Commissioner Of Income-Tax, Bombay City Iii v. Hansa Agencies.

Desai, J.:— In this reference we are concerned with two assessees, but the question referred to us is a common question and does not depend for its answer on the various facts involved in the assessments of the two assessees before us. The common question referred to us for our opinion at the instance of the Commissioner under s. 256(1) of the I.T Act, 1961, reads as follows:

“Whether composite appeals filed by J.K Shah & Co. and Hansa Agencies covering their objections against the quantum of assessment and against refusal to give effect of registration and refusal to grant registration are not tenable?”

2. A few facts pertaining to the understanding of this question arising from the assessment of M/s. J.K Shah & Co. may be stated. By an order dated 29th March, 1967, which was for the assessment year 1962–63, the ITO completed the assessment of the said firm determining its total income at Rs. 90,262 and observing further in the assessment order that the said firm was to be assessed as an unregistered firm. It had been granted registration for 1961–62. On 14th May, 1962, the said assessee had made an-application for renewal of registration under s. 26A of the Indian I.T Act, 1922, for the year under consideration. On 27th June, 1962, it had made an application in Form No. 11 prescribed under the Rules. By his order of the very same date, i.e, 29th March, 1967, the very same officer, viz., 13th ITO. B.S.D (W), Bombay, declined to grant renewal/continuation of registration of the assessee-firm. Both the orders of the ITO, dated 29th March, 1967, are annexed as annex. ‘A’ to the statement of case.

3. Being aggrieved by the assessment as well as refusal to continue the registration of the firm, the assessee preferred a composite appeal to the AAC. The grounds of such appeal are annexed as annex. ‘C’ to the statement of case, and ground No. 1 pertained to the refusal of registration whereas grounds Nos. 2 to 4 pertained to the assessment order. When the AAC heard the matter, he was of the view that one common appeal was not maintainable. In his view only one of the two orders of the ITO could be contested by a single memorandum of appeal; and he required the representative of the assessee appearing before him to elect as to which of the orders should be gone into by the AAC. It appears from one of the orders of the AAC that the representative of the assessee agreed to confine his arguments to the order under s. 185 made by the ITO, which was dealt with by the AAC in his appellate order. The AAC upheld the decision of the ITO holding that the renewal of registration applied for had been rightly refused.

4. The aggrieved assessee then preferred a further appeal to the Income-tax Appellate Tribunal. In the said appeal, the assessee objected to the order of the AAC confirming the order of the ITO declining to grant renewal/continuation of registration of the assessee-firm. The assessee further objected to the AAC not hearing and disposing of the assessee's objection in the appeal relating to the computation of its total income. It may be mentioned that a similar position existed for the other assessee viz., M/s. Hansa Agencies, and both the appeals were heard together by the Tribunal. Before the Tribunal it was submitted that the AAC had clearly erred in holding that a common appeal was not tenable. It was urged as a sequitur that the Tribunal should direct the AAC to hear and decide the objections raised by the assessee-firm against the computation of its income. In the alternative, learned counsel for the assessee contended that the assessee should be permitted to deconsolidate the two appeals by filing two separate memos of appeals, one containing objections against the computation of income and the other containing objections against the order refusing renewal/continuation of registration. It was prayed that the delay in filing such separate appeals, assuming that any delay had taken place, should be condoned. The Tribunal accepted the submissions made by the assessee, viz., that one composite appeal was permissible, and accordingly directed the AAC to hear the assessee on the question of computation of income which the AAC had not gone into in the view he had taken of the maintainability of a composite appeal. After giving this direction the Tribunal has observed in para. 10 of its appellate order (in M/s. J.K Shah & Co.'s case) that even if its view had been that a composite appeal is not tenable, it would have accepted the suggestion made by counsel for the assessee to permit the assessee to file two separate memos of the appeals and to condone the delay in filing the same. It is from this order of the Tribunal and a similar order in the allied appeal by M/s. Hansa Agencies that the reference has been made to the High Court.

5. Before adverting further to the points which weighed with the Tribunal, we may refer to the statutory provisions arising for consideration. Under the I.T Act, 1961, the right of appeal to the AAC against the various orders passed by various ITOs is provided for under s. 246. The relevant provisions of s. 246 read as follows:

“246. Appealable orders.— Any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order—…

(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed…

(j) an order under clause (b) of sub-section (1) or under subsection (2) or sub-section (3) or sub-section (5) of section 185…….”

