PETITIONER:
COMMISSIONER OF INCOME-TAX, MADRAS
Vs.
RESPONDENT:
MTT. AR. S. AR. ARUNACHALAM CHETTIAR,.
DATE OF JUDGMENT:
22/12/1952
BENCH:
DAS, SUDHI RANJAN
BENCH:
DAS, SUDHI RANJAN
MAHAJAN, MEHR CHAND
BHAGWATI, NATWARLAL H.
CITATION:
1953 AIR 118 1953 SCR 463
CITATOR INFO :
F 1956 SC 367 (12)
RF 1961 SC1633 (10,25)
F 1969 SC1068 (6)
ACT:
Indian Income-tax Act (XI of 1922), ss. 30, 33, 34, 66 (1)
and (2)-Order of Appellate Tribunal directing Income-tax
Officer to allow certain deductions–Income-tax Officer
adding certain other items in computing income-Appeal to
Appellate Assistant Commissioner–Maintainability-Order of
Appellate Tribunal under inherent powers directing Income-
tax Officer to revise his order-Competency of reference.
HEADNOTE:
By an order dated August 20, 1943, the Appellate Tribunal
directed that certain deductions claimed by the assessee
should be allowed. The matter came back to the Income-tax
Officer and he made an order on September 26, 1945, but did
not issue any fresh notice of demand. The assessee appealed
to the Appellate Assistant Commissioner complaining that in
his order of September 26, the Income-tax Officer had
wrongly included a sum of Rs. 13,000
60
464
as unassessed foreign income of earlier years. The
Appellate Assistant Commissioner held that the order of
September 26 was not appealable. The assessee, therefore,
made a miscellaneous application to the Appellate Tribunal,
which held that the Incometax Officer acted wrongly in
including the sum of Rs. 13,000 at that stage and directed
the Income-tax Officer to revise his computation
accordingly. The Commissioner of Income-tax, being of
opinion that the Appellate Tribunal had no jurisdiction to
entertain or make such order on a miscellaneous application
applied for a reference to the High Court under s. 66 (1) of
the Income-tax Act. The Tribunal referred certain questions
and the High Court directed the Tribunal to refer certain
other questions also but when the references came on for
bearing the High Court held that the references were
incompetent. The Commissioner of Incometax appealed to the
Supreme Court with the leave of the High Court :
Held, (i) that in carrying out the directions of the
–Tribunal and in passing the order of September 26, 1945,
the Income-tax Officer cannot be regarded as having acted
under s. 23 or s. 27 of the Act and no appeal lay from his
order under s. 30 (1). The order made by the Appellate
Assistant Commissioner was not therefore an order under a.
31 (3) and no further appeal lay to the Appellate Tribunal
under s. 33 (1) so as to enable the Tribunal to make an
order under s. 33 (4) and us there was no order under a. 33
(4), no question of law can be said to arise out of an order
under s. 33 (4) and there can be no valid reference under s.
66 (1) or s. 66 (2);
(ii) even assuming that the order of the Income-tax Officer
dated September 26, 1945, was an order under a. 23 or s. 27
and as such appealable, the order made by the Appellate
Assistant Commissioner declining to entertain the appeal was
not an order under any of the sub-sections of a. 31 and no
appeal lay therefrom to the Appellate Tribunal under s. 33
(1) and there could be no order of the Appellate Tribunal
under s. 34 (1). The order of the Appellate Tribunal
correcting the order of the Income-tax Officer and directing
that the sum of Rs. 13,541 should not be included cannot be
regarded in any event as an order under s. 33 (4) so as to
attract the operation-of s. 66 (1) or (2).
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 10 and 10-A
of 1952. Appeal from the Judgment and Order dated 11th
January, 1950, of the High Court of Judicature at Madras in
Cases Referred Nos. 80 of 1946 and 38 of 1948.
M. C. Setalvad, Attorney-General for India, (G. N. Joshi
and P. A. Mehta, with him) for the appellant.
