Appeal No 172 of 1955
Appeal by special leave from the judgment and order dated February 26 1953 of the Bombay High Court in Appeal No 108 of 1952 arising out  of the Judgment and order dated July 8 1952 of the said High Court in its Ordinary Original and Civil Jurisdiction in Misc
No 48 of 1952
R J Kolah J B Dadachanji section N Andley and Rameshwar Nath for the appellant
H N Sanyal Additional Solicitor General of IndiaK N Rajagopal Sastri and D Gupta for the respondents
May 5
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 I T 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 arid Hukamehand and Co hereinafter referred to as the assessee firm was carrying on business inter alia as shroffs merchants and 989 commission agents at Bombay Indore Ujjain and Calcutta
It had in the relevant account years two partners Sir Sarupchand Hukamchand and Sri Hiralal Kalyanmal
The two partners were also separately liable to income tax the former as a Hindu undivided family and the latter as an individual
We are concerned here with the assessment years 1940 41 194142 and 1942 43
These correspond to the account years 1995 1996 Samvat to 1997 1998 Samvat
When the assessment of the assessee firm was made the Income tax Officer Section VIII Central Bombay treated the firm as  resident and ordinarily resident 
For the assessment year 1940 41 the Income tax Officer found a profit of Rs 80358 and applying section 235b of the Indian Income tax Act hereafter called the Act he proceeded to treat the firm which was unregistered as registered for the purpose of assessment
On March 15 1945 he therefore assessed the two partners carrying the profit into their individual returns and made no demand upon the firm
It appears that an application for registration had already been filed under section 26A of the Act before the Income tax Officer but it was rejected and quite correctly because no instrument of partnership was disclosed
That order was also passed on the same date
For the assessment years 1941 42 and 1942 43 the Income tax Officer by his orders dated July 31 1945 and October 31 1945 respectively treated the firm as  resident and ordinarily resident  and as an unregistered firm
For the first of the two assessment years he assessed the firm on a total income of Rs 230798 to income tax and super tax and for the second year its British Indian income was taken at Rs 262827 and the total income at Rs 700116 and was also treated accordingly
The assessee firm appealed against these assessments
The Appellate Assistant Commissioner by his order passed in the consolidated appeals on April 29 1949 held that the assessee firm was non resident and excluded the income of the firm outside British India though it was included in the total word income for the purpose of computing the rate of tax
990 He also found error in the computation of income made by the Income tax Officer and held that in the assessment year 1940 41 there was a loss of Rs 161084 in the total world income of the assessee firm
For the subsequent years also there were slight variations in the amounts 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 Assess Income in Income Total ment British outside world year India British income
India Rs Rs Rs 1940 41 Loss 226028 74944Loss 161084 1941 42 127062 108236 235298 1942 43 262827 441789 704616 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 16977 11 0 to Sir Sarupchand Hukamchand and Rs 68339 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 been shown to have incurred a loss in the first of the three assessment years it could not for that year be treated as a registered firm and that as an unregistered firm it was entitled therefore to carry forward the loss to the subsequent years
In addition to the correspondence the assessee firm moved in turn the Income tax Officer 991 as well as the Appellate Assistant Commissioner respectively under section 35 of the Act for rectification of the assessment to the same effect
The officers of the Department at both levels declined to interfere and stated that the direction of the Income tax Officer under section 235b was not appealable and had become final
They also pointed out that the period during which the original order of the Income tax Officer could be rectified viz 4 years had already run out and that the petitions were accordingly out of time
The assessee firm moved the Commissioner as well as the Central Board of Revenue but failed to get the desired order
Finally after the receipt of the order of the Central Board of Revenue the assesee firm applied on July 16 1951 to the Additional Income tax Officer Section VIII Central to give effect to an order which the assessee firm had secured from the Appellate Assistant Commissioner earlier
By that order the Appellate Assistant Commissioner had at the request of the assessee firm directed the Income tax Officer to take the losses of the first assessment year into the accounts of the partners which direction in the opinion of the Appellate Assistant Commissioner his predecessor had omitted to make in the first instance
It was after this that fresh assessment forms were drawn up and the refund was determined
It may be pointed out here that the partners withdrew the amount of refund though in making the request to the Additional Income tax Officer the assessee firm had reserved its right to move further in the matter as may be advised  and had pointed out that the action was without prejudice to such rights
Having failed to obtain relief from the Department the appellate authorities and the Central Board of Revenue the assessee firm filed the petition under article 226 of the Constitution in the High Court of Judicature at Bombay
That petition was heard by Tendolkar J and he declined to interfere mainly on the ground that it was possible to take two views of the matter whether after a profit assessment was turned into a loss assessment by the Appellate Assistant 992 Commissioner the original order of the Income tax Officer under section 235b 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 242 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 235b read with section 242 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 1954 granted special leave to appeal against the judgment of the Divisional Bench
