TMI Blog1959 (5) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - - Dated:- 5-5-1959 - Judge(s) : BHAGWATI., HIDAYATULLAH., S. R. DAS JUDGMENT The judgment of the court was delivered by HIDAYATULLAH, J.--This appeal, by special leave of this court, is directed against the judgment and order of the High Court of Judicature at Bombay dated February 26, 1953, in Appeal No. 108 of 1952. By that judgment, the Divisional Bench (Chagla, C.J., and Shah, J.) declined to interfere, in Letters Patent Appeal, with the judgment of Tendolkar, J., dated July 8, 1952, in Miscellaneous Application No. 48 of 1952. In the petition which was originally filed in the High Court under article 226 of the Constitution, a writ of mandamus was asked against the Union of India and two Income-tax Officers to compel them to give effect to the appellate order of the Appellate Assistant Commissioner of Income-tax, F. Range, Bombay, dated April 29, 1949. The High Court in both the judgments declined the writ. The facts of the case are as follows : The appellant, Messrs. Sarupchand and Hukamchand and Co., (hereinafter referred to as the assessee firm) was carrying on business, inter alia, as shroffs, merchants and commission agents at Bombay, Indore, Ujj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts determined by the Income-tax Officer, but it was held that the assessee firm had made profits in those years. The following is the summary of the findings of the Appellate Assistant Commissioner, as given by him in his order : Assessment Income in Income outside Total year British India British India world income. 1940-41 Loss Rs. 2,26,028 Rs. 74,944 Loss Rs. 1,61,084 1941-42 Rs. 1,27,062 Rs. 1,08,236 Rs. 2,35,298 1942-43 Rs. 2,62,827 Rs. 4,41,789 Rs. 7,04,616 In addition to these findings, the Appellate Assistant Commissioner added a direction to the following effect : " The Income-tax Officer is directed to modify the assessments accordingly." When the matter reached the Income-tax Officer, he gave effect to the order of the Appellate Assistant Commissioner under section 31 of the Act and carried the loss to the partners in their assessments for the year 1940-41, and granted a refund of Rs. 16,977-11-0 to Sir Sarupchand Hukamchand and Rs. 68,339 to Sri Hiralal Kalyanmal. The assessee firm, however, was not satisfied, and embarked upon voluminous correspondence beginning with a letter dated September 10, 1949, by which it claimed that inasmuch as it had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the matter whether after a profit assessment was turned into a loss assessment by the Appellate Assistant Commissioner, the original order of the Income-tax Officer under section 23(5)(b) remained outstanding or not. He thought that this was not a fit case for the issuance of a writ of mandamus by the High Court. In appeal which was taken from this decision, Chagla, C.J., looked at proviso (d) to section 24(2), and also came to the view that there was a possibility of two views being taken in the matter, and that the learned single Judge was right in not interfering. Shah, J., in a concurring judgment, explained what he considered was the meaning of section 23(5)(b) read with section 24(2), proviso (d), but he also felt that this was not a case in which a writ could be claimed against the Union of India or the Income-tax Officers. Chagla, C.J., however, expressed the hope that the taxing authorities would not deny the assessee firm its rights under the Act on any technical ground, such as limitation, or failure to pursue a particular procedure. In the result, the Divisional Bench sustained the order of Tendolkar, J., who had dismissed the petition earlier. This court on May 3, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a loss, it is entitled to carry forward the loss for a certain number of years till it is absorbed in the profits, if any, of subsequent years. By carrying the loss to the account of the individual partners, relief is afforded to them in their own income-tax payment, and there is presently a loss of revenue to the State. This, according to the assessee firm, is outside the jurisdiction of the Income-tax Officer, because his action is conditioned upon realisation of more revenue and not creating loss for the State. Learned counsel for the Department agree that there would be, in the assessment year in which there is a loss by an unregistered firm, a loss to the Revenue if it is carried into the accounts of the partners; but they contend that there is no inhibition against the action and refer to proviso (d) to section 24(2) as indicating that such a course is perfectly valid. The assessee firm also contends that the moment loss was determined by the Appellate Assistant Commissioner, the previous order made by the Income-tax Officer under section 23(5)(b) of the Act automatically fell to the ground and the loss could only be carried forward in the future assessments of the unregist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put it simply, in the case of a registered firm its assessable income is first determined, but is not processed further to determine the tax. Instead, the shares of the partners in the assessable income are determined in accordance with the particulars furnished by them, and the resultant amounts are respectively carried to each partner's return and included in his income, and the tax on the total is determined. In the case of an unregistered firm, the assessable income is found out, and then the tax payable by