TMI Blog1956 (4) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... a will by which she bequeathed her half share in the partnership business to her two minor sons, viz., Dinanath Agarwala and Basudeo Prasad Agarwala in equal shares. For the assessment year 1944-45 an application was made under section 26A of the Income-tax Act for registration of the firm. The application was made on behalf of Sm. Narmadabala Gupta having eight annas share, Dinanath Agarwala having four annas share and Basudeo Prasad Agarwala having four annas share. The application for registration was based on the partnership deed dated the 21st of April, 1943. The Income-tax Officer granted registration of the firm. For the assessment year 1945-46 the same persons applied for registration but the application was rejected by the Income-tax Officer on the ground that the shares of the minor sons of Sm. Durgabati Devi were not mentioned in the deed of partnership. An appeal was preferred to the Appellate Assistant Commissioner against the order of the Income-tax Officer. The Appellate Assistant Commissioner allowed the appeal and directed that the partnership firm should be registered. For the assessment year 1946-47 the Income-tax Officer renewed the registration of the firm unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of the firm and directing the Income-tax Officer to determine the tax payable by the firm on the basis that no registration had been granted to the firm, were valid in law? It was contended before the Tribunal on behalf of the assessee that the Commissioner of Income-tax had no power to make an order under section 33B in respect of the assessment year 1947-48 as section 33B was for the first time brought into force on the 30th day of March, 1948, by the Income-tax Amendment Act of 1948 (XLVIII of 1948). It was argued that section 33B could not therefore be applied to the assessment made for the year 1947-48. The argument was rejected by the Tribunal on the ground that the order of the Income-tax Officer which was revised by the Commissioner was an order passed on the 24th of September, 1949, long after the enactment of section 33B of the Indian Income-tax Act. In other words, the Tribunal took the view that section 33B was in force when the Income-tax Officer passed the order in question and the Commissioner was competent to exercise his authority under section 33B of the Act. In this reference Mr. Dutt on behalf of the assessee said that he is not in a position to chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reason is that the statutory provisions enacted in section 42 of the Partnership Act are subject to contract between the partners, but there is no such exception in section 30(1) of the Partnership Act or in section 11 of the Contract Act. The effect of section 11 of the Contract Act is that a minor is absolutely incompetent to make a contract and that is the view taken by the Judicial Committee in Mohori Bibee v. Dharmodas Ghose [1903] 30 I.A. 114 which overruled a line of previous Indian decisions to the effect that the contract of a minor was not void but voidable at this option. It follows therefore that a valid partnership between the minor sons of Sm. Durgabati and Sm. Narmadabala Gupta could not be constituted in the present case according to the provisions of the partnership deed dated the 21st of April, 1943, between Srimati Durgabati Devi and Srimati Narmadabala Gupta. Mr. Dutt then presented the argument that there could be a valid contract of partnership between an adult partner and two minor partners under the Income-tax law, though such a partnership would not be legally valid under the Partnership Act. In support of his argument counsel referred to section 2(6B) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trument of partnership did not specify the individual shares of Dinanath Agarwala and Basudeo Prasad Agarwala, and so registration of the firm should be refused under section 26A of the Income-tax Act. It was contended that the instrument of partnership dated 21st April, 1943, should be read along with the will of Sm. Durgabati Devi, bequeathing her half share in the partnership to her two minor sons Dinanath Agarwala and Basudeo Prasad Agarwala in equal shares. It was conceded by Mr. Dutt that one of the conditions for registration of the partnership under section 26A was specification of the shares of the partners in the instrument of partnership. But the argument of the learned counsel was that the section ought not to be technically construed and in the present case the preliminary requirements for registration have been substantially fulfilled. I do not wish to express any concluded opinion on this point. In view of my answer to the first question the Commissioner was right in holding that there was no legal partnership in existence which could be registered under section 26A. The third question referred to the High Court has therefore become academic and I do not propose to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order which the Commissioner of Income-tax revised was the order of the Income-tax Officer and not of the Appellate Assistant Commissioner and the Commissioner was acting within the ambit of his jurisdiction under section 33B in revising that order. It was further argued on behalf of the assessee that the order of the Commissioner cancelling the registration would affect the basis of the assessment and so the order of the Appellate Assistant Commissioner would be affected in an indirect manner. It is true that the Commissioner's order would indirectly affect the order of the Appellate Assistant Commissioner passed in appeal. But that is not the test of the jurisdiction of the Commissioner conferred by section 33B of the Income-tax Act. The question at issue turns on a matter of construction. Section 33-B of the Income-tax Act states: (1) The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner should be restricted in such a manner, there is no reason why the Legislature did not expressly say so. I therefore