{"id":115903,"date":"1959-05-05T00:00:00","date_gmt":"1959-05-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-sarupchand-hukamchand-co-vs-union-of-india-and-others-on-5-may-1959"},"modified":"2017-08-16T03:02:18","modified_gmt":"2017-08-15T21:32:18","slug":"ms-sarupchand-hukamchand-co-vs-union-of-india-and-others-on-5-may-1959","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-sarupchand-hukamchand-co-vs-union-of-india-and-others-on-5-may-1959","title":{"rendered":"M\/S. Sarupchand Hukamchand & Co vs Union Of India And Others on 5 May, 1959"},"content":{"rendered":"
Supreme Court of India<\/div>\n
M\/S. Sarupchand Hukamchand & Co vs Union Of India And Others on 5 May, 1959<\/div>\n
Equivalent citations: 1959 AIR 1207, \t\t 1959 SCR Supl. (2) 986<\/div>\n
Author: Hidayatullah<\/div>\n
Bench: Hidayatullah, M.<\/div>\n
           PETITIONER:\nM\/S.  SARUPCHAND HUKAMCHAND & CO.\n\n\tVs.\n\nRESPONDENT:\nUNION OF INDIA AND OTHERS\n\nDATE OF JUDGMENT:\n05\/05\/1959\n\nBENCH:\nHIDAYATULLAH, M.\nBENCH:\nHIDAYATULLAH, M.\nDAS, SUDHI RANJAN (CJ)\nBHAGWATI, NATWARLAL H.\n\nCITATION:\n 1959 AIR 1207\t\t  1959 SCR  Supl. (2) 986\n\n\nACT:\nlncome-tax--Assessment\tof  unregistered  firm\ttreated\t  as\nregistered  by Income-tax Officer-Appeal against  orders  of\nassessment--Finding of Profit reversed and fresh  assessment\ndirected-Effect--Duty  of Income-tax Officer-Indian  income-\ntax  Act,  1922\t (XI of 1922), SS.  23(5)(b),  24(2)(d)\t and\n31(4).\n\n\n\nHEADNOTE:\nThe Income-tax Officer found that the assessee, an  unregis-\ntered  firm, had made a profit in the assessment year  1940-\n41.   He treated it as registered under S. 23(5)(b)  of\t the\nAct,  assessed the partners and carried the profit to  their\nindividual  returns, making no demand on the firm.  For\t the\nnext two assessment years, however, the firm was assessed as\nunregistered firm.  For all the three assessment years,\t the\nIncome-tax  Officer  treated  the firm\tas  \"  resident\t and\nordinarily  resident \". The firm appealed against all  these\nassessments.   The appeals were all consolidated  and  heard\ntogether by the Appellate Assistant Commissioner.  He  found\nthat  the firm was non-resident, the computation  of  income\nmade  by the Income-tax Officer was erroneous, that  in\t the\nassessment  year  1940-41 there was a loss  and\t during\t the\nsubsequent years the firm had made profits.  He,  therefore,\ndirected  the Income-tax Officer to modify  the\t assessments\naccordingly.   Thereupon the Income-tax Officer gave  relief\nto  the partners for the year 1940-41 and  directed  certain\nrefunds to be made to them.  The firm was not satisfied\t and\nmoved\tboth  the  Income-tax  Officer\tand  the   Appellate\nAssistant Commissioner\n987\nfound  to  have incurred a loss in the first  of  the  three\nassessment years, it could not for that year be treated as a\nregistered  firm and was entitled to carry forward the\tloss\nto the subsequent years.  They declined to interfere on\t the\nground that the direction of the Income-tax Officer under S.\n23(5)(b),  not\tbeing appealable, had become final  and\t the\ntime  within  which  the original order\t of  the  Income-tax\nOfficer could be rectified had also run out.  The firm\twent\nup to the Commissioner and the Central Board of Revenue, but\nto no effect.  Thereafter it moved the High Court under Art.\n226  of\t the Constitution.  The single Judge who  heard\t the\nmatter declined to interfere.  The Division Bench on  appeal\nagreed\twith  the single judge.\t The firm appealed  to\tthis\nCourt.\t The  question for decision was\t whether  after\t the\nfinding\t of profit made by the Income-tax Officer  had\tbeen\nturned\t to   one  of  loss  by\t the   Appellate   Assistant\nCommissioner on appeal, the original decision of the Income-\ntax  Officer to treat the firm as a registered one under  s.\n23(5)(b) could remain intact.\nHeld,  that since the Income-tax Officer could treat an\t un-\nregistered firm as a registered one under S. 23(5)(b) of the\nIndian\tIncome-tax  Act\t only if there\twas  a\tprofit,\t the\nreversal  of  the  finding  of profit made  by\thim  by\t the\nAppellate  Assistant  Commissioner must\t automatically\ttake\naway the jurisdiction of the Income-tax Officer to act under\nthat  section  and  his\t order\tmade  thereunder  must\tfall\nthrough.