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PETITIONER: M/S.  SARUPCHAND HUKAMCHAND & CO.

       Vs.

RESPONDENT: UNION OF INDIA AND OTHERS

DATE OF JUDGMENT: 05/05/1959

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, SUDHI RANJAN (CJ) BHAGWATI, NATWARLAL H.

CITATION:  1959 AIR 1207            1959 SCR  Supl. (2) 986

ACT: lncome-tax--Assessment  of  unregistered  firm  treated   as registered  by Income-tax Officer-Appeal against  orders  of assessment--Finding of Profit reversed and fresh  assessment directed-Effect--Duty  of Income-tax Officer-Indian  income- tax  Act,  1922  (XI of 1922), SS.  23(5)(b),  24(2)(d)  and 31(4).

HEADNOTE: The Income-tax Officer found that the assessee, an  unregis- tered  firm, had made a profit in the assessment year  1940- 41.   He treated it as registered under S. 23(5)(b)  of  the Act,  assessed the partners and carried the profit to  their individual  returns, making no demand on the firm.  For  the next two assessment years, however, the firm was assessed as unregistered firm.  For all the three assessment years,  the Income-tax  Officer  treated  the firm  as  "  resident  and ordinarily  resident ". The firm appealed against all  these assessments.   The appeals were all consolidated  and  heard together by the Appellate Assistant Commissioner.  He  found that  the firm was non-resident, the computation  of  income made  by the Income-tax Officer was erroneous, that  in  the assessment  year  1940-41 there was a loss  and  during  the subsequent years the firm had made profits.  He,  therefore, directed  the Income-tax Officer to modify  the  assessments accordingly.   Thereupon the Income-tax Officer gave  relief to  the partners for the year 1940-41 and  directed  certain refunds to be made to them.  The firm was not satisfied  and moved   both  the  Income-tax  Officer  and  the   Appellate Assistant Commissioner 987 found  to  have incurred a loss in the first  of  the  three assessment years, it could not for that year be treated as a registered  firm and was entitled to carry forward the  loss to the subsequent years.  They declined to interfere on  the ground that the direction of the Income-tax Officer under S. 23(5)(b),  not  being appealable, had become final  and  the time  within  which  the original order  of  the  Income-tax Officer could be rectified had also run out.  The firm  went up to the Commissioner and the Central Board of Revenue, but to no effect.  Thereafter it moved the High Court under Art.

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226  of  the Constitution.  The single Judge who  heard  the matter declined to interfere.  The Division Bench on  appeal agreed  with  the single judge.  The firm appealed  to  this Court.   The  question for decision was  whether  after  the finding  of profit made by the Income-tax Officer  had  been turned   to   one  of  loss  by  the   Appellate   Assistant Commissioner on appeal, the original decision of the Income- tax  Officer to treat the firm as a registered one under  s. 23(5)(b) could remain intact. Held,  that since the Income-tax Officer could treat an  un- registered firm as a registered one under S. 23(5)(b) of the Indian  Income-tax  Act  only if there  was  a  profit,  the reversal  of  the  finding  of profit made  by  him  by  the Appellate  Assistant  Commissioner must  automatically  take away the jurisdiction of the Income-tax Officer to act under that  section  and  his  order  made  thereunder  must  fall through. It  made  no  difference in the instant  case,  whether  the Appellate  Assistant Commissioner’s order was one under  cl. (a)  Of s. 31(3) or under cl. (b) of that section,  for  the effect of the order in law in either case would be the same, namely,  the  annulment of the assessment resulting  in  the restoration of the case back to its original position. It  was not correct to suggest that under proviso (d) to  s. 24(2) Of the Act the losses of an unregistered firm could be carried  to  the  partners’  account  as  if  the  firm  was registered.   That  proviso was not intended to  enable  the Income-tax  Officer to forego the obligation laid on him  by cl.  (b) Of S. 23(5), i.e., to find out the interest of  the Revenue,  and thus to render the words ’during any  year  in proviso  redundant.   The  effect of the  provisions  of  S. 23(5)(b) and the proviso (d) to S. 24(2), which must be read together, was that the proviso was to be invoked subject  to the conditions under S. 23(5)(b) to obtain more revenue  for the State by applying S. 23(5)(a). Although the Appellate Assistant Commissioner could not have interfered  with  the order made by the  Income-tax  Officer under  S.  23(5)(b)  of the Act in an  appeal  against  that order,  the position must be different when  the  assessment itself was subject to appeal under s. 31 Of the Act, and the Appellate  Assistant Commissioner under s. 31(4)  authorised the Income-tax Officer to modify the assessment in the light of  his direction.  It would, therefore, be the duty of  the Income-tax Officer to consider de 988 novo whether in the altered circumstances the provisions of S.   23(5)(b) of the Act could at all be applied. Commissioner of Income-tax v. Tribune Trust, Lahore,  [1948] 16 I.T.R. 214, Commissioner of Income-tax v. McMillan & Co., [1958]  33  I.T.R.  182 and Commissioner  of  Income-tax  v. Amritlal Bhogilal & CO., [1958] 34 I.T.R. 130, considered.