S. Krishnamachariar for the respondent.
465
1952. December22. The Judgment of the Court was delivered
by
DAS J.-These two consolidated appeals are directed against
the Judgment and order made- on January 11, 1950) by the
High Court of Judicature at Madras in References No. 80 of
1946 and No. 38 of 1948 under section 66 of the Indian
Income-tax Act whereby the High Court relying on its earlier
decision in Commissioner of Income-tax, Madras v. B. Rm. M.
Sm. Sevugan alias Manickavasagam Chettiar(1) held that the
references were incompetent and accordingly refused to
answer the questions raised therein. The facts are shortly
as follows.
The respondent who is a Nattukotai Chettiar had, his
headquarters at Karaikudi in India and also carried on his
money-lending business at branches at Maubin, Kualalumpur
and Singapore. He also had income from properties at Maubin
and Singapore. For the assessment year 1941-42 the Income-
tax Officer calculated the assessee’s accrued foreign income
-as Rs. 29,403 at Maubin, Rs. 27,731 at Kualalumpur and Rs.
34,584 at Singapore, in all Rs. 91,718. After deducting out
of this amount Rs. 4,500 allowed under -the 3rd proviso to
section 4 (1) of the Act, the Income-tax Officer computed
the total assessable foreign income at Rs. 87,218. Out of
the total remittances of Rs. 84,352 the Income-tax Officer
allocated Rs. 7,900 to the accrued income of Maubin and Rs.
62,315 to those of Kualalumpur and Singapore and the-
balance of Rs. 14,137 to the taxed income of earlier years.
The Income-tax Officer disallowed the claim of the assessee
to deductions under several heads. On the basis of the
total foreign- income of Rs. 67,218 and income from’ other
sources the Incometax Officer calculated Rs. 23,266-8-0 to
be due by the assessee on account of income-tax, super-tax
and surcharges thereon and by his assessment order dated
January 31, 1942, made this amount payable on or before
February 25, 1942. The assessee preferred an
(1) [1948] 16 I.T.R. 59; (1948) 1 M.L.J. 157; A.I.R. 1948
Mad, 418
466
appeal to the Appellate Assistant Commsioner against the
disallowance of the several items of his claim including
the claim for replantation expenses amounting to$498incurred
at Kualalumpur and a bad debt of $ 15,472 at Singapore. The
Appellate Assistant Commissioner by his order dated May 25,
1942, allowed some of the several objections but disallowed
the items of replantation expenses and ba` debt and reduced
the assessment to Rs. 22,548. The assessee took further
appeal before the appellate Tribunal against the
disallowance of the several claims by the Appellate
Assistant Commissioner including the two items mentioned
above. The Appellate Tribunal by its order dated August 20,
1943, held that the replantation expenses “will be allowed
to the appellant as expenses.” As regards the bad debt the
Tribunal held that it was permissible and that ”the
deduction claimed will, therefore, be allowed.” The result
was that the appeal was partly allowed.
The matter came back before the Income-tax Officer on
September 26, 1945. Deducting Rs. 778 on account of
replantation expenses the Kualalumpur income was reduced to
Rs. 26,953 and after deducting Rs. 24,175 on account of the
bad debt the Singapore income came down to Rs. 10,409.
These two reduced amounts together with Rs. 29,403 being the
income ‘from Maubin made up the total accrued income of Rs.
66,765. Out of this amount Rs. 4,500 was deducted on
account of unremitted profits of Maubin under the 3rd
proviso to section 4(1) of the Act, leaving a balance of Rs.
62,265. Out of the remittances the Income-tax Officer
allocated Rs. 7,000 towards the accrued income of Rs. 29,403
from Maubin and Rs. 37,362 against the totarl accrued income
of Kualalumpur and Singapore. He also allocated Rs. 24,549
as remittances out of assessed profits of previous years,
leaving a balance of Rs. 13,541. This amount the Income-tax
Officer considered as remittances out of earlier years’
unassessed income and held it to be asses.-able to tax.
