TMI Blog1976 (5) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenance charges received by the assessee-company from its tenants in the multi-storeyed building at No. 6, Little Russell Street, Calcutta. In the said assessments, the Income-tax Officer included the amounts received on account of service and maintenance charges in the rental income and computed the total income of the assessee on the aforesaid basis. Appeals were preferred against the said orders of the Income-tax Officer for the assessment years 1965-66 and 1966-67. The Appellate Assistant Commissioner in his order for the assessment year 1965-66 dated 25th February, 1972, observed, inter alia, as follows : " At the time of the appeal hearing the appellant took up the plea that income from service charges were taxable under the head 'business'. In this connection the appellant placed reliance on the decision of the Supreme Court in Karnani Properties Ltd. v. Commissioner of Income-tax [1971] 82 ITR 547 (SC). In that case their Lordships of the Supreme Court held that if the services rendered by an assessee to its tenants were the result of its activities carried on continuously in an organised manner for a set purpose and with a view to earning profits, those activities were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atch and ward and scavenging facilities, maintenance of underground drainage for the benefit of the tenants, maintenance of electric installations and electric pumps, constant supply of filtered and unfiltered water, conversion of electricity from high voltage to low voltage and to supply to the tenants, etc., we have no doubt in mind that the Appellate Assistant Commissioner of Income-tax was right in his decision that he took. (c) The services rendered by the assessee had to be viewed against time and expense and energy involved expended in these services. They really partake of the nature of an orgainsed business activity conducted in a systematic manner. (d) In the words of the Bombay High Court decision in the case of National Storage Pvt. Ltd. [1963] 48 ITR 577 (Bom) as approved by the Hon'ble Supreme Court (See [1967] 66 ITR 596 (SC)) the services rendered by the assessee are complex and not merely incidental to the ownership of the property." In the meantime, between 11th February, 1972, and 21st February, 1972, orders of assessment were passed by the Income-tax Officer for the assessment years 1967-68, 1968-69 and 1969-70. The assessee being aggrieved on certain poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Tribunal. The Tribunal, however, has upheld the Appellate Assistant Commissioner's orders for the said two years and the department has filed reference applications under section 256(1) of the Income-tax Act, 1961, which are still pending. Notwithstanding the fact that the department had not accepted the orders of the Appellate Assistant Commissioner for the earlier assessment years 1965-66 and 1966-67 and the matter is now the subject of reference application under section 256(1) of the Income-tax Act, 1961, the Income-tax Officer, D-Ward, Comp. Dist. III, who made the assessments in your case on February 11, 1972, February 21, 1972, and February 21, 1972, respectively, for the assessment years 1967-68, 1968-69 and 1969-70 has accepted your plea in this regard and assessed a portion of such receipts from tenants in respect of Russell Street property under the head 'business' with the consequential loss to revenue. On the facts, as stated above, the orders of assessment as framed by the Income-tax Officer for the aforesaid three assessment years are considered erroneous and prejudicial to the interests of the revenue. 2. I, therefore, propose to pass such orders thereon under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the assessment year 1964-65, holding that the service charges were income from business. In this application, as mentioned hereinbefore, the challenge is to the notice issued under section 263 of the Income-tax Act, 1961, for the assessment years 1967-68, 1968-69 and 1969-70. For the aforesaid assessment years the main question involved was whether the income received by the assessee from maintenance and service charges should be treated as income from business or as income of rent from house property. It has to be further noted that for all these years the assessee has preferred appeals to the Income-tax Appellate Assistant Commissioner and at the time when the impugned notice was issued, the said appeals were pending. It may, however, be mentioned that the appeals were not preferred on this ground as to whether the amount received on account of maintenance and service charges should be treated as income from house property or not but the appeals were directed on other disallowances made by the Income-tax Officer not relevant for the present purpose. In support of this application the first contention that was urged was that during the pendency of an appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant Commissioner reduced the assessments for the two years and kept the appeal for the third year pending before him. The Commissioner subsequently passed an order under section 33B directing the Income-tax Officer to cancel the registration of the firm under section 26A of the Indian Income-tax Act, 1922, and to assess the assessee as an