\nIt  made  no  difference in the instant\t case,\twhether\t the\nAppellate  Assistant Commissioner's order was one under\t cl.\n(a)  Of s. 31(3) or under cl. (b) of that section,  for\t the\neffect of the order in law in either case would be the same,\nnamely,\t the  annulment of the assessment resulting  in\t the\nrestoration of the case back to its original position.\nIt  was not correct to suggest that under proviso (d) to  s.\n24(2) Of the Act the losses of an unregistered firm could be\ncarried\t to  the  partners'  account  as  if  the  firm\t was\nregistered.   That  proviso was not intended to\t enable\t the\nIncome-tax  Officer to forego the obligation laid on him  by\ncl.  (b) Of S. 23(5), i.e., to find out the interest of\t the\nRevenue,  and thus to render the words 'during any  year  in\nproviso\t redundant.   The  effect of the  provisions  of  S.\n23(5)(b) and the proviso (d) to S. 24(2), which must be read\ntogether, was that the proviso was to be invoked subject  to\nthe conditions under S. 23(5)(b) to obtain more revenue\t for\nthe State by applying S. 23(5)(a).\nAlthough the Appellate Assistant Commissioner could not have\ninterfered  with  the order made by the\t Income-tax  Officer\nunder  S.  23(5)(b)  of the Act in an  appeal  against\tthat\norder,\tthe position must be different when  the  assessment\nitself was subject to appeal under s. 31 Of the Act, and the\nAppellate  Assistant Commissioner under s. 31(4)  authorised\nthe Income-tax Officer to modify the assessment in the light\nof  his direction.  It would, therefore, be the duty of\t the\nIncome-tax Officer to consider de\n988\nnovo whether in the altered circumstances the provisions of\nS.   23(5)(b) of the Act could at all be applied.\nCommissioner of Income-tax v. Tribune Trust, Lahore,<\/a>  [1948]\n16 I.T.R. 214, Commissioner of Income-tax v. McMillan & Co.,<\/a>\n[1958]\t33  I.T.R.  182 and Commissioner  of  Income-tax  v.\nAmritlal Bhogilal & CO.,<\/a> [1958] 34 I.T.R. 130, considered.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE, JURISDICTION: Civil Appeal No. 172 of 1955.
\nAppeal\tby special leave from the judgment and\torder  dated
\nFebruary  26, 1953, of the Bombay High Court in\t Appeal\t No.
\n108  of 1952, arising out’ of the Judgment and\torder  dated
\nJuly  8,  1952,\t of  the said High  Court  in  its  Ordinary
\nOriginal and Civil Jurisdiction in Misc.  No. 48 of 1952.
\nR.   J. Kolah, J. B. Dadachanji, S. N. Andley and  Rameshwar
\nNath, for the appellant.\n<\/p>\n
H.   N. Sanyal, Additional Solicitor-General of India,K.   N.
\nRajagopal Sastri and D. Gupta, for the respondents.
\n1959.  May 5. The Judgment of the Court was delivered by
\nHIDAYATULLAH,  J.-This\tappeal,\t by special  leave  of\tthis
\nCourt,\tis  directed against the judgment and order  of\t the
\nHigh Court of Judicature at Bombay dated February 26,  1953,
\nin Appeal No. 108 of 1952.  By that judgment, the Divisional
\nBench (Chagla, C. J. and Shah, J.) declined to interfere, in
\nLetters\t Patent Appeal, with the judgment of Tendolkar,\t J.,
\ndated  July 8, 1952, in Miscellaneous Application No. 48  of
\n1952.\tIn  the petition which was originally filed  in\t the
\nHigh  Court  under Art. 226 of the Constitution, a  writ  of
\nmandamus  was  asked  against the Union\t of  India  and\t two
\nIncome-tax  Officers  to compel them to give effect  to\t the
\nappellate  order of the Appellate Assistant Commissioner  of
\nI.  T.\tF. Range, Bombay, dated April 29,  1949.   The\tHigh
\nCourt in both the judgments declined the writ.
\nThe facts of the case are as follows: The appellant, Messrs.
\nSarupchand arid Hukamehand and Co., (hereinafter referred to
\nas the assessee firm) was carrying on business, inter  alia,
\nas shroffs, merchants and
\n989<\/span>
\ncommission  agents at Bombay, Indore, Ujjain  and  Calcutta.
\nIt  had,  in the relevant account years, two  partners,\t Sir
\nSarupchand  Hukamchand and Sri Hiralal Kalyanmal.   The\t two
\npartners  were\talso separately liable\tto  income-tax,\t the
\nformer\tas  a Hindu undivided family and the  latter  as  an
\nindividual.  We are concerned here with the assessment years
\n1940-41,  194142  and  1942-43.\t  These\t correspond  to\t the
\naccount\t years,\t 1995-1996 (Samvat) to\t1997-1998  (Samvat).
