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TMI Blog1969 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... 959-60 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 proposed revision. The Income-tax Officer, however, passed an order dated February 7, 1963, treating the sum of Rs. 25,233 as part of the salary of the assessee and holding that the said amount was not available for being set off against the business loss of the earlier years. Against the said order of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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....I have made this appointment relying fully and your making available to me whole-heartedly and unreservedly your valuable experience and great capacity in the film production line and I am relying on you for the due satisfactory discharge as my deputy, subject, of course, to my general instructions of all m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 excess profits tax. The learned counsel submits on the basis of the above decision that the test to find out whether the agreement in question is a salary agreement is to see whether there was a continuous activity of operations by the assessee and that if there is such a continuous activity, it has to be constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging 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 present case where the assessee has not been treated as an agent or an independent contractor as was treated in that case. From the facts of that case it is clear that the trustees had delegated their entire responsibility and function under the agreement which they had entered into with the mills and the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 assessee's services as a treasurer in that case was only that of an agent or an independent contractor and not in the capacity of a servant. In Dwijendra Chandra Chowdhury v. Commissioner of Income-tax, a question arose as to whether the managing directors were agents of the company and the remuneration paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accepted. In this case the assessing authority has treated the said sum of Rs. 25,233 as business income while in fact it is salary income. Though the sum of Rs. 12,000 received at the rate of Rs. 1,000 per month as salary was treated as salary income of the assessee, the amount of Rs. 25,233 received by the assessee as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Controller of Estate Duty, where it was held that where a rectification of a mistake which is apparent from the record is called for, the mere complexity of the problem or that genuine argument is necessary to discover the same may not by themselves be sufficient to oust the jurisdiction of the statutory tribunals to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 any corrective step or measure will be time-barred. The learned counsel for the assessee concedes that this objection was not specifically raised at any earlier stages, but contends that the question referred to this court is sufficiently wide to cover the present objection raised as to the jurisdiction of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l'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 Officer to proceed under section 154 of the Act of 1961 was not raised before the Tribunal and the question of jurisdiction was not an issue at any stage before it, if the question referred to us is considered to be wide so as to comprehend the present objection of the assessee, we are of the view that it can be entertained a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to proceed under section 154 of the new Act only at this stage, we are inclined to treat the said objection as one of the aspects of the main question of jurisdiction under section 154 referred to this court. In view of the decision in S. Sankappa v. Income-tax Officer referred to earlier, the assessee's contention that with refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 have been passed under section 154 of the Act of 1961, as one under section 35 of the Act of 1922. It is not disputed that the provisions of section 154 of the new Act of 1961 are substantially the same as those contained in section 35 of the old Act of 1922. If we test the validity of the impugned order in the light of the provisions in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed 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. Commissioner of Income-tax. In S. S. Gadgil v. Lal and Co. proceedings under section 34 of the old Act was sought to be initiated after the statutory amendment of the section when before the amendment of the statute the Income-tax Officer had lost his jurisdiction to reassess under section 34. In Nyalchand Malukchand Dagli v. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke 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 Appellate Assistant Commissioner, his further appeal to the Tribunal and the reference by the Tribunal to this court will all be without jurisdiction in view of the decision in Commissioner of Income-tax v. Arunachalam Chettiar, where it was held that the reference by the Tribunal was bad and incompetent for the reason that there was no sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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