think that any consideration of indirect consequence is not relevant in the interpretation of section 33B. The restrictions imposed upon the jurisdiction of the Commissioner are the three restrictions to which I have already referred, and there is no other restriction imposed upon the authority of the Commissioner to revise the order of the Income-tax Officer. I hold that in the circumstances of the present case the Commissioner of Income-tax had jurisdiction to cancel the order of the Income- tax Officer granting registration of the firm and directing the Income-tax Officer to determine the tax payable by the firm on the basis that no registration had been granted and on the total income already determined. I shall next deal with two cases, Commissioner of Income-tax v. Tejaji Farasram Kharawala [1953] 23 I.T.R. 412 and Commissioner of Income-tax v. Amritlal Bhogilal Company [1953] 23 I.T.R. 420, cited by the counsel on behalf of the assessee in support of his argument. In the first case the assessee was a Hindu undivided family and under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistration of the firm under section 26A and assess the assessee as an unregistered firm. It was held by the learned Judge of the Bombay High Court that the Commissioner had no jurisdiction to act under section 33B since he had a right to appear before the Appellate Assistant Commissioner in appeal and get the order of registration cancelled. At page 426 of the report Chagla, C.J., said: But when a legal remedy is given to him to get the orders of the Income-tax Officer revised, he cannot requisition to his aid the power conferred upon him under section 33B. Once the appeal with regard to the year 1949-50 was pending before the Appellate Assistant Commissioner the Commissioner was given the full right to get the order of the Income-tax Officer revised in any manner he thought necessary in the interest of public revenue. He had to satisfy the Appellate Assistant Commissioner that the firm had been wrongly registered and that registration should be cancelled and if he could not induce the Appellate Assistant Commissioner to take the view he had taken, he had a further right to go to the Tribunal. Therefore, instead of getting a decision from the ordinary Tribunals set up under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept this view. It is true that section 31(3) empowers the Appellate Assistant Commissioner to confirm, reduce, enhance or annul the assessment. But the expression enhance in this section must be construed in the context of the subject materies. In the first place, it should be noticed that section 31(3) states that the Appellate Assistant Commissioner may enhance an assessment only in disposing of the appeal. In the second place, it is clear that the power of enhancement is restricted to the scope or the subject matter of the appeal. Section 30(1) gives the right of appeal to an assessee specifically in a number of cases. Section 30(1) states: Any assessee objecting to the amount of income assessed under section 23 or section 27, or the amount of loss computed under section 24 or the amount of tax determined under section 23 or section 27, or denying his liability to be assessed under this Act, or objecting to the cancellation by an Income-tax Officer of the registration of a firm under sub-section (4) of section 23 or to a refusal to register a firm under sub-section (4) of section 23 or section 26A or to make a fresh assessment under section 27, or objecting to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Income- tax Officer has refused registration under section 26A. Suppose also that the assessee firm prefers an appeal to the Appellate Assistant Commissioner against the quantum of assessment under section 23 but it failed to prefer an appeal against the order of the Income-tax Officer refusing registration within the time prescribed. It would certainly not be open to the assessee in such a case to argue before the Appellate Assistant Commissioner that the order of the Income-tax Officer refusing registration must be interfered with, or that the assessment should be reduced upon the footing that the firm should have been registered. In such a case also, it might with equal force be argued by the assessee that the Appellate Assistant Commissioner having the power to reduce the assessment has also the power to reopen the question of registration and to direct the Income-tax Officer to register the firm and to make an assessment on this basis. But it is clear that such an argument cannot be entertained, and if the power of the Appellate Assistant Commissioner to reduce the assessment does not include the power to reopen the question of registration of the firm, it must follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax, Punjab v. Nawab Shah Nawaz Khan [1938] 6 I.T.R. 370 are different to some extent. I do not claim that the facts of those cases are identical with the facts of the present case, but those two cases though not dealing with the identical point, almost run on parallel lines. I have referred to Jagarnath Therani v. Commissioner of Income-tax [1925] I.L.R. 4 Pat. 385 and Commissioner of Income-tax Punjab v. Nawab Shah Nawaz Khan [1938] 6 I.T.R. 370 not because the facts are identical with the present case, but because those cases show what is the correct approach to the problem of construction of section 31 of the Income-tax Act. Those cases laid down the principle that the expression enhance the assessment cannot be construed in its plain meaning, but the expression must be construed in a qualified sense, and the meaning of the expression should be restricted in the setting and in the context of the other important provisions of the Income-tax Act. My learned brother also has stressed the point that if the order of the registration was an independent order and was separately made from the order of assessment the Appellate Assistant Commissioner would have no power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 23(4)--see form D(2). The