\nWhen  the  assessment  of the assessee firm  was  made,\t the
\nIncome-tax Officer, Section VIII (Central), Bombay,  treated
\nthe  firm as ” resident and ordinarily resident “.  For\t the
\nassessment  year  1940-41  the Income-tax  Officer  found  a
\nprofit of Rs. 80,358, and applying s. 23(5)(b) of the Indian
\nIncome-tax  Act (hereafter called the Act), he proceeded  to
\ntreat the firm which was unregistered as registered for\t the
\npurpose\t of  assessment.  On March 15,\t1945,  he  therefore
\nassessed  the  two partners carrying the profit\t into  their
\nindividual  returns  and made no demand upon the  firm.\t  It
\nappears\t that  an application for registration\thad  already
\nbeen  filed  under s. 26A of the Act before  the  Income-tax
\nOfficer, but it was rejected-and quite correctly-because  no
\ninstrument  of\tpartnership was disclosed.  That  order\t was
\nalso passed on the same date.\n<\/p>\n
For the assessment years 1941-42 and 1942-43, the Income-tax
\nOfficer\t by his orders dated July 31, 1945, and October\t 31,
\n1945,  respectively,  treated  the firm as  ”  resident\t and
\nordinarily resident ” and as an unregistered firm.  For\t the
\nfirst of the two assessment years, he assessed the firm on a
\ntotal  income of Rs. 2,30,798 to income-tax  and  super-tax,
\nand for the second year, its British Indian income was taken
\nat Rs. 2,62,827 and the total income at Rs. 7,00,116 and was
\nalso treated accordingly.\n<\/p>\n
The  assessee firm appealed against these assessments.\t The
\nAppellate Assistant Commissioner by his order passed in\t the
\nconsolidated  appeals  on  April 29,  1949,  held  that\t the
\nassessee  firm was non-resident and excluded the  income  of
\nthe  firm outside British India, though it was\tincluded  in
\nthe total word income for the purpose of computing the\trate
\nof tax.\n<\/p>\n
990<\/span><\/p>\n
He also found error in the computation of income made by the
\nIncome-tax  Officer, and held that in  the  assessment\tyear
\n1940-41 there was a loss of Rs. 1,61,084 in the total  world
\nincome of the assessee firm.  For the subsequent years\talso
\nthere  were slight variations in the amounts  determined  by
\nthe  Income-tax Officer, but it was held that  the  assessee
\nfirm had made profits in those years.  The following is\t the
\nsummary\t  of  the  findings  of\t the   Appellate   Assistant
\nCommissioner, as given by him in his order:\n<\/p>\n
Assess-\t  Income in   Income\t    Total\nment\t  British     outside\t    world\nyear\t   India      British\t    income.\n\t       India\n\t Rs.\t\t     Rs.\t Rs.\n1940-41\t   Loss\t 2,26,028\t 74,944Loss   1,61,084\n1941-42\t     1,27,062\t\t 1,08,236     2,35,298\n1942-43\t     2,62,827\t\t 4,41,789     7,04,616\n<\/pre>\n
In  addition  to  these findings,  the\tAppellate  Assistant
\nCommissioner added a direction to the following effect :
\n”   The\t Income-tax  Officer  is  directed  to\tmodify\t the
\nassessments accordingly.”\n<\/p>\n
When  the  matter reached the Income-tax  Officer,  he\tgave
\neffect to the order of the Appellate Assistant\tCommissioner
\nunder s. 31 of the Act and carried the loss to the  partners
\nin  their  assessments for the year 1940-41, and  granted  a
\nrefund\tof Rs. 16,977-11-0 to Sir Sarupchand Hukamchand\t and
\nRs.  68,339  to Sri Hiralal Kalyanmal.\tThe  assessee  firm,
\nhowever,  was  not satisfied, and embarked  upon  voluminous
\ncorrespondence\tbeginning with a letter dated September\t 10,
\n1949, by which it claimed that inasmuch as it had been shown
\nto have incurred a loss in the first of the three assessment
\nyears, it could not for that year be treated as a registered
\nfirm,  and  that  as an unregistered firm  it  was  entitled
\ntherefore to carry forward the loss to the subsequent years.
\nIn  addition to the correspondence, the assessee firm  moved
\nin turn the Income-tax Officer
\n991<\/span>
\nas well as the Appellate Assistant Commissioner respectively
\nunder  s. 35 of the Act for rectification of the  assessment
\nto the same effect.  The officers of the Department at\tboth
\nlevels declined to interfere, and stated that the  direction
\nof  the\t Income-tax  Officer  under  s.\t 23(5)(b)  was\t not
\nappealable,  and  had become final.  They also\tpointed\t out
\nthat  the  period  during which the original  order  of\t the
\nIncome-tax  Officer could be rectified (viz., 4\t years)\t had
\nalready run out, and that the petitions were accordingly out
\nof  time.  The assessee firm moved the Commissioner as\twell
\nas  the\t Central  Board of Revenue, but failed\tto  get\t the
\ndesired order.\n<\/p>\n
Finally, after the receipt of the order of the Central Board
\nof  Revenue, the assesee firm applied on July 16,  1951,  to
\nthe  Additional Income-tax Officer, Section VIII  (Central),
\nto  give  effect  to an order which the\t assessee  firm\t had
\nsecured\t from the Appellate Assistant Commissioner  earlier.
\nBy that order, the Appellate Assistant Commissioner had,  at
\nthe  request of the assessee firm, directed  the  Income-tax
\nOfficer to take the losses of the first assessment year into
\nthe  accounts  of  the partners,  which\t direction,  in\t the
\nopinion\t  of  the  Appellate  Assistant\t Commissioner,\t his
\npredecessor  had omitted to make in the first instance.\t  It
\nwas  after this that fresh assessment forms were  drawn\t up,
\nand  the refund was determined.\t It may be pointed out\there
\nthat  the partners withdrew the amount of refund, though  in
\nmaking the request to the Additional Income-tax Officer\t the
\nassessee firm had reserved its right “to move further in the
\nmatter\tas  may be advised “, and had pointed out  that\t the
\naction was without prejudice to such rights.
\nHaving\tfailed\tto obtain relief from  the  Department,\t the
\nappellate authorities and the Central Board of Revenue,\t the
\nassessee  firm\tfiled  the petition under Art.\t226  of\t the
\nConstitution  in  the High Court of  Judicature\t at  Bombay.
