TMI Blog1964 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Application No. 13 of 1962. The two questions arise as a result of assessments having been made against the assessee, F. Y. Khambhaty, and the said firm of Kano, hereinafter referred to as the Kano firm, for the assessment years 1950-51 to 1953-54. The relative previous years, in so far as the assessee's share of profits in the profits of the Kano firm is concerned, were the financial years ending March 31, 1950, March 31, 1951, March 31, 1952, and March 31, 1953. We are concerned in this reference with the assessee, F. Y. Khambhaty, in his status as an individual, but since the assessments in question involve his share of profit in the Kano firm, the question arising under the second proviso to section 4(1) would be relevant. Until the year 1947, the assessee was doing business at Kano as the sole proprietor of that business. In that year, he took the said Lahorewala as a partner along with him, their shares being sixty per cent. and forty per cent respectively. The deed of partnership was not produced before the taxing authorities, but a copy of the deed of dissolution dated September 8, 1952, was produced which showed that the firm was dissolved as from July 31, 1952. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these years the Kano firm from Cambay. The share of profits in that firm so included in the assessee's taxable income was as follows : Rs. Assessment year 1950-1951 60,489. Assessment year 195I-1952 59,207. Assessment year 1952-1953 84,874. The reason given by the Income-tax Officer for his conclusion that the assessee was controlling the business of the Kano firm from the taxable territories was that the assessee was a major partner in that firm and that, in the absence of any proof to the contrary, the natural presumption was that, being in Cambay at the material time, it was he who was making all the purchases of agate stones and other stones from the said Cambay firm. Though called upon to produce the correspondence between him and his partner, Lahorewala, the assessee produced only seven letters and except for one letter, the rest were personal letters. The Income-tax Officer, in these circumstances, held that " the failure of the assessee (to produce proof as to who controlled the Kano firm) in this behalf coupled with the fact that the assessee was a major partner staying at the only purchasing centre of his business would lead safely to the conclusion that the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, exercised from Cambay control and management of the appellant's affairs." The Appellate Assistant Commissioner lastly observed that he was of the view that the control and management of the affairs of the Kano firm, though substantially situated and exercised by Lahorewala at K no, were to some extent situated in the taxable territories and exercised by the assessee and, therefore, as the control and management of the affairs of the Kano firm were not situated wholly without the taxable territories, the Income-tax Officer was right in treating the firm as a resident under section 4-A(b) of the Act. Thus, the conclusion of the Appellate Assistant Commissioner was both negative and positive, negative by reason of the fact that there was failure on the part of the assessee to produce the correspondence and other documents that had passed between him and his partner, Lahorewala, and positive because, in the matter of the purchase of such articles as cloth and sandal-wood from India, no evidence was produced to show that it was Lahorewala who had controlled these purchases and, therefore, the presumption was that the assessee had exercised control over these purchases while he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. commission. The Tribunal, however, observed that the business of Khambhaty Trading Company was carried on and conducted by Khambhaty himself and his wife was only a benamidar and that the goods were exported to Africa by Khambhaty either in the name of Khambhaty Trading Company or through the said Cambay firm. The Tribunal further held that the evidence on record indicated that Khambhaty used to go to the Cambay firm regularly and that lie could not have done so unless be was interested in the purchases made from that firm, and summed up its conclusion by stating : " We think that there is evidence on record to indicate that the control and management of the affairs of the firm were not wholly situated outside India. Khambhaty did take interest in the affairs of the Africa firm. After all, he was the man who had the largest stake in the business. Lahorewala was only a working partner. " The Tribunal, however, agreed that the assessment could not be made as against the firm as the firm was a dissolved one and as the proceedings were initiated on July 20, 1955, when the firm was already dissolved with effect from July 31, 1952, assessments ought to have been made against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -----------------Assessment year Tax liability before the Tax liability after the appeal appeal -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. 1. 1950-51 15,280 43,133 2. 1951-52 9,380 35,483 3. 1952-53 16,841 62,698 The Tribunal, however, seemed to feel that, in spite of the abovementioned position, there was really no enhancement as a consequence of its direction, for, as a result of its order, the Kano firm gained a refund of an aggregate amount of Rs. 1,70,699.75 in respect of the three assessment years 1950-51 to 1952-53, and, as against this reduction, the assessee, by way of an additional amount, had to pay altogether Rs. 79,666 and that, therefore, the actual result was that there was reduction on the two liabilities to the extent of Rs. 91,035. The Tribunal was of the view that it could not be disputed that, after its aforesaid orders, the department could have taken action under section 34 against the persons who were the partners in the Kano firm before its dissolution. Such proceedings would have led to prolonged proceedings and expense to the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging it to tax. That amounted to enhancement because if the assessee had not filed an appeal before the Tribunal, since the Commissioner had not filed any appeal, the share of profits of the assessee in the profits of the Kano firm would have, under the orders passed by the Appellate Assistant Commissioner, been included in his assessments only for the purposes of rates, and though the order of the Tribunal in the firm's appeal set aside the assessment orders against the firm, so far as the assessee was concerned, he, in his assessments as an individual, would be levied a larger amount of tax as a result of the share of profits being made chargeable to tax. There was, therefore, no doubt that the direction amounted to an enhancement which the Tribunal had no jurisdiction to order. Mr. Mehta urged that though the Tribunal had wide powers under sub-section (4), which contains such words as " pass such orders thereon as it thinks fit ", the word " thereon " in that expression has the effect of limiting the Tribunal's jurisdiction to the subject-matter of the appeal and the subject-matter of the appeal would mean