TMI Blog1969 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... appan, besides a sum of Rs. 12,000 as salary, under the terms of the said service agreement. The assessee had sustained a loss of Rs. 48,735 in his own business of film distribution in 1953-54 which was being carried forward from year to year. In the assessment order dated March 31, 1962, for the year 1959-60 the Income-tax Officer set off this loss of Rs. 48,735 against the total income of Rs. 28,051 which included a sum of Rs. 25,233 being the assessee's 1/4th share under the said service agreement. Subsequently, the Income-tax Officer discovered that the sum of Rs. 25,233 has been wrongly treated by him as the business income though it really constituted the income of the assessee under the head "Salary" and that the said income of Rs. 25,233 has been wrongly set off against the business loss of the assessee in the earlier orders. He, therefore, initiated proceedings under section 154 of the Income-tax Act, 1961, to correct the mistake that had occurred in the assessment order, by issuing a notice dated January 18, 1953, to the assessee calling upon him to file his objections, if any, for the proposed rectification of the mistake. The assessee filed his objections to the propose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras (besides elsewhere as and when needed), in all the work relating to my partnership business of S. K. Pictures covered by the partnership deed of 1st June, 1957, entered into between Sri S. Kalyanasundaram Pillai Avergal and myself which document has been perused by you, on the remuneration and the following terms and conditions which have been accepted by you. In full and complete satisfaction and settlement for all your services under this agreement, I agree to pay you, as from 1st June, 1957, a fixed allowance calculated at rupees one thousand per mensem, throughout the aforesaid period of service, and, in addition, an exact one-fourth share of whatever I earn during the said period by virtue of my right and interest in the said partnership business after deduction of such expenses as may be incurred by me for earning the said income. It is expressly understood between us that there is no relationship of any partnership whatsoever with you. It is only a contract of service.... You will fully and loyally give me your best co-operation and help and not engage yourself directly or indirectly in any other business activity during the period of your service under this agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the management as may be considered necessary. The appellants were also entitled to assign their agreement and the rights thereunder in certain circumstances and also to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them under the agreement. They were entitled to a remuneration by way of commission of a certain percentage on the amount of sale proceeds of the produce of the company. The question arose as to whether their activities constituted business within the meaning of section 2(4) of the Excess Profits Tax Regulation, Hyderabad, whether the appellants were acting as employees of the company and whether the remuneration was liable to excess profits tax. The Supreme Court held that the appellants were the agents of the company and not merely its servants remunerated by wages or salary, that what is relevant to consider was as to the nature and scope of the activities and not the extent of the operations that the activities of the appellants constituted a business and the remuneration which they received under the terms of the service agreement was "income, profits or gains from business" and, therefore, they were liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court held that the appellant was neither a servant nor a mere sub-agent of the trustees but an agent of the principal for such part of the business of the agency as was entrusted to him. The appellant was held to have undertaken a business of his own in accepting the duties and responsibilities of managing the two mills under the general control of the trustees and the remuneration received by the appellant under the agreement was held to be income from business liable to excess profits tax. In this case the learned judges pointed out that the difference between the relations of master and servant and of principal and agent lay in the fact that a principal has the right to direct what work the agent has to do but a master has got a further right to direct how the work has to be done. An agent has to be distinguished on the one hand from a servant and the other from an independent contractor. A servant acts under the direct control and supervision of the master in the course of his work while an agent is not subject to the direct control or supervision of the principal in the exercise of the work allotted to him. The above decision may not apply to the facts of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the business of the Hindu undivided family, and it was held that the remuneration of the treasurer was not salary within the meaning of section 7, but business income chargeable under section 10 of the Income-tax Act. It was also held in that case that the question whether a certain income was received as salary or as income from the business is essentially a question of fact depending on the facts and circumstances of each case. As we understand the above decision, it is rested mainly on the fact that the appointment as treasurer was that of a Hindu undivided family and not of the karta as an individual. In the view of the learned judges a Hindu undivided family cannot as such accept service or be appointed as servant. They considered the contract for accepting appointment as treasurer as one entered into by the karta on behalf of the Hindu undivided family and in their view a Hindu undivided family consisting of numerous persons cannot as a whole become servants of the Government. Having regard to the special position of the karta in a Hindu undivided family with reference to his powers to bind the other members of the family by entering into contracts, the court held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him, the impugned order was in effect a revisional order, which the assessing authority has no power to pass. The second objection which was raised before us was that in relation to the assessment proceedings for the year 1959-60, it is the provisions of the old Act of 1922 that has to apply and not the provisions of the new Act of 1961, and that, therefore, the proceedings initiated under section 154 of the new Act will be without jurisdiction. As regards the scope of section 154 of the new Act, the learned counsel for the assessee contends that the assessing authority was conscious of the nature of the income of Rs. 25,233 when he made the original assessment and he treated the said amount received under the service agreement as business income after making a distinction between this amount and the fixed remuneration of Rs. 12,000, and it is not open to him to invoke the provisions of section 154, merely because he changes his view at a later stage as to the nature of the income. According to him the power exercised is one of revision and not one of rectification. We are of the view that the submission made by the learned counsel as to the scope of section 154 cannot be acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r way earlier, he could not change his opinion and seek to rectify the order on the ground of mistake invoking section 154. After going through the above decision, we are of the view that the said decision may not be of any assistance to the assessee. In this case it cannot be said that the Income-tax Officer decided the nature of the income received by way of remuneration under the service agreement. The Income-tax Officer merely accepted the return filed by the assessee which showed, out of the total amount received as remuneration