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  • Bajpai, JJ.
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Smart Summary

Summary of the Opinion of Collister, J. (Reference under Section 66(2) of the Income-tax Act)

Factual and Procedural Background

The assessee, an advocate of the High Court, was appointed an Acting Judge and took his seat on 19 April 1932. He sat until 27 July 1932 when the High Court rose for vacation. He practised as an advocate from 1–18 April and again from 28 July to 16 October 1932. On 17 October 1932 he was appointed an Additional Judge and on 17 July 1933 was confirmed as a Puisne Judge; the notification was dated 20 July 1933 and published in the U.P. Gazette on 22 July 1933.

For the assessment year 1932–1933 the assessee was assessed under Section 23(1) on 22 September 1932 for a total income of Rs. 89,866 (Rs. 88,007 of which represented professional earnings). For the year 1933–1934 he was assessed on 15 November 1933 on the total income of the previous year amounting to Rs. 53,218 (breakdown included salary Rs. 27,917 and professional earnings Rs. 21,940).

The assessee did not appeal these assessments. On 28 April 1939 the assessee filed an application for relief under Section 25(3) of the Income-tax Act in relation to the 1932–1933 assessment, contending that he had discontinued practice in October 1932 and that relief (a refund and reassessment under S.25(3)) should have been granted. The Commissioner referred the matter to the Central Board of Revenue (letter dated 7 June 1939) and ultimately declined to exercise revisionary powers under Section 33 by order dated 29 August 1939. The assessee then sought a reference to the High Court under Section 66(2) (application dated 18 September 1939). The Commissioner (W. R. Wall) made a reference to the High Court on 31 July 1940.

Legal Issues Presented

  1. Preliminary question: Whether the order of the Commissioner dated 29 August 1939 under Section 33 of the Act is an order prejudicial to the assessee within the meaning of Section 66(2) of the Act?
  2. If the preliminary question is answered in the affirmative, the three further questions of law referred were:
    1. Whether on the materials before the Income-tax Officer at the time of the assessment for 1933–1934, he was in law justified in assessing the assessee to income-tax without giving him relief under Section 25(3) of the Act?
    2. Whether the assessee's claim for relief under Section 25(3) of the Act in respect of his assessment for 1933–1934, made in the circumstances stated, is barred by limitation?
    3. Whether the Commissioner's discretion under Section 33 of the Act can legally be controlled by the Central Board of Revenue; and if so, whether the Central Board of Revenue acted judicially in refusing to authorise the Commissioner to exercise his power of revision in this case?

Arguments of the Parties

Assessee's Arguments

  • The assessee contended that he had discontinued his legal profession in October 1932 on becoming a Judge and therefore, under Section 25(3), no tax was payable in respect of the income for the period between the end of the previous year and the date of discontinuance and a reassessment/refund should follow.
  • He asserted he had made a verbal claim in March 1939 at the Income-tax Officer's office (before the amending Act of 1939 came into force) and later filed a formal application on 28 April 1939; accordingly he argued the claim was not time-barred by the amending Act.
  • The assessee also argued that the amending provisions added in 1939 could not affect rights that had already accrued before 1 April 1939 and that the amending sub-section should not be read to operate retrospectively to bar his claim.

Revenue / Commissioner / Central Board

  • The Commissioner (in an initial letter) took the view that the claim was belated and that the assessee should have put in his claim during the proceedings for the assessment year 1933–1934; he relied on a departmental rule (Income-tax Manual, para. 96) that a claim in this case could only be admitted if made not later than the end of calendar year 1933.
  • The Commissioner who declined revision (order dated 29 August 1939) stated that the Income-tax Officer had no idea of the discontinuance of the assessee's profession and that claims under S.25(3) must be made in the course of the assessment for 1933–1934; he also referred to the Central Board's instruction that Commissioners should consult the Board before exercising revision where more than a year had elapsed since the last subordinate order.
  • The Central Board, by letter dated 28 July 1939, declined to authorise the Commissioner to exercise revisionary powers in favour of the assessee.