rules prescribe a separate form of appeal against the quantum of assessment-Form B, and a separate form of appeal against the order of refusal to register a firm under section 26A-Form D(1). Section 30(2) of the Income-tax Act also provides a period of limitation within which appeals should be presented, and section 30(3) requires that the appeal to the Appellate Assistant Commissioner shall be in the prescribed form and shall be verified in the prescribed manner. It is also important to notice that section 59(5) of the Income-tax Act provides that as soon as the rules are published in the official Gazette, the rules so published shall have effect as if enacted under this Act. For the reasons I have assigned, I hold that in the circumstances of this case the Commissioner of Income-tax had jurisdiction to cancel the order of registration for all the three years and to direct the Income-tax Officer to determine the tax payable by the partnership firm on the basis that no registration has been granted. I would accordingly answer the fourth question also in favour of the Income-tax Department and against the assessee. The assessee must pay the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has not appealed against it--and, of course, he will not appeal against it because he is not aggrieved by that order. The assessee, therefore, filing an appeal against the quantum of assessment in a case where the prayer of the assessee to be treated as registered firm has been acceded to, will only raise the question of the amount of assessment in respect of the various items for which he has been held to be chargeable by the Income-tax Officer. In such an appeal, therefore, it will not be open to the Department to raise the question of the validity of the order of the Income-tax Officer with regard to the registration of the firm. In the two Bombay cases referred to above, however, Chagla C.J., who delivered the judgment, came to a contrary conclusion. The view adopted therein was formulated in these terms: Now, it is clear that when an appeal is pending before the Appellate Assistant Commissioner, the Income-tax Officer has the right to be heard either in person or by a representative, and the very point which the Commissioner has taken and on which he has given his decision under section 33B could have been urged under the directions of the Commissioner before the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the order passed by the Income-tax Officer under section 26A allowing registration, in which event no appeal is provided for against the order by the Income-tax Department. Section 30 of the Act, which enumerates the cases in which an appeal can be filed by the assessee, states: Any assessee objecting to the amount of income assessed under section 23 or section 27, or the amount of loss computed under section 24 or the amount of tax determined under section 23 or section 27, or denying his liability to be assessed under this Act, or objecting to the cancellation by an Income-tax Officer of the registration of a firm under sub-section (4) of section 23 or to a refusal to register a firm under sub- section (4) of section 23 or section 26A ....................may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order. Section 23 sub-section (4) is termed thus: If any person fails to make the return required by any notice given under sub-section (2) of section 22 and has not made a return or a revised return under sub-section (3) of the same section or fails to comply with all the terms of a notice issued under sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order will thus relate not only to the amount actually determined upon the assessee but also to any other conclusion arrived at by the Income-tax Officer in course of the proceeding although it may relate to a refusal to register which might in certain circumstances have been the subject matter of an independent order. If, however, such a refusal to register, in fact is not an independent order but is a part of the order of assessment, I can see no reason why the matter cannot be reopened at the instance of the Income-tax Department before the Appellate Assistant Commissioner. This view receives further support from the fact that the appellate authority under section 30, as I have quoted above, is empowered also to enhance the assessment under section 31. In my opinion, this power to enhance or to set aside the order of assessment of the Income-tax Officer cannot be confined only to the items in respect of which an appeal has been preferred or confined to the grounds taken by the assessee in his petition of appeal. If that were so, the assessee would always urge only those grounds which would be conducive to his own interest. Chagla, C.J., in my opinion, is right in his concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the order which went up in appeal must be taken as a whole as the order of the appellate authority. If the Department could not have appealed against the order allowing registration it does not follow that the order of assessment including the order for registration could not be challenged as a whole. The matter may be looked at from another point of view. The order of assessment bearing upon the total amount of income under section 23(4) also cannot be appealed against by the Department, and yet the Department can press for enhancement as laid down under section 31 of the Act. The mere fact, therefore, that the legislature has not conferred upon the Department the right to appeal against the order of the Income-tax Officer cannot operate as a bar against its right to press for the rectification of any wrong to the revenue whether it arises in respect of the amount of tax based on the items charged or on account of the order registering the firm, and if the Department has the power to reagitate the question of registration, it is immaterial whether the point is raised and decided or not raised at all. Rule 21 made under section 59 of the Act also prescribed two distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal or order. This would not be warranted by the words used by the Legislature. The decision of this Court in the case of Jagarnath Therani v. Commissioner of Income-tax [1925] I.L.R. 4 Pat. 385 covers a case where the matter sought to be reopened before the appellate authority was one which was never raised before the Income-tax Officer. What happened in that case was that the Income-tax Officer, Purnea, assessed the assessee in respect of his income derived in Purnea and the income of the assessee in the same year from its branches in Calcutta and Jalpaiguri was not before the Income-tax Officer at all. It was held in such circumstances that the Appellate Assistant Commissioner, who heard the appeal, was not empowered in law to add those sources of income which were not placed before the Income-tax Officer and were not part of the assessment proceeding. There are other distinguishing features of the case which need not be elaborated. The ratio of the decision as put by Ross, J., is thus worded: Now this section relating to appeal is enacted for the benefit of the subject and also, to the limited extent therein stated, for the benefit of of the Crown. But the subject-matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore their Lordships, one of which was that the new item sought to be introduced by the Appellate Assistant Commissioner in an appeal against an order under section 34 of the Income-tax Act could not be introduced because in the facts of that case the amount sought to be introduced in determining the total income of the assessee was already inadmissible for that purpose because it was beyond the period of limitation provided for in section 34 of the Income-tax Act. The decision in the above case, therefore, does not, in my opinion, support the view that if the Income-tax Officer, in fact, has considered an item of income or a matter in the course of the assessment, the appellate authority in hearing the appeal cannot modify it so as to reduce or enhance the amount of tax assessed, which is clearly provided for in section 31(3) of the Income-tax Act. It seems to me that the decision in the case of Pearey Lal Shukla of Cawnpore, In re [1942] 10 I.T.R. 239 also does not go against the principle of law laid down either in the case of Jagarnath Therani v. Commissioner of Income-tax [1925] I.L.R. 4 Pat. 385 or the above Lahore case. I have already shown that the above two decisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court are concerned, inasmuch as the three decisions are dealing with different questions altogether. In my opinion, further there ought to be no legal difficulty in the way of the assessee praying for reduction of the amount of tax for which he is made liable by the Income-tax Officer in an appeal preferred against the amount of tax in so far as it is grounded upon the order of refusal to register the firm or cancellation of the registration. If that is the ground which will affect the amount of tax payable, and if this ground was kept in view by the Income-tax Officer in assessing the tax, I see no reason why the assessee cannot raise this ground in claiming reduction of the amount, if the Legislature has conferred upon the appellate authority that power in terms of section 31(3) of the Act. Specific provision for the assessee's right of appeal against the order of the Income-tax Officer regarding the amount of tax, refusal to register a firm or to order the cancellation of registration etc. must be confined to those situations where the assessee is aggrieved only by one of those orders passed against him which are provided for in the section as appealable. If however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee and against the Income-tax Department. I agree with my learned brother in the answer proposed by him to the remaining three questions. The case came up for hearing before DAS, C.J., with regard to one of the questions on which there was a difference of opinion between RAMASWAMI, J., and MISRA, J. S.N. Dutt, N.C. Untwalia and B.P. Rajgarhia, for the assessee. R.J. Bahadur, for the Commissioner. 1956. April, 4. DAS, C.J.--This case has come to me on a difference of opinion between my learned brethren Ramaswami, J., and Misra, J., with regard to one of the questions of law submitted to the High Court for opinion. The question on which there has been a difference of opinion between my learned brethren is, Whether in the facts and the circumstances of the case the orders passed by the Commissioner of Income-tax cancelling the orders of the Income-tax Officer granting registration of the firm and directing the Income-tax Officer to determine the tax payable by the firm on the basis that no registration had been granted to the firm, were valid in law. Ramaswami, J., is of the opinion that this question should be answered in favour of the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1946-47 the Income-tax Officer renewed the registration of the firm under section 26A of the Income-tax Act. For the assessment years in question the Income-tax Officer again renewed the registration of the firm and on that basis made an assessment of the income of the partnership firm under section 23(5) of the Act. For two of the assessment years, 1947-48 and 1948-49, the order of the Income-tax Officer was dated the 24th September, 1949, and the relevant portion of the order of the Income-tax Officer was in these terms: Application for renewal of registration under section 26A filed. This being in order, registration is renewed. Assessed as above on a total income of ₹ 62,537 under section 23(3) and 23(5)(a) of the Income-tax Act. The income is shared by the partners as under: (Then the Income-tax Officer, mentioned the share of each of the partners). For the assessment year 1949-50 the order was passed on the 21st December, 1949, and was more or less in the same terms as the orders passed on the 24th September, 1949. It is to be noted that the orders passed by the Income-tax Officer on the 24th September, 