\nThat petition was heard by Tendolkar, J., and he declined to
\ninterfere mainly on the ground that it was possible to\ttake
\ntwo  views of the matter whether after a  profit  assessment
\nwas turned into a loss assessment by the Appellate Assistant
\n992<\/span>
\nCommissioner,  the original order of the Income-tax  Officer
\nunder  s. 23(5)(b) remained outstanding or  not. He  thought
\nthat  this was not a fit case for the issuance of a writ  of
\nmandamus by the High Court.  In appeal which was taken\tfrom
\nthis  decision, Chagla, C. J., looked at proviso (d)  to  s.
\n24(2),\tand  also  came\t to  the  view\tthat  there  was   a
\npossibility of two views being taken in the matter, and that
\nthe  learned  single  Judge was right  in  not\tinterfering.
\nShah,  J.,  in\ta concurring  judgment,\t explained  what  he
\nconsidered  was\t the  meaning of s. 23(5)(b)  read  with  s.
\n24(2),\tproviso\t (d), but he also felt that this was  not  a
\ncase  in which a Writ could be claimed against the Union  of
\nIndia  or the Income-tax Officers.  Chagla, C. J.,  however,
\nexpressed  the\thope that the taxing authorities  would\t not
\ndeny  the  assessee  firm its rights under the\tAct  on\t any
\ntechnical ground, such as limitation, or failure to pursue a
\nparticular  procedure.\tIn the result, the Divisional  Bench
\nsustained the order of Tendolkar, J., who had dismissed\t the
\npetition  earlier.   This  Court on  May  3,  1954,  granted
\nspecial\t leave\tto  appeal  against  the  judgment  of\t the
\nDivisional Bench.\n<\/p>\n
Before\targuing\t on  merits  of\t the  appeal,  the   learned
\nAdditional Solicitor-General and subsequently Mr. Rajagopala
\nSastri\twho took over the argument, raised three  objections
\nto  the present appeal.\t According to them, the petition  in
\nthe  High Court was directed against the Union of India\t and
\nthe two Income-tax Officers who had dealt with this  matter,
\nand the relief which was claimed could be granted by none of
\nthem.\t They\tfurther\t  argued  that\t mandamus   was\t  an
\ninappropriate  writ to issue in this matter, when the  order
\npassed\tby the Income-tax Officer under s. 23(5)(b) was\t not
\nappealable and the Appellate Assistant Commissioner could do
\nnothing\t about\tit  in the appeal  against  the\t quantum  of
\nassessment.   They also stated that the relief asked for  in
\nthe  petition  could not be granted by the High\t Court,\t and
\nthat the powers of this Court were accordingly limited.
\nWe shall deal with these objections, when we have determined
\nthe  essence of the matter.  Under s. 23(5)(b), a  power  is
\nconferred on the Income-tax Officer to treat an unregistered
\nfirm as a registered
\n993<\/span>
\nfirm, if by adopting that method more tax and supertax would
\nbe  realisable\tfrom the individual partners  in  their\t own
\nassessments than in assessing the firm.\t I The clause may be
\nquoted in extenso for ready reference here :
\n23(5).\t  ”  Notwithstanding  anything\tcontained   in\t the
\nforegoing sub-sections, when the assessee is a firm and\t the
\ntotal income of the firm has been assessed under sub-section
\n(1),  sub-section  (3) or sub-section (4), as the  case\t may
\nbe,-\n<\/p>\n
(b)  in\t the  case of an unregistered firm,  the  Income-tax
\nOfficer\t may instead of determining the sum payable  by\t the
\nfirm itself proceed in the manner laid down in clause (a) as
\napplicable  to\ta registered firm, if, in his  opinion,\t the
\naggregate  amount  of the tax including super-tax,  if\tany,
\npayable\t by  the  partners under  such\tprocedure  would  be
\ngreater than the aggregate amount which would be payable  by
\nthe  firm  and the partners individually if  the  firm\twere
\nassessed as an unregistered firm.  ”\n<\/p>\n
The  contention of the assessee firm is that the  action  of
\nthe Income-tax Officer in treating an unregistered firm as a
\nregistered  firm is mainly in the interests of\tthe  Revenue
\nand  he can act if more revenue would be available  and\t not
\notherwise.   When an unregistered firm makes a loss,  it  is
\nentitled  to carry forward the loss for a certain number  of
\nyears  till  it\t is  absorbed in the  profits,\tif  any,  of
\nsubsequent  years.  By carrying the loss to the\t account  of
\nthe individual partners, relief is afforded to them in their
\nown  income-tax\t payment, and there is presently a  loss  of
\nrevenue to the State.  This, according to the assessee firm,
\nis  outside  the  jurisdiction of  the\tIncome-tax  Officer,
\nbecause\t his action is conditioned upon realisation of\tmore
\nrevenue\t and  not  creating loss  for  the  State.   Learned
\ncounsel for the Department agree that there would be, in the
\nassessment year in which there is a loss by an\tunregistered
\nfirm,  a  loss\tto the Revenue if it  is  carried  into\t the
\naccounts of the partners ; but they contend that there is no
\ninhibition against the
\n 125<\/span>
\n994<\/span>
\naction\tand refer to proviso (d) to s. 24(2)  as  indicating