Advocate-General's Submissions (before the High Court)

  • The Advocate-General conceded that the assessee had been overcharged, that he had a good claim on merits, and that relief could have been granted by the Income-tax Officer if the officer had been aware the assessee had discontinued practice.
  • Nevertheless, the Advocate-General contended the Income-tax Officer was unaware of the discontinuance and that it was the assessee's duty to apply during the assessment year 1933–1934.
  • The Advocate-General also argued that a claim for relief under Section 25(3) should be preferred during the assessment year, pointing to the scheme of the Act (Chap. 4) as supporting that expectation.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court in this Opinion
5 I.T.R 2671 (Nagpur High Court) Held that where the Commissioner refuses to review the order of an Assistant Commissioner and the position of the assessee is not altered as a consequence, the assessee is not prejudiced within the meaning of S.66(2). The Court summarised this decision as one view on "prejudice" and contrasted it with later Full Bench authority; it treated the Nagpur view as not carrying the matter further where other Full Bench decisions had considered the point.
Venkatachalam Chettiar v. Commissioner of Income-tax, Madras; A.I.R. 1935 Mad. 379 (three-judge Bench) Held the Commissioner's refusal to review that leaves the assessee in the same position is not an order "prejudicial" within S.66(2). The opinion records this case as the earlier Madras three-judge view which was later overruled by a Full Bench of Madras; it was part of the authorities examined on the meaning of "otherwise prejudicial".
7 I.T.R 2633 (Full Bench of Madras — five Judges) Overruled the three-Judge Madras decision and held that an order of the Commissioner which confirms or rejects an application for revision can itself be "prejudicial" within S.66(2). The Court expressly adopted the interpretation of "otherwise prejudicial" given by the five-Judge Full Bench of Madras and stated it was in full accord with that view.
8 I.T.R 3824 (Full Bench of Rangoon High Court) Examined the point and held in that case the Commissioner's order was not prejudicial, as it did not alter the position proved before review. The opinion contrasted Rangoon's facts with Madras; the Rangoon court found no prejudice in its facts, and the present Court considered those distinctions in reaching its conclusion.
7 I.T.R 2639 Referenced in the opinion in relation to discussion of precedents on prejudice (text cites this citation in passing). The opinion notes the Rangoon Court's reference to this case when comparing whether an order altered the assessee's position; used as part of the comparative authority discussion.
7 I.T.R 5065 (Patna High Court) Referred to as affording some support to the revenue view; the opinion notes the question of "prejudice" was treated briefly by the Patna Court with few authorities cited. The Court observed that this case appeared to offer some support to the revenue, but that the treatment of "prejudice" there was short and without detailed authority.
8 I.T.R 4376 (Lahore) Dalip Singh, J. expressed inclination to agree with the Madras Full Bench view (that a Commissioner's confirming order can be prejudicial), while also noting nuanced differences in wording between S.33 and S.66(2). The opinion records Dalip Singh, J.'s remarks and uses them in the survey of authorities to support alignment with the Madras Full Bench interpretation; the Court regarded those observations as part of the persuasive matrix of authority.

Court's Reasoning and Analysis

The Court proceeded in two stages: first it considered whether the Commissioner's order of 29 August 1939 under Section 33 was an order "otherwise prejudicial" within the meaning of Section 66(2) and therefore capable of being referred to the High Court; second, it addressed the three specific questions of law referred if the preliminary question were answered affirmatively.