Before arguing on merits of the appeal the learned Additional Solicitor General and subsequently Mr Rajagopala Sastri who took over the argument raised three objections to the present appeal
According to them the petition in the High Court was directed against the Union of India and the two Income tax Officers who had dealt with this matter and the relief which was claimed could be granted by none of them
They further argued that mandamus was an inappropriate writ to issue in this matter when the order passed by the Income tax Officer under section 235b was not appealable and the Appellate Assistant Commissioner could do nothing about it in the appeal against the quantum of assessment
They also stated that the relief asked for in the petition could not be granted by the High Court and that the powers of this Court were accordingly limited
We shall deal with these objections when we have determined the essence of the matter
Under section 235b a power is conferred on the Income tax Officer to treat an unregistered firm as a registered 993 firm if by adopting that method more tax and supertax would be realisable from the individual partners in their own assessments than in assessing the firm
I The clause may be quoted in extenso for ready reference here  235
 Notwithstanding anything contained in the foregoing sub sections when the assessee is a firm and the total income of the firm has been assessed under sub section 1 sub section 3 or sub section 4 as the case may be b in the case of an unregistered firm the Income tax Officer may instead of determining the sum payable by the firm itself proceed in the manner laid down in clause a as applicable to a registered firm if in his opinion the aggregate amount of the tax including super tax if any payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm
 The contention of the assessee firm is that the action of the Income tax Officer in treating an unregistered firm as a registered firm is mainly in the interests of the Revenue and he can act if more revenue would be available and not otherwise
When an unregistered firm makes 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 125 994 action and refer to proviso d to section 242 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 235b of the Act automatically fell to the ground and the loss could only be carried forward in the future assessments of the unregistered assessee firm and not in the account of the partners
The assessee firm contends that the direction by the Appellate Assistant Commissioner to modify the assessments of the three years accordingly implied the reopening of the entire question whether this unregistered firm could be treated as a registered firm for purposes of assessment in the first year
The Department on the other hand refers to the provisions of section 30 of the Act to show that an appeal lies to the Appellate Assistant Commissioner on the grounds expressly mentioned there and none other
It further points out that this is not one of the grounds on which the appeal could have been taken and the Act cannot by implication be deemed to have conferred on the Appellate Assistant Commissioner a power which he ordinarily did not possess under the Act
The order of the Income tax Officer to treat the unregistered firm as registered must therefore be held to be outstanding and all that has happened in the case is to take that order to its logical conclusion in the light of the assessed loss of the firm in the three years under assessment
This question was argued before us in great detail as apparently it had also been in the Court below
There is no doubt that the matter is one of some complexity which is not unusual in a statute of the type we are considering but in our opinion only one correct view of the matter was possible and with all due respect the High Court made but little attempt to determine it
We shall now attempt to lay down the interpretation of the various sections bearing upon the matter
Section 235b has already been quoted
It will appear from it that the Income tax Officer is given the option to apply the procedure laid down in cl
a to an unregistered firm if in his 995 opinion the aggregate amount of tax including supertax if any payable by the partners under such procedure would be greater than the aggregate amount of tax which would be payable by the firm and the partners individually if the firm was assessed as an unregistered firm
Clause a provides that the sum payable by the firm shall not be determined but the total income of each partner of the firm including therein his share of its income profits and gains of the previous year shall be assessed and the sum payable by him on the basis of such assessment shall be determined
To 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 80358
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 235b to the firm
In passing his order the Income tax Officer observed as follows  The firm is an unregistered one but the aggregate amount of tax payable by the partners would be greater by applying the procedure laid down in Sec
235a of the Act than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered one
I therefore order under Sec
235b of the 996 Act that the procedure laid down in Sec
235a should be applied and the firm declared N D for the assessment year 1940 41 
It is no doubt true that if the Income tax Officer had determined a loss he could not and probably would not have passed this order which would have had the immediate effect of loss to the Revenue of the sums which have now been ordered to be refunded to the partners of this unregistered firm
The Department however says that the assessment for 1940 41 except in so far as profit was converted into loss has become final and cannot be set aside now
It relies on Commissioner of Income tax Bombay and Aden vs Khemchand Ramdas 1 and Commissioner of Income tax vs Tribune Trust Lahore 1