\nthat  such a course is perfectly valid.\t The assessee\tfirm
\nalso  contends\tthat the moment loss was determined  by\t the
\nAppellate Assistant Commissioner, the previous order made by
\nthe  Income-tax\t Officer  under\t s.  23(5)(b)  of  the\t Act
\nautomatically fell to the ground and the loss could only  be
\ncarried\t  forward   in\tthe  future   assessments   of\t the
\nunregistered  assessee\tfirm and not in the account  of\t the
\npartners.  The assessee firm contends that the direction  by
\nthe   Appellate\t  Assistant  Commissioner  to\tmodify\t the
\nassessments  of\t the  three years  accordingly\timplied\t the
\nreopening  of the entire question whether this\tunregistered
\nfirm  could be treated as a registered firm for purposes  of
\nassessment in the first year.  The Department, on the  other
\nhand,  refers to the provisions of s. 30 of the Act to\tshow
\nthat an appeal lies to the Appellate Assistant\tCommissioner
\non the grounds expressly mentioned there and none other.  It
\nfurther\t points out that this is not one of the\t grounds  on
\nwhich  the appeal could have been taken, and the Act  cannot
\nby implication be deemed to have conferred on the  Appellate
\nAssistant  Commissioner a power which he ordinarily did\t not
\npossess under the Act.\tThe order of the Income-tax  Officer
\nto   treat  the\t unregistered  firm  as\t  registered   must,
\ntherefore,  be\theld  to be outstanding, and  all  that\t has
\nhappened  in the case is to take that order to\tits  logical
\nconclusion in the light of the assessed loss of the firm, in
\nthe three years under assessment.\n<\/p>\n
This  question\twas argued before us in\t great\tdetail,,  as
\napparently it had also been in the Court below.\t There is no
\ndoubt  that the matter is one of some complexity,  which  is
\nnot  unusual  in a statute of the type we  are\tconsidering,
\nbut, in our opinion, only one correct view of the matter was
\npossible, and with all due, respect, the High Court made but
\nlittle attempt to determine it.\t We shall now attempt to lay
\ndown the interpretation of the various sections bearing upon
\nthe  matter.  Section 23(5)(b) has already been quoted.\t  It
\nwill appear from it that the Income-tax Officer is given the
\noption\tto  apply the procedure laid down in cl. (a)  to  an
\nunregistered firm, if, in his
\n995<\/span>
\nopinion, the aggregate amount of tax including supertax,  if
\nany,  payable by the partners under such procedure would  be
\ngreater\t than  the aggregate amount of tax  which  would  be
\npayable\t by the firm and the partners individually,  if\t the
\nfirm  was  assessed  as an unregistered\t firm.\t Clause\t (a)
\nprovides  that\tthe  sum payable by the firm  shall  not  be
\ndetermined but the total income of each partner of the firm,
\nincluding therein his share of its income, profits and gains
\nof the previous year, shall be assessed and the sum  payable
\nby him on the basis of such assessment shall be\t determined.
\nTo  put\t it  simply, in the case of a  registered  firm\t its
\nassessable income is first determined, but is not  processed
\nfurther\t to determine the tax.\tInstead, the shares  of\t the
\npartners   in  the  assessable\tincome\tare  determined\t  in
\naccordance  with the particulars furnished by them, and\t the
\nresultant amounts are respectively carried to each partner’s
\nreturn and included in his income, and the tax on the  total
\nis  determined.\t  In the case of an unregistered  firm,\t the
\nassessable income is found out, and then the tax payable  by
\nthe unregistered firm is determined and a demand issued.  If
\nthere  is  a loss, then the loss is carried forward  to\t the
\nsucceeding years till it is absorbed or for six (now, eight)
\nyears  but  no\tfurther.  Previously, the  number  of  years
\nranged from one to six, but there is no need to refer to the
\nprovision in detail.\n<\/p>\n
What happened in this case was that for the assessment\tyear
\n1940-41,  the Income-tax Officer determined  the  assessable
\nincome\tat Rs. 80,358.\tHe felt that more tax was likely  to
\nbe  realised  if the partners were assessed instead  of\t the
\nfirm, and he accordingly decided to apply the procedure laid
\ndown in s. 23(5)(b) to the firm.  In passing his order,\t the
\nIncome-tax Officer
\nobserved as follows:\n<\/p>\n
”  The firm is an unregistered one but the aggregate  amount
\nof tax payable by the partners would be greater by  applying
\nthe procedure laid down in Sec. 23(5)(a) of the Act than the
\naggregate amount which would be payable by the firm and\t the
\npartners  individually\tif  the firm  were  assessed  as  an
\nunregistered one.  I therefore order under Sec. 23(5)(b)  of
\nthe
\n996<\/span>
\nAct that the procedure laid down in Sec. 23(5)(a) should  be
\napplied and the firm declared N. D. for the assessment\tyear
\n1940-41 “.\n<\/p>\n
It  is\tno  doubt true that if the  Income-tax\tOfficer\t had
\ndetermined a loss, he could not and probably would not\thave
