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PETITIONER: COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: MTT.  AR.  S. AR.  ARUNACHALAM CHETTIAR,.

DATE OF JUDGMENT: 22/12/1952

BENCH: DAS, SUDHI RANJAN BENCH: DAS, SUDHI RANJAN MAHAJAN, MEHR CHAND BHAGWATI, NATWARLAL H.

CITATION:  1953 AIR  118            1953 SCR  463  CITATOR INFO :  F          1956 SC 367  (12)  RF         1961 SC1633  (10,25)  F          1969 SC1068  (6)

ACT: Indian  Income-tax Act (XI of 1922), ss. 30, 33, 34, 66  (1) and  (2)-Order  of Appellate Tribunal  directing  Income-tax Officer  to  allow  certain  deductions--Income-tax  Officer adding  certain  other items in computing  income-Appeal  to Appellate  Assistant Commissioner--Maintainability-Order  of Appellate  Tribunal under inherent powers directing  Income- tax Officer to revise his order-Competency of reference.

HEADNOTE: By  an order dated August 20, 1943, the  Appellate  Tribunal directed  that  certain deductions claimed by  the  assessee should  be allowed.  The matter came back to the  Income-tax Officer and he made an order on September 26, 1945, but  did not issue any fresh notice of demand.  The assessee appealed to the Appellate Assistant Commissioner complaining that  in his  order  of  September 26,  the  Income-tax  Officer  had wrongly included a sum of Rs. 13,000 60 464 as   unassessed  foreign  income  of  earlier  years.    The Appellate  Assistant  Commissioner held that  the  order  of September 26 was  not appealable.  The assessee,  therefore, made a miscellaneous application to the Appellate  Tribunal, which  held  that  the Incometax Officer  acted  wrongly  in including  the sum of Rs. 13,000 at that stage and  directed the   Income-tax   Officer   to   revise   his   computation accordingly.   The  Commissioner  of  Income-tax,  being  of opinion  that the Appellate Tribunal had no jurisdiction  to entertain or make such order on a miscellaneous  application applied for a reference to the High Court under s. 66 (1) of the Income-tax Act.  The Tribunal referred certain questions and  the High Court directed the Tribunal to  refer  certain other  questions  also but when the references came  on  for bearing  the  High  Court  held  that  the  references  were incompetent.  The Commissioner of Incometax appealed to  the Supreme Court with the leave of the High Court :

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Held,  (i)  that  in  carrying out  the  directions  of  the --Tribunal  and in passing the order of September 26,  1945, the  Income-tax Officer cannot be regarded as  having  acted under  s. 23 or s. 27 of the Act and no appeal lay from  his order  under  s. 30 (1).  The order made  by  the  Appellate Assistant  Commissioner was not therefore an order under  a. 31  (3) and no further appeal lay to the Appellate  Tribunal under  s.  33 (1) so as to enable the Tribunal  to  make  an order under s. 33 (4) and us there was no order under a.  33 (4), no question of law can be said to arise out of an order under s. 33 (4) and there can be no valid reference under s. 66 (1) or s. 66 (2); (ii) even assuming that the order of the Income-tax  Officer dated September 26, 1945, was an order under a. 23 or s.  27 and  as  such appealable, the order made  by  the  Appellate Assistant Commissioner declining to entertain the appeal was not  an order under any of the sub-sections of a. 31 and  no appeal  lay therefrom to the Appellate Tribunal under s.  33 (1)  and there could be no order of the  Appellate  Tribunal under  s.  34  (1).  The order  of  the  Appellate  Tribunal correcting the order of the Income-tax Officer and directing that the sum of Rs. 13,541 should not be included cannot  be regarded  in any event as an order under s. 33 (4) so as  to attract the operation-of s. 66 (1) or (2).

