Case: Commissioner Of Income-Tax, Bombay Vs. M/S. Amritlal Bhogilal &amp; Co

1. This is an appeal by the Commissioner of Income-tax, Bombay, by special leave and it raises a short question of law under S. 33B of the Income-tax Act. The respondent assessee had been registered as a firm under S. 26A of the Act for the year 1946-47. For the assessment years 1947-48, 1948-49 and 1949-50, the Income-tax Officer made the assessment on the respondent on June 7, 1949, June 7, 1949 and September 23, 1949 respectively under S. 23(3) of the Act. The Income-tax Officer made an estimate about the profits of the respondent under the proviso to S. 13 and computed the total income of the respondent at Rs. 95,053, Rs. 93,430 and Rs. 83,752 for the said years respectively. The respondent had applied for and obtained renewal of registration of the firm. The Income-tax Officer had also passed an order under S. 23(6) of the Act and allocated the shares of the various parties.2. 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 respondents estimated profit by Rs. 28,250 in the assessment year 1947-48 and by Rs. 19,000 in the assessment yearThe respondents appeal in regard to the assessment year 1949-50 was pending before the Appellate Assistant Commissioner.3. Meanwhile it has 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 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 S. 33B(1) of the Act and issued notice to the respondent to show cause why the assessment made under S. 23(3) of the Act and the registration granted under S. 26A should not be cancelled. After hearing the parties, the Commissioner passed an order under S. 33B (1) on June 5, 1952, by which he cancelled the registration of the firm under S. 26A and directed the Income-tax Officer to make fresh assessments against the respondent as an unregistered firm for all the three years. As a result of this revisional order passed by the Commissioner of Income-tax, the Income-tax Officer passed fresh orders.The respondent preferred five appeals to the tribunal; two of these were against the orders passed by the Appellate Assistant Commissioner under S. 31 and related to the assessment years 1947-48 and 1948-49; while the remaining three challenged the orders passed by the Commissioner of Income-tax under S. 33B(1) of the Act and related to the assessment years 1947-48, 1948-49 andthese three appeals, with which we are concerned, the respondent had urged that the Commissioner was not competent in law to pass an order setting aside an assessment which had been confirmed or modified by the Appellate Assistant Commissioner; that the orders passed by the Commissioner under S. 33B(1) were bad in law as they directed the Income-tax Officer to pass an order in a particular manner and that the orders passed by the Income-tax Officer subsequent to the cancellation of the respondents registration were bad in law as they were passed without giving notice to, or hearing the respondent. On January 2, 1952, the Tribunal upheld the contentions raised by the respondent and allowed the appeals.The appellant then moved the tribunal under S. 66(1) of the Act for referring the questions specified in its application for the opinion of the High Court. The tribunal accordingly framed the following three questions and referred them to the High Court ofWhether on the facts and circumstances of the case the Commissioner of Income-tax acting under S. 33B (1) can set aside the orders passed by the Appellate Assistant Commissioner, for the assessment years 1947-48 and 1948-49?(2) Whether on the facts and circumstances of the case the order passed by the Commissioner of Income-tax dated 5-6-1951, is bad in law as it directs the Income-tax Officer to pass an order in a particular manner?(3) Whether on the facts and circumstances of the case orders passed by the Income-tax Officer dated 21-6-52 are bad in law, as fresh notices as required by Sections 22 and 23 of the Income-tax Act were not given by the Income-tax Officer to theThis 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 the Commissioner of Income-tax, Bombay North v. Tejaji Farasram, 1953-23 ITR 412   : (AIR 1954 Bom 93  ) (A). In Tejajis 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 Officers 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 v. Commissioner of Income-tax, 1956-30 ITR 101   : (AIR 1956 Pat 446  ) (B). In respect of the Income-tax Officers order renewing registration to the respondent for the year 1949-50, the High Court took the view that the revisional power of the Commissioner could not be exercised even in respect of this order because the propriety or the correctness of this order was open to consideration by the Appellate Assistant Commissioner in the respondents appeal then pending before him, Commissioner of Income-tax v. Amritlal Bhogilal and Co., 1953-23 ITR 420   : (AIR 1954 Bom 161  ) (C). In respect of this order the High Court had framed an additional question. It was in these terms : "Whether the order of the Commissioner acting under S. 33-B (1) setting aside the order of the Income-tax Officer where an appeal against that order was pending before the Appellate Assistant Commissioner was valid?" The High Court answered this additional question also in favour of the assessee. In the result the High Court held that the Commissioners order cancelling the respondents registration for all the three years in question was invalid. That is why the High Court did not think it necessary to answer the remaining two questions framed by the tribunal.7. The application subsequently made by the appellant to the High Court for a certificate under S. 66A (2) was rejected by the High Court. Thereupon the appellant applied for and obtained special leave from this Court on March 22, 195

Reasoning: Section 30 (1) gives the assessee the right to prefer appeals against the orders specified in the said Section. The assessee firm can, for instance, object to the amount of income assessed under S. 23 or S. 27. The assessee firm can also object to the order passed by the Income-tax Officer refusing to register it under S. 23 (4) or S. 26-A. It can likewise object to the cancellation by the Income-tax Officer of its registration under Section 23 (4).It is significant that, whereas an appeal is provided against orders passed by the Income-tax Officer under S. 23 (4) or section 26-A either refusing to register the firm or cancelling registration of the firm, no appeal can be filed by the department against the order granting registration. Indeed it is patent that the scheme of the Act in respect of appeals to the Appellate Assistant Commissioner is that it is only the assessee who is given a right to make an appeal and not the department. Thus there can be no doubt that the Income-tax Officers order granting registration to a firm cannot become the subject-matter of an appeal before the Appellatepowers of the Appellate Assistant Commissioner are to be found in S. 31 of the Act. Section 31 (3) (a) authorises the Appellate Assistant Commissioner to confirm, reduce, enhance or annul the assessment under appeal. Under S. 