the grounds of appeal or such additional grounds as may be raised in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aled against if the department had not appealed from such order, and that the word " thereon " in the expression " may pass such orders thereon as it thinks fit " in section 33 meant on the grounds raised in the appeal and the words of the section were not wide enough to include a power of enhancement without an appeal by the Commissioner. In that case, the assessee, who was a dealer in shares, had purchased certain shares at Rs. 1,100 per share and a year later he sold them at the rate of Rs. 225 per share. The dispute between the department and the assessee was whether the assessee was entitled to loss on the basis of the difference between the cost price, namely, Rs. 1,100, and his sale price, Rs. 225, or on the difference between Rs. 715, the market rate at the date of the purchase, and the sale price, namely, Rs. 225. Both the Income-tax Officer and the Appellate Assistant Commissioner held in favour of the department, and thereupon the assessee filed an appeal before the Tribunal contending that he should be allowed loss on the basis of the difference between Rs. 1,100 and Rs. 225. The Tribunal not only dismissed his appeal but also gave a finding that the assessee was entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it in an assessment of a firm or an association of persons or where a new assessment of a firm or an association of persons is ordered to be made. He argued that the direction in question was given by the Tribunal under sub-section (5) and, therefore, the authorities cited by Mr. Mehta, which were on sub-section (4), cannot be applied so as to restrict the powers of the Tribunal under sub-section (5). He contended that as a result of the appeal by the Kano firm, assessment orders against that firm had been set aside by the Tribunal and in doing so, if the Tribunal felt that though the firm could not be held liable, as it was a dissolved firm, on the footing of the law as was then understood, the Tribunal had the power under this sub-section to give a direction authorising the Income-tax Officer to amend the assessment made on a partner who was liable to be assessed on the share of profits coming to him from the profits of the firm. For this contention, he relied upon two decisions of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate and Sarupchand Hukamchand Co. v. Union of India the first dealing with the Tribunal's power under sub-section (5) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. We do not agree with the construction of the aforesaid observation by the Supreme Court placed by the learned Advocate-General. In our view, the Supreme Court has not laid down any proposition on the construction of sub-section (5), namely, that that sub-section confers such an independent and a separate power on the Tribunal. The observation relied upon by the learned Advocate-General was made by the Supreme Court in the light of the facts of the case and in the light of the appeal before the Tribunal wherein a specific ground of appeal, was taken, namely, that, in the circumstances of the case, the income should not be assessed to tax in the hands of the association collectively but in the hands of each of the members of the association. That ground of appeal was before both the Appellate Assistant Commissioner and the Tribunal. What the Supreme Court held was that under the provisions of section 31 and section 33, both the Appellate Assistant Commissioner and the Tribunal had the power to deal with that ground of appeal in view of the comprehensive phraseology used by the legislature in these two sections. The observation stressed by the learned Advocate-General is not an ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Assistant Commissioner under section 31(4) to amend an assessment of the partners was implicit in the order which he passed, namely, that there was loss in the assessment year 1940-41 and the assessments for the three years had to be modified. The Supreme Court observed that even if the order be referred to clause (a) of section 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 returns of the partners. That could only be done under section 23(5)(b). In such a case, the Income-tax Officer was required once again to apply his mind to determine whether it would be in the interest of the revenue to proceed as he had done before, and if he had done this duty in the interest of the revenue, 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. It will be seen that what the Supreme Court here laid down was simply that where a firm is assessed and the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of an order passed in an appeal by the Tribunal for or against such a firm. Question No. 1, therefore, has to be answered in the negative. The result of our answer to question No. 1, therefore, would be that the share of profits of the assessee in the Kano firm could be included in his assessments for the purposes of rates only. But the learned Advocate General contended that the Bombay decisions on the interpretation of section 33(4) were not correct and that, according to him, the powers of the Tribunal under sub-section (4) included the power of enhancement even where there is no cross appeal by the Commissioner. We cannot agree with this view and, in any event, those decisions are binding upon us. As a further alternative, the learned Advocate-General argued that the direction of the Tribunal did not result in enhancement and, therefore, the aforesaid Bombay decisions would not apply. The Income-tax Officer had in his assessment orders included the share of the profits of the assessee and brought to tax that share in his assessments. The Income-tax Officer had, at the same time, brought to tax the total profits in the hands of the Kano firm in the firm's assessment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ala that the affairs of the Kano firm were controlled or managed by the assessee while he was in India. Mr. Mehta argued that the evidence indicated that the purchases of agate stones, which were the main purchases by the Kano firm, though made in Cambay, were upon the orders placed by Lahorewala from Kano and that the several affidavits produced by the assessee indicated that, though be was visiting the Cambay firm, he did not have anything to do with those purchases and that his visits to that firm were not for supervising or controlling the purchases of agate stones from that corporation. He also argued that in relying upon the fact that the Khambhaty Trading Company was really the business of the assessee and that his wife was a mere benamidar, the Tribunal had relied upon an irrelevant and extraneous circumstance in coming to its aforesaid conclusion. There was, however, considerable evidence of a circumstantial nature before the Tribunal and if the Tribunal relied upon such circumstantial evidence, as it appears from its order it had done, it would not be possible for us in our limited jurisdiction to interfere with a finding of fact arrived at by the Tribunal. In spite of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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