\npassed this order, which would have had the immediate effect
\nof  loss  to  the Revenue of the sums which  have  now\tbeen
\nordered to be refunded to the partners of this\tunregistered
\nfirm.  The Department, however, says that the assessment for
\n1940-41\t except in so far as profit was converted into\tloss
\nhas become final and cannot be set aside now.  It relies  on
\nCommissioner  of  Income-tax, Bombay and Aden  v.  Khemchand
\nRamdas<\/a> (1) and Commissioner of Income-tax v. Tribune  Trust,
\nLahore<\/a> (1).  There is no doubt that an assessment which\t has
\nonce been made does become final, subject only to the powers
\nexercisable  under ss. 34 and 35 of the Act.  The  position,
\nhowever, is different when the assessment itself is  subject
\nto  appeal, and the Appellate Assistant Commissioner  passes
\nan  order  converting the profit into a loss,  and  gives  a
\ndirection to the Income-tax Officer to modify the assessment
\naccordingly.\n<\/p>\n
The  position  then  was that  the  Income-tax\tOfficer\t had
\nexercised  his\tpowers\tunder s. 23(5)(b)  as  there  was  a
\nprofit.\t  When the Appellate Assistant Commissioner found  a
\nloss it became clear that the Income-tax Officer had, by  an
\nerroneous  finding  of profit assumed  jurisdiction  to\t act
\nunder  s. 23(5)(b).  The reversal of the finding  of  profit
\ndestroyed the substratum of the jurisdiction of the  Income-
\ntax  Officer  to  act  under  that  clause  and\t his   order
\nautomatically fell through.\n<\/p>\n
The Department’s contention that such an order is  referable
\nto  cl.\t (a) of s. 31(3) and does not  involve\tthe  setting
\naside  of the order under s. 23(5)(b) passed earlier by\t the
\nIncome-tax  Officer is not correct.  No doubt, the right  of
\nappeal\tgiven to the assessee under s. 30 is limited to\t the
\nmatters\t  therein  contained,  but  the\t relief\t which\t the
\nappellate  authority  can give is to be found in  s.  31(3).
\nThe  assessment\t order\thaving\tcome  before  the  Appellate
\nAssistant Commissioner, he
\n(1) [1938] 6 I.T.R. 414.\n<\/p>\n
(2) [1948] 16 I.T.R. 214.\n<\/p>\n
997<\/span><\/p>\n
can,  under cl. (a), confirm, reduce, enhance or  annul\t the
\nassessment.   Under cl. (b) he can set aside the  assessment
\nand   direct  the  Income-tax  Officer\tto  make   a   fresh
\nassessment,  after  making  such further  enquiries  as\t the
\nIncome-tax  Officer  thinks fit or the\tAppellate  Assistant
\nCommissioner  directs,\tand  the  Income-tax  Officer\tmust
\nthereupon proceed to make fresh assessment and determine the
\namount of tax payable on the basis of such fresh assessment.
\nIt  is\tcontended by the Department that the  order  of\t the
\nAppellate  Assistant Commissioner was- passed under cl.\t (a)
\nand  not  cl.  (b),  and there\tbeing  no  fresh  assessment
\nordered, the only thing that the Income-tax Officer could do
\nwas  to\t redetermine the tax within the limits\tof  his\t own
\norder under s. 23(5)(b) of the Act, which applied cl. (a) of
\nthat sub-section to this case.\n<\/p>\n
In our opinion, this is not a correct approach.\t Even if the
\norder  be  referred to cl. (a) of s. 31(3), the\t effect,  in
\nlaw,  was  the annulment of the assessment which  had,\tbeen
\nmade  in  the  case, and the necessary\tconsequence  of\t the
\ndetermination of the loss in the assessable income  remained
\nto  be worked out.  The Income-tax Officer worked it out  by
\ncarrying  the losses to the return of the  partners.   Under
\nwhat section could he do so except under s.  23(5)(b)\t   ?
\nThere was no authorisation under s. 31(4) of the Act and the
\nsecond proviso to s. 24 was clear.In\tsuch  a\t case,\t the
\nIncome-tax Officer was required once again to apply his mind
\nto determine whether it would be in the interests of Revenue
\nto  proceed, as he had done before.  It is manifest that  if
\nhe  had done this duty in the interests of the\tRevenue,  as
\nthe law indeed contemplates, he would never have passed\t the
\norder  that  the loss of the firm should be carried  to\t the
\naccounts  of  the  partners  immediately  in  that  year  of
\nassessment.  Learned counsel for the Department admits\tthat
\nno  Income-tax Officer would have, with a loss by the  firm,
\ngiven relief on the basis of that loss to the partners,\t but
\nhe contends that this is not illegal in view of the  special
\nprovisions  of\tproviso\t (d) to s. 24(2)  of  the  Act.\t  We
\naccordingly proceed to consider the effect of that  proviso,
\nwhich reads as follows:\n<\/p>\n
998<\/span><\/p>\n
” Provided that-\n<\/p>\n
(d)  where an unregistered firm is assessed as a  registered
\nfirm  under  clause (b) of sub-section (5)  of\tSection\t 23,
\nduring\tany year, its losses shall also be  carried  forward
\nand  set off under this section as if it were  a  registered
\nfirm “.\n<\/p>\n
From this, it is argued, as it was argued in the High Court,
\nthat even the losses of an unregistered firm can be  carried
\nto  the partners’ account, as if the firm  were\t registered.
