1. This was a reference under Section 66(1) of the Income-tax Act, 1922, of the assessee Sarupchand Hukumchand. The assessment year was 1936–1937 and the year of account was Maru year 1991–1992 ending on 27th October, 1935. The assessee was an unregistered firm of two partners. The firm at the material time was the managing agents of Hukumchand Mills of Indore and carried on extensive business in cloth and money-lending at Indore as well as in Calcutta and Bombay in British India. The assessee made a return of its total income on 27th August, 1936, to the Income-tax Officer, Special Circle, Bombay. The assessment was pending on 1st April 1939, when the Income-tax (Amendment) Act of 1939 came into force. Under Section 6(2) of the Income tax Act, as amended, the Central Government appointed a Commissioner of Income-tax (Central), (Headquarters Bombay) without reference to area. The Central Board of Revenue in exercise of the powers conferred by S. 5(2) assigned on 18th April, 1939, to the Commissioner of Income-tax (Central) the assessee's case. The Commissioner of Income-tax (Central) allotted under S. 5(5) the assessee's case to the Income-tax Officer (Central), Section VI, on 27th April, 1939. On 14th October, 1939, the Commissioner of Income-tax (Central) allotted under S. 5(6) the assessee's case to the Income-tax Officer (Central), section vil. The assessment was completed by the Income-tax Officer (Central), Section VII. On these facts the assessee contended before the Tribunal that the assessment made on it was invalid on the grounds (i) that the Income, tax Officer (Central) Section VII had no jurisdiction in respect of the assessee's case and (ii) that the Commissioner of Income-tax (Central), did not have the power to transfer the assessee's case from the Income-tax Officer (Central), Section VI to the Income tax Officer (Central), section vil. These contentions of the assessee were not accepted by the Appellate Tribunal. It was also contended before the Appellate Tribunal that the Income-tax Officer (Central), Section VII, could not complete the assessment without issuing a fresh notice under Section 22(2) of the Income-tax Act. This contention was also not accepted by the Appellate Tribunal.

2. One of the questions that the Appellate Tribunal had to determine related to the remittances from Indore to Bombay. No finding as to the residence of the assessee was given either by the Income-tax Officer or the Appellate Assistant Commissioner. The assessment for the year 1935–1936 was before the High Court of Judicature at Bombay: In re Sarupchand Hukarnchand, 47 Bom. L.R 159 : (A.I.R (32) 1945 Bom. 258). The question about the residence of the assessee was raised before the High Court. The High Court by its order dated 21st September 1942, directed the Commissioner of Income-tax to report on the question relating to the residence of the assessee firm in the account year 1890–1891, Maru year. On 11th February, 1944, the Commissioner found that the assessee was a resident firm. After hearing counsel, the High Court raised the question whether there was evidence to support the finding of the Commissioner of Income, tax that the assessee firm was a resident firm in the Maru year 1990–1991. The High Court in the course of its judgment referred to the evidence on which the Commissioner of Income-tax based his finding that the assessee was a resident firm. Inasmuch an no finding as to the residence of the assessee firm in the Maru year 1991–1992 was recorded by the Income-tax Officer or the Appellate Assistant Commissioner, the Appellate Tribunal following the judgment of the High Court dated 21st September 1942, remanded the case to the Income-tax Officer by its order dated 18th November, 1942, to record a finding on the question whether the assessee was a resident firm.