On the meaning of "otherwise prejudicial" (preliminary question)

The Court examined the text and purpose of Section 33 (including its proviso that the Commissioner shall not pass any order prejudicial to an assessee without giving him an opportunity to be heard) and Section 66(2) (which permits the assessee, within 60 days, to require the Commissioner to refer any question of law arising out of an order under S.33 to the High Court). The Court reasoned that:

  • S.33's proviso protects the assessee from being put in a worse position without a hearing; S.66(2) contemplates the assessee's right to require a reference to the High Court in respect of an order under S.33 that is prejudicial.
  • The Court surveyed competing authorities (including the three-judge Madras view that a confirming refusal to review was not itself prejudicial and the Madras Full Bench view that it could be prejudicial). After review, the Court agreed with the Madras Full Bench (five judges) interpretation that an order under S.33 which confirms a prejudicial earlier order or rejects a revision application is itself within the ambit of "otherwise prejudicial".
  • Applying the legal principle to the facts — the Commissioner had declined the assessee's application for revision even though the assessee had been overcharged and had a good claim on the merits — the Court concluded the Commissioner's order of 29 August 1939 was "otherwise prejudicial" to the assessee within S.66(2). Consequently, the reference was competent.

On the first referred question: Whether the Income-tax Officer was justified in assessing without relief under S.25(3)

The Court examined Section 25(3), which imposes a duty on the Income-tax Officer where a business/profession on which tax was charged is discontinued: "no tax shall be payable" in respect of income between the end of the previous year and the date of discontinuance and a reassessment and refund must follow where appropriate.

The Revenue contended the Income-tax Officer had no knowledge of discontinuance and thus was not responsible for failing to give relief. The Court reviewed the materials available to the Income-tax Officer at the time of assessment for 1933–1934 and found:

  • The appointment as puisne Judge had been notified in the Gazette on 22 July 1933, four months before the assessment order dated 15 November 1933.
  • There was an acknowledgement slip showing the notice to submit a return was addressed to "The Hon'ble Mr. Justice Iqbal Ahmad" and the assessment form of 15 November 1933 showed the name as "The Hon'ble Mr. Justice Iqbal Ahmad".
  • These facts, the Court held, were materials that should have put the Income-tax Officer on inquiry as to whether the assessee had discontinued practice and was therefore entitled to relief under S.25(3).

Conclusion: The Court answered this question in the negative — the Income-tax Officer was not in law justified in making the assessment without giving relief under S.25(3) given the materials before him.

On the second referred question: Whether the claim is barred by limitation

The Amending Act of 1939 (coming into force 1 April 1939) added sub-section (5) to S.25 providing that no claim under sub-s.(3) shall be entertained unless made within one year from the date of discontinuance. The Court analysed whether that limitation operated to bar the assessee's claim.

  • The Court noted the assessee's right accrued before 1 April 1939 and that the formal application was made on 28 April 1939. The assessee asserted (and the Commissioner acknowledged) a verbal interview/claim before the Income-tax Officer in March 1939.
  • The Court observed there was nothing in S.25(3) requiring claims to be in writing and that a statutory bar of limitation cannot be read into the Act where none existed prior to the amending provision.
  • The Court further observed that the amended sub-section itself demonstrates legislative awareness of the prior absence of any bar.
  • The Commissioner had raised the time issue in the statement of case, but the Court held the interview in March 1939 had been brought to the Commissioner’s attention and therefore the limitation question did not bar relief.

Conclusion: The Court answered this question in the negative — the claim was not barred by limitation on the facts and timing as presented.

On the third referred question: Whether the Central Board can legally control the Commissioner's discretion and whether the Board acted judicially

The Court recognised that a Commissioner of Income-tax is required to obey departmental orders from the Central Board of Revenue in practice. However, the Court distinguished between obedience to departmental directions and the legal control of a statutorily vested discretion:

  • The discretion vested in the Commissioner by statute (S.33) cannot be "legally" controlled by the Central Board because the statute vests the discretion in the Commissioner and contains no statutory control by the Board.
  • The only legally recognised control over such discretion is judicial control (i.e., by the courts exercising review), and departmental instructions do not amount to legal control of the statutory discretion.

Conclusion: The Court answered the first part of the third question in the negative (the Commissioner's discretion cannot be legally controlled by the Central Board) and found it unnecessary to answer the second part (whether the Board acted judicially), since that question did not arise once the first part was decided.