\nNo doubt, if the proviso is read in an extended manner,\t the
\nresult\tfor would follow; but a careful reading of it  would
\nshow  that  it\twas not designed to  enable  the  Income-tax
\nOfficer\t to forego the obligation laid on him by cl. (b)  of
\ns. 23(5), to find out the interests of the Revenue.  To read
\nthis proviso as enabling the Income-tax Officer to  overlook
\nthe said clause is to give no meaning to the words ”  during
\nany year”.  Those words form a material part of the proviso,
\nbecause\t the  proviso with or without those words  makes  an
\nentirely  different sense.  Without those words, it gives  a
\ngeneral power to carry the losses to the partner’s  account.
\nWith those words, it only provides for a continent in  which
\nan unregistered firm treated as such in the previous  years,
\nis  sought in any particular year to be treated as a  regis-
\ntered  firm,  and by reason of its  carrying  some  business
\nlosses in the past, arrangement for the carrying forward and
\nabsorption  of those losses has to be made for the  year  in
\nwhich  it  is to be treated as a registered firm.   In\tthat
\nevent, the proviso provides that its losses shall be carried
\nto  the partners’ account, as if it were a registered  firm.
\nIt  is\tinconceivable that if the firm\twas  carrying  heavy
\nbusiness  losses, it would suddenly be treated in a year  of
\nassessment  as a registered firm, so that its  losses  might
\ngive  relief  to the partners and not give -revenue  to\t the
\nState.\t This  proviso would only be resorted  to,  when  in
\nspite of taking the, losses to the accounts of the partners,
\nmore  revenue would be available to the State.\tThe  proviso
\nis  an enabling one.  An unregistered firm, treated as\tsuch
\nin  previous  years, may, during any year, be treated  as  a
\nregistered firm provided the Revenue would
\n999<\/span>
\nbenefit.   It may be that the firm may have made a  loss  in
\nthat  year  or was carrying a loss from the  previous  years
\nbut,  if  by treating the firm as  registered,\tthe  Revenue
\nwould  be benefited, the proviso can be used.  But there  is
\nno  general  power to act this way to the detriment  of\t the
\nRevenue.   To give any other interpretation to this  proviso
\nwill  mean  that  the words ” during any  year\t”  have\t not
\nreceived any meaning and that the proviso is interpreted  to
\nmake it not incumbent on the Income-tax Officer to  consider
\nthe  interests of the Revenue, as required by cl. (b) of  s.
\n23(5).\tThe two Provisions must be read in harmony, and when
\nso  read,  yield the only result that proviso (d) is  to  be
\ninvoked,  subject  to the conditions under  s.\t23(5)(b)  to
\nobtain more revenue for the State by applying s. 23(5)(a).
\nIt  would appear, therefore, that the Income-tax Officer  in
\nthe  light  of\tthe  losses  determined\t by  the   Appellate
\nAssistant  Commissioner, was under a duty to apply his\tmind
\nde  novo  to the problem which he had  undertaken,  when  he
\nresorted to s. 23(5) (b).  It is admitted that if the matter
\nhad  been so plain to him, he would not have, if he did\t his
\nduty  correctly under that provision, carried the losses  to
\nthe partners’ account.\n<\/p>\n
The   only   question,\t therefore,   Which   survives\t for
\ndetermination\tis  whether  the  order\t of  the   Appellate
\nAssistant  Commissioner left the Income-tax Officer free  of
\nhis  earlier  order,  and whether he was  under\t a  duty  to
\nreconsider the position under s. 23(5) (b).  When the  basis
\nfor  assessing a profit was gone, it is manifest that  there
\nwas  nothing  but  loss to carry forward  to  the  partners’
\naccount.   With the fall of the assessment in  this  manner,
\nfell the need for applying the special provisions of cl. (b)
\nof s. 23(5) to the case.  Indeed, the duty of the Income-tax
\nOfficer indicated a contrary course, if he was to act  under
\ns.  23(5) (b) at all.  The order of the Appellate  Assistant
\nCommissioner   was  passed  in\trespect\t of   three   years’
\nassessment,  and  was a consolidated order.  He set  out  in
\nparallel  columns the income and losses of the firm and\t not
\nof the partners and directed the Income-tax Officer to
\n1000<\/span>
\nmodify the assessments accordingly.  The intention obviously
\nunderlying that order was to put the matter  at the stage at
\nwhich  the  assessable\tincome\tof  the\t assembly  firm\t was
\ndetermined  before computing the tax thereupon.\t To  compute
\nthe tax, the Income-fax Officer had to determine whether the
\nloss occasioned in the first year should be carried  forward
\nto  the assessee firm in the subsequent year, and  he  could
\nnot  give  effect to the order of  the\tAppellate  Assistant
\nCommissioner  fully,  unless he determined  once  again\t the
\nquestion   under  s.  23(5)  (b).   In\tother\twords,\t the
\nimplication  of the appellate ‘order was to take the  matter
\nprior\tto  the\t order\tregarding  the\ttreatment   of\t the
\nunregistered  firm as a registered firm, and  of  necessity,
\nthat  order fell to the ground as being passed\tbeyond\tthat
\nstage.\n<\/p>\n
It  is contended on the strength of the ruling of the  Privy
\nCouncil in Commissioner of Income-tax v. The Tribune  Trust,
\nLahore<\/a>\t(1) that once the assessment is final and valid,  it
\nremains\t so  until it is set aside, but once it\t has  become
\nfinal, it cannot be altered except under ss. 34 and 35.\t  No
\nexception  can be taken to the statement of the law  by\t the
\nPrivy  Council, which, with all due respect,  is  absolutely
\ncorrect, but it is impossible to hold, on analogy, that\t the
\norder  determining  that this unregistered  firm  should  be
\ntreated as registered, had equally become final and not open
\nto  further consideration.  Learned counsel for the  Depart-
\nment  also urged on the strength of Commissioner of  Income-
\ntax v. McMillan & Co. (2) and Commissioner of Income-tax  v.