There is no doubt that an assessment which has once been made does become final subject only to the powers exercisable under sections 34 and 35 of the Act
The position however is different when the assessment itself is subject to appeal and the Appellate Assistant Commissioner passes an order converting the profit into a loss and gives a direction to the Income tax Officer to modify the assessment accordingly
The position then was that the Income tax Officer had exercised his powers under section 235b as there was a profit
When the Appellate Assistant Commissioner found a loss it became clear that the Income tax Officer had by an erroneous finding of profit assumed jurisdiction to act under section 235b
The reversal of the finding of profit destroyed the substratum of the jurisdiction of the Income tax Officer to act under that clause and his order automatically fell through
The Department s contention that such an order is referable to cl
a of section 313 and does not involve the setting aside of the order under section 235b passed earlier by the Income tax Officer is not correct
No doubt the right of appeal given to the assessee under section 30 is limited to the matters therein contained but the relief which the appellate authority can give is to be found in section 313
The assessment order having come before the Appellate Assistant Commissioner he 1 2 997 can under cl
a confirm reduce enhance or annul the assessment
Under cl
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 cl
a and not cl
b and there being no fresh assessment ordered the only thing that the Income tax Officer could do was to redetermine the tax within the limits of his own order under section 235b of the Act which applied cl
a of that sub section to this case
In our opinion this is not a correct approach
Even if the order be referred to cl
a of section 313 the effect in law was the annulment of the assessment which had been made in the case and the necessary consequence of the determination of the loss in the assessable income remained to be worked out
The Income tax Officer worked it out by carrying the losses to the return of the partners
Under what section could he do so except under section 235b  There was no authorisation under section 314 of the Act and the second proviso to section 24 was clear
In such a case the Income tax Officer was required once again to apply his mind to determine whether it would be in the interests of Revenue to proceed as he had done before
It is manifest that if he had done this duty in the interests of the Revenue as the law indeed contemplates he would never have passed the order that the loss of the firm should be carried to the accounts of the partners immediately in that year of assessment
Learned counsel for the Department admits that no Income tax Officer would have with a loss by the firm given relief on the basis of that loss to the partners but he contends that this is not illegal in view of the special provisions of proviso d to section 242 of the Act
We accordingly proceed to consider the effect of that proviso which reads as follows 998  Provided that d where an unregistered firm is assessed as a registered firm under clause b of sub section 5 of Section 23 during any year its losses shall also be carried forward and set off under this section as if it were a registered firm 
From this it is argued as it was argued in the High Court that even the losses of an unregistered firm can be carried to the partners  account as if the firm were registered
No doubt if the proviso is read in an extended manner the result for would follow but a careful reading of it would show that it was not designed to enable the Income tax Officer to forego the obligation laid on him by cl
b of section 235 to find out the interests of the Revenue
To read this proviso as enabling the Income tax Officer to overlook the said clause is to give no meaning to the words  during any year
Those words form a material part of the proviso because the proviso with or without those words makes an entirely different sense
Without those words it gives a general power to carry the losses to the partner s account
With those words it only provides for a continent in which an unregistered firm treated as such in the previous years is sought in any particular year to be treated as a regis tered 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 999 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 act this way to the detriment of the Revenue
To give any other interpretation to this proviso will mean that the words  during any year  have not received any meaning and that the proviso is interpreted to make it not incumbent on the Income tax Officer to consider the interests of the Revenue as required by cl
b of section 235
The two Provisions must be read in harmony and when so read yield the only result that proviso d is to be invoked subject to the conditions under section 235b to obtain more revenue for the State by applying section 235a
It would appear therefore that the Income tax Officer in the light of the losses determined by the Appellate Assistant Commissioner was under a duty to apply his mind de novo to the problem which he had undertaken when he resorted to section 235 b
It is admitted that if the matter had been so plain to him he would not have if he did his duty correctly under that provision carried the losses to the partners  account
The only question therefore Which survives for determination is whether the order of the Appellate Assistant Commissioner left the Income tax Officer free of his earlier order and whether he was under a duty to reconsider the position under section 235 b
When the basis for assessing a profit was gone it is manifest that there was nothing but loss to carry forward to the partners  account
With the fall of the assessment in this manner fell the need for applying the special provisions of cl
b of section 235 to the case
Indeed the duty of the Income tax Officer indicated a contrary course if he was to act under section 235 b at all
