COMMISSIONER OF INCOME-TAX; MADRAS versus MTT. AR. S. AR. ARUNACHALAM CHETTIAR

DAS J.-These two consolidated appeals are ditecied 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. R. Rm. M. Sm. Sevitgan alias Manickavasagam Chettiar(1) .held that the references were incompetent and accordingly refused to answer the questions raised therein. 'l'he facts are shortly as follows.

p. 465

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 ~941-42 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 Hs. 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. 'rhe Income-tax Officer disallowed the claim of the assessee to deductions under several heads. On the basis of the 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. 'rhe assessee preferred an appeal to the Appellate Assistant Commissioner against the disallowance of the severa.l items of his claim inoiuding the claim for replantation expenses adtounting to $ 498 incurred 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 replautation expenses and bad debt .and reduced the assessment to Rs. 22,548. The assessee took a further appeal before the Appellate Tribunat against the disallowance of the several claims by the Appellate Assistant Commissioner including the two items mentioned above. 'fhe Appellabe Tribunal by its order dated August 20, 1943, held that the replantation expenses "will be allowed to th.e 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.

pp. 465–466

The matter came back before the Income-tax Officer on September 26, 1945. Deducting Rs. 778 on account of replantatiim expenses the Kualalumpur income was reduced to Rs. 26,953 and after deducting Rs. 24,17 5 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 Maubiu made up the total accrued income of Rs. 66,765. Out of this amount Rs. 4,500 was.deducted on account of uuremitted 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 total 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 assesEable to tax. After adding Rs. 13,541 to Rs. 62,265 being the net accrued income of tbe year from Maubin, Kualalumpur and Singapore the Income-ta:c Officer arrived at the total foreign income of Rs. 7 5,806. On the basis of this foreign mcoipe together with other income the Income-tax Officer re9alculated the amount of income-tax, super tax and surcharges thereon at Rs. '2'2,80'2-6-0 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 urtder section 29 of the Act. .

pp. 466–467

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 ha.d been no assessment under section '23 and no 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.

p. 467

'fhe assesses 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 u.ntaxed 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 tbe computation accordingly.

p. 467

The last mentioned order having been served on t·he Commissioner of Income-tax, Madras, on March· 8, 1946, the latter on May 1, 1946, made an application ,before·the Appellate 'rribunal under section 66(1) of thii Act and prayed that three quest10us formulated by him in his petition should be referred to the High Court. The contention was that the Appellate 'rdbunal 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. 'l'he 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. 'rhe Tribunal accordingly thought that a point of law did arise and on August 23, 1946, referred the following question to the High Court, namely:-

pp. 467–468

"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."

p. 468

The Tribunal declined to refer the other questions formulated by the Commissioµer. 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:-

p. 468

"If the answer to the question already referred to the High Court by the order of the Appellate Tribunal dated \)3rd August, 194.6, 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 Tribunal in R.A.A. No. 53 (Madras) of 1942-43 was valid and correct."

pp. 468–469

The Appellate Tribunal made this further reference on July 19, 1948, which came to be numbered "as Case Referred No. 38 of 1948.

p. 469

'd

p. 469

The two referred cases came up f or cons1 eration 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 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.

p. 469

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 ~f 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 whe(iher the simple refusal of the High Court to hear the case on the

p. 469

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 Constiyl.ltion, 't'he le~rnl)d Advocaite apl?earin~ for thl;l assess.ee-respondent did not object to this prayer and accordingly we gave leave to the appellant under article 136 aud treated this appeal as one filed purst!aut 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.

