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. 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.
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
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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
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
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. ”
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
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-
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
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
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
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
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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.