1. This is a reference under section 66 (1) of the Indian Income-tax Act, 1922. The assessee in this case was non-resident company running a textile mill in the then Baroda State during the relevant accounting year 1944. The assessment year in question is the year 1945-46. The assessee submitted its return of income and on 24th March, 1960, was assessed to tax. The assessee company had sold certain goods to the Textile Commissioner, Bombay, and had also sold certain goods to Shri Ambica Mills Ltd. The payments in respect of these goods had been made by cheques drawn on banks in British India. The Income-tax Officer took the view that as these payments were made in British India, they attracted the incidence of tax having regard to the provisions contained in section 4 (1) (a) of the Income-tax Act. The assessee, being aggrieved by the order passed by the Income-tax Officer, preferred an appeal therefrom to the Appellate Assistant Commissioner. The principal grounds urged by the assessee related to the income alleged to have been received in British India by reason of the payments made as aforesaid. The Appellate Assistant Commissioner passed an order on 31st March, 1959, where under he has sought to rope in income which could be deemed to have accrued to the assessee in British India by reason of certain purchases of goods made by the assessee in British India having regard to the provisions contained in section 4 (1) (c) and section 42 of the Income-tax Act. In the course of his decision he has observed as follows :

"Another point that arises for this assessment is that the appellant made certain purchases in the taxable territories and whereas for the assessment years 1946-47 onwards the Income-tax Officer assessed a certain percentage of the ultimate profits earned by the assessee as relating to such purchases, no such income has been assessed in this year."

2. He held that he was competent to make an enhancement of tax on this account as the Income-tax Officer had taken into account this particular source of income of the assessee, viz., the income from its business as a textile mill, and directed the Income-tax Officer to compute the total income of the assessee in the light of the observations made by the Appellate Assistant Commissioner in connection with the income which accrued to the assessee in view of the purchases made by the assessee in the taxable territories. The jurisdiction of the Appellate Assistant Commissioner to act in the manner aforesaid was challenged before the Tribunal. The Tribunal made an order on 8th June, 1960, reserving the order of the Appellate Assistant Commissioner. The Tribunal took the view that the decision of the Appellate Assistant Commissioner was contrary to judgment of the Bombay High Court in Shapoorji Pallonji Mistry v. Commissioner of Income-tax. The Tribunal in the course of its decision observed that if the Income-tax Officer had considered the question of any profits accruing or arising to the assessee from the purchases made in India, then only would it have been open to the Appellate Assistant Commissioner to go into that question, and that, admittedly, in the instant case, the Income-tax Officer had never considered this matter. In the circumstances, the Tribunal held, following the aforesaid decision that the Appellate Assistant Commissioner had no power to go into the question as to the income accruing or arising from the purchase operations carried out in British India, much less the quantum thereof. The Commissioner of Income-tax being aggrieved by the aforesaid decision applied to the Tribunal for referring the question of law which arose out of the decision of the Tribunal to this court. The Tribunal has accordingly submitted for our decision the following question :

"Whether, on the facts and in the circumstances of the case, it was competent for the Appellate Assistant Commissioner to go into the question of, and add sum as income or profit accruing or arising on, purchases effected in British India ?"

3. The Commissioner had desire that the question should be altered so that it may run in the following terms :

"Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner while deciding a point in appeal as to the allocation of the profits of the business between profits accruing or arising in British India and those arising in the Baroda State, was competent to allocate a part of the profits as assessable under section 42 (1) of the Income-tax Act, although this aspect of the allocation had not been considered by the Income-tax Officer ?"

4. In our view, the question as framed by the Tribunal sufficiently brings out the point in controversy between the parties and it is not necessary to amend the question as framed by the Tribunal.

5. The question raised before us involves the consideration of the powers of the Appellate Assistant Commissioner when an appeal is preferred before him. Section 30 of the Indian Income-tax Act, 1922, deals with appeals that may be made against assessment under the Act. That section, inter alia, provides that any assessee objecting to the amount of income assessed under section 23 may appeal to the Appellate Assistant Commissioner against the assessment. The right of appeal to the Appellate Assistant Commissioner against the assessment has not been conferred upon the Income-tax Officer because he could not be expected to appeal against his own order. The powers to be exercised by the Appellate Assistant Commissioner have been set out in section 31. That section deals with the hearing of appeals and provides, inter alia, as under :

"31. (2) the Appellate Assistant Commissioner may, before disposing of any appeal, make such further inquiry as he thinks fit, or cause further inquiry to be made by the Income-tax Officer.

(2A) The Appellate Assistant Commissioner may, at the hearing of an appeal, allow an appellant to go into any ground of appeal... if the Appellate Assistant Commissioner is satisfied that the omission of that ground from the form of appeal was not willful or unreasonable.