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 10 and 10-A of  1952.   Appeal from the Judgment and  Order  dated  11th January, 1950, of the High Court of Judicature at Madras  in Cases Referred Nos. 80 of 1946 and 38 of 1948. M.   C. Setalvad, Attorney-General for India, (G.  N.  Joshi and P. A. Mehta, with him) for the appellant. S. Krishnamachariar for the respondent.                            465 1952.  December22.  The Judgment of the Court was  delivered by DAS  J.-These two consolidated appeals are directed  against the  Judgment  and order made- on January 11, 1950)  by  the High  Court of Judicature at Madras in References No. 80  of 1946  and  No.  38 of 1948 under section 66  of  the  Indian Income-tax Act whereby the High Court relying on its earlier decision in Commissioner of Income-tax, Madras v. B. Rm.  M. Sm.  Sevugan alias Manickavasagam Chettiar(1) held that  the references  were  incompetent  and  accordingly  refused  to answer the questions raised therein.  The facts are  shortly as follows. The  respondent  who  is  a  Nattukotai  Chettiar  had,  his headquarters  at Karaikudi in India and also carried on  his money-lending  business at branches at  Maubin,  Kualalumpur and Singapore.  He also had income from properties at Maubin and Singapore.  For the assessment year 1941-42 the  Income- tax Officer calculated the assessee’s accrued foreign income -as Rs. 29,403 at Maubin, Rs. 27,731 at Kualalumpur and  Rs. 34,584 at Singapore, in all Rs. 91,718.  After deducting out of  this amount Rs. 4,500 allowed under -the 3rd proviso  to section  4 (1) of the Act, the Income-tax  Officer  computed the  total assessable foreign income at Rs. 87,218.  Out  of the  total remittances of Rs. 84,352 the Income-tax  Officer allocated Rs. 7,900 to the accrued income of Maubin and  Rs. 62,315  to  those  of Kualalumpur  and  Singapore  and  the- balance of Rs. 14,137 to the taxed income of earlier  years. The Income-tax Officer disallowed the claim of the  assessee to  deductions  under several heads.  On the  basis  of  the

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total  foreign- income of Rs. 67,218 and income from’  other sources  the Incometax Officer calculated Rs. 23,266-8-0  to be  due by the assessee on account of income-tax,  super-tax and  surcharges  thereon and by his assessment  order  dated January  31,  1942, made this amount payable  on  or  before February 25, 1942.  The assessee preferred an (1)  [1948]  16 I.T.R. 59; (1948) 1 M.L.J. 157; A.I.R.  1948 Mad, 418 466 appeal  to  the Appellate Assistant Commsioner  against  the disallowance  of the several items of his   claim  including the claim for replantation expenses amounting to$498incurred at Kualalumpur and a bad debt of $ 15,472 at Singapore.  The Appellate Assistant Commissioner by his order dated May  25, 1942, allowed some of the several objections but  disallowed the items of replantation expenses and ba‘ debt and  reduced the  assessment  to Rs. 22,548.  The assessee  took  further appeal   before   the   appellate   Tribunal   against   the disallowance   of  the  several  claims  by  the   Appellate Assistant  Commissioner  including the two  items  mentioned above.  The Appellate Tribunal by its order dated August 20, 1943,  held that the replantation expenses "will be  allowed to  the appellant as expenses." As regards the bad debt  the Tribunal  held  that  it  was  permissible  and  that   "the deduction  claimed will, therefore, be allowed." The  result was that the appeal was partly allowed. The  matter  came  back before  the  Income-tax  Officer  on September  26,  1945.   Deducting  Rs.  778  on  account  of replantation expenses the Kualalumpur income was reduced  to Rs. 26,953 and after deducting Rs. 24,175 on account of  the bad  debt  the  Singapore income came down  to  Rs.  10,409. These two reduced amounts together with Rs. 29,403 being the income ’from Maubin made up the total accrued income of  Rs. 66,765.   Out  of  this amount Rs.  4,500  was  deducted  on account  of  unremitted  profits of  Maubin  under  the  3rd proviso to section 4(1) of the Act, leaving a balance of Rs. 62,265.   Out  of  the remittances  the  Income-tax  Officer allocated Rs. 7,000 towards the accrued income of Rs. 29,403 from Maubin and Rs. 37,362 against the totarl accrued income of Kualalumpur and Singapore.  He also allocated Rs.  24,549 as  remittances out of assessed profits of  previous  years, leaving a balance of Rs. 13,541.  This amount the Income-tax Officer  considered  as remittances out  of  earlier  years’ unassessed  income  and held it to be  asses.-able  to  tax. After adding Rs. 13,541 to Rs. 62,265 being the net  accrued income of the year 467 from  Maubin,  Kualalumpur  and  Singapore,  the  Income-tax Officer  arrived at the total foreign income of Rs.  75,806. On  the  basis of this foreign- income together  with  other income  the Income-tax Officer. recalculated the  amount  of income-tax,   super  tax  and  surcharges  thereon  at   Rs. 22,802-6-0  and  after giving credit  for  certain  amounts, found Rs. 21,211-14-0 as the balance due which by his  order dated  September 26, 1945, was made payable in equal  moiety on  or before September 30, 1947, and March 31,  1948.   He, however, did not issue any notice of demand under section 29 of the Act. Being  aggrieved  by  the inclusion of  Rs.  13,541  as  the alleged unassessed foreign income of earlier years  remitted to  India during the year of account the assessee  preferred an appeal before the Appellate Assistant Commissioner.   The Appellate Assistant Commissioner was not satisfied that  the assessee had any right of appeal under section 30 of the Act for  there  had been no assessment under section 23  and  no