the unregistered firm is determined and a demand issued. If there is a loss, then the loss is carried forward to the succeeding years till it is absorbed or for six (now, eight) years but no further. Previously, the number of years ranged from one to six, but there is no need to refer to the provision in detail. What happened in this case was that for the assessment year 1940-41, the Income-tax Officer determined the assessable income at Rs. 80,358. He felt that more tax was likely to be realised if the partners were assessed instead of the firm, and he accordingly decided to apply the procedure laid down in section 23(5)(b) to the firm. In passing his order, the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive is to be found in section 31(3). The assessment order having come before the Appellate Assistant Commissioner, he can, under clause (a), confirm, reduce, enhance or annul the assessment. Under clause (b) he can set aside the assessment and direct the Income-tax Officer to make a fresh assessment, after making such further enquiries as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner directs, and the Income-tax Officer must thereupon proceed to make fresh assessment and determine the amount of tax payable on the basis of such fresh assessment. It is contended by the Department that the order of the Appellate Assistant Commissioner was passed under clause (a) and not clause (b), and there being no fresh assessment ordered, the only thing that the Income-tax Officer could do was to re-determine the tax within the limits of his own order under section 23(5)(b) of the Act, which applied clause (a) of that sub-section to this case. In our opinion, this is not a correct approach. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular year to be treated as a registered firm, and by reason of its carrying some business losses in the past, arrangement for the carrying forward and absorption of those losses has to be made for the year in which it is to be treated as a registered firm. In that event, the proviso provides that its losses shall be carried to the partners' account, as if it were a registered firm. It is inconceivable that if the firm was carrying heavy business losses, it would suddenly be treated in a year of assessment as a registered firm, so that its losses might give relief to the partners and not give revenue to the State. This proviso would only be resorted to, when in spite of taking the losses to the accounts of the partners, more revenue would be available to the State. The proviso is an enabling one. An unregistered firm, treated as such in previous years, may, during any year, be treated as a registered firm provided the Revenue would benefit. It may be that the firm may have made a loss in that year or was carrying a loss from the previous years but, if by treating the firm as registered, the Revenue would be benefited, the proviso can be used. But there is no general power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner fully, unless he determined once again the question under section 23(5)(b). In other words, the implication of the appellate order was to take the matter prior to the order regarding the treatment of the unregistered firm as a registered firm, and of necessity, that order fell to the ground as being passed beyond that stage. It is contended on the strength of the ruling of the Privy Council in Commissioner of Income-tax v. Tribune Trust that once the assessment is final and valid, it remains so until it is set aside, but once it has become final, it cannot be altered except under sections 34 and 35. No exception can be taken to the statement of the law by the Privy Council, which, with all due respect, is absolutely correct, but it is impossible to hold, on analogy, that the order determining that this unregistered firm should be treated as registered, had equally become final and open to further consideration. Learned counsel for the Department also urged on the strength of Commissioner of Income-tax v. McMillan Co. and Commissioner of Income-tax v. Amritlal Bhogilal Co., that if the powers of the Appellate Assistant Commissioner did not involve a review of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. This is precisely the relief which was claimed in the High Court and is now claimed in the present appeal. We think, with due respect, that the High Court should have, on a correct appraisal of the legal situation, ordered this relief, and we accordingly, after explaining the law applicable to the case, order the appropriate Income-tax Officer to hear and determine this matter in the light of our observations. We may set down here that the two partners of the firm to whom relief has been given by way of refund after the Appellate Assistant Commissioner's order undertook unconditionally to refund the amounts, before the matter is considered by the Income-tax Officer. We order that the two partners shall return the amounts in the manner to be ordered by the Income-tax Officer, before action is taken to determine the matter. In the result, the appeal is allowed with costs throughout to be paid by respondents Nos. 2 and 3. The Union of India shall, however, bear its own costs. It may be noted that no separate costs were incurred by it either in this court or in the court below. It joined respondents Nos. 2 and 3 in the statement of the case filed in this court and also appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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