under the service agreement, Rs. 12,000 as salary and the balance of Rs. 25,233 as business income, without deciding the question whether the remuneration received under the service agreement was business income or salary income. In the case above cited, the Income-tax Officer considered the question of deduction of initial depreciation and he proceeded to reconsider that question at a later stage in rectification proceedings and it was held that he was not entitled to do. As against the said view taken by the Bombay High Court in Burmah-Shell Refineries Ltd. v. G. B. Chand, Income-tax Officer, we have got a decision of this court in T. S. Rajam v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers of the Income-tax Officer, the proper provision to be invoked is section 35 of the old Act of 1922, and not section 154 of the new Act of 1961. The learned counsel for the revenue, however, submitted that such a contention is not open to the assessee as it is outside the scope of the question referred to this court. According to the revenue the question referred to this court is whether the revised order of the Income-tax Officer is illegal as being outside the scope of section 154 of the Act of 1961 and as such the only objection that is open to the assessee is based on the scope of section 154. It was argued that the assessee's present objection that section 154 of the new Act should not have been invoked, but that the corresponding provision in the old Act should have been invoked, will not arise on the question referred to this court especially when such a contention was not raised at any earlier stage. The Tribunal was not called upon by the assessee to decide the said issue and; therefore, the present contention does not arise from the Tribunal's order. It was also urged by the revenue that the assessee cannot be permitted to raise this question at this late stage when a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t did not confer any jurisdiction to decide a different question of law not arising out of such order, but it was possible that the same question of law may involve different facts and the High Court could amplify the question to take in all the facts but the question must still be one arising out of the Appellate Tribunal's order which was before the Tribunal or was decided by it. It could not decide an entirely different question." If we construe the question referred to us as a limited one as urged by the revenue, the present contention cannot be treated as one of the many facts arising out of the question referred. We are, however, inclined to treat the question raised as a comprehensive one as contended for by the assessee. The question that has been referred to us is as to the scope of section 154 of the 1961 Act, and the present contention raised by the assessee that the provisions of section 154 of the new Act cannot be applied to the proceedings in relation to the assessment year 1959-60 can also be said to relate to the scope of section 154 covered by the question already referred. Though the present contention as to the competency and jurisdiction of the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act." In T. D. Kumar and Brothers (P.) Ltd. v. Commissioner of Income-tax at page 70, the Supreme Court referred to the earlier decision in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. and held that in respect of the question which was not raised before the Tribunal, argued or decided by the Tribunal, a reference under section 66(2) of the Indian Income-tax Act could not be asked for, and that, however, the question referred to was couched in general terms and the Tribunal having decided the question against the assessee, there is no further limitation that the reference must be limited to aspects of the question which had been argued before the Tribunal. In this case the assessee did admittedly raise the question of jurisdiction of the Income-tax Officer to proceed under section 154 of the Act before the Tribunal, but he confined his objection only to the scope of section 154. Though the assessee has raised the objection as to the competence and jurisdiction of the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant that the District Court had no jurisdiction to entertain an appeal under the Civil Procedure Code as the suit claim was one of small cause nature. In answer, the plaintiff urged that as the suit was tried as an ordinary suit, the District Court could entertain the appeal under the Civil Procedure Code. A Division Bench of the Bombay High Court held that though the subordinate judge entertained and tried the suit as an ordinary suit under the Civil Procedure Code, since the suit was small cause, he should be deemed to have acted within the small cause jurisdiction and that as no appeal lay to the District Court in respect of a small cause, there was absolute want of jurisdiction in the district judge to entertain the appeal. The learned judges expressed: " We must ascribe his (subordinate judge's) acts to an actual existing authority under which they would have validity rather than to one under which they would be void." Having regard to the categorical pronouncement on this aspect of the case by the Supreme Court in Hazari Mal Kuthiala v. Income-tax Officer and of this court in Kandaswami v. Commissioner of Income-tax, we are asked to treat the order purported to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch forms the foundation for the exercise of the jurisdiction. The learned counsel also relied on the decision in Commissioner of Income-tax v. Ramsukh Motilal, where the notice issued under section 34 of the old Act was found to be defective in that it did not give the requisite time for filing objections and for that reason the order passed under section 34 on the basis of such notice was held invalid. The above decision may not help the assessee as it does not purport to say that the Income-tax Officer lacked jurisdiction to pass an order under section 34 merely because the notice did not give the requisite period of 30 days for filing objections. There the court merely held that the order passed was vitiated as the requisite time provided in the statute was not given to the assessee to file his objections. The learned counsel for the assessee contends that the jurisdiction to reopen an assessment is dependent upon a valid notice and he cites instances where the courts had held that the orders passed under section 34 were invalid for the reason that the notice was defective. Our attention was invited to the decision in S. S. Gadgil v. Lal and Co. and Nyalchand Malukchand Dagli v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it exercised the jurisdiction." A wrong reference to the power under which an order is made does not per se vitiate the order if there is some other power under which the order could lawfully be made. The validity of the impugned order has to be tested by reference to the question whether the Income-tax Officer had any power at all to make an order of this nature. If the power is otherwise established, the fact that the source of power has been incorrectly described would not make the order invalid. As there is no difference in the nature and content of the power whether it is exercised under section 35 of the old Act or under section 154 of the new Act, the order of rectification cannot, therefore, be assailed on the ground that it has been made in exercise of power which did not exist. As already noted, having regard to the decision of the Supreme Court in Hazari Mal Kuthiala v. Income-tax officer, we are justified in treating the order of the Income-tax Officer purported to have been passed under section 154 of the new Act as one passed under section 35 of the old Act. In the event of our treating the order as one under section 35 of the old Act, the assessee's appeal to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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