3. The remittance made by the assesaee firm in the year of account from Indore to Bombay amounted to Rs. 2,94,030. The Tribunal held that in the year of account the assessee firm made a profit of Rs. 1,01,085. The amount of Rs. 1,01,085 was taxed under Section 4(2) of the Income-tax Act, before its amendment in 1939. According to the assessee's profit and loss account at Indore the total profit amounted to Rs. 92,357. Out of the amount of Rs. 92,357, a sum of Rs. 90,183 was even according to the assessee liable to be taxed and was taxed. Thus according to the assessee, the profit available at Indore for remittance in the year of account amounted to Rs. 2174. The Tribunal, however, held that the total profit available for remittance was Rs. 2174 plus Rs. 98,911. The sum of Rs. 98,911 was the amount spent by the partners of the firm in Bombay. The profit and loss account of the assessee showed a profit of Rs. 92,357 after making allowance for the amount of Rs. 98,911 spent by the partners in Bombay. In other words, the Tribunal held that the profit made by the assessee firm at Indore in the year of account amounted to Rs. 92,357 plus Rs. 98,911 = Rs. 1,91,268. Inasmuch as a sum of Rs. 90,183 out of Rs. 92,357 was already taxed on the basis of its having accrued in British India, the amount that could be faxed under Section 4(2) of the Act came to Rs. 2174 plus Rs. 98,911 = Rs. 1,01,085. The Tribunal directed that this amount of Rs. 1,01,085 be taxed under Section 4(2) of the Income-tax Act, before its amendment in 1939.

4. The assessee firm made a profit at Indore in the Maru year 1988–1989 and suffered losses in Maru years 1989–1990 and 1990–1991. It also made a profit as stated previously in the Maru year 1991–1992 the year under reference. If the result of all these four years were to be taken into account, there would be a large debit balance in the profit and loss account.

5. It was contended on behalf of the assessee firm that what was remitted to British India in the account year 1991–1992 Maru year was capital and not profit. Included in the assessment was a brokerage of Rs. 1,25,032. It was contended before he income-tax authorities that no part of it could be subjected to tax.

6. It was argued that the assessee maintained its accounts on mercantile basis. If that were so, in the year of account the amount payable to sub-brokers would have been shown in 1991–1992 ac count books. This was, however, not done. There was, however, nothing to warrant the assessee's contention that it maintained accounts on mercantile basis in respect of the sub-brokerage payable by it.

7. The questions of law that arose out of the facts stated above were:

(1) Whether the Central Board of Revenue had the power to assign the assessee's case to the Commissioner of Income-tax (Central)?

(2) Whether the Commissioner of Income-tax (Central) had power to allot to the Income tax Officer (Central), Section VI, the assessee's case?

(3) Whether the Commissioner of Income-tax (Central) had the power to allot to the Income-tax Officer (Central) Section VII the assessee's case having already allotted. It to the Income-tax Officer (Central) Section VI?

(4) Assuming that the Central Board of Revenue had no power referred to in question (1) or assuming that the Commissioner of Income-tax (Central) had no power referred to in questions (2) and (3) above, is the assessment made on the assessee by the Income-tax Officer (Central), Section VII, rendered invalid?

(5) Did the Income-tax Act require the Income-tax Officer (Central), Section VII, to issue a fresh notice under Section 22(2) of the Income-tax Act, to the assessee?

(6) If the answer to the preceding question is in the affirmative, is the assessment made on the assesses rendered invalid thereby?

(7) Is the assessee firm precluded from raising the plea in regard to its residence in view of the decision of the High Court, as new facts were urged for the purpose of residence in the year of account?

(8) Was there material before the Tribunal to come to a finding that the assessee firm was ‘resident’ in British India in the year of account, Maru year 1991–1992?

(9) Did Section 4(2) of the Income-tax Act, before its amendment in 1939, empower the Income-tax authorities to take into consideration the income, profits and gains including losses, of any year preceding the “previous year” relevant to the assessment year?

