Commissioner Of Income-Tax, Bombay City v. A.D Shroff

Chagla, C.J:— The assessee was assessed to tax for the assessment year 1947–48 on the 6th March, 1953. He was a dealer in shares and his income from that business was assessed at Rs. 1,11,271. His contention was that this income should be reduced in view of certain directions given by the Tribunal in an earlier assessment and those directions were concerned with the valuation of the shares. The Income-tax Officer accepted that contention of the assessee and in the final assessment order passed by him he directed that the sum of Rs. 1,11,271 was subject to adjustment. Therefore it is clear that in the final assessment what the Income-tax Officer had accepted as the income of the assessee was not Rs. 1,11,271, but Rs. 1,11,271 subject to adjustment. It will also be realised that the principle on which the adjustment was to be made was also accepted. So, the only question was to work out the figures in conformity with that principle.

2. Now, on the 28th of March, 1952, a notice was issued against the assessee under section 34, and the notice dealt with certain notional income which was sought to be added to the income of the assessee in respect of dividends of a certain company of which the assessee was a director.

3. The dividends were notional dividends under the provisions of section 23A of the Income-tax Act. The order of re-assessment under section 34 was passed on the 16th of March, 1953, and in this order of re-assessment the income of the assessee from his business in shares was taken as Rs. 1,11,271. It appears that the assessee had filed his statement before the Income-tax Officer which went to show that according to him his income, if adjusted according to the directions of the Income-tax Officer, was not Rs. 1,11,271 but a sum of Rs. 54,747. Inasmuch as the assessment order made by the Income-tax Officer under section 34 did not carry out the direction of the Income-tax Officer under the order of the original assessment dated the 6th of March, 1953, the assessee appealed to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner allowed the appeal of the assessee and directed that the Income-tax Officer should proceed with a de novo assessment and give effect to the directions given by the Tribunal with regard to the adjustment of the amount of Rs. 1,11,271. From this decision the Income-tax Officer appealed to the Tribunal and the Tribunal by a majority took the view that the appeal to the Appellate Assistant Commissioner was not competent, and the assessee has now come on this reference.

4. Now, the question that has been submitted to us for our consideration is:

“Whether an assessee in an appeal against re-assessment made under section 34 read with section 23(3) of the Act has a right of appeal against any item included in the original assessment ?”

5. Really, what is sought to be conveyed is appeal against any matter which is concluded by the original assessment, because it may well be that any particular item in the original assessment may become subject of re-assessment under proceedings under section 34. We will therefore amend the question to read “against any matter concluded by the original assessment.”

6. Now, as far as this question is concerned, it seems to us that, with respect to the Tribunal, it is capable of only one answer. Once an assessment order is made and the assessment order is not appealed against, it becomes conclusive and final. It is difficult to understand why, if it has become final and conclusive, proceedings under section 34, which have nothing to do with any particular item in the original order of assessment, should give the right to the assessee of appealing against any matter which he could have raised in appeal but did not. Therefore, in our opinion, it is clear that where an assessment order has become final and conclusive, all matters which could have been raised in appeal are concluded thereby, and in an appeal against an order made under section 34 none of these matters can be re-agitated.

7. But we must consider the facts of this case as well, and what the Tribunal has in effect decided is not only an academic question of law, but it has also decided that the assessee's appeal to the Appellate Assistant Commissioner was not competent. We must therefore consider whether on the facts found that particular appeal was competent or not.

8. Now, can it be said that the assessee was appealing against an item in the original assessment which had become final ? In our opinion, it is clear that the grievance of the assessee was that the Income-tax Officer, acting under section 34, had not given effect to the original assessment made by the Income-tax Officer. The original assessment being that his income from share business was Rs. 1,11,271 subject to adjustment, the Income-tax Officer under section 34 ignored the qualifying expression “subject to adjustment” and proceeded on the basis that the income of the assessee was Rs. 1,11,271. It is clear that, in doing so, he interfered with the assessment order of the Income-tax Officer which had become final. In assessing the assessee on the basis of an income of Rs. 1,11,271 he was not giving effect to the original assessment order, but he was clearly departing from it. Therefore, when the assessee went to the Appellate Assistant Commissioner he was not quarrelling with the finality of the assessment order. On the contrary, he was asserting that the original assessment order had become final and it was the Income-tax Officer under section 34 who was interfering with that finality. Therefore it is not as if the assessee is not as anxious to maintain the sanctity of the original assessment order as the Commissioner of Income-tax. Both Mr. Palkhivala and Mr. Joshi are agreed that the original assessment order is final and conclusive and cannot be challenged in the section 34 proceedings, except to the extent that certain items may come up for consideration in those proceedings. But what Mr. Palkhivala says, and rightly says, is that when the Income-tax Officer under section 34 ignores a direction given by the Income-tax Officer when making the original order and acts contrary to that direction, he has a right of appeal to the Appellate Assistant Commissioner against the action of the Income-tax Officer under section 34 proceedings. Therefore the appeal preferred by the assessee to the Appellate Assistant Commissioner was not against an item in the original assessment which had become final and conclusive. His appeal was against the erroneous order of the Income-tax Officer under section 34 proceedings in assessing him to tax on his business income on a figure which was not the figure accepted by the Income-tax Officer under the original assessment. There is all the difference in the world between the business income of Rs. 1,11,271 and an income of Rs. 1,11,271 subject to adjustment. It is true, as Mr, Joshi has pointed out, that the income was in fact not adjusted by the Income-tax Officer under the original assessment. It is also true that the figure suggested by the assessee, viz., Rs. 54,474, is not necessarily the correct adjustment. But it was the duty of the Income-tax Officer, acting under section 34, to have got the figure adjusted before he passed his final assessment order, and what the Appellate Assistant Commissioner did was the right thing, viz., to direct the Income-tax Officer to give effect to the original assessment order by adjusting the figure of Rs. 1,11,271 in accordance with the directions given by the Tribunal. Therefore, in our opinion, on the facts of this case, the appeal preferred by the assessee to the Appellate Assistant Commissioner was competent. We will therefore frame another question to the effect:

“Whether on the facts of this case the appeal preferred by the assessee to the Appellate Assistant Commissioner was competent ?”

9. and we answer that in the affirmative. No order as to costs.

10. Reference answered in the affirmative.