1949, and 21st December, 1949, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including and order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. (2) No order shall be made under sub-section (1), (a) to revise an order of re-assessment made under the provisions of section 34; or (b) after the expiry of two years from the date of the order sought to be revised. (3) Any assessee objecting to an order passed by the Commissioner under sub-section (1) may appeal to the Appellate Tribunal within 60 days of the date on which the order is communicated to him. (4) An appeal to the Appellate Tribunal under sub-section (3) shall be in the prescribed form and shall be verified in the prescribed manner and shall be accompanied by a treasury receipt in support of having paid the fee of ₹ 100, and such appeal shall be dealt with in the same manner as if it were an appeal under sub-section (1) of section 33. My learned brother Ramaswami, J., has rightly pointed out that there are three restrictions on the power given to the Commissioner under the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two separate orders or not. The real point to consider is whether the third restriction of section 33B of the Indian Income-tax Act has been overstepped or not. My learned brother, Ramaswami, J., has pointed out that the order of the Commissioner would indirectly affect the order of assessment passed by the Appellate Assistant Commissioner. He had said: It is true that the Commissioner's order would indirectly affect the order of the Appellate Assistant Commissioner passed in appeal, but that is not the test of the jurisdiction of the Commissioner conferred by section 33B of the Income-tax Act. It was contended on behalf of the assessee that the Commissioner has no power under section 33B to revise the order of an Income-tax Officer if the indirect result is that the order of the Appellate Assistant Commissioner would be affected. But I see nothing in the language or the context of section 33B to warrant such an interpretation. The section does not expressly say that the revisional jurisdiction of the Commissioner is confined only to such cases where the order of the Appellate Assistant Commissioner would not be indirectly affected. It is here that I differ with g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion passed by the Income-tax Officer. It is true that under section 30 of the Indian Income-tax Act, which my learned brother Ramaswami, J., has quoted in extenso, the Department had no right of appeal against the order of registration under section 26A of the Indian Income-tax Act. It is also obvious that the assessee could not have preferred an appeal against an order which was wholly in his favour. When, however, an appeal was preferred by the assessee to the Appellate Assistant Commissioner against the assessment made by the Income-tax Officer, the Appellate Assistant Commissioner had the power, in disposing of the appeal, to set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further enquiry as the Appellate Assistant Commissioner might direct. This is clear from clause (b) of sub-section (3) of section 31 of the Indian Income-tax Act. In the appeal before the Assistant Commissioner, the Department could have entered appearance and it was, in my opinion, open to the Department to challenge the legality of the registration of the firm, when the assessee preferred an appeal to the Appellate Assistant Commissioner against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment passed by the Income-tax Officer. The right of appeal is confined to the assessee; and before section 33B was enacted the position in law was that if the assessee did not appeal from the order of the Income-tax Officer, that order became final and conclusive. But if the assessee appealed from the order of the Income-tax Officer, the widest jurisdiction was given to the Appellate Assistant Commissioner in appeal. He had the power to confirm, reduce, enhance or annual the assessment, he had the power to direct the Income-tax Officer to make a fresh assessment, and the only limitation that was laid down on the exercise of his jurisdiction was that if he wanted to enhance the assessment, he must give the assessee a reasonable opportunity of showing cause against the enhancement. From the decision of the Appellate Assistant Commissioner the right was given both to the Commissioner and to the assessee to appeal to the Appellate Tribunal.................Therefore, for the first time by reason of the enactment of section 33B the orders of the Income-tax Officer became subject to a revision although the assessee might accept those orders and may not appeal from them to the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to assess the assessee as an unregistered firm for all the three years. Now, with regard to the two assessment years for which the Appellate Assistant Commissioner reduced the assessments it was held that the question was concluded by the decision given in the earlier case and the Commissioner had no jurisdiction to pass any orders under section 33B after the Appellate Assistant Commissioner had passed orders in appeal reducing the assessments. His Lordship Chagla, C.J., then went on to consider the assessment for the third year in which the appeal was still pending, and held that even when an appeal was pending, the Commissioner had no jurisdiction to exercise his powers under section 33B. In the case under our consideration it is unnecessary to consider whether the Commissioner can exercise his powers under section 33B when an appeal against an order of assessment is pending. In the case under our consideration an appeal was preferred against the order of assessment and was dealt with by the Appellate Assistant Commissioner. In passing his order under section 33B the Commissioner has in effect set aside the orders of the Appellate Assistant Commissioner. Clearly this was beyond ..... X X X X Extracts X X X X X X X X Extracts X X X X
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