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-s. (4) of S. 23 or refusing to register a firm under sub-s. (4) of S. 23 or S. 26-A or to make a fresh assessment under S. 27, to confirm such order or cancel it and direct the Income-tax Officer to register the firm or to make a fresh assessment as the case may be. This Section further lays down that, at the hearing of an appeal against the order of an Income-tax Officer, the Income-tax Officer shall have the right to be heard either in person or by his representative. It is thus clear that wide powers have been conferred on the Appellate Assistant Commissioner under S. 31. It is also clear that, before the appellate authority exercises his powers, he is bound to hear the Income-tax Officer or his representative. It has been urged before us by Mr. Ayyangar on behalf of the respondent that these provisions indicate that, in exercise of his wide powers the Appellate Assistant Commissioner can, in a proper case, after hearing the Income-tax Officer or his representative, set aside the order of registration passed by the Income-tax Officer. We are not prepared to accept this argument.The powers of the Appellate Assistant Commissioner, however wide, have, we think, to be exercised in respect of the matters which are specifically made appealable under Section 30 (1) of the Act. If any order has been deliberately left out from the jurisdiction of the Appellate Assistant Commissioner it would not be open to the appellate authority to entertain a plea about the correctness, propriety or validity of such an order.Indeed, if the respondents contention is accepted, it would virtually give the department a right of appeal against the order in question and there can be no doubt that the scheme of the Act is not to give the department a right of appeal to the Appellate Assistant Commissioner against any orders passed by the Income-tax Officer.The order granting registration can be cancelled by the Income-tax Officer himself either under R. 6-B or under S. 23 (4). It may be cancelled by the Commissioner in exercise of his revisional power under S. 33-B; but it cannot be cancelled by the Appellate Assistant Commissioner in exercise of his appellate jurisdiction under Section 31 of the Act. It is true that, in dealing with the assessees appeal against the order of assessment, the Appellate Assistant Commissioner may modify the assessment, reverse it or send it back for further enquiry; but any order that the Appellate Assistant Commissioner may make in respect of any of the matters brought before him in appeal will not and cannot affect the order of registration made by the Income-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 Officers 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.The case in regard to the subsequent year 1949-50 presents no difficulty. The appeal preferred by the respondent against the Income-tax Officers assessment order in respect of this 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 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 respondents 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 assessees appeal before the appellate authority and so the argument that the department had an alternative remedy is not correct. It is clear from the judgment of the High Court that it is the assumption that the department had an alternative remedy which weighed with the learned judges in reaching their final conclusion. Then the argument that the extraordinary revisional power must be exercised only for extraordinary reasons is really not very material.Whether or not the revisional power can be exercised in a given case must be determined solely by reference to the terms of S. 33-B itself. Courts would not be justified in imposing additional limitations on the exercise of the said power on hypothetical considerations of policy or the extraordinary nature of the power.We must, therefore, hold that the High Court was also in error in holding that the Commissioner was not authorised in cancelling the order of the respondents registration for the yearThe result is that the view taken by the High Court must be reversed and the first question framed by the tribunal as well as the additional question framed by the High Court must be answered in favour of theis true, by his order the Commissioner purported to set aside the assessment orders made under S. 23(3) and S. 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 Assistant Commissioner and in that sense they had ceased to be the orders of assessment passed by the Income-tax Officer himself and so the Commissioner could not have exercised his revisional power under S. 33B (1) in respect of the said appellate orders but we are inclined to think that the Commissioner did not intend to set aside the assessments in this sense. It is clear from the order read as a whole that, having cancelled the respondents registration, the Commissioner wanted to direct the Income-tax Officer to make suitable consequential amendment in regard to the machinery or procedure to be adopted to recover the tax payable by the respondent. In fact it is conceded that, in his subsequent order, the Income-tax Officer has accepted the figure of the taxable income of the respondent as determined by the appellate authority for the relevant years and has proceeded to act under S. 23(5)(b) on the basis that the respondent is an unregistered firm.Therefore we cannot hold that the order passed by the Commissioner is bad in law on the ground that "he directed the Income-tax Officer to pass the order in a particular manner".The answer to question No. 2 would accordingly be in the negative. Then as regards question No. 3, it is difficult to understand how this question can be said to arise from the proceedings before the tribunal. This question challenges the validity of the procedure adopted by the Income-tax Officer in passing fresh orders against the respondent. This proceeding is clearly subsequent to the impugned order of the Commissioner under S. 33B (1) and so we are unable to see how the tribunal allowed the respondent to raise this contention in appeals which had been filed by the respondent against the Commissioners order under Section 33-B (1).Besides, it has been fairly conceded by Mr. Ayyangar before us that, when the Income-tax Officer merely proceeded to adopt a different machinery to recover the tax due from the respondent in consequence of the cancellation of the respondents registration, there was no occasion or need to issue another notice against the respondent.We must accordingly answer question No. 3 also in the negative.