After adding Rs. 13,541 to Rs. 62,265 being the net accrued
income of the year
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from Maubin, Kualalumpur and Singapore, the Income-tax
Officer arrived at the total foreign income of Rs. 75,806.
On the basis of this foreign- income together with other
income the Income-tax Officer. recalculated the amount of
income-tax, super tax and surcharges thereon at Rs.
22,802-6-0 and after giving credit for certain amounts,
found Rs. 21,211-14-0 as the balance due which by his order
dated September 26, 1945, was made payable in equal moiety
on or before September 30, 1947, and March 31, 1948. He,
however, did not issue any notice of demand under section 29
of the Act.
Being aggrieved by the inclusion of Rs. 13,541 as the
alleged unassessed foreign income of earlier years remitted
to India during the year of account the assessee preferred
an appeal before the Appellate Assistant Commissioner. The
Appellate Assistant Commissioner was not satisfied that the
assessee had any right of appeal under section 30 of the Act
for there had been no assessment under section 23 and no
notice of demand had been served on the assessee under
section 29 of the Act. Accordingly the Appellate Assistant
Commissioner by his order dated November 19, 1945, declined
to admit the appeal. He, however, expressed the view that
the assessee’s remedy might lie in a miscellaneous
application to the Tribunal complaining that the Income-tax
Officer had either misconstrued or had not given effect to
the order of the Appellate Tribunal.
The assessee then brought a miscellaneous application to the
Appellate Tribunal. The Appellate Tribunal held that the.
finding of the Income-tax Officer that the sum of Rs. 13,541
was to be assessed as untaxed profits of earlier years
remitted to India in the accounting year did not arise in
the course of giving effect to the Appellate Tribunal’s
order and by its order dated February 20, 1946, cancelled
that finding and directed the Income-tax Officer to revise
the computation accordingly.
The last mentioned order having been served on the
Commissioner of Income-tax, Madras, on March 8,
468
1946, the latter on May 1, 1946, made an application before
the Appellate Tribunal under section 66(1) of the Act -and
prayed that three questions formulated by him in his
petition should be referred to the High court. The
contention was that the Appellate Tribunal had no
jurisdiction in law to entertain, consider and pass the
order which it did on the miscellaneous application seeing
that it was neither an appeal under section 33 of the
Income-tax Act nor could it be regarded as a rectification
under section 35 of any mistake committed by the Bench. The
Appellate Tribunal took the view that although no specific
provision was made in the Act by which it could give effect
to its order or explain any ambiguity in such an order by a
later order in any miscellaneous application filed by any
party, such power, nevertheless’, was inherent in” the
Tribunal. The Tribunal accordingly thought that a point of
law did arise and on August 23, 1946, referred the following
question to the High Court, namely:–
“Whether in the facts and circumstances of this case the
order of the Bench dated 20th February, 1946, in the
miscellaneous application is an appropriate order and is
legally valid and passed within the jurisdiction and binding
on the Income-tax Officer.”
The Tribunal declined to refer the other questions
formulated by the Commissioner. This reference came to be
numbered as Case Referred No. 80 of 1946. It appears that
pursuant to an order made by the High Court on March
30,1948, on the application of the Commissioner of Income-
tax under section 66 (2) of the Act the Tribunal referred
the following question to the High Court:-
” If the answer to the question already referred to the High
Court by the order of the Appellate Tribunal dated 23rd
August, 1946, is in the affirmative,, whether, in the
circumstances and on the facts of the case, the
recomputation made by the Income-tax Officer pursuant to the
decision of the Appellate
469
Tribunal in R.A.A. No. 53 (Madras) of 1942-43 was valid and
correct.”
The Appellate Tribunal made this further reference on July
19, 1948, which came to be numbered as Case Referred No. 38
of 1948.