JUDGMENT: CIVIL APPELLATE, JURISDICTION: Civil Appeal No. 172 of 1955. Appeal  by special leave from the judgment and  order  dated February  26, 1953, of the Bombay High Court in  Appeal  No. 108  of 1952, arising out’ of the Judgment and  order  dated July  8,  1952,  of  the said High  Court  in  its  Ordinary Original and Civil Jurisdiction in Misc.  No. 48 of 1952. R.   J. Kolah, J. B. Dadachanji, S. N. Andley and  Rameshwar Nath, for the appellant. H.   N. Sanyal, Additional Solicitor-General of India,K.   N. Rajagopal Sastri and D. Gupta, for the respondents.

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1959.  May 5. The Judgment of the Court was delivered by HIDAYATULLAH,  J.-This  appeal,  by special  leave  of  this Court,  is  directed against the judgment and order  of  the High Court of Judicature at Bombay dated February 26,  1953, in Appeal No. 108 of 1952.  By that judgment, the Divisional Bench (Chagla, C. J. and Shah, J.) declined to interfere, in Letters  Patent Appeal, with the judgment of Tendolkar,  J., dated  July 8, 1952, in Miscellaneous Application No. 48  of 1952.   In  the petition which was originally filed  in  the High  Court  under Art. 226 of the Constitution, a  writ  of mandamus  was  asked  against the Union  of  India  and  two Income-tax  Officers  to compel them to give effect  to  the appellate  order of the Appellate Assistant Commissioner  of I.  T.  F. Range, Bombay, dated April 29,  1949.   The  High Court in both the judgments declined the writ. The facts of the case are as follows: The appellant, Messrs. Sarupchand arid Hukamehand and Co., (hereinafter referred to as the assessee firm) was carrying on business, inter  alia, as shroffs, merchants and 989 commission  agents at Bombay, Indore, Ujjain  and  Calcutta. It  had,  in the relevant account years, two  partners,  Sir Sarupchand  Hukamchand and Sri Hiralal Kalyanmal.   The  two partners  were  also separately liable  to  income-tax,  the former  as  a Hindu undivided family and the  latter  as  an individual.  We are concerned here with the assessment years 1940-41,  194142  and  1942-43.   These  correspond  to  the account  years,  1995-1996 (Samvat) to  1997-1998  (Samvat). When  the  assessment  of the assessee firm  was  made,  the Income-tax Officer, Section VIII (Central), Bombay,  treated the  firm as " resident and ordinarily resident ".  For  the assessment  year  1940-41  the Income-tax  Officer  found  a profit of Rs. 80,358, and applying s. 23(5)(b) of the Indian Income-tax  Act (hereafter called the Act), he proceeded  to treat the firm which was unregistered as registered for  the purpose  of  assessment.  On March 15,  1945,  he  therefore assessed  the  two partners carrying the profit  into  their individual  returns  and made no demand upon the  firm.   It appears  that  an application for registration  had  already been  filed  under s. 26A of the Act before  the  Income-tax Officer, but it was rejected-and quite correctly-because  no instrument  of  partnership was disclosed.  That  order  was also passed on the same date. For the assessment years 1941-42 and 1942-43, the Income-tax Officer  by his orders dated July 31, 1945, and October  31, 1945,  respectively,  treated  the firm as  "  resident  and ordinarily resident " and as an unregistered firm.  For  the first of the two assessment years, he assessed the firm on a total  income of Rs. 2,30,798 to income-tax  and  super-tax, and for the second year, its British Indian income was taken at Rs. 2,62,827 and the total income at Rs. 7,00,116 and was also treated accordingly. The  assessee firm appealed against these assessments.   The Appellate Assistant Commissioner by his order passed in  the consolidated  appeals  on  April 29,  1949,  held  that  the assessee  firm was non-resident and excluded the  income  of the  firm outside British India, though it was  included  in the total word income for the purpose of computing the  rate of tax. 990 He also found error in the computation of income made by the Income-tax  Officer, and held that in  the  assessment  year 1940-41 there was a loss of Rs. 1,61,084 in the total  world income of the assessee firm.  For the subsequent years  also there  were slight variations in the amounts  determined  by

