passed, that under sub-s. (1) of s. 13  it was intended to prohibit the authorities otherwise competent in that behalf fro‘ commencing or continuing the  proceeding for levying penalty even if the circumstances justify such a course.   The scheme of the statutes specified in s. 11  and which  are  repealed  by sub-s. (2) of s.  13  are  somewhat different  from  the scheme of the  Indian  Income-tax  Act. Because by sub-s. (1) of s. 13 of the Finance Act, 1950, the Hyderabad Income-tax Act was to cease to operate as on April 1,  1950,  except for the purposes of levy,  assessment  and collection  of income-tax and super-tax, whereas in  respect of  other Acts specified in s. 11  substantially  provisions similar  to those contained in s. 6 of the  General  Clauses Act were enacted, an intention that proceedings for  penalty may  be commenced and continued under the Acts specified  in S.  11,  whereas  no such proceedings may  be  commenced  or continued   under  the  Hyderabad  Income-tax  Act  is   not indicated.  We are of the view that the High Court erred  in holding that the proceedings for imposing the penalty  could not  be  continued after the enactment of s. 13 (1)  of  the Finance Act, 1950.  The appeal will therefore be allowed and the answer to  the first question will be recorded in the affirmative,.  On the view  taken by us, it is unnecessary to pass,any  orders  on the  petition under Art. 226 of the Constitution  which  was presented to the High Court.  The appellant will be entitled to  his  costs of the appeal in this Court and in  the  High Court. Appeal allowed. 930

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6