unregistered firm for all these three years. On a reference, the High Court held that the order of the Commissioner under section 33B was invalid. Chief Justice Chagla at page 425 of the report observed that if one analysed section 33B a little more closely, it was apparent that the legislature never intended to give the power to the Commissioner to revise an order of the Income-tax Officer when the assessee had appealed from that order. The object of enacting section 33B according to the learned Chief Justice was to confer a power upon the Commissioner in the interest of the revenue to revise the orders of the Income-tax Officer which could not be revised under any circumstances if the assessee did not appeal from those orders. However erroneous the order of the Income-tax Officer might be, however prejudicial to the revenue, the assessee by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amplitude of the grant. In the Indian Income-tax Act, 1922, section 33B had to be introduced by amendment to meet perhaps an exceptional situation, namely, where an erroneous order was passed by the Income-tax Officer but where the assessee had not preferred an appeal, in such a case to give to the Commissioner a remedy to rectify the error, section 33B was introduced in the Indian Income-tax Act, 1922. But the question for determination in this case is whether the enacting provision of section 33B of the Indian Income-tax Act, 1922, or the provision of section 263 of the 1961 Act limits the power to such exceptional situation only. In my opinion it does not. In this connection reference may be made to the decision of the Supreme Court in the appeal from the judgment of the Bombay High Court in the case of Commissioner of Income-tax v. Amritlal Bhogilal Co. [1958] 34 ITR 130 (SC). There, of course, the Supreme Court found as a fact that under section 31 of the 1922 Act there was no appeal from an order granting registration to a firm under section 26A of that Act. The Supreme Court held that an order granting registration to a firm under section 26A of the Indian Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is year was pending at the material time before the Appellate Assistant Commissioner; and so no question of merger arose in respect of the order granting renewal of registration for this period. There can be no doubt that even on the theory of merger the pendency of an appeal may put the order under appeal in jeopardy but until the appeal is finally disposed of the said order subsists and is effective in law. It cannot be urged that the mere pendency of an appeal has the effect of suspending the operation of the order under appeal. The High Court, however, appears to have taken the view that the revisional power is an extraordinary power and can be exercised only for unusual and extraordinary reasons. It was also assumed by the High Court that, in the pending appeal, the department would have an alternative remedy because, according to the High Court, the department could have challenged the validity or the propriety of the respondent's registration and could have asked the Appellate Assistant Commissioner to cancel it. As we have already pointed out, the department could not challenge the validity of the registration order in the assessee's appeal before the appellate authority an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appealable would be immune from the scope of operation of section 263 of the Act. Counsel for the petitioner referred to certain other decisions as to how the Supreme Court judgment referred to hereinbefore has been construed. He referred to the decision in the case of Commissioner of Income-tax v. Smt. Durgabati [1961] 43 ITR 228 (SC). He also drew my attention to certain observations of the Division Bench of the Andhra Pradesh High Court in the case of Merla Sitarama Prasad v. Assistant Controller of Estate Duty [1971] 80 ITR 672, 680 (AP). He referred me to the observations of the Master of the Rolls, Evershed, in the case of Wright v. Walford [1955] 1 QB 363 (CA) that after a matter had come before the courts on the meaning of a phrase in an Act of Parliament there was a danger that the courts would thereafter construe not the Act and the words in it but expositions of the Act expressed in judgments of the courts, which expositions were in a sense necessarily limited to the particular facts of the particular case. But having regard to the well-known principle of construction of fiscal statutes and the language used in section 263 of the Act, in my opinion, quite apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee reasonable opportunity, pass such orders as he deems fit and proper. The section as mentioned hereinbefore does not require service of any notice as condition precedent for initiation of the proceeding. Unlike section 34 of the Indian Income-tax Act, 1922 or section 148 of the Income-tax Act, 1961, section 33B of the 1922 Act or section 263 of the 1961 Act does not require that any notice should be issued by the Commissioner before he assumes jurisdiction to proceed to revise the order passed by the Income-tax Officer. He is not required to give any notice before commencing the enquiry. What he is required to do before passing his order and not before commencement of the enquiry is to give the assessee an opportunity of being heard and