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notice  of  demand  had been served on  the  assessee  under section 29 of the Act.  Accordingly the Appellate  Assistant Commissioner by his order dated November 19, 1945,  declined to  admit the appeal.  He, however, expressed the view  that the   assessee’s  remedy  might  lie  in   a   miscellaneous application to the Tribunal complaining that the  Income-tax Officer  had either misconstrued or had not given effect  to the order of the Appellate Tribunal. The assessee then brought a miscellaneous application to the Appellate  Tribunal.  The Appellate Tribunal held that  the. finding of the Income-tax Officer that the sum of Rs. 13,541 was  to  be  assessed as untaxed profits  of  earlier  years remitted  to India in the accounting year did not  arise  in the  course  of giving effect to  the  Appellate  Tribunal’s order  and by its order dated February 20,  1946,  cancelled that  finding and directed the Income-tax Officer to  revise the computation accordingly. The   last  mentioned  order  having  been  served  on   the Commissioner of Income-tax, Madras, on March 8, 468 1946, the latter on May 1, 1946, made an application  before the  Appellate Tribunal under section 66(1) of the Act  -and prayed  that  three  questions  formulated  by  him  in  his petition  should  be  referred  to  the  High  court.    The contention   was   that  the  Appellate  Tribunal   had   no jurisdiction  in  law to entertain, consider  and  pass  the order  which it did on the miscellaneous application  seeing that  it  was  neither an appeal under  section  33  of  the Income-tax  Act nor could it be regarded as a  rectification under section 35 of any mistake committed by the Bench.  The Appellate  Tribunal took the view that although no  specific provision was made in the Act by which it could give  effect to its order or explain any ambiguity in such an order by  a later  order in any miscellaneous application filed  by  any party,  such  power,  nevertheless’, was  inherent  in"  the Tribunal.  The Tribunal accordingly thought that a point  of law did arise and on August 23, 1946, referred the following question to the High Court, namely:-- "Whether  in  the facts and circumstances of this  case  the order  of  the  Bench  dated 20th  February,  1946,  in  the miscellaneous  application  is an appropriate order  and  is legally valid and passed within the jurisdiction and binding on the Income-tax Officer." The   Tribunal  declined  to  refer  the   other   questions formulated  by the Commissioner.  This reference came to  be numbered  as Case Referred No. 80 of 1946.  It appears  that pursuant  to  an  order  made by the  High  Court  on  March 30,1948,  on the application of the Commissioner of  Income- tax  under section 66 (2) of the Act the  Tribunal  referred the following question to the High Court:- " If the answer to the question already referred to the High Court  by  the order of the Appellate  Tribunal  dated  23rd August,  1946,  is  in the  affirmative,,  whether,  in  the circumstances   and   on  the  facts  of   the   case,   the recomputation made by the Income-tax Officer pursuant to the decision of the Appellate 469 Tribunal in R.A.A. No. 53 (Madras) of 1942-43 was valid  and correct." The  Appellate Tribunal made this further reference on  July 19, 1948, which came to be numbered as Case Referred No.  38 of 1948. The  two referred cases came up for consideration  before  a Bench  of  the Madras High Court and it was  held  that  the reference under section 66(1) was incompetent in view of the