Holding and Implications

Holding (core rulings):

  • The preliminary question is answered in the affirmative: the Commissioner's order dated 29 August 1939 under Section 33 was an order "otherwise prejudicial" to the assessee within the meaning of Section 66(2) of the Act, and the reference to the High Court was therefore competent.
  • The first referred question is answered in the negative: on the materials before the Income-tax Officer at the time of the 1933–1934 assessment, the officer was not in law justified in assessing the assessee without giving relief under Section 25(3).
  • The second referred question is answered in the negative: the assessee's claim was not barred by limitation on the facts (including the verbal claim in March 1939 and the accrual of rights prior to 1 April 1939).
  • The first part of the third question is answered in the negative: the Commissioner's statutory discretion under Section 33 cannot be "legally" controlled by the Central Board of Revenue; the second part of that question was unnecessary to decide.

Direct consequences and attendant orders:

  • The Advocate-General was awarded a fee of Rs. 200.
  • The assessee was awarded his costs.
  • A copy of the order was to be sent under the seal and signature of the Registrar to the Commissioner of Income-tax.

Note: The summary above is prepared solely from the content of the provided opinion. No facts or conclusions have been added beyond what is contained in that opinion.

Show full summary ...

    Income-Tax Commissioner v. Iqbal Ahmad

    Collister, J.:— This is a reference under Section 66(2) of the Income-tax Act. The assessee was an advocate of the High Court. In 1932 he was appointed as an Acting Judge and he took his seat on 19th April of that year. He remained on the Bench until 27th July of that same year, when the High Court rose for the vacation. On 17th October, 1932 he was appointed an Additional Judge and on 17th July, 1933 he was confirmed as a Puisne Judge. The notification of his appointment was dated 20th July, 1933 and was published in the U.P Gazette dated 22nd July, 1933. During the financial year 1932–1933, the assessee practised as an advocate from 1st to 18th April and again from 28th July to 16th October, 1932. For the year 1932–1933 he was assessed under Section 23(1) of the Act, on 22nd September, 1932 upon his total income for the previous year. The total income was Rs. 89,866 of which Rs. 88,007 represented his professional earnings. For the year 1933–1934 he was again assessed under Section 23(1) of the Act, on 15th November, 1933 on the total income of the previous year, which amounted to Rs. 53,218. The details were as below:

    Salary… … Rs. 27,917 Professional earnings … Rs. 21,940 Interest on securities … Rs. 1650 Other interest… … Rs. 1711 Total Rs. 53,218

    2. The assessee did not appeal from either of these two assessments. On 28th April, 1939 the assessee preferred an application for relief under Section 25(3) of the Act, in respect to the assessment of 1932–1933. Paragraph 3 of that application is in the following terms:

    “That during the assessment year 1932–1933 the petitioner practised the profession of law, as stated above, partly in April and partly between the months of July and 16th October, 1932, after which date your petitioner discontinued the profession, and that during this period your petitioner's total income from the profession was Rs. 21,940 and his income as a Judge of the High Court was Rs. 27,917 for which the petitioner was assessed at source,”

    3. From para. 5 to the end the application reads as follows:

    “5. That the petitioner having discontinued the profession in October 1932, no tax was payable by him in respect of the income for the period between the end of the previous year and the date of such discontinuance, and the income-tax department should not have assessed the petitioner for that period under Section 25(3) of the Income-tax Act, 1922, but in point of fact the petitioner was so assessed and he, paid the amount demanded from him on the assumption that he was rightly assessed.

    6. That the petitioner has only recently discovered that the assessment on him was wrongly made by the income-tax department, and if the petitioner had discovered this at that time, he would have laid claim to a refund under Section 25(3) of the Income-tax Act, 1922.

    7. That the petitioner submits that in 1932–1933 instead of being assessed in respect of his professional income of Rs. 88,007 he should have been assessed on Rs. 21,940, and the difference between these two figures should be returned to the petitioner.