pp. 469–470

The learned Attorney-General contends that the decision relied on by the High Conrt has no application to the facts of the present case. In that case the Tribunal by its order dated Jnly 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 of the statute, the High Court was capable of entertaining an objection to the statement of the c11,se that, if it came to th~ conclusion that the case should not have been the High Court was not compelled to express opm10n upon the quest10n referred. In the before us there is no question that the present cation was not made within time, but the contention is that section 66 (1) only contemplates an applica-

pp. 470–471

· · tion for a reference of a question of law arisrng "such order" which clearly means an order under section 33( 4), and, therefore, if there is no valid order under that section no question of law can said to arise out of "such order" and consequently Appellate Tribunal can have no jurisdiction to 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 bunal refuses to state the case on the ground that question of law arises, t.he assessee or the Commissioner may, within the time specified therein, apply the High Court and th-a High Court may, if it satisfied of the correctness of the decision of Appellate Tribunal, require the Appellate Tribunal 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) refused by the Appellate Tribunal. This clearly presupposes that the application under sub-section (1) was otherwise a valid application. If, therefore, application under sub-section (1) was notwell-founded in that there was no order which could properly said to be an order under sub-section (4) of section 33 then the refusal of the Appellate Tribunal to state case on such misconceived application on the that no question of law arises will not authorise High Court, on an application under sub-section of section 66, to direct the Tribunal to state The jurisdiction of the Tribunal and of the Court is conditional on there being an order Appellate Tribunal which may be said to be one section 33 (4) and a question of law arising such an order. The only question for our consideration, therefore, is whether in this case any questioq of law arose out of an order which can properly b~ said to hav~ been made bl'. the Appellate 'fribunal under sub-sect10n (4) of section 33, for if it did not, then the Appellate Tribunal would have no jurisdicti6n 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 'rribunal to do so.

pp. 471–472, margin F

It was at one stage suggested by the learned Attorney- General 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.

p. 472

It will be recalled that when on 19th November, 1945, the Appellate Assistant _Commissioner declined to admit the appeal, the ass@ssee did not prefer any appeal but only made a miscellaneous application before the Appellate Tribunl),\. There is no provision in the Ac.t permitting such an application. Indeed, in the statement of the -case the Appellate Tribunal states that in entertaining that application and· correcting the error of the Income-tax Officer it acted in exercise of what it regarded as its inherent powers. There being no appeal unde1· section 33 (1) and the order having been made in exercise of its supposed inherent jurisdiction, the order cannot possibly be

p. 472

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.

p. 472

The learned Attorney-Genera\ submits that this Court should not take such a narrow and technical view but should treat that miscellaneous app·lication 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 Tribm~al within j;he time specifieq iq sub-section (1) which time, however, may be extended by the Tribunal under sub-section ('2A). Under

pp. 472–473

. h A ll 'r .b l . . su -sect10n b (4) t e ppe ate n una is gnrtln 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 tpe 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 bo 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 pur· pose. 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 app~al is to be filed. Sub- .section (3) prescribes the form in which the appeal is to be made. 'rhen 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 31, there must be an appeal as contemplated by section 30. The learned Attorney- General 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 ~he Appellate Tribunf\l under se9tion 33(4)

p. 473

is indeed wide, for on an appeal properly before it, it can make such order as it thinks fit. Therefore,

p. 474

b A . . . tl:fe order made y the ppellate Tribunal thrn case on August 20, 1943, must be read and construed as a direction to the Income·tax Officer to carry out the directiol)s 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 section 23. Therefore, in carrying out the directions of the Tribunal and in doing wh:it he did 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. 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 sectio~ 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 comequently there can be no valid reference under section 66, sub· section ( 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.

p. 474

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 orqer made by him unqer 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, 1945, 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 J·urisdiction may conceivably be COrrected by appropriate proceedings but it cannot certainly be regarded as such an order as is contemplated 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 'rribunal under section 33 (1) and if no such appeal properly came before the Appellate 'l'ribunal 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 6H, 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 'rribunal under section 33 (4) so as to attract the operation of section 66.

pp. 474–475

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 occasi"on, 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.

p. 475

'fhe result, therefore, 1s that we dismiss. these appeals with costs.

p. 475

Appeals dismissed. Agent for the appellant: G. H. Rajadhyaksha. Agent for the respondent: M. S. K. Aiyangar.

p. 475