Case: The Commissioner Of Income-Tax Vs. M/S. Mcmillan &amp; Co

1. This is an appeal by special leave from the judgment and order of the High Court of Judicature at Bombay, datedin Income-tax Reference No. 27 of 1952, by which the said High Court answered certain questions of law referred to it in the negative. The answer to those questions depends upon the true scope and effect of certain provisions of the Indian Income-tax Act (XI of 1922), hereinafter referred as the Act, regarding which there has already been a difference of opinion between two High Courts in India. Unfortunately, we have come to a conclusion different from that of our learned senior brotherJ., and we are explaining in this judgment, as briefly and clearly as we can, the grounds on which our conclusion is founded.Very briefly put, the relevant facts are these. The assessee, respondent before us, is a non-resident company which has its head office in London and branches in India. It sells and publishes books and magazines in various parts of the world. For the assessment year in question, it submitted a return of income in which with regard to all publications sold in India, whether printed in India or elsewhere, a fixed percentage of what was known as the marked price was adopted as the cost of production. This, if one may so put it, was the method of accounting on which the assessee company submitted its return. The Income-tax Officer apparently accepted it and subject to certain minor modifications as respects some items of expenditure and an alleged bad debt with which we are not now concerned, assessed the assessee on an income of Rs. 82,623. The assessee appealed to the Appellate Assistant Commissioner. The latter issued a notice under3) of the Act against theand after hearing the assessee, enhanced the assessment of the assessee companys business income to Rs. 1,11,616. The Appellate Assistant Commissioneris noticed that on total turnover offor the previous year endingthe gross profit amounted to Rs. 4,09,360 working out to just about 25.5 per cent. In the case ofprofit and loss account I find that the gross profit earned was231,070 on total sales ofworking out to over 37 per cent. The difference in gross profit is so wide that some explanation had to be called for from theespecially in view of the fact that the appellants do not maintain what should be called an Indian trading and profit and loss account on the same lines as thetrading and profit and loss account. The profit and loss account maintained in India shows only the purchases at the rate at which these were charged to the Indian branches by the London head office instead of the real cost of thesewas of the view that inasmuch as the fixed percentage of the marked price adopted by the assessee company as the production cost for its publications sold in India did not correctly represent the actual cost of production, the method of accounting regularly employed is such that a true figure of income, profits and gains is not deducible therefrom. He fixed the income of the assessee company on the basis of the net world profit of the assessee on its world turnover, and applying that basis to its Indian business came to the conclusion that the income of the assessee was Rs. 1,11,616. He did so presumably under the proviso to33 of the Indian Income-tax Rules, 1922.The assessee company then appealed to the Appellate Tribunal. The Appellate Tribunal remanded the case to the Appellate Assistant Commissioner, but before the remand could be decided came the decision of the Bombay High Court in K.F. Vakeel v. Commissioner of. The Tribunal then held that in view of that decision, the Appellate Assistant Commissioner had no jurisdiction to enhance the income to Rs. 1,11,616. Thereafter, the Commissioner of Income-tax, Bombay City, appellant before us, asked the Tribunal to submit certain questions of law to the High Court of Bombay. These questionsWhether it is open to an Appellate Assistant Commissioner on appeal to reject the assessees books of account, which have been accepted by the Income-taxWhether it is open to an Appellate Assistant Commissioner on appeal to invoke the provisions of33 of the Indian Income-tax Rules for the purpose of computing the income of a non-resident, the Income-tax Officer not having doneWhether it is open to an Appellate Assistant Commissioner on appeal to enhance an assessment in exercise of the powers conferred upon him by(a) of the Indian Income-tax Act, where as a result of definite information he is of opinion that the income of the assessee has beenits judgment and order datedthe High Court answered the first two questions in the negative and held - rightly in our view - that the third question did not arise. The appellant then asked for and obtained special leave to appeal from the said judgment and order of the Bombay High Court.

Reasoning:
Firstly, we think that learned counsel is reading more into the expression "in the opinion of the Income-tax Officer" occurring in the proviso to13 than what is warranted by the language used. Whether the method of accounting is regularly employed or not is undoubtedly a matter which the Appellate Assistant Commissioner can go into when he has seizin of the appeal. It is not challenged that if the Income-tax Officer decides against the assessee and determines that the income, profits and gains cannot properly be deduced from the assessees method of accounting, the determination is liable to be set aside on appeal by thesee no justification for holding that these powers, so widely expressed by the statute, become ineffective in one particular case only, namely, when the determination or opinion is in favour of the assessee as respects the propriety of the method of accounting. It is true that the Revenue has no right of appeal underut thatis not adecisive circumstance. The assessee can make any order of assessment by the Income-tax Officer final by not appealing therefromthe order is based on a subjective or objective determination. The point is not what happens when there is no appeal; but the point is when the appellate authority is lawfully in seizin of the matter, what powers it can exercise.33 of the Indian Income-tax Rules, 1922