    8. That your petitioner submits that in fairness this is a proper case for the exercise of your power of review under Section 33 of the Income-tax Act, 1922, and that you have the power to revise the assessment made by the subordinate authority after consulting the Central Board of Revenue: vide para. 104, page 268 of the Income-tax Manual, 1937.

    Wherefore your petitioner prays that you may be-pleased in the exercise of your power under Section 33 of the Income-tax Act, 1922, to call for the record of the petitioner's assessment by the subordinate authority and order the refund to the petitioner of such amount as he may be found entitled to.”

    4. Section 25(3) of the Act reads as follows:

    “Where any business, profession or vocation on which tax was at any time charged under the provisions of the Income-tax Act, 1918, is discontinued, no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference.”

    5. By a letter dated 7th June, 1939 the Commissioner of Income-tax, Central and United Provinces, referred the matter to the Central Board of Revenue. The Commissioner's view was that relief should not be granted. He says:

    “The claim of the petitioner is extremely belated and he should have put in his claim for the benefits of S. 25(3) during the course of the proceedings for the assessment year 1933–1934. In fact according to para. 96 of the Income-tax Manual (Edn. 7), a claim to be assessed under S. 25(3) could only be admitted, in this particular case, if it was made not later than the end of the calendar year 1933.”

    6. The rule to which the Commissioner refers is admittedly a departmental rule, which can in no way affect a legal claim. The Commissioner's letter then goes on to say:

    “The petitioner however is a Judge of the Allahabad High Court who sits on the Bench to hear income-tax references and as he obviously considers that he has a fair claim on the department, I do not think it would be advisable to refuse his request.”

    7. This remark is open to the interpretation that, if the application were refused, the assessee might be expected in future to pass unfavourable orders on references by the income-tax authorities. If this is what the Commissioner meant, his observation would amount to a gross contempt of Court and we should have to take action upon it; but the learned Advocate-General explains the observation as meaning that since the assessee was one of the Judges hearing income-tax references, his opinion was entitled to respect and should be deferred to. If this is what Mr. Mullan—the then Commissioner of Income-tax — meant, he expressed his meaning in a singularly unhappy language. By a letter dated 28th July, 1939 the Board regretted that it was unable to authorize the Commissioner to exercise his powers of revision in favour of the assessee. The matter again came before the Commissioner and by his order dated 29th August, 1939 he declined to exercise his powers of revision under Section 33 of the Act. The Commissioner at this time was Khan Bahadur, M.A.G Ansari, and he says:

    “It is obvious from the wordings of S. 25(3) that these claims could only be made in the course of the assessment for 1933–1934. The assesses could claim that the income which he had earned during July to October 1932 from profession should not be assessed in 1933–1934 at all and could further claim that the profits or gains of the previous year were to be deemed to have been the income, profits or gains of the said period. In fact, the Income-tax Officer himself was bound to exclude this income from the assessment of 1933–1934, if he only could be aware of the discontinuance of the profession, but it appears that he had no idea of the discontinuance.

    The application under S. 33 has, however, been made practically six years after the assessments in question were disposed of, and although no statutory period for such applications has been laid down in the Act, they are expected to be made within a reasonable time from the date the orders complained against are passed and instructions' have accordingly been issued by the Central Board of Revenue to the effect that ‘if a Commissioner of Income-tax desires to exercise his powers of revision in any case where more than a year has elapsed since the passing of the last order by the subordinate authority, he should not do so without first consulting the Central Board of Revenue’: page 268, para. 104, Income-tax Manual (Edn. 7). In view of the above provision, my predecessor consulted the Central Board of Revenue if the application under S. 33 could be entertained, but the Board has replied to the effect that it is unable to authorize the Commissioner to exercise his powers of revision in this case.

    I am, therefore, unable to exercise my powers of revision under Section 33 of the Income-tax Act.”