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the  Income-tax Officer, but it was held that  the  assessee firm had made profits in those years.  The following is  the summary   of  the  findings  of  the   Appellate   Assistant Commissioner, as given by him in his order: Assess-   Income in   Income        Total ment      British     outside       world year       India      British       income.                India          Rs.                 Rs.         Rs. 1940-41    Loss  2,26,028        74,944Loss   1,61,084 1941-42      1,27,062            1,08,236     2,35,298 1942-43      2,62,827            4,41,789     7,04,616 In  addition  to  these findings,  the  Appellate  Assistant Commissioner added a direction to the following effect : "   The  Income-tax  Officer  is  directed  to  modify   the assessments accordingly." When  the  matter reached the Income-tax  Officer,  he  gave effect to the order of the Appellate Assistant  Commissioner under s. 31 of the Act and carried the loss to the  partners in  their  assessments for the year 1940-41, and  granted  a refund  of Rs. 16,977-11-0 to Sir Sarupchand Hukamchand  and Rs.  68,339  to Sri Hiralal Kalyanmal.  The  assessee  firm, however,  was  not satisfied, and embarked  upon  voluminous correspondence  beginning with a letter dated September  10, 1949, by which it claimed that inasmuch as it had been shown to have incurred a loss in the first of the three assessment years, it could not for that year be treated as a registered firm,  and  that  as an unregistered firm  it  was  entitled therefore to carry forward the loss to the subsequent years. In  addition to the correspondence, the assessee firm  moved in turn the Income-tax Officer 991 as well as the Appellate Assistant Commissioner respectively under  s. 35 of the Act for rectification of the  assessment to the same effect.  The officers of the Department at  both levels declined to interfere, and stated that the  direction of  the  Income-tax  Officer  under  s.  23(5)(b)  was   not appealable,  and  had become final.  They also  pointed  out that  the  period  during which the original  order  of  the Income-tax  Officer could be rectified (viz., 4  years)  had already run out, and that the petitions were accordingly out of  time.  The assessee firm moved the Commissioner as  well as  the  Central  Board of Revenue, but failed  to  get  the desired order. Finally, after the receipt of the order of the Central Board of  Revenue, the assesee firm applied on July 16,  1951,  to the  Additional Income-tax Officer, Section VIII  (Central), to  give  effect  to an order which the  assessee  firm  had secured  from the Appellate Assistant Commissioner  earlier. By that order, the Appellate Assistant Commissioner had,  at the  request of the assessee firm, directed  the  Income-tax Officer to take the losses of the first assessment year into the  accounts  of  the partners,  which  direction,  in  the opinion   of  the  Appellate  Assistant  Commissioner,   his predecessor  had omitted to make in the first instance.   It was  after this that fresh assessment forms were  drawn  up, and  the refund was determined.  It may be pointed out  here that  the partners withdrew the amount of refund, though  in making the request to the Additional Income-tax Officer  the assessee firm had reserved its right "to move further in the matter  as  may be advised ", and had pointed out  that  the action was without prejudice to such rights. Having  failed  to obtain relief from  the  Department,  the appellate authorities and the Central Board of Revenue,  the assessee  firm  filed  the petition under Art.  226  of  the