The two referred cases came up for consideration before a
Bench of the Madras High Court and it was held that the
reference under section 66(1) was incompetent in view of the
earlier decision of that Court mentioned above which they
felt to be binding on them and accordingly the Bench
declined to answer the questions. The Commissioner of
Incometax thereafter applied for and obtained leave to
appeal to this Court from the decisions in both the
references and obtained such leave on his undertaking to pay
the costs of the assessee in any event. The two appeals
were thereafter consolidated and have come up before us for
final disposal.
Section 66-A (2) gives to the aggrieved party a right of
appeal to this Court from any judgment of the High Court
delivered on a reference made under section 66 in any case
which the High Court certifies to be a fit one for appeal to
this Court. Section 66, (5) provides that the High Court
upon the hearing of any such case referred to it under
section 66(1) and (2) shall decide the questions of law
raised thereby and shall deliver its judgment thereon
containing the grounds on which such decision is founded.
During the opening of the case by the learned Attorney-
General a question arose as to whether the simple refusal of
the High Court to bear the case on the ground that the
reference was incompetent was a decision and judgment such
as is contemplated by section 66(5) of the Act from which
alone a right of appeal to this Court is given. While
maintaining that the decision and judgment of the Madras
High Court fell within the meaning of section 66(5) the
learned Attorney-General for greater safety asked that the
appeal may be treated as one on special leave granted by
this Court under article 136 of the Constitution. The
learned Advocate appearing for the
470
assessee respondent did not object to this prayer and
accordingly we gave leave to the appellant under article
136 and treated this appeal as one filed pursuant to such
leave. In the circumstances it is not necessary for us to
express any opinion on the appealability of the order of the
High Court under section 66-A of the Act.
The learned Attorney-General contends that the decision
relied on by the High Court has no application to the facts
of the present case. In that case the Tribunal by its order
dated July 11, 1944, allowed an appeal from the Appellate
Assistant Commissioner and cancelled the assessment which it
held to be illegal. This order was served on the
Commissioner shortly thereafter. On October 5, 1944, an
application was made to the Tribunal by the Income-tax
Officer under section 35 to correct a statement contained in
the statement of facts in the order. More than 60 days
after the date of the service on him of the order of July
11, 1944, to wit on October 7, 1944, the Commissioner made
an application under section 66 (1) of the Act requiring the
Tribunal to refer to the High Court the question as to the
correctness of its decision embodied in the order of July
11, 1944. Both the applications were disposed of on the
same day, namely, January 17, 1945, when the application for
rectification was granted and a case was stated for the
opinion of the Court as prayed. Section 66 (1) requires the
application to be made within 60 days of the date on which
the applicant is served with notice of an order under sub-
section (4) of section 33. It was held that the granting of
an application for rectification under section 35 and
correcting the error in the order was not an order under
section 33 (4) and, therefore, was not one in respect of
which section 66 (1) permitted a case to be stated. It was
further held that if the Appellate Tribunal improperly or
incorrectly made a reference in violation of the provisions
of the statute, the High Court was capable of entertaining
an objection to the statement of the case and that, if it
camp to the
471
conclusion that the case should not have been stated, the
High Court was not compelled to express an opinion upon the
question referred. in the case before us there is no
question that the present application was not made within
time, but the contention is that section 66 (1) only
contemplates an application for a reference of a question of
law arising out of ” such order” which clearly means an
order made under section 33 (4), _and, therefore, if there
is no valid order under that section no question of law can
be said to arise out of “such order” and consequently the
Appellate Tribunal can have on jurisdiction to make any
reference to the High Court under section 66(1). Section 66
(2) provides that if on any application being made under
sub-section (1) the Appellate Tribunal refuses to state the
case on the ground that no question of law arises, the
assessee or the Commissioner may, within the time specified
therein, apply to the High Court and the High Court may, if