    8. On 18th September, 1939 the assessee prayed for a reference to the High Court under Section 66(2) of the Act. After that he apparently received a letter dated 12th January, 1940 from the Commissioner and on 18th January he sent a reply to that letter, para. 3 of the reply reads as follows:

    “In para. 2 of your letter you refer to Section 25(5) of the Act and observe that as my claim for a refund under S. 25(3) was made after 1st April 1939 it is time-barred under S. 25(5). I am advised, however, that S. 25(5) cannot affect my rights, which had accrued before the amending Act of 1939 was passed. You have also drawn my attention to proviso 1 to Section 50 of the Act. I am also advised that the proviso to Section 60 of the which is in Chap. 7 of the Act, has no application to the circumstances of the present case.”

    9. On 16th March, 1940, the assessee again wrote to the Commissioner explaining the delay in applying for relief under Section 25(3) of the Act. In that letter he said:

    “It was towards the end of January or the beginning of February 1939 that I learnt from Hon'ble Mohammad Ismail, J. that on account of the discontinuance of the profession by him by reason of his appointment to a seat on the Bench he was to be allowed by your department a refund of the income-tax paid by him. I then considered over my own case and got into touch with your Income-tax Officer at Allahabad. During a personal interview I explained to him the whole case and said that I was entitled to a refund of the income-tax paid by me as I had been appointed a Judge of the High Court and had discontinued my profession. I made this claim in March 1939, that is before the new Act came into force, while admitting the validity of my claim, the Income-tax Officer expressed his inability to a refund the amount and said that I must make a proper application for review to the Income-tax Commissioner.

    Accordingly, I made an application for review in April 1939.1 therefore, submit that the claim having been made to the Income-tax Officer at Allahabad in March 1939, no question of limitation under S. 25(5) arises; but even if the claim had not been made by me in March 1939, I am advised and urge accordingly that no limitation can possibly apply to an application for review under S. 33 which practically amounted to asking the Income-tax department to undo the wrong which it had done.”

    10. On 6th May, 1940 the assessee again wrote to the Commissioner and referred to the latter's assumption that a claim for relief was made for the first time in April 1939 and that upon this assumption his claim was time-barred under the amending Act of 1939 — which came into force on 1st April 1939—and the assessee said:

    “I am advised that proposition is not legally correct and the amended Act or to be more precise paras. 4 and 5 of S. 25, which have been added to the Income-tax Act for the first time in 1939, can only apply to assessments made after the passing of the amending Act of 1939 and cannot apply to assessments made previously even though claims for relief under S. 25(3) may be made in regard to such assessments after the passing of the said amending Act. This aspect of the matter also should be clearly brought out in the statement of the case and a clear question formulated there on for the consideration of the Hon'ble Court.”

    11. On 31st July 1940 the Commissioner of Income-tax, Mr. W.R Wall, made this reference to the High Court. Before considering the questions of law which have been referred to us we may mention a concession which has been made before us by the Advocate-General—and which indeed was made by Mr. Ansari in his order of 29th August, 1939. It is conceded that the assessee was overcharged, that he had a perfectly good claim on merits and that the relief now sought for could have been granted by the Income-tax Officer if he had been aware of the fact that the assessee had discontinued his profession as an advocate. The equities are thus with the assesses; but the Advocate-General contends that the Income-tax Officer was totally unaware of the discontinuance of practice and that it was the duty of the assessee to apply during the assessment year 1933–1934. The Commissioner has referred to us a preliminary question of law and also three other questions of law which will arise if the preliminary question is answered in the affirmative. The preliminary question is as follows:

    “Whether the order of the Commissioner dated 29th August, 1939 under Section 33 of the Act is an order prejudicial to the assessee within the meaning of Section 66(2) of the Act?”

    12. Section 33 of the Act provides:

    “33(1) The Commissioner may of his own motion call for the record of any proceeding under this Act which has been taken by any authority subordinate to him or by himself when exercising the power of an Assistant Commissioner under sub-s. (4) of S. 5.