(3) In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, -

(a) confirm, reduce, enhance or annul the assessment, or

(b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment...."

6. The powers conferred upon the Appellate Assistant Commissioner are wide. The powers have been conferred upon him not merely to deal with the objections to assessment urged by the assessee, but the power has been conferred upon the Appellate Assistant Commissioner even to enhance the assessment. The powers conferred upon the Appellate Assistant Commissioner seem to be both appellate and revisional. These wide powers have been conferred with a view to enable the Appellate Assistant Commissioner to deal with the assessment made by Income-tax Officer fully. The Controversy has in the past centered round the meaning of the word "assessment" as used in section 31. As a result of the judicial interpretation of the word "assessment" given in several cases, the powers of the Appellate Assistant Commissioner are held not to be as wide as they may at first sight appear to be. The decision in some of these cases have found favour with the Supreme Court as stated by the Supreme Court in its latest decision on the subject in the case of Commissioner of Income-tax v. Shapoorji Pallonji Misrtry.

7. The first decision which we will consider is the one in the case of Jagarnath Therani v. Commissioner of Income-tax. We shall briefly state the facts of that case as the decision in that case has been followed in several later cases. In that case, one Babu Jagarnath Therani carried on business at Kishanganj in the district of Purnea. He had branches at Calcutta and Jalpaiguri. He used to make returns of his income in all the three places. The income-tax authorities in Calcutta and Jalpaiguri reported their findings to the Income-tax Officer at Purnea who then combined the figures and made an assessment to income-tax. In the year under consideration, that is, 1922-23, the Income-tax Officer at Purnea made the assessment without waiting for the reports from Calcutta and Jalpaiguri. There was an appeal filed before the Assistant Commissioner of Income-tax who enhanced the assessment after taking into account the income derived from the branch businesses at Calcutta and Jalpaiguri. It appears from the order of the Assistant Commissioner of Income-tax that after making his assessment the Income-tax Officer had noted that assessment would be made on receipt of the reports from the income-tax authorities at Calcutta and Jalpaiguri as was done during the earlier years. It was urged on behalf of the assessee that the jurisdiction to assess income-tax in respect of the businesses at Calcutta and Jalpaiguri was exercisable by the Income-tax Officer and that the Income-tax Officer had reserved the same to himself and that the Assistant Commissioner in appeal was not entitled to take the same into account and enhance the amount of tax. The arguments urged in support of the aforesaid contention which were accepted in toto by the court in that case were that the enhancement made by the Assistant Commissioner on appeal was illegal on three grounds : (1) Section 34 expressly provides for the assessment of sources of income that have escaped assessment by the Income-tax Officer; and, where there is an express provision of law applicable to the circumstances of the case that procedure ought to have been followed. (2) By the procedure adopted by the Assistant Commissioner in assessing on appeal the income from the businesses at Jalpaiguri and Calcutta the assessee had lost the right of appeal on questions of fact relating to these sources of income. (3) By section 31 the Assistant Commissioner in disposing of an appeal may, in case of an order of assessment, confirm, reduce, enhance or annul the assessment. It was contended that the word "assessment" there means the assessment made by the Income-tax Officer which itself under section 23 is based upon a return and in that case there was no such assessment so far as the businesses in Jalpaiguri and Calcutta were concerned and that the enhancement by adding these new sources of income was not an enhancement of the assessment made by the Income-tax Officer. The learned judges who dealt with the matter, have stated that the subject-matter of the appeal before the Assistant Commissioner was the assessment and the scope of the appeal must in their opinion be limited by the subject-matter, that the Appellate Assistant Commissioner had no power to travel beyond the subject-matter of the assessment and that for all the reasons advanced by the appellant in that case, the Assistant Commissioner in appeal was not entitled to assess new sources of income. They observed that to do so would not in reality be enhancing the assessment, the subject-matter being different. This decision has been followed by the Lahore High Court in the case of Commissioner of Income-tax v. Nawab Shah Nawaz Khan.