8. Chagla, C.J:— The assessees are an unregistered firm consisting of two partners and had carried on business as managing agents of Hukumchand Mills of Indore and also business in cloth and money-lending at Indore as well as at Calcutta and Bombay. In this reference we are concerned with the assessment year 1936–1937, the year of accounting being Maru year 1991–923 ending on 27th October, 1935. The first six questions submitted to us are questions concerned with procedural matters, and a few facts may be stated in order to understand what we are called upon to decide. On 27th August, 1936, the assessees made their return, pursuant to a notice served on them under S. 22(2), to the Income-tax Officer, Special Circle, Bombay. On 1st April 1939, that assessment was pending and on that day the Income-tax Amendment Act came into force. Pursuant to Section 6(2) of the amended Act Mr. Sheehy, a Member of the Central Board of Revenue, passed an order on 18th April, 1939, assigning various cases to the Commissioner of Income-tax, Central, and amongst the cases assigned was the case of the assessees. On 27th April, 1939, the Commissioner of Income-tax, Central, purporting to act under R. 5(5), allocated the assessees' case to the Income-tax Officer, Central, S. VI, and on 14th October, 1939, the Commissioner of Income-tax, Central, purporting to act under S. 5(6), allocated the case to the Income-tax Officer, S. VII. The order which is challenged as being without jurisdiction is the order of 14th October, 1939. The material portion of S. 5(5) which deals with this question is:

“(5) Inspecting Assistant Commissioners of Income-tax and Income-tax Officers shall perform their functions in respect of such persons or classes of persons… in accordance with any order which the Commissioner of Income-tax may make for the distribution and allocation of work to be performed.”

9. Now it is not disputed that the Commissioner of Income-tax, Central, was within his rights when he made the order dated 27th April, 1939, allocating the case to the Income-tax Officer, S. VI, but what is contended by Mr. Kolah is that having once allocated the case to that Officer the Commissioner of Income-tax, Central, could not make the order of 14th October, 1939, as he has purported to do so. I see no reason why we should read S. 8(5) as giving the power to the Commissioner of Income-tax to allocate or distribute the work with regard to the assessees only once. There is no warrant for the contention that once the Commissioner of Income-tax has allocated or distributed the work the power is exhausted and that he could not again allocate or distribute the work. Therefore, in my opinion, the order made by the Commissioner of Income-tax on 14th October, 1939, allocating the assessment of the assessees to the Income-tax Officer, S. VII, was a competent order made by him under S. 5(5).

10. The second contention put forward by the assessees is that assuming that the allocation to the Income-tax Officer, S. VII, was a proper allocation, a fresh notice of assessment should have been issued to the assessees under Section 22(2) of the Act. For this purpose he relies on sub-s. (7-A) of R. 5 of the Act which was incorporated into the Act by the Amending Act XI[11] of 1940. This sub-section deals with the power of the Commissioner of Income-tax to transfer cases from one Income-tax Officer to another and also with the power of the Central Board of Revenue to transfer the cases from one Income-tax Officer to another. Such transfers may be made at any stage of the proceedings and the sub-section provides that when such a transfer is made it would not be necessary to re-issue any notice already issued by any Income-tax Officer from whom the case is transferred. Now when we look to this amending Act, this particular provision, viz., the incorporation of the new sub-s. (7A), has not been rendered retrospective and, therefore, as far as the provision contained in this sub-section is concerned, it came into operation after the passing of the Amending Act. To this extent Mr. Kolah is right. But what Mr. Kolah asks us to hold is that because sub-s. (7A) declares that the re-issue of the notice would not be necessary it follows that the re-issue of such notice was necessary before this amending Act was passed. In my opinion such a contention is opposed to all ordinary canons of construction. Merely because the Legislature for any reason chose to declare that a certain procedure is unnecessary, it does not follow as a necessary implication that such a procedure was necessary before such a declaration was made by the Legislature. What Mr. Kolah has got to satisfy us is that in fact under the law as it existed before this amending Act was passed the re-issue of the notice was incumbent and necessary. If the law required such a notice, then Mr. Kolah is right that inasmuch as sub-s. (7A) was not retrospective the absence of such notice would render the assessment of the assessees bad.

