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TMI Blog1958 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Income-tax Officer had also passed an order under section 23(6) of the Act and allocated the shares of the various parties. Against the said assessment orders the respondent preferred an appeal to the Appellate Assistant Commissioner. On November 4, 1950, the Appellate Assistant Commissioner reduced the respondent's estimated profit by Rs. 28,250 in the assessment year 1947-48 and by Rs. 19,000 in the assessment year 1948-49. The respondent's appeal in regard to the assessment year 1949-50 was pending before the Appellate Assistant Commissioner. Meanwhile it had come to the notice of the Commissioner of Income-tax that the respondent firm which had been granted renewal of registration by the Income-tax Officer was not a firm which could be registered under the Act as one of the partners of the firm was a minor. The Commissioner then took action under section 33B(1) of the Act and issued notice to the respondent to show cause why the assessments made under section 23(3) of the Act and the registration granted under section 26A should not be cancelled. After hearing the parties, the Commissioner passed an order under section 33B(1) on June 5, 1951, by which he cancelled the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to the assessee ?" This matter was heard by the High Court on March 5, 1953. In regard to the assessments made for the years 1947-48 and 1948-49 the High Court held that the question raised by the appellant was concluded by the judgment already delivered by it in Commissioner of Income-tax v. Tejaji Fayasram Kharawala. In Tejaji's case, the High Court had held that when an appeal is provided from a decision of the Tribunal and the appeal court, after hearing the appeal, passes an order, the order of the original court ceases to exist and is merged in the order of the appeal court ; and although the appeal court may merely confirm the order of the trial court, the order that stands and is operative is not the order of the trial court but the order of the appeal court. In that view of the matter, since the Income-tax Officer's order granting registration to the respondent was assumed to have merged in the appellate order, the revisional power of the Commissioner could not be exercised in respect of it. The same view has been taken in the majority decision of the Patna High Court in Durgabati and Narmadabala Gupta v. Commissioner of Income-tax. In respect of the income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment made under section 34 cannot be revised under section 33B(1) and adds that the said revisional power cannot be exercised after the lapse of two years from the date of the order sought to be revised. Sub-section (3) gives the assessee the right to prefer an appeal to the Appellate Tribunal against the Commissioner's revisional order within the prescribed period ; and sub-section (4) provides for the procedure for filing such an appeal. In the present appeal two short questions fall to be decided under section 33B(1). Does the order passed by the Income-tax Officer granting registration to the assessee firm continue to be an order passed by the Income-tax Officer even after the assessee's appeal against the assessment made by the Income-tax Officer on the basis that the assessee was a registered firm has been disposed of by the Appellate Assistant Commissioner ? In other words, where the appeal preferred by an assessee against his assessment has been considered and decided by the Appellate Assistant Commissioner, does the order of registration along with the subsequent order of assessment merge in the appellate order ? If, in law, the order of registration can be said to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act in terms does not purport to define the effect of registration nor does it enumerate the rights of parties on registration of firms. Section 23(5)(a) and (b) provide for the machinery for collecting or recovering the tax and in no sense can they be treated as charging sections. Broadly stated, even if a firm is registered in pursuance of an application made under section 26A, no difference arises in the liability of the firm or its individual partners to be taxed for the total income as may be determined by the Income-tax Officer under sections 3 and 4 of the Act. The computation of taxable income is not at all affected by the machinery provided by section 23(5). The decision in Shapurji Pallonji v. Commissioner of Income-tax, on which Mr. Ayyangar himself relied, clearly brings out and emphasizes this position. It is true that the Income-tax Officer is empowered to follow the two methods specified in section 23(5)(a) and (b) in determining the tax payable by registered and unregistered firms respectively and making the demand for the tax so found due ; but this does not affect the computation of taxable income. It is important to bear in mind that the order granting registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssistant Commissioner. The next question which must be considered is whether the Income-tax Officer's order granting registration to a firm can be challenged by the Department during the hearing of the firm's appeal against the final order of assessment made by the Income-tax Officer ? The powers of the Appellate Assistant Commissioner are to be found in section 31 of the Act. Section 31(3)(a) authorises the Appellate Assistant Commissioner to confirm, reduce, enhance or annul the assessment under appeal. Under section 31(3)(b), wide powers are given to the appellate authority to set aside the assessment or direct the Income-tax Officer to make fresh assessment after making such further enquiry as the Income-tax Officer may think fit or as the Appellate Assistant Commissioner may direct. The Appellate Assistant Commissioner is also given the authority, in the case of an order cancelling the registration of the firm under sub-section (4) of section 23 or refusing to register a firm under sub-section (4) of section 23 or section 26A or to make a fresh assessment under section 27, to confirm such order or cancel it and direct the Income-tax Officer to register the firm or to make a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer. If that be the true position, the order of registration passed by the Income-tax Officer stands outside the jurisdiction of the Appellate Assistant Commissioner and does not strictly form part of the proceedings before the appellate authority. Even after the appeal is decided and in consequence the appellate order is the only order which is valid and enforceable in law, what merges in the appellate order is the Income-tax Officer's order under appeal and not his order of registration which was not and could never become the subject-matter of an appeal before the appellate authority. The theory that the order of the Tribunal merges in the order of the appellate authority cannot therefore apply to the order of registration passed by the Income-tax Officer in the present case. In this connection we may refer to the argument which Mr. Ayyangar, for the respondent, seriously pressed before us. He contended that, when the Appellate Assistant Commissioner bears the assessee's appeal, he is himself computing the total taxable income of the assessee and, in discharging his obligation in that behalf, he may be entitled to consider all relevant and incidental questions. In supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction cannot be exercised to the prejudice of the assessee, under section 33B the Commissioner can, in exercise of his revisional power, make orders to the prejudice of the assessee. It is not disputed that under section 33B erroneous orders passed by the Income-tax Officer which are prejudicial to the revenue can be revised by the Commissioner. Now, the Income-tax Officer's order registering the firm is not appealable and so it cannot become the subject-matter of an appeal before the Appellate Assistant Commissioner. Such an order can therefore be revised by the Commissioner under section 33B whenever he considers that it has been erroneously passed. In the present case there is no doubt that the respondent firm cannot be validly registered in view of the fact that one of its partners is a minor and so, on the merits, the Commissioner's order is clearly right. We must accordingly hold that the High Court was in error in taking the view that the Commissioner had no authority to set aside the registration order passed by the Income-tax Officer granting registration to the respondent for the years 1947-48 and 1948-49. The case in regard to the subsequent year 1949-50 presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on framed by the High Court must be answered in favour of the appellant. Then there remain two other questions which were framed by the Tribunal but have not been considered by the High Court. The learned counsel appearing for both the parties agree that we need not remit these two questions to the High Court with the direction that the High Court should deal with them in accordance with law ; it has been conceded before us that, if the principal question about the Commissioner's power under section 33B(1) to cancel the respondent's registration is answered in favour of the appellant, then the two remaining questions would become academic and answers to them would also have to be in favour of the appellant. It is true, by his order the Commissioner purported to set aside the assessment orders made under section 23(3) and section 55 and directed the Income-tax officer to make fresh assessments according to law for each of the years in question. If this part of the order is literally construed it would clearly be open to the objection raised by the respondent. The assessment orders passed by the Income-tax Officer for the years 1947-48 and 1948-49 had been modified by the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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