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Constitution  in  the High Court of  Judicature  at  Bombay. That petition was heard by Tendolkar, J., and he declined to interfere mainly on the ground that it was possible to  take two  views of the matter whether after a  profit  assessment was turned into a loss assessment by the Appellate Assistant 992 Commissioner,  the original order of the Income-tax  Officer under  s. 23(5)(b) remained outstanding or  not. He  thought that  this was not a fit case for the issuance of a writ  of mandamus by the High Court.  In appeal which was taken  from this  decision, Chagla, C. J., looked at proviso (d)  to  s. 24(2),  and  also  came  to  the  view  that  there  was   a possibility of two views being taken in the matter, and that the  learned  single  Judge was right  in  not  interfering. Shah,  J.,  in  a concurring  judgment,  explained  what  he considered  was  the  meaning of s. 23(5)(b)  read  with  s. 24(2),  proviso  (d), but he also felt that this was  not  a case  in which a Writ could be claimed against the Union  of India  or the Income-tax Officers.  Chagla, C. J.,  however, expressed  the  hope that the taxing authorities  would  not deny  the  assessee  firm its rights under the  Act  on  any technical ground, such as limitation, or failure to pursue a particular  procedure.  In the result, the Divisional  Bench sustained the order of Tendolkar, J., who had dismissed  the petition  earlier.   This  Court on  May  3,  1954,  granted special  leave  to  appeal  against  the  judgment  of   the Divisional Bench. Before  arguing  on  merits  of  the  appeal,  the   learned Additional Solicitor-General and subsequently Mr. Rajagopala Sastri  who took over the argument, raised three  objections to  the present appeal.  According to them, the petition  in the  High Court was directed against the Union of India  and the two Income-tax Officers who had dealt with this  matter, and the relief which was claimed could be granted by none of them.    They   further   argued  that   mandamus   was   an inappropriate  writ to issue in this matter, when the  order passed  by the Income-tax Officer under s. 23(5)(b) was  not appealable and the Appellate Assistant Commissioner could do nothing  about  it  in the appeal  against  the  quantum  of assessment.   They also stated that the relief asked for  in the  petition  could not be granted by the High  Court,  and that the powers of this Court were accordingly limited. We shall deal with these objections, when we have determined the  essence of the matter.  Under s. 23(5)(b), a  power  is conferred on the Income-tax Officer to treat an unregistered firm as a registered 993 firm, if by adopting that method more tax and supertax would be  realisable  from the individual partners  in  their  own assessments than in assessing the firm.  I The clause may be quoted in extenso for ready reference here : 23(5).    "  Notwithstanding  anything  contained   in   the foregoing sub-sections, when the assessee is a firm and  the total income of the firm has been assessed under sub-section (1),  sub-section  (3) or sub-section (4), as the  case  may be,- (b)  in  the  case of an unregistered firm,  the  Income-tax Officer  may instead of determining the sum payable  by  the firm itself proceed in the manner laid down in clause (a) as applicable  to  a registered firm, if, in his  opinion,  the aggregate  amount  of the tax including super-tax,  if  any, payable  by  the  partners under  such  procedure  would  be greater than the aggregate amount which would be payable  by the  firm  and the partners individually if  the  firm  were assessed as an unregistered firm.  "