6. Section 249 deals with the form of appeal and limitation, and sub-s. (1) of s. 249 provides that every appeal under Chap. XX shall be in the prescribed form and shall be verified in the prescribed manner. Turning to the I.T Rules, 1962, it is found that the form of appeal to the AAC is provided for by r. 45 and Form No. 35 is prescribed for an appeal under s. 246. Mr. Joshi appearing on behalf of the Commissioner drew our attention to Form No. 35 and in particular to the two parts thereof in which the appellant is required, inter alia, to indicate the section and subsection of the i.t act, 1961, under which the ITO passed the order appealed against, the date of such order and the section and the clause of the I.T Act, 1961, under which the appeal is preferred. The argument was that the orders made by the ITO were made under two separate sections of the I.T Act, 1961, and were made appealable under two separate clauses of s. 246(1) and there was intrinsic evidence in the form, therefore, that the assessee aggrieved by such two separate orders of the ITO was required to file two separate appeals, and one composite appeal was not contemplated by the rule providing for the form of appeal. Inasmuch as the appeal had to be in the prescribed form, it was submitted that the appeals filed by the assessees, M/s. J.K Shah & Co. and M/s. Hansa Agencies, being composite ones were incompetent and improper as being contrary to the requirements of the Rules.

7. Mr. Joshi drew our attention to the decision of the Supreme Court in Commissioner Of Income Tax, Bombay v. Amritlal Bhogilal & Co., [1958] 34 ITR 130, where it was, inter alia, observed that an order granting registration to a firm under s. 26A of the Indian I.T Act, 1922, merely affects or governs the procedure in collecting or recovering the tax found due from a firm and is separate from and independent of the order of assessment. It was submitted on the basis of the observations to be found in the above decision that if the order of assessment and the order refusing continuation of registration are to be regarded as two separate and independent orders for which provision for appeal was made by two separate clauses of s. 246(1), then, it was quite clear that two appeals were required to be preferred and one composite appeal was not competent.

8. Mr. Joshi also drew our attention to the decision of the Calcutta High Court in Fuel Supply Co. v. CIT, [1965] 58 ITR 130, which, however, was a decision given under the Indian I.T Act, 1922, and the Indian I.T Rules, 1922. Before adverting further to the observations to be found in the above decision of the Calcutta High Court, we may briefly refer to the position under the Act and the Rules under the 1922 enactment. Section 30(1) of the Act of 1922 is comparable to s. 246 of the Act of 1961, and it is found that sub-s. (3) of the said section contains the legislative prescription which has been found contained in s. 249(1) of the 1961 Act. There is no material difference between the two legislative provisions, but the position is different when we go to the Rules framed under the 1922 Act. Under r. 21 it is provided that an appeal under s. 30 (of the 1922 Act) shall, in the case of an appeal against refusal of the ITO to register the firm or the cancellation of registration of the firm under sub-s. (4) of s. 23, should be in Form D-II. There is a residuary provision in r. 21 that in other cases not earlier provided for, the appeal to the AAC shall be in Form B. When one turns to the forms which follow the Rules, we find separate forms provided and Form D-II would have to be resorted to in the case of an appeal against the order comparable to the order of the ITO in the instant case refusing to continue registration of the firm, whereas under the old Act an appeal from the computation of assessable income would have lain to the AAC in Form B. It is in this background that the Calcutta High Court had occasion to consider in the Fuel Supply Co.'s case, [1965] 58 ITR 130, the question whether a composite appeal could be filed. In the case being considered before the Calcutta High Court the ITO had passed a composite order as contemplated by s. 23(4) of the Act of 1922 making the assessment to the best of his judgment and refusing registration of the assessee-firm. The assessee filed a composite appeal under s. 30 against both the orders in Form B. The Calcutta High Court held that such a composite appeal was not competent. For the purpose of such conclusion it observed that under s. 30 the right of appeal against an assessment order under s. 23 and the right of appeal against an order of refusal of registration of the firm under s. 23(4) were provided as distinct rights, being disjunctive and not conjunctive. The conclusion was further based on the provision in the Rules that a separate form D-II had been prescribed for an appeal against the order under s. 23(4) refusing registration of a firm. The Calcutta High Court in the Fuel Supply Co.'s case, [1965] 58 ITR 130 expressed its further opinion that filing a composite appeal against the two orders, viz., the best judgment assessment and refusal of registration of the firm was not a mere irregularity which could be condoned. It would appear to us from the observations to be found at page 135 of the report that the Calcutta High Court in the above case placed special emphasis on the fact that there had been a special procedure prescribed for registration of firms, which is controlled by separate rules framed under the Act. It laid emphasis on the fact that under the Rules two separate forms of appeal, viz., B and D-II had been provided for by the rule-making authorities; and, according to K.C Sen J., who delivered the principal judgment of the Bench, where an assessee is aggrieved by the order of refusal of registration, it was incumbent on him to file a separate appeal in Form D-II and a composite appeal in Form B will not be justified in law. The change brought about under the new rules adopted in 1962 has already been noted. By reason of the change there is a common form, though it contains separate columns (parts), where the section under which the ITO made the order impugned in the appeal and the section providing for appeal therefrom have to be indicated. This, however, is not clearly indicative, in our opinion, of any intention on the part of the rule-making authorities or of the legislature that the two separate provisions cannot be mentioned in one part of the form and the position, as it appears to us, is totally different from that existing under the Act of 1922.