to make such enquiry as he deems necessary. These requirements have nothing to do with the jurisdiction of the Commissioner but these requirements appertain to the region of natural justice. See the observations of the Supreme Court in the case of Commissioner of Income-tax v. Electro House [1971] 82 ITR 824 (SC). But, in my opinion, exercise of power given under section 263 of the Act is dependent upon certain conditions as mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable opportunity again, on the principles of natural justice, requires that the person to be affected should be given intimation of the materials. It is true that if the basic materials upon which the Commissioner proposes to act are intimated or communicated to the assessee, the Commissioner may in his order rely on other supporting materials. It is fundamental that such basic materials upon which the Commissioner proposes to act in an action under section 263 must be intimated to the assessee concerned. In the instant case, such basic materials upon which the Commissioner proposed to act have been communicated to the petitioner. Furthermore, in the instant case there is a challenge thrown by the assessee that there were no materials on the facts and circumstances of the case for the Commissioner to come to the conclusion that the order in question was erroneous in so far as it was prejudicial to the interest of the revenue. The said challenge has been met by the answer to this rule nisi. It is, therefore, relevant and necessary to consider whether the ground communicated to the assessee or the statements contained in the affidavit-in-opposition are sufficient materials upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not binding either on the assessee or the department in the subsequent year, this rule was subject to limitation that there should be finality and certainty in all litigations including litigations arising out of the Income-tax Act and an earlier decision on the same question should not be reopened if that decision was not arbitrary or perverse and if it had been arrived at after due enquiry and if no fresh facts were placed before the authority giving the later decision and if the earlier decisions were based on all materials and relevant consideration. Furthermore, a revising decision for the subsequent year should not lead to injustice and the court must avoid injustice to all concerned. Reliance in this connection may be placed on the observations of the Division Bench of the Bombay High Court in the case of H. A. Shah Co. v. Commissioner of Income-tax and Excess Profits Tax [1956] 30 ITR 618 (Bom). The section requires the Commissioner to come to the conclusion that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the revenue. It is not sufficient that the order was merely erroneous. It must be erroneous in so far as it is prejudicial to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. 4. With regard to the allegations contained in paragraphs 8, 9 and 10, I say that I crave leave to refer to the assessment orders for the assessment years 1967-68, 1968-69 and 1969-70 to ascertain the true scope, purport and intent thereof. Save as would appear therefrom the allegations contained in paragraphs 8 to 10 are denied. I say that on an examination of the records of the assessment proceedings for the assessment years 1967-68, 1968-69 and 1969-70, it appeared that the said orders were erroneous and prejudicial to the interests of the revenue. A notice, therefore, was issued to the assessee in order to enable the assessee to make out its case before any final decision was taken in this matter. Save as aforesaid and save as will appear from the records the allegations contained in paragraphs 8 to 10 are denied. " It is, therefore, clear that the Commissioner is proceeding on the basis that the revenue has not accepted the order of the Tribunal and the revenue's case is that the income from service and maintenance charges should be assessed as income from house property. The Commissioner has not indicated either in the notice or in the affidavit-in-answer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeding under section 263 no conditions precedent are required to be fulfilled but when a statutory authority proceeds to act by virtue of the power given under a statutory enactment, exercise of which is dependent upon the existence of certain objective factors and when a challenge is thrown that such objective factors are not present and such challenge is met by placing before the court factors which the statutory authority considers to be factors relevant for the exercise of the power, it is open for the courts to examine whether such factors are relevant for the exercise of the power. It is in this light that I have proceeded to examine the factors upon which it is proposed by the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the revenue. Whether in cases where the revenue wants to keep alive a contention even though that contention has been concluded by the decision of the higher authorities the Commissioner should have power to revise or set aside or not to give effect to the order of the Income-tax Officer by adding another provision in the Income-tax Act or whether the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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