it is not satisfied of the correctness of the decision of
the Appellate Tribunal, require the Appellate Tribunal to
state the case and to refer it. The jurisdiction given to
the High Court under this sub-section is conditional on an
application under sub-section (1) being refused by the-
Appellate Tribunal. This clearly presupposes that the
application under sub-section (1) was otherwise a valid
application. If, therefore, an application under sub-
section (1) was not well founded in that there was no order
which could properly be said to be an order under sub-
section (4) of section 33 then the refusal of the Appellate
Tribunal to state a case on such misconceived application on
the ground that no question of law arises will not authorise
the High Court, on an application under sub-section (2) of
section 66, to direct the Tribunal to state a case. The
jurisdiction of the Tribunal and of the High Court is
conditional on there being an order by the Appellate
Tribunal which may be said to be one under section 33 (4)
and a question of law arising out of such an order. The
only question for our consideration, therefore, is whether
in this case any question
472
of law arose out of an order which can properly be said to
have been made by the Appellate Tribunal under sub-section
(4) of section 33, for if it did not, then the Appellate
Tribunal -would have no jurisdiction under sub-section (1)
of section 66 to refer a case, nor would the High Court have
jurisdiction under sub-section (2) of that section to direct
the Tribunal to do so.
It was at one stage suggested by the learned AttorneyGeneral
that we should in the first instance remit the matter - to
the High Court for their decision on this question but as
the question is one of law depending on the construction of
the relevant sections of the Act it will save time if it is
decided by us here and now. It is not disputed that we have
the power, on the hearing of this appeal, to decide this
question.
It will be recalled that when on 19th November, 1945, the
Appellate Assistant Commissioner declined to admit the
appeal, the assessee did not prefer any appeal but only made
a miscellaneous application before the Appellate Tribunal.
There is no provision in the Act permitting such an
application. Indeed, in the statement of the case the
Appellate Tribunal states that in entertaining that
application and correcting theerror of the Income-tax
Officer it acted in exercise ofwhat it regarded as its
inherent powers. There being no appeal under section 33 (1)
and the order having been made in exercise of its supposed
inherent jurisdiction., the order cannot possibly be
regarded as one under section 33 (4) and there being no
order under section 33 (4) there could be no reference under
section 66 (1) or (2) and the appellate Court properly
refused to entertain it.
The learned Attorney-General submits that this Court should
not take such a narrow and technical view but should treat
that miscellaneous application as really an appeal under
section 33. Turning now to section 33 we find that any
assessee objecting to an order passed by an Appellate
Assistant Commissioner under section 28 or section 31 may
appeal to the Appellate Tribunal within the time specified
in
478
sub-section (1) which time, however, may be extended by the
Tribunal under sub-section (2A). Under sub-section (4) the
Appellate Tribunal is given power, after giving both parties
to. the appeal an opportunity to be heard, to pass such
order thereon as it thinks fit. It is thus clear that the
Appellate Tribunal can make an order under section 33 (4)
only on an appeal from an order passed by the Appellate
Assistant Commissioner under section 28 or section 31. If,
therefore, there is no order which may properly be said to
have been made by the Appellate Assistant Commissioner under
section 28 or section 31 then there can be no appeal under
section 33 (1) and consequently there can be no order under
section 33 (4). Section 28 is not relevant for our present
purpose. Section 30 provides for filing of appeals against
assessments made under the Act. Sub-section (1) of that
section prescribes the different decisions against which an
appeal will lie. Sub-section (2) prescribes the time within
which the appeal is to be filed. Subsection (3) prescribes
the form in which the appeal is to be made.. Then comes
section 31 which gives power to the Appellate Assistant
Commissioner to hear and dispose of such appeal. Sub-
section (3) of section 31 empowers the Appellate Assistant
Commissioner in disposing of an appeal under section 30 to
make one or other order under one or other of the several
clauses of that’ sub-section. It is, therefore, clear that
in order that the Appellate Assistant Commissioner may
exercise his jurisdiction and make an order under section 3
1, there must be an appeal as contemplated by section 30.