8. The next case of importance which we will consider is the case of Narrondas Manordass v. Commissioner of Income-tax, as some of the observation in this case have been quoted with approval by the Supreme Court in a later case to which we shall subsequently advert. The Division Bench of Bombay High Court, consisting of Chagla C.J. and Tendolkar J., in that case has laid down that the powers conferred upon the Appellate Assistant Commissioner by the Income-tax Act are much wider than the powers of an ordinary court of appeal, that under the Income-tax Act once an assessment came before the Appellate Assistant Commissioner, his competence was not restricted to examining those aspects of the assessment which were complained of by the assessee, but ranges over the whole assessment and that it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee in the appeal but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment. The assessee in that case was carrying on business at Bombay and at Rajkot. With regard to the profits of Rajkot, the Income-tax Officer assessed them proportionately at Rs. 1,17,643. He also considered the remittances made from Rajkot to Bombay and determined the amount of Rs. 4,00,000. He took the view that by reason of certain concession, the sum of Rs. 4,00,000 was not liable to tax. The appeal before the Appellate Assistant Commissioner was confined to the profit of Rs. 1,17,643. The Income-tax Officer having subsequently felt that the sum of Rs. 4,00,000 was not liable to tax proceeded upon an erroneous view of the concession that had been granted, pointed out the same to the Appellate Assistant Commissioner who was dealing with the appeal. The Appellate Assistant Commissioner accepting the subsequent view of the Income-tax Officer passed an order setting aside the assessment and remanded the matter to the Income-tax Officer for reassessment. That order was challenged by the assessee as being beyond the competence of the Appellate Assistant Commissioner. In the course of the judgment, Chief Justice Chagla, in dealing with the powers of the Appellate Assistant Commissioner, has observed as under :

"The statute provides that once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment."

9. The ambit of the powers of the Appellate Assistant Commissioner as held in that case extends to matter which have been considered by the Income-tax Officer and determined in the course of the assessment. In the course of the judgment, it is further observed that it was clear that going by the plain words used by the Legislature there were no words of limitation or qualification upon the power of the Appellate Assistant Commissioner in enhancing the assessment or setting aside the assessment and directing a fresh assessment to be made by the Income-tax Officer. It was urged before the court that the words of qualification and limitation have to be read into the sub-section by judicial interpretation. It was urged that if the Income-tax Officer had dealt with a particular income of the assessee and come to the conclusion that that income was not liable to tax, the Appellate Assistant Commissioner could not reverse the decision of the Income-tax Officer. Dealing with this argument, it was observed that such an interpretation of section 31 (3) would not only completely clip the powers of the Appellate Assistant Commissioner but would fail to give effect to the object that the Legislature had in conferring this rather extraordinary power upon the Appellate Assistant Commissioner. It is further stated that it was clear that the Appellate Assistant Commissioner had been constituted a revising authority against the decisions of the Income-tax Officer, a revising authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revising those matters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal was before him, he could revise not only the ultimate computation arrived at by the Income-tax Officer but he could vary the process which led of the ultimate computation or assessment. In other words, what he could revise was not merely the ultimate amount which was liable to tax, but he was entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer. After referring to the decision of the Patna High Court referred to by us earlier, the court observed that the principle which clearly emerged was that the Appellate Assistant Commissioner "cannot travel beyond the subject-matter of the assessment". They further observed that if an income was the subject-matter of consideration by the Income-tax Officer, and even though the Income-tax Officer may come to the conclusion that that income was not subject to tax, it would be open to the Appellate Assistant Commissioner to take a different view and to bring that income to tax. After dealing with the other case on the subject, the court observed that the appeal before the Appellate Assistant Commissioner was not confined to the subject-matter of the appeal as restricted by the appellant himself, but the power of the Appellate Assistant Commissioner extended to considering all sources and items in respect of which the assessment is made and that the expression "assessment is made" did not carry the meaning that the source and items have been brought to tax. On the facts of that case they held that the assessment was made in respect of Rs. 4,00,000 in the sense that it was considered by the Income-tax Officer and was not brought to tax and that the Appellate Assistant Commissioner was justified in the action which he took.

10. The Supreme Court in the decision of Commissioner Of Income Tax v. Mcmillan & Co. has expressed its agreement with the observation made by Chief Justice Chagla in the case quoted above where it has been stated by Chief Justice Chagla that the language of the section was wide enough to enable the Appellate Assistant Commissioner to

"correct the Income-tax Officer not only with regard to a matter which has been raised by the assessee but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment"

and where he has observed that the Appellate Assistant Commissioner can revise not merely the ultimate amount which is liable to tax, but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer.