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The  contention of the assessee firm is that the  action  of the Income-tax Officer in treating an unregistered firm as a registered  firm is mainly in the interests of  the  Revenue and  he can act if more revenue would be available  and  not otherwise.   When an unregistered firm makes a loss,  it  is entitled  to carry forward the loss for a certain number  of years  till  it  is  absorbed in the  profits,  if  any,  of subsequent  years.  By carrying the loss to the  account  of the individual partners, relief is afforded to them in their own  income-tax  payment, and there is presently a  loss  of revenue to the State.  This, according to the assessee firm, is  outside  the  jurisdiction of  the  Income-tax  Officer, because  his action is conditioned upon realisation of  more revenue  and  not  creating loss  for  the  State.   Learned counsel for the Department agree that there would be, in the assessment year in which there is a loss by an  unregistered firm,  a  loss  to the Revenue if it  is  carried  into  the accounts of the partners ; but they contend that there is no inhibition against the  125 994 action  and refer to proviso (d) to s. 24(2)  as  indicating that  such a course is perfectly valid.  The assessee   firm also  contends  that the moment loss was determined  by  the Appellate Assistant Commissioner, the previous order made by the  Income-tax  Officer  under  s.  23(5)(b)  of  the   Act automatically fell to the ground and the loss could only  be carried   forward   in  the  future   assessments   of   the unregistered  assessee  firm and not in the account  of  the partners.  The assessee firm contends that the direction  by the   Appellate   Assistant  Commissioner  to   modify   the assessments  of  the  three years  accordingly  implied  the reopening  of the entire question whether this  unregistered firm  could be treated as a registered firm for purposes  of assessment in the first year.  The Department, on the  other hand,  refers to the provisions of s. 30 of the Act to  show that an appeal lies to the Appellate Assistant  Commissioner on the grounds expressly mentioned there and none other.  It further  points out that this is not one of the  grounds  on which  the appeal could have been taken, and the Act  cannot by implication be deemed to have conferred on the  Appellate Assistant  Commissioner a power which he ordinarily did  not possess under the Act.  The order of the Income-tax  Officer to   treat  the  unregistered  firm  as   registered   must, therefore,  be  held  to be outstanding, and  all  that  has happened  in the case is to take that order to  its  logical conclusion in the light of the assessed loss of the firm, in the three years under assessment. This  question  was argued before us in  great  detail,,  as apparently it had also been in the Court below.  There is no doubt  that the matter is one of some complexity,  which  is not  unusual  in a statute of the type we  are  considering, but, in our opinion, only one correct view of the matter was possible, and with all due, respect, the High Court made but little attempt to determine it.  We shall now attempt to lay down the interpretation of the various sections bearing upon the  matter.  Section 23(5)(b) has already been quoted.   It will appear from it that the Income-tax Officer is given the option  to  apply the procedure laid down in cl. (a)  to  an unregistered firm, if, in his 995 opinion, the aggregate amount of tax including supertax,  if any,  payable by the partners under such procedure would  be greater  than  the aggregate amount of tax  which  would  be payable  by the firm and the partners individually,  if  the

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firm  was  assessed  as an unregistered  firm.   Clause  (a) provides  that  the  sum payable by the firm  shall  not  be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum  payable by him on the basis of such assessment shall be  determined. To  put  it  simply, in the case of a  registered  firm  its assessable income is first determined, but is not  processed further  to determine the tax.  Instead, the shares  of  the partners   in  the  assessable  income  are  determined   in accordance  with the particulars furnished by them, and  the resultant amounts are respectively carried to each partner’s return and included in his income, and the tax on the  total is  determined.   In the case of an unregistered  firm,  the assessable income is found out, and then the tax payable  by the unregistered firm is determined and a demand issued.  If there  is  a loss, then the loss is carried forward  to  the succeeding years till it is absorbed or for six (now, eight) years  but  no  further.  Previously, the  number  of  years ranged from one to six, but there is no need to refer to the provision in detail. What happened in this case was that for the assessment  year 1940-41,  the Income-tax Officer determined  the  assessable income  at Rs. 80,358.  He felt that more tax was likely  to be  realised  if the partners were assessed instead  of  the firm, and he accordingly decided to apply the procedure laid down in s. 23(5)(b) to the firm.  In passing his order,  the Income-tax Officer observed as follows: "  The firm is an unregistered one but the aggregate  amount of tax payable by the partners would be greater by  applying the procedure laid down in Sec. 23(5)(a) of the Act than the aggregate amount which would be payable by the firm and  the partners  individually  if  the firm  were  assessed  as  an unregistered one.  I therefore order under Sec. 23(5)(b)  of the 996 Act that the procedure laid down in Sec. 23(5)(a) should  be applied and the firm declared N. D. for the assessment  year 1940-41 ". It  is  no  doubt true that if the  Income-tax  Officer  had determined a loss, he could not and probably would not  have passed this order, which would have had the immediate effect of  loss  to  the Revenue of the sums which  have  now  been ordered to be refunded to the partners of this  unregistered firm.  The Department, however, says that the assessment for 1940-41  except in so far as profit was converted into  loss has become final and cannot be set aside now.  It relies  on Commissioner  of  Income-tax, Bombay and Aden  v.  Khemchand Ramdas (1) and Commissioner of Income-tax v. Tribune  Trust, Lahore (1).  There is no doubt that an assessment which  has once been made does become final, subject only to the powers exercisable  under ss. 34 and 35 of the Act.  The  position, however, is different when the assessment itself is  subject to  appeal, and the Appellate Assistant Commissioner  passes an  order  converting the profit into a loss,  and  gives  a direction to the Income-tax Officer to modify the assessment accordingly. The  position  then  was that  the  Income-tax  Officer  had exercised  his  powers  under s. 23(5)(b)  as  there  was  a profit.   When the Appellate Assistant Commissioner found  a loss it became clear that the Income-tax Officer had, by  an erroneous  finding  of profit assumed  jurisdiction  to  act under  s. 23(5)(b).  The reversal of the finding  of  profit destroyed the substratum of the jurisdiction of the  Income-