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earlier  decision of that Court mentioned above  which  they felt  to  be  binding  on them  and  accordingly  the  Bench declined  to  answer  the questions.   The  Commissioner  of Incometax  thereafter  applied  for and  obtained  leave  to appeal  to   this  Court  from the  decisions  in  both  the references and obtained such leave on his undertaking to pay the  costs  of the assessee in any event.  The  two  appeals were thereafter consolidated and have come up before us  for final disposal. Section  66-A  (2) gives to the aggrieved party a  right  of appeal  to  this Court from any judgment of the  High  Court delivered  on a reference made under section 66 in any  case which the High Court certifies to be a fit one for appeal to this Court.  Section 66, (5)  provides  that the High  Court upon the hearing of any  such  case  referred  to  it  under section 66(1) and (2)    shall  decide the questions of  law raised thereby and  shall   deliver  its  judgment   thereon containing  the grounds on which such decision  is  founded. During  the  opening of the case by  the  learned  Attorney- General a question arose as to whether the simple refusal of the  High  Court  to bear the case on the  ground  that  the reference  was incompetent was a decision and judgment  such as  is contemplated by section 66(5) of the Act  from  which alone  a  right  of appeal to this Court  is  given.   While maintaining  that  the decision and judgment of  the  Madras High  Court  fell within the meaning of  section  66(5)  the learned  Attorney-General for greater safety asked that  the appeal  may  be treated as one on special leave  granted  by this  Court  under  article 136 of  the  Constitution.   The learned Advocate appearing for the 470 assessee  respondent  did  not object  to  this  prayer  and accordingly  we gave leave to the appellant under   article 136  and treated this appeal as one filed pursuant  to  such leave.   In the circumstances it is not necessary for us  to express any opinion on the appealability of the order of the High Court under section 66-A of the Act. The  learned  Attorney-General contends  that  the  decision relied on by the High Court has no application to the  facts of the present case.  In that case the Tribunal by its order dated  July 11, 1944, allowed an appeal from  the  Appellate Assistant Commissioner and cancelled the assessment which it held   to  be  illegal.   This  order  was  served  on   the Commissioner  shortly  thereafter.  On October 5,  1944,  an application  was  made  to the Tribunal  by  the  Income-tax Officer under section 35 to correct a statement contained in the  statement  of facts in the order.  More  than  60  days after  the date of the service on him of the order  of  July 11,  1944, to wit on October 7, 1944, the Commissioner  made an application under section 66 (1) of the Act requiring the Tribunal  to refer to the High Court the question as to  the correctness  of its decision embodied in the order  of  July 11,  1944.   Both the applications were disposed of  on  the same day, namely, January 17, 1945, when the application for rectification  was  granted and a case was  stated  for  the opinion of the Court as prayed.  Section 66 (1) requires the application  to be made within 60 days of the date on  which the  applicant is served with notice of an order under  sub- section (4) of section 33.  It was held that the granting of an  application  for  rectification  under  section  35  and correcting  the  error in the order was not an  order  under section  33  (4) and, therefore, was not one in  respect  of which section 66 (1) permitted a case to be stated.  It  was further  held that if the Appellate Tribunal  improperly  or incorrectly made a reference in violation of the  provisions