11. Now in order to satisfy us that the reissue of such a notice was necessary under the law as it existed, Mr. Kolah relies on S. 64 and he says that the law gave the assessees a right to be assessed by a particular officer and that right could not be taken away, and if the assessees are deprived of that right by their assessment being transferred to another officer, they should be given a fresh notice of assessment. There is no basis whatsoever for this contention, because the right to be assessed by a particular officer was in terms taken away by the Legislature when they enacted what was known as Ordinance IX of 1939 and which is now incorporated in the Income-tax Act as S. 64(5). That sub-section says that sub-ss. (1) and (2) of S. 64 which deal with the Income-tax Officers who have to assess the returns of different assessees shall not apply and shall be deemed never at any time to have applied to any assessee where by any direction given or any distribution or allocation made by the Commissioner of Income-tax under sub-s. (5) of S. 5 a particular Income-tax Officer has been charged with the function of assessing that assessee. Now, in this case, the Income-tax Officer who was appointed on 14th October, 1989, was charged by the Commissioner under S. 5(5) with the function of assessing the assessees before us and, therefore, the provisions of sub-ss. (1) and (2) of S. 64 do not apply to the case. In other words, their right to be assessed by any particular officer was taken away. If there was no such right, it could not be argued that they had a right of having a fresh assessment notice issued to them, when the case was transferred from the original Income-tax Officer to the Income-tax Officer appointed on 14th October, 1989, under S. 5(6).

12. Coming next to the questions which are questions of substance, the first question is whether there was any evidence before the tribunal which justified it in coming to the conclusion that the assessees were a resident firm. Now this very question was considered by the High Court, In re Sarupchand Hukumchand, 47 Bom. L.R 159 : (A.I.R (32) 1945 Bom. 268), with regard to the assessment of the assessees of the previous year, viz. 1935–1936, and the High Court attached considerable importance to the registration certificate issued by the Registrar of Partnerships in which it was stated that the principal place of business of the assessees was Bombay. The High Court took the view that was a material piece of evidence on which the Commissioner was entitled to rely. Apart from this certificate there were also other materials before the Commissioner and the High Court took the view that the Commissioner was right in the conclusion to which he came that the assessees were a resident firm in the material year of account. Now when it came to the assessment year 1936–1937, the Income-tax department rightly refused to preclude the assessees from going into the question again merely because the High Court had held a particular view with regard to the assessment year 1935–1936. It may be that although the firm was a resident firm in the year 1935–1936, it still might be a non-resident firm in the assessment year 1936–1937. Therefore the Income-tax department again considered all the materials placed before it and once again the department attached greatest importance, and rightly, to the registration certificate issued by the Registrar of Partnerships. So far as that position was concerned, it continued to be the same as it was when the High Court considered this very question. Apart from the certificate the department had also other materials before it and all those materials are mentioned and set out in the statement of the case submitted to us. Under the circumstances it is impossible to say that there was no material before the Tribunal which justified it in coming to the conclusion that the assessees were a resident firm in British India in the year 1936–1937.