9. Further, it would appear to us that merely because the appealable orders are separately indicated in separate clauses of s. 246(1) it would not follow that separate appeals have to be filed from each such order. Appealable orders do not appear to have been classified in the said section with an eye on the question as to whether one or more appeals is/are required to be filed, but they have been merely enumerated in the section to indicate whether these are appealable or not. Section 246, in our view, really deals with the question of the right of the aggrieved assessee to prefer an appeal and has no relevance on the question of the procedure to be followed by such assessee. Whether one appeal or more will have to be filed is entirely a procedural matter, whereas whether the order is appealable or not is substantially a question of a substantive right of the assessee. Unless the order is specifically designated under s. 246, the assessee would not have the right of appeal but if such a right is provided, it would not follow that such right is to be exercised by filing a separate appeal.

10. The Tribunal has in its appellate order in J.K Shah & Co.'s case observed that “if convenience of administration of justice is the reason and justification for a rule of procedure, there can be no valid objection to a common or a consolidated appeal in principle”. The Tribunal has further drawn attention to the fact that it is a common practice to file one appeal in respect of all the points arising from the same order or decision, and in its view there is no general rule or judicial authority prescribing separate appeals. The Tribunal further emphasised the fact that the questions relevant to the registration of firms form an integral part of the assessment of a firm. It is true that in Amritlal Bhogilal & Co.'s case, [1958] 34 ITR 130 (SC), it has been observed that the order granting registration merely affects or governs the procedure in collecting or recovering tax and is separate and independent of the order of assessment; but the fact notwithstanding remains that for the assessee it is an order of serious consequence, forming an integral part of the tax collecting process as far as it is concerned. The Tribunal has rightly placed emphasis on the fact that under the scheme of assessment of firms the assessment of a firm is incomplete without the decision of the question relating to registration. We are in full agreement with this view, viz., that these two questions are closely inter-connected.

11. The question which we are required to consider in this reference has to be determined, then, in the following background: (1) both the orders were made by the ITO on the same date; (2) one of the two orders is an order declining to grant renewal/continuation of registration of the assessee-firm and the other is the assessment order computing the total income of the said firm, with an observation that the assessee-firm has to be assessed as an unregistered firm. In our view this is indisputable proof of the fact that both these orders are closely inter-connected; (3) there appears to be no provision in the I.T Act, 1961, or in the I.T Rules, 1962, or in the forms which are part of the said Rules to suggest that two separate appeals are required to be filed.

12. In our view, in these circumstances, unless there is express provision in the Act or in the Rules for the mandatory filing of two appeals or a clear implication to that effect, which we do not find, two appeals were not required and a composite appeal could have been filed as was actually done by the two assessees. We do not wish to express any opinion on the position under the Indian I.T Act, 1922, and the Rules framed thereunder. Our opinion is based upon the provisions contained in the I.T act, 1961, and the rules and forms provided under that Act. Further, we are restricting our decision to the type of orders with which we are concerned, both of which orders have been passed by the ITO on the same day. Bearing all this in mind, we are of opinion that the Tribunal had come to the correct conclusion on the maintainability of the composite appeal. In the result, the question referred to us is answered as follows:

In our opinion, composite appeals were tenable and were rightly held so by the Tribunal.

13. The Commissioner will pay to the assessee the costs of this reference.