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of  the statute, the High Court was capable of  entertaining an  objection to the statement of the case and that,  if  it camp to the 471 conclusion  that the case should not have been  stated,  the High Court was not compelled to express an opinion upon  the question  referred.  in  the  case before  us  there  is  no question  that the present application was not  made  within time,  but  the  contention  is that  section  66  (1)  only contemplates an application for a reference of a question of law  arising  out of " such order" which  clearly  means  an order  made under section 33 (4), _and, therefore, if  there is no valid order under that section no question of law  can be  said to arise out of "such order" and  consequently  the Appellate  Tribunal  can have on jurisdiction  to  make  any reference to the High Court under section 66(1).  Section 66 (2)  provides  that if on any application being  made  under sub-section (1) the Appellate Tribunal refuses to state  the case  on  the  ground that no question of  law  arises,  the assessee or the Commissioner may, within the time  specified therein, apply to the High Court and the High Court may,  if it  is not satisfied  of the correctness of the decision  of the  Appellate Tribunal, require the Appellate  Tribunal  to state  the case and to refer it.  The jurisdiction given  to the  High Court under this sub-section is conditional on  an application  under  sub-section (1) being  refused  by  the- Appellate  Tribunal.   This  clearly  presupposes  that  the application  under  sub-section (1) was  otherwise  a  valid application.   If,  therefore,  an  application  under  sub- section (1) was not well founded in that there was no  order which  could  properly  be said to be an  order  under  sub- section (4) of section 33 then the refusal of the  Appellate Tribunal to state a case on such misconceived application on the ground that no question of law arises will not authorise the  High Court, on an application under sub-section (2)  of section  66,  to direct the Tribunal to state a  case.   The jurisdiction  of  the  Tribunal and of  the  High  Court  is conditional  on  there  being  an  order  by  the  Appellate Tribunal  which may be said to be one under section  33  (4) and  a  question of law arising out of such an  order.   The only  question for our consideration, therefore, is  whether in this case any question 472 of law arose out of an order which can properly  be said  to have  been made by the Appellate Tribunal under  sub-section (4)  of  section 33, for if it did not, then  the  Appellate Tribunal  -would have no jurisdiction under sub-section  (1) of section 66 to refer a case, nor would the High Court have jurisdiction under sub-section (2) of that section to direct the Tribunal to do so. It was at one stage suggested by the learned AttorneyGeneral that  we should in the first instance remit the matter -  to the  High Court for their decision on this question  but  as the question is one of law depending on the construction  of the relevant sections of the Act it will save time if it  is decided by us here and now.  It is not disputed that we have the  power,  on the hearing of this appeal, to  decide  this question. It  will be recalled that when on 19th November,  1945,  the Appellate  Assistant  Commissioner  declined  to  admit  the appeal, the assessee did not prefer any appeal but only made a  miscellaneous application before the Appellate  Tribunal. There  is  no  provision  in  the  Act  permitting  such  an application.   Indeed,  in  the statement of  the  case  the Appellate Tribunal states that     in   entertaining    that

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application  and  correcting  theerror  of  the   Income-tax Officer  it  acted  in exercise ofwhat it  regarded  as  its inherent powers. There being no appeal under section 33  (1) and  the order having been made in exercise of its  supposed inherent   jurisdiction.,  the  order  cannot  possibly   be regarded  as  one under section 33 (4) and  there  being  no order under section 33 (4) there could be no reference under section  66  (1)  or (2) and the  appellate  Court  properly refused to entertain it. The learned Attorney-General submits that this Court  should not  take such a narrow and technical view but should  treat that  miscellaneous  application as really an  appeal  under section  33.   Turning now to section 33 we  find  that  any assessee  objecting  to  an order  passed  by  an  Appellate Assistant  Commissioner under section 28 or section  31  may appeal  to the Appellate Tribunal within the time  specified in 478 sub-section (1) which time, however, may be extended by  the Tribunal under sub-section (2A).  Under sub-section (4)  the Appellate Tribunal is given power, after giving both parties to.  the  appeal an opportunity to be heard,  to  pass  such order  thereon as it thinks fit.  It is thus clear that  the Appellate  Tribunal can make an order under section  33  (4) only  on  an appeal from an order passed  by  the  Appellate Assistant  Commissioner under section 28 or section 31.  If, therefore,  there is no order which may properly be said  to have been made by the Appellate Assistant Commissioner under section  28 or section 31 then there can be no appeal  under section 33 (1) and consequently there can be no order  under section 33 (4).  Section 28 is not relevant for our  present purpose.  Section 30 provides for filing of appeals  against assessments  made  under the Act.  Sub-section (1)  of  that section prescribes the different decisions against which  an appeal will lie.  Sub-section (2) prescribes the time within which the appeal is to be filed.  Subsection (3)  prescribes the  form  in which the appeal is to be  made..  Then  comes section  31  which gives power to  the  Appellate  Assistant Commissioner  to  hear  and dispose of  such  appeal.   Sub- section  (3) of section 31 empowers the Appellate  Assistant Commissioner  in disposing of an appeal under section 30  to make  one or other order under one or other of  the  several clauses of that’ sub-section.  It is, therefore, clear  that in  order  that  the Appellate  Assistant  Commissioner  may exercise his jurisdiction and make an order under section  3 1,  there must be an appeal as contemplated by  section  30. The learned AttorneyGeneral only relies on the opening  part of  sub-section  (1)  of section 30 and  contends  that  the appeal before the Appellate Assistant Commissioner was  with respect to the amount of income assessed under section 23 or section 27.  It will be recalled that the Appellate Tribunal held  that  the two sums claimed by the  assessee  would  be allowed  to him and concluded by saying that the appeal  was partly allowed. - The power of the Appellate Tribunal  under section 33(4) 474 is indeed wide, for on an appeal properly before it, it  can make  such order as it thinks fit.  Therefore,  it be  order made  by the Appellate Tribunal in this case on  August  20, 1943,  must  be  read and construed as a  direction  to  the Income-tax  Officer to carry out the directions by  allowing the two deductions in question.  When the matter again  came before the Income-tax Officer his function was only to carry out  the  order  of the Appellate Tribunal.   He  could  not otherwise  reopen the assessment already made by  him  under