13. The next question deals with certain remittances received by the assessees in the year of account. The assessees made a profit at Indore in the Maru year 1968–1989 and suffered losses in the years 1989–1990 and 1990–1991. It also appears that in the year 1991–1992, with which we are concerned, they made a profit, but it would appear that taking into consideration all the four years, 1988–1989, 1989–1990, 1990–1991 and 1991–1992 that on the whole and as a result of mere arithmetic there would be a loss rather than profit. The Tribunal was unable to determine at what different dates the remittances were made in the year of account and their inability was largely due to the fact that the assessees refused to produce their Indore books of account. The Tribunal held that the nett available profits which were remitted to British India were Rs. 1,91,268. Now Mr. Kolah does not find fault with this finding of fact; he does not dispute that there were profits in the year of account; he does not dispute that there were remittances in the year of account which should be attributed to these profits, but what he contends is that the Tribunal should not have isolated, as it were, the particular year of account, viz., 1991–1992, but it should have looked at the picture as a whole and should have taken into consideration the fact that during the four years there was a nett loss and not a nett profit. Therefore Mr. Kolah argues that if the Tribunal had taken that view, then there were no profits which could be remitted to British India, and whatever remittances there were in the year of account were remittances out of capital and not out of profits. Now I can well understand the position where an individual or a firm carries forward losses from year to year and in any particular year the profits of that year may be set off against the losses which have been carried forward to that year. However, it may be that an individual or a firm may adjust at the end of each year its profit and loss and transfer it to the accounts of the partners and the profit and loss of the next year may be determined irrespective of what the position was at the end of the last year. Now there was absolutely no evidence before the Tribunal to show that the losses incurred in the years 1989–1990, 1990–1991 were carried forward. As I have already stated, the Indore books of account of the firm were not produced and there was nothing before the Tribunal from which it could have drawn a conclusion that the profits of 1991–1992 were set off against the losses of the previous years. Therefore as the position stood and as the accounts appeared there were profits in the year 1991–1992 out of which remittances could have been made into British India, and the Tribunal has found it as a fact that such remittances were made out of available profits. The question really, therefore, resolves itself merely into a question of fact rather than a question of law. The question of law which the Tribunal has asked us to answer is whether under Section 4(2) of the old Act the Income tax authorities are empowered to take into consideration the income, profits and gains, including losses, of any year preceding the “previous year” relevant to the assessment year. Now under the old S. 4(2) what was taxable was not income, profits and gains, but the remittances, and for the purposes of remittances the relevant year was “previous year.” But I see no reason why for the purposes of income, profits and gains the relevant years should be the “previous years.” Any income, profits or gains whether earned in the previous year or years prior thereto would become taxable provided they were remitted rathe “previous year”, and therefore it cannot be stated that the Income-tax authorities are precluded by law from considering the true state of affairs by looking into the financial position of the assessees of the years prior to the previous year. But as I have stated before, the discussion of the question of law is rather academic because the decision arrived at by the Tribunal turns more on facts actually found rather than any interpretation of any particular section of the Act.

14. Apart from the questions raised by the Tribunal the assessees have taken out a notice of motion and require us to ask the Tribunal to submit a fresh question and that question deals with an item of Rs. 25,575. The assessees maintain a brokerage account and to the credit of this account was a sum of Rs. 1,25,032 and this amount was transferred to the account of the following year. At one time the contention of the assessees was that the whole of this amount was not liable to tax as it was not a profit of the firm. That contention was given up and the contention now put forward is that to the extent of Rs. 25,575 the amount was paid to sub-brokers and was not liable to tax. Now no payment of this sum of Rs. 26,575 appears in the books of account of the assessees for the relevant year.

15. Mr. Kolah contends that the books of account are maintained by the assessees on mercantile basis and therefore although there may be no entry with regard to the payment if liability has been incurred then the assessees would be entitled to exemption in respect of this amount. But unfortunately for Mr. Kolah's clients there is not even an entry in the books of account for the relevant year showing any liability on the part of the assessees to pay this sum to the sub-brokers. One should have expected an havala entry crediting the various sub-brokers who were entitled to this amount and debiting the brokerage account. But no such entry appears. Therefore the Tribunal was quite right in rejecting the claim of the assessees with regard to the sum of Rs. 25,575. We fail to see what question of law can possibly arise out of this decision of the Tribunal. We, therefore, refuse to accede to the application of the assessees to call upon the Tribunal to raise an additional question with regard to the sum of Rs. 25,575.

16. We would, therefore, answer the questions raised by the Tribunal as follows: Questions 1, 2 and 3, in the affirmative. Questions 4 and 6 do not arise. Questions 6 and 7 in the negative. Question 8 in the affirmative. Question 9: see judgment.

17. The assessees will pay the costs of the reference. The notice of motion will be dismissed with costs.

18. Answers accordingly.