\nAmritlal  Bhogilal  &  Co.<\/a> (3), that if the  powers  of\t the
\nAppellate Assistant Commissioner did not involve a review of
\nthe  determination by the Income-tax Officer under’s.  23(5)\n<\/p>\n
(b), this result could not indirectly follow.  No doubt, the
\nAppellate  Assistant Commissioner could not, if\t the  matter
\nhad  gone before him in appeal against the order under\tthat
\nsection,  have\tinterfered.   But  the\tAppellate  Assistant
\nCommissioner  was exercising his powers under s. 31  of\t the
\nAct and annulling the assessment
\n(1) [1948] 16 I.T.R. 214.      (2) [1958] 33 I.T.R. 182,
\n(3) [1958] 34 I.T.R. 13o.\n<\/p>\n
1001<\/span><\/p>\n
of the first year and converting a profit in that year\tinto
\na loss.\t None can deny that he had that power in the  appeal
\nwhich was before him.  Section 31(4) of the Act enjoins that
\nwhere  as the result of an appeal any change is made in\t the
\nassessment  of a firm, the Appellate Assistant\tCommissioner
\nmay  authorise the Income-tax Officer to  amend\t accordingly
\nany assessment made on any partner of the firm.\t This  power
\nwas  implicit  in the order which  the\tAppellate  Assistant
\nCommissioner  passed, namely, that there was a loss  in\t the
\nassessment  year  in question and the  assessments  for\t the
\nthree  years  had to be modified.   The\t Income-tax  Officer
\ntherefore was under a duty to modify the assessments of\t the
\npartners  accordingly, and to take the matter up again\tfrom
\nthe  point  at which the order of  the\tAppellate  Assistant
\nCommissioner had placed it.  He had once again to  determine
\nwhether\t he  would,  in\t the  altered  circumstances,  apply
\ns.23(5)(b) to this case or not.\n<\/p>\n
In  our opinion, the Income-tax Officers in questiondid\t not
\ndo their duty as required by law, and we should,  therefore,
\nby a writ compel them to do so.\n<\/p>\n
As  regards  the  argument that\t the  petition\tis  directed
\nagainst\t wrong\tpersons and for a wrong relief,\t we  do\t not
\nthink that it is so.  The petition sought relief against the
\nUnion of India, which, in any event, was not concerned\twith
\nthis matter, and was wrongly joined.  But the two Income-tax
\nOfficers who dealt with this matter, were required under the
\nstatute\t to  do their duty once again in the matter  of\t the
\napplication of s. 23(5) (b) of the Act.\t That they failed to
\napply  their mind to this matter under a wrong\tapprehension
\nof the law is manifest, and they did not give effect to\t the
\norders\t of  the  Appellate  Assistant\tCommissioner.\t The
\nassessee  firm having failed to secure this relief from\t all
\nthe authorities superior to the Income-tax Officers, it\t was
\nopen  to  the High Court by a writ to order  the  Income-tax
\nOfficer\t concerned  to\thear and determine  this  matter  in
\naccordance with law.  This is precisely the relief which was
\nclaimed in the High Court and is now claimed in the  present
\nappeal.\t We
\n126<\/span>
\n1002<\/span>
\nthink,\twith due respect, that the High Court should   have,
\non a correct appraisal of the legal situation,\tordered this
\nrelief,\t and  we  accordingly,\tafter  explaining  the\t law
\napplicable  to\tthe case, order the  appropriate  Income-tax
\nOfficer\t to hear and determine this matter in the  light  of
\nour observations.\n<\/p>\n
We  may set down here that the two partners of the  firm  to
\nwhom  relief  has  been given by way  of  refund  after\t the
\nAppellate    Assistant\t Commissioner’s\t  order\t   undertook
\nunconditionally to refund the amounts, before the matter  is
\nconsidered.  by the Income-tax Officer.\t We order  that\t the
\ntwo  partners shall return the amounts in the manner  to  be
\nordered by the Income-tax Officer, before action is taken to
\ndetermine the matter.\n<\/p>\n
In  the result, the appeal is allowed with costs  throughout
\nto be paid by respondents 2 and 3. The Union of India shall,
\nhowever,  bear\tits  own costs.\t It may\t be  noted  that  no
\nseparate  costs were incurred by it either in this Court  or
\nin  the Court below.  It joined respondents 2 and 3  in\t the
\nstatement of the case filed in this Court and also  appeared
\nthrough the same counsel in both the Courts.
\nAppeal allowed.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India M\/S. Sarupchand Hukamchand & Co vs Union Of India And Others on 5 May, 1959 Equivalent citations: 1959 AIR 1207, 1959 SCR Supl. (2) 986 Author: Hidayatullah Bench: Hidayatullah, M. PETITIONER: M\/S. SARUPCHAND HUKAMCHAND & CO. Vs. RESPONDENT: UNION OF INDIA AND OTHERS DATE OF JUDGMENT: 05\/05\/1959 BENCH: HIDAYATULLAH, M. BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-115903","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nM\/S. 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