11. We shall next deal with the case of Shapoorji Pallonji Mistry v. Commissioner of Income-tax. In that case, the assessee was a leading building contractor. His firm took a contract for building the Ritz Hotel for one S. Zito on a plot of land belonging to Mehta. The assessee had agreed to finance Zito and the agreement provided for the return of capital with interest and the assessee also secured for himself the right to become a 6 annas partner in the business of this hotel for a period of seven years. After the completion of the building disputes arose between the assessee and Zito. A suit was instituted by the assessee for the realisation of the outstanding dues and for enforcing his claim in connection with the share of the partnership. As a result of a settlement arrived at between the parties a sum of Rs. 40,000 was received and a receipt was passed for the amount in which it was stated that the sum had been paid in full settlement of the suit being the share of 6 annas in the goodwill and the assets of this hotel and the sale thereof. The receipt had been produced. While making the assessment on the assessee, the Income-tax Officer lost sight of this item altogether. When the assessee went in appeal before the Appellate Assistant Commissioner in respect of other items, the Income-tax Officer by a letter requested the Appellate Assistant Commissioner to enhance the assessment by including this item of Rs. 40,000. The Appellate Assistant Commissioner held that the aforesaid sum of Rs. 40,000 constituted the income of the assessee and was assessable to tax. The question arose whether the Appellate Assistant Commissioner had the power to enhance the assessment. The court in that case reaffirmed its decision in the case of Narrondas Manordass v. Commissioner of Income-tax referred to by us earlier. In the course of his judgment Chief Justice Chagla has observed at page 347 that if a particular source or item had not been subjected to the process of assessment and even though the Income-tax Officer may have subjected to tax a particular head of income in which that item or source fell, then it would not be open to the Appellate Assistant Commissioner to take into consideration the particular source or item which had not been considered by the Income-tax Officer, that the word, "source" was not source in the sense of head of income as used in the Income-tax Act, that by "source" what meant was the specific source from which a particular income sprang or arose, that the power of the Appellate Assistant Commissioner was confined to considering the matter which had been considered by the Income-tax Officer and determined in the course of the assessment and that this word "matter" was used, not in the sense of a head of income, but in the sense of a specific source of income. The court observed that section 34 of the Income-tax Act expressly dealt with the case where an assessee failed to disclose fully and truly all material facts necessary for his assessment and the case referred to the court was a case where the assessee had failed to disclose the sum of Rs. 40,000 and that if the court were to hold that the Appellate Assistant Commissioner had the power to take into account this sum of Rs. 40,000, he in effect would be functioning as the Income-tax Officer under section 34 and he would be bringing to tax an income which the assessee had failed to disclose and which had never been subjected to the process of assessment and that surely was not the power which section 31 gave to the Appellate Assistant Commissioner when it referred to the power of enhancing an assessment. This case was carried by the Commissioner of Income-tax, Bombay, to the Supreme Court and this judgment of Supreme Court is Commissioner of Income-tax v. Shapoorji Pallonji Mistry.

12. After referring to various authorities, to some of which we have already adverted, and after referring to some of the observations made by Chief Justice Chagla in Narrondas Manordass v. Commissioner of Income-tax, it is stated that the Supreme Court had given its approval to the opinion of Chief Justice Chagla that section 31 of the Income-tax Act conferred not only appellate powers upon the Appellate Assistant Commissioner in so far as he was moved by an assessee but also a revisional jurisdiction to revise the assessment with a power to enhance the assessment. Thereafter, it has been stated as under :

"The only question is whether in enhancing the assessment for any year he can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer, with a view to finding out new sources of income, not disclosed in either."

13. In dealing with the contention urged by the Commissioner that the word "assessment" in section 31 meant the ultimate amount which an assessee must pay, regard being had to the charging section and his total income and that the words "enhance the assessment" were not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found, it is observed that there was no doubt that such view was also possible. It is then stated as under :

"On the other hand, it must not be overlooked that there are other provisions like sections 34 and 33B, which enable escaped income from new sources to be brought to tax after following a special procedure......... The question is whether we should accept the interpretation suggested by the Commissioner in preference to one which had held the field for nearly 37 years, but no amendment of section 31 (3) was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible."

14. In view of this decision of the Supreme Court, we have only to consider whether, on the facts of the present case, the same falls within the ambit of the decisions given relating to the powers of the Appellate Assistant Commissioner. In the case before us it was sought to be urged by the learned Advocate-General on behalf of the Commissioner that the Income-tax Officer had in fact applied his mind to the question whether purchases had been made by the assessee in British India and has also come to a definite conclusion that the income that could be deemed to have accrued in British India should not be taken into account for the year in question but should be taken into account for the subsequent years. He sought to support the same by the material which was in the possession of the Income-tax Officer. The Tribunal in the course of its judgment has in express words stated as under :

"Admittedly, in the instant case, the Income-tax Officer never considered this matter."

15. In view of this statement by the Tribunal, it is not open to us to go behind the same and permit the Commissioner of Income-tax to agitate the matter. In view of the finding of the Tribunal that the Income-tax Officer never considered this matter, the position, on the authorities, is clear. As the Income-tax Officer has not considered this matter at all, it was not open to the Appellate Assistant Commissioner to take the same into account and give the directions which he has thought fit to give.

16. In the result, our answer to the question is in the negative. We order the Commissioner to pay to the respondents the costs of the reference.

17. There will be no order on the Civil Application No. 6 of 1962 filed by the Commissioner for altering the question raised.

18. Question answered in the negative.