The learned AttorneyGeneral only relies on the opening part
of sub-section (1) of section 30 and contends that the
appeal before the Appellate Assistant Commissioner was with
respect to the amount of income assessed under section 23 or
section 27. It will be recalled that the Appellate Tribunal
held that the two sums claimed by the assessee would be
allowed to him and concluded by saying that the appeal was
partly allowed. – The power of the Appellate Tribunal under
section 33(4)
474
is indeed wide, for on an appeal properly before it, it can
make such order as it thinks fit. Therefore, it be order
made by the Appellate Tribunal in this case on August 20,
1943, must be read and construed as a direction to the
Income-tax Officer to carry out the directions by allowing
the two deductions in question. When the matter again came
before the Income-tax Officer his function was only to carry
out the order of the Appellate Tribunal. He could not
otherwise reopen the assessment already made by him under
section 23. Therefore, in carrying out the directions of
the Tribunal and in doing what be aid on September 26, 1945,
the Income-tax Officer cannot be regarded as having acted
under section 23 or section 27 of the Act and that being the
position no appeal lay from that order of the Income-tax
Officer under section 30 (1) of the Act, I The result of it
was that there was no proper appeal before the Appellate
Assistant Commissioner such as is contemplated by section 30
(1) and, therefore, the order made by the Appellate
Assistant Commissioner cannot be regarded as an order made
by him under section 31 (3), for an order under section 31
(3) can only be made in disposing of an appeal properly’
filed under section 30, and consequently no further appeal
lay to the Appellate Tribunal under section, 33 (1) so as to
enable the Appellate Tribunal to make an order under sub-
section (4) of that section. In the premises, there being
no order which may properly be said to have been made under
section 33 (4), no question of law can be said to arise out
of an order made under section 33 (4) and consequently there
can be no valid reference under section 66, subsection (1)
or sub-section (2). If, therefore, the reference was
incompetent for want of jurisdiction both under section 66
(1) or section 66 (2) surely the High Court could decline to
entertain it as it did.
Even if the order dated September 26, 1945, made by the
Income-tax Officer after the matter came back to him to give
effect to the decisions of the Appellate Tribunal be
regarded as an order made by him under
475
section 23 or section 27 and as such appealable under
section 30 (1) then the order made by the Appellate
Assistant Commissioner on November 19, 1946, declining to
admit the appeal clearly amounted to a refusal on his part
to exercise the jurisdiction vested in him by law. An order
thus founded on an error as to his jurisdiction way
conceivably be corrected by appropriate proceedings but it
cannot certainly be regarded as such an order as is contem-
plated by any of the sub-sections of section 31. Such an
order not coming within the purview of section 28 or section
31, no, appeal lay therefrom to the Appellate Tribunal under
section 33 (1) and if no such appeal properly came before
the Appellate Tribunal it could not properly make an order
under section 33 (4) and if there was no order under section
33 (4) there could be no reference under section 66, sub-
section (1) or sub-section (2). It follows, therefore, that
the order of the Appellate Tribunal correcting the order of
the Income-tax Officer directing that the sum of Rs. 13,541
should not be included in the assessment cannot be regarded
as an order passed by the Appellate Tribunal under section
33 (4) so as to attract the operation of section 66.
The learned Attorney-General urged that having under section
66 (2) of the Act directed the Appellate Tribunal to state a
case the High Court could not afterwards refuse to answer
the question thus referred to it. Whether the High Court
was so precluded or not requires no decision on this occa-
sion, for even conceding but ;not deciding that the High
Court was so precluded, this Court, at any rate, can surely
entertain the question of the competency of the reference.
The result, therefore, is that we dismiss these appeals with
costs.
Appeals dismissed.
Agent for the appellant: G.H. Rajadhyaksha.
Agent for the respondent: M. S. K. Aiyangar.
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476