The order of the Appellate Assistant Commissioner was passed in respect of three years  assessment and was a consolidated order
He set out in parallel columns the income and losses of the firm and not of the partners and directed the Income tax Officer to 1000 modify the assessments accordingly
The intention obviously underlying that order was to put the matter at the stage at which the assessable income of the assembly firm was determined before computing the tax thereupon
To compute the tax the Income fax Officer had to determine whether the loss occasioned in the first year should be carried forward to the assessee firm in the subsequent year and he could not give effect to the order of the Appellate Assistant Commissioner fully unless he determined once again the question under section 235 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 vs The Tribune Trust Lahore 1 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 not open to further consideration
Learned counsel for the Depart ment also urged on the strength of Commissioner of Income tax vs McMillan  Co 2 and Commissioner of Income tax vs Amritlal Bhogilal  Co 3 that if the powers of the Appellate Assistant Commissioner did not involve a review of the determination by the Income tax Officer under section 235 b this result could not indirectly follow
No doubt the Appellate Assistant Commissioner could not if the matter had gone before him in appeal against the order under that section have interfered
But the Appellate Assistant Commissioner was exercising his powers under section 31 of the Act and annulling the assessment 1 2   3 1001 of the first year and converting a profit in that year into a loss
None can deny that he had that power in the appeal which was before him
Section 314 of the Act enjoins that where as the result of an appeal any change is made in the assessment of a firm the Appellate Assistant Commissioner may authorise the Income tax Officer to amend accordingly any assessment made on any partner of the firm
This power was implicit in the order which the Appellate Assistant Commissioner passed namely that there was a loss in the assessment year in question and the assessments for the three years had to be modified
The Income tax Officer therefore was under a duty to modify the assessments of the partners accordingly and to take the matter up again from the point at which the order of the Appellate Assistant Commissioner had placed it
He had once again to determine whether he would in the altered circumstances apply s235b to this case or not
In our opinion the Income tax Officers in questiondid not do their duty as required by law and we should therefore by a writ compel them to do so
As regards the argument that the petition is directed against wrong persons and for a wrong relief we do not think that it is so
The petition sought relief against the Union of India which in any event was not concerned with this matter and was wrongly joined
But the two Income tax Officers who dealt with this matter were required under the statute to do their duty once again in the matter of the application of section 235 b of the Act
That they failed to apply their mind to this matter under a wrong apprehension of the law is manifest and they did not give effect to the orders of the Appellate Assistant Commissioner
The assessee firm having failed to secure this relief from all the authorities superior to the Income tax Officers it was open to the High Court by a writ to order the Income tax Officer concerned to hear and determine this matter in accordance with law
This is precisely the relief which was claimed in the High Court and is now claimed in the present appeal
We 126 1002 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 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 2 and 3 in the statement of the case filed in this Court and also appeared through the same counsel in both the Courts
Appeal allowed


Summary:
This appeal was directed against concurrent orders of the Election Tribunal and the High Court on appeal setting aside the appellant s election to the Punjab Legislative Assembly on an election petition filed by the respondent No 1 on the ground of corrupt practice of undue influence within the meaning of proviso aii to section 1232 of the Representation of the People Act 951
A large number of voters of the constituency were Namdhari Sikhs and the appellant under the authority of the supreme religious leader of the Namdhari Sikhs and his son issued the following poster and distributed it widely throughout the constituency 749 A command from Shri Sat Guru Sacha Padshah to the Naindharies of Halqa Sirsa
Every Namdhari of this Halqa is commanded by Shri Sat Guru that he should make every effort for the success of Shri Ram Dayal Vaid a candidate for the Punjab Vidhan Sabha by giving his own vote and those of his friends and acquaintances it being our primary duty to make him successful in the election
The election symbol of Shri Vaid is a riding horseman
Maharaj Bir Singh So
Sat Guru Maharaj Pratap Singh Jiwan Nagar Hissar
 Both the Tribunal and the High Court found that the reli gious leader not only issued the said hukam or command but also delivered speeches to the effect that every Namdhari must vote for the appellant implying that disobedience of his mandate would carry divine displeasure or spiritual censure and practically left no free choice to the Namdhari electors
Held that the case clearly fell within the purview of pro viso aii to section 1232 Of the Representation of the People Act and the appeal must be dismissed
The law in England relating to undue influence at elections was not the same as the law in India
While the law in England laid emphasis upon the individual aspect of the exercise of undue influence under the Indian law what was material was not the actual effect produced but the doing of such acts as were calculated to interfere with the free exercise of an electoral North Durham s case  referred to
Decisions of the English Courts in this regard therefore could not be used as precedents in India