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section  23.  Therefore, in carrying out the  directions  of the Tribunal and in doing what be aid on September 26, 1945, the  Income-tax Officer cannot be regarded as  having  acted under section 23 or section 27 of the Act and that being the position  no  appeal lay from that order of  the  Income-tax Officer under section 30 (1) of the Act, I The result of  it was  that  there was no proper appeal before  the  Appellate Assistant Commissioner such as is contemplated by section 30 (1)  and,  therefore,  the  order  made  by  the   Appellate Assistant  Commissioner cannot be regarded as an order  made by  him under section 31 (3), for an order under section  31 (3)  can  only be made in disposing of an  appeal  properly’ filed  under section 30, and consequently no further  appeal lay to the Appellate Tribunal under section, 33 (1) so as to enable  the Appellate Tribunal to make an order  under  sub- section  (4) of that section.  In the premises, there  being no order which may properly be said to have been made  under section 33 (4), no question of law can be said to arise  out of an order made under section 33 (4) and consequently there can  be no valid reference under section 66, subsection  (1) or  sub-section  (2).   If,  therefore,  the  reference  was incompetent  for want of jurisdiction both under section  66 (1) or section 66 (2) surely the High Court could decline to entertain it as it did. Even  if  the order dated September 26, 1945,  made  by  the Income-tax Officer after the matter came back to him to give effect  to  the  decisions  of  the  Appellate  Tribunal  be regarded as an order made by him under 475 section  23  or  section 27 and  as  such  appealable  under section  30  (1)  then  the  order  made  by  the  Appellate Assistant  Commissioner on November 19, 1946,  declining  to admit  the appeal clearly amounted to a refusal on his  part to exercise the jurisdiction vested in him by law.  An order thus  founded  on  an  error  as  to  his  jurisdiction  way conceivably  be corrected by appropriate proceedings but  it cannot certainly be regarded as such an order as is  contem- plated  by any of the sub-sections of section 31.   Such  an order not coming within the purview of section 28 or section 31, no, appeal lay therefrom to the Appellate Tribunal under section  33 (1) and if no such appeal properly  came  before the  Appellate Tribunal it could not properly make an  order under section 33 (4) and if there was no order under section 33  (4) there could be no reference under section  66,  sub- section (1) or sub-section (2).  It follows, therefore, that the order of the Appellate Tribunal correcting the order  of the Income-tax Officer directing that the sum of Rs.  13,541 should not be included in the assessment cannot be  regarded as  an order passed by the Appellate Tribunal under  section 33 (4) so as to attract the operation of section 66. The learned Attorney-General urged that having under section 66 (2) of the Act directed the Appellate Tribunal to state a case  the High Court could not afterwards refuse  to  answer the  question thus referred to it.  Whether the  High  Court was  so precluded or not requires no decision on this  occa- sion,  for  even conceding but ;not deciding that  the  High Court was so precluded, this Court, at any rate, can  surely entertain the question of the competency of the reference. The result, therefore, is that we dismiss these appeals with costs. Appeals dismissed. Agent for the appellant: G.H. Rajadhyaksha. Agent for the respondent: M. S. K. Aiyangar. 62 476

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