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tax  Officer  to  act  under  that  clause  and  his   order automatically fell through. The Department’s contention that such an order is  referable to  cl.  (a) of s. 31(3) and does not  involve  the  setting aside  of the order under s. 23(5)(b) passed earlier by  the Income-tax  Officer is not correct.  No doubt, the right  of appeal  given to the assessee under s. 30 is limited to  the matters   therein  contained,  but  the  relief  which   the appellate  authority  can give is to be found in  s.  31(3). The  assessment  order  having  come  before  the  Appellate Assistant Commissioner, he (1) [1938] 6 I.T.R. 414. (2) [1948] 16 I.T.R. 214. 997 can,  under cl. (a), confirm, reduce, enhance or  annul  the assessment.   Under cl. (b) he can set aside the  assessment and   direct  the  Income-tax  Officer  to  make   a   fresh assessment,  after  making  such further  enquiries  as  the Income-tax  Officer  thinks fit or the  Appellate  Assistant Commissioner  directs,  and  the  Income-tax  Officer   must thereupon proceed to make fresh assessment and determine the amount of tax payable on the basis of such fresh assessment. It  is  contended by the Department that the  order  of  the Appellate  Assistant Commissioner was- passed under cl.  (a) and  not  cl.  (b),  and there  being  no  fresh  assessment ordered, the only thing that the Income-tax Officer could do was  to  redetermine the tax within the limits  of  his  own order under s. 23(5)(b) of the Act, which applied cl. (a) of that sub-section to this case. In our opinion, this is not a correct approach.  Even if the order  be  referred to cl. (a) of s. 31(3), the  effect,  in law,  was  the annulment of the assessment which  had,  been made  in  the  case, and the necessary  consequence  of  the determination of the loss in the assessable income  remained to  be worked out.  The Income-tax Officer worked it out  by carrying  the losses to the return of the  partners.   Under what section could he do so except under s.  23(5)(b)      ? There was no authorisation under s. 31(4) of the Act and the second proviso to s. 24 was clear.In    such  a  case,   the Income-tax Officer was required once again to apply his mind to determine whether it would be in the interests of Revenue to  proceed, as he had done before.  It is manifest that  if he  had done this duty in the interests of the  Revenue,  as the law indeed contemplates, he would never have passed  the order  that  the loss of the firm should be carried  to  the accounts  of  the  partners  immediately  in  that  year  of assessment.  Learned counsel for the Department admits  that no  Income-tax Officer would have, with a loss by the  firm, given relief on the basis of that loss to the partners,  but he contends that this is not illegal in view of the  special provisions  of  proviso  (d) to s. 24(2)  of  the  Act.   We accordingly proceed to consider the effect of that  proviso, which reads as follows: 998 " Provided that- (d)  where an unregistered firm is assessed as a  registered firm  under  clause (b) of sub-section (5)  of  Section  23, during  any year, its losses shall also be  carried  forward and  set off under this section as if it were  a  registered firm ". From this, it is argued, as it was argued in the High Court, that even the losses of an unregistered firm can be  carried to  the partners’ account, as if the firm  were  registered. No doubt, if the proviso is read in an extended manner,  the result  for would follow; but a careful reading of it  would

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show  that  it  was not designed to  enable  the  Income-tax Officer  to forego the obligation laid on him by cl. (b)  of s. 23(5), to find out the interests of the Revenue.  To read this proviso as enabling the Income-tax Officer to  overlook the said clause is to give no meaning to the words "  during any year".  Those words form a material part of the proviso, because  the  proviso with or without those words  makes  an entirely  different sense.  Without those words, it gives  a general power to carry the losses to the partner’s  account. With those words, it only provides for a continent in  which an unregistered firm treated as such in the previous  years, is  sought in any particular year to be treated as a  regis- tered  firm,  and by reason of its  carrying  some  business losses in the past, arrangement for the carrying forward and absorption  of those losses has to be made for the  year  in which  it  is to be treated as a registered firm.   In  that event, the proviso provides that its losses shall be carried to  the partners’ account, as if it were a registered  firm. It  is  inconceivable that if the firm  was  carrying  heavy business  losses, it would suddenly be treated in a year  of assessment  as a registered firm, so that its  losses  might give  relief  to the partners and not give -revenue  to  the State.   This  proviso would only be resorted  to,  when  in spite of taking the, losses to the accounts of the partners, more  revenue would be available to the State.  The  proviso is  an enabling one.  An unregistered firm, treated as  such in  previous  years, may, during any year, be treated  as  a registered firm provided the Revenue would 999 benefit.   It may be that the firm may have made a  loss  in that  year  or was carrying a loss from the  previous  years but,  if  by treating the firm as  registered,  the  Revenue would  be benefited, the proviso can be used.  But there  is no  general  power to act this way to the detriment  of  the Revenue.   To give any other interpretation to this  proviso will  mean  that  the words " during any  year  "  have  not received any meaning and that the proviso is interpreted  to make it not incumbent on the Income-tax Officer to  consider the  interests of the Revenue, as required by cl. (b) of  s. 23(5).  The two Provisions must be read in harmony, and when so  read,  yield the only result that proviso (d) is  to  be invoked,  subject  to the conditions under  s.  23(5)(b)  to obtain more revenue for the State by applying s. 23(5)(a). It  would appear, therefore, that the Income-tax Officer  in the  light  of  the  losses  determined  by  the   Appellate Assistant  Commissioner, was under a duty to apply his  mind de  novo  to the problem which he had  undertaken,  when  he resorted to s. 23(5) (b).  It is admitted that if the matter had  been so plain to him, he would not have, if he did  his duty  correctly under that provision, carried the losses  to the partners’ account. The   only   question,   therefore,   Which   survives   for determination   is  whether  the  order  of  the   Appellate Assistant  Commissioner left the Income-tax Officer free  of his  earlier  order,  and whether he was  under  a  duty  to reconsider the position under s. 23(5) (b).  When the  basis for  assessing a profit was gone, it is manifest that  there was  nothing  but  loss to carry forward  to  the  partners’ account.   With the fall of the assessment in  this  manner, fell the need for applying the special provisions of cl. (b) of s. 23(5) to the case.  Indeed, the duty of the Income-tax Officer indicated a contrary course, if he was to act  under s.  23(5) (b) at all.  The order of the Appellate  Assistant Commissioner   was  passed  in  respect  of   three   years’ assessment,  and  was a consolidated order.  He set  out  in

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parallel  columns the income and losses of the firm and  not of the partners and directed the Income-tax Officer to 1000 modify the assessments accordingly.  The intention obviously underlying that order was to put the matter  at the stage at which  the  assessable  income  of  the  assembly  firm  was determined  before computing the tax thereupon.  To  compute the tax, the Income-fax Officer had to determine whether the loss occasioned in the first year should be carried  forward to  the assessee firm in the subsequent year, and  he  could not  give  effect to the order of  the  Appellate  Assistant Commissioner  fully,  unless he determined  once  again  the question   under  s.  23(5)  (b).   In  other   words,   the implication  of the appellate ’order was to take the  matter prior   to  the  order  regarding  the  treatment   of   the unregistered  firm as a registered firm, and  of  necessity, that  order fell to the ground as being passed  beyond  that stage. It  is contended on the strength of the ruling of the  Privy Council in Commissioner of Income-tax v. The Tribune  Trust, Lahore  (1) that once the assessment is final and valid,  it remains  so  until it is set aside, but once it  has  become final, it cannot be altered except under ss. 34 and 35.   No exception  can be taken to the statement of the law  by  the Privy  Council, which, with all due respect,  is  absolutely correct, but it is impossible to hold, on analogy, that  the order  determining  that this unregistered  firm  should  be treated as registered, had equally become final and not open to  further consideration.  Learned counsel for the  Depart- ment  also urged on the strength of Commissioner of  Income- tax v. McMillan & Co. (2) and Commissioner of Income-tax  v. Amritlal  Bhogilal  &  Co. (3), that if the  powers  of  the Appellate Assistant Commissioner did not involve a review of the  determination by the Income-tax Officer under’s.  23(5) (b), this result could not indirectly follow.  No doubt, the Appellate  Assistant Commissioner could not, if  the  matter had  gone before him in appeal against the order under  that section,  have  interfered.   But  the  Appellate  Assistant Commissioner  was exercising his powers under s. 31  of  the Act and annulling the assessment (1) [1948] 16 I.T.R. 214.      (2) [1958] 33 I.T.R. 182, (3) [1958] 34 I.T.R. 13o. 1001 of the first year and converting a profit in that year  into a loss.  None can deny that he had that power in the  appeal which was before him.  Section 31(4) of the Act enjoins that where  as the result of an appeal any change is made in  the assessment  of a firm, the Appellate Assistant  Commissioner may  authorise the Income-tax Officer to  amend  accordingly any assessment made on any partner of the firm.  This  power was  implicit  in the order which  the  Appellate  Assistant Commissioner  passed, namely, that there was a loss  in  the assessment  year  in question and the  assessments  for  the three  years  had to be modified.   The  Income-tax  Officer therefore was under a duty to modify the assessments of  the partners  accordingly, and to take the matter up again  from the  point  at which the order of  the  Appellate  Assistant Commissioner had placed it.  He had once again to  determine whether  he  would,  in  the  altered  circumstances,  apply s.23(5)(b) to this case or not. In  our opinion, the Income-tax Officers in questiondid  not do their duty as required by law, and we should,  therefore, by a writ compel them to do so. As  regards  the  argument that  the  petition  is  directed against  wrong  persons and for a wrong relief,  we  do  not

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think that it is so.  The petition sought relief against the Union of India, which, in any event, was not concerned  with this matter, and was wrongly joined.  But the two Income-tax Officers who dealt with this matter, were required under the statute  to  do their duty once again in the matter  of  the application of s. 23(5) (b) of the Act.  That they failed to apply  their mind to this matter under a wrong  apprehension of the law is manifest, and they did not give effect to  the orders   of  the  Appellate  Assistant  Commissioner.    The assessee  firm having failed to secure this relief from  all the authorities superior to the Income-tax Officers, it  was open  to  the High Court by a writ to order  the  Income-tax Officer  concerned  to  hear and determine  this  matter  in accordance with law.  This is precisely the relief which was claimed in the High Court and is now claimed in the  present appeal.  We 126 1002 think,  with due respect, that the High Court should   have, on a correct appraisal of the legal situation,  ordered this relief,  and  we  accordingly,  after  explaining  the   law applicable  to  the case, order the  appropriate  Income-tax Officer  to hear and determine this matter in the  light  of our observations. We  may set down here that the two partners of the  firm  to whom  relief  has  been given by way  of  refund  after  the Appellate    Assistant   Commissioner’s   order    undertook unconditionally to refund the amounts, before the matter  is considered.  by the Income-tax Officer.  We order  that  the two  partners shall return the amounts in the manner  to  be ordered by the Income-tax Officer, before action is taken to determine the matter. In  the result, the appeal is allowed with costs  throughout to be paid by respondents 2 and 3. The Union of India shall, however,  bear  its  own costs.  It may  be  noted  that  no separate  costs were incurred by it either in this Court  or in  the Court below.  It joined respondents 2 and 3  in  the statement of the case filed in this Court and also  appeared through the same counsel in both the Courts. Appeal allowed.