    (2) On receipt of the record the Commissioner may make such enquiry or cause such enquiry to be made and subject to the provisions of this Act, may pass such order thereon as he thinks fit:

    Provided that he shall not pass any order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being heard.”

    13. The section does not mention the right of an assessee to move the Commissioner to take action, but the assessee undoubtedly has the right of calling the attention of the Commissioner to a prejudicial order and of asking that action be taken. The proviso to this section means that the Commissioner shall not put the assessee in a worse position than he already is without giving him an opportunity of being heard. Section 66(2) of the Act, provides as follows:

    “Within 60 days of the date on which he is served with notice of an order under S. 31 or S. 32 or of an order under S. 33 enhancing an assessment or otherwise prejudicial to him or of a decision by a Board of Referees under S. 33-A the assessee in respect of whom the order or decision was passed, may, by application accompanied by a fee of one hundred rupees or such lesser sum as may be prescribed, require the Commissioner to refer to the High Court any question of law arising out of such order or decision, and the Commissioner shall, within 60 days of the receipt of such application, draw up a statement of the case and refer it with his own opinion thereon to the High Court.”

    14. There are two provisos to this sub-section, the first of which is that a reference shall lie from an order under S. 33 only on a question of law arising out of that order itself, and not on a question of law arising out of a previous order under S. 31 or S. 32, revised by the order under S. 33. In the present case the second part of this proviso has no application inasmuch as there is no question of law before us arising out of a previous order under S. 31 or S. 32, revised by the order under S. 33. What we have to decide is whether the order of the Commissioner dated 29th August, 1939 under S. 33 was or was not an order “otherwise prejudicial” to the assessee. In 5 I.T.R 2671, a Bench of the Nagpur High Court following the decision of a Bench of three Judges of the Madras High Court in Venkatachalam Chettiar v. Commissioner of Income-tax, Madras . ’35 22 A.I.R 1935 Mad. 379, held that where the Commissioner of Income-tax, acting under S. 33 refuses to review the order of an Assistant Commissioner, the position of the assessee not being altered as a consequence, the assessee is not prejudiced within the meaning of S. 66(2) and an application for reference is incompetent. The decision in Venkatachalam Chettiar's case was, however, overruled by a Full Bench of five Judges in 7 I.T.R 2633, and it is therefore no longer good law so far as Madras is concerned. In Venkatachalam Chettiar's case the assessee applied to the Income-tax Officer for a refund of the income-tax under Section 48 of the Act, but his application was refused. The petitioner then filed an application asking the Commissioner to revise the order of Income-tax Officer under S. 33; but the Commissioner, having heard the application, declined to interfere.—The petitioner then required the Commissioner to refer the matter to the High Court under Section 66(2) of the Act; but the Commissioner dismissed this application on the ground that it was incompetent. His reason was that his order under S. 33 was not an order enhancing the assessment or otherwise prejudicial to the applicant. In respect to this view of the matter, Beasley C.J observed:

    “What S. 33 clearly contemplates is an order made by the Commissioner which alters the position of an assessee or an applicant to that person's prejudice. In this particular case, his position had been prejudiced already by the refusal of the Income-tax Officer to grant him the refund which he required. The Commissioner's order did no more than leave him in that position and, it is quite clear to us, was not an order which was prejudicial to the petitioner in the sense intended, namely, that his position at that time, that is the date of the Commissioner's order was altered by that order to one of prejudice to him.”

    15. In the five Judge case Leach C.J after citing the above observations, says at page 266:

    “With great respect I am unable to accept this interpretation. It means that the Commissioner's order must be more prejudicial than the order complained of before it can come within the purview of S. 66(2). The section does not say so. All that it contemplates is a prejudicial order. It seems to me that if an order of the Income-tax Officer is prejudicial, an order which confirms it or rejects an application asking that it be revised is also prejudicial. It could not be said that a decree of an appellate Court dismissing an appeal from a Court of first instance is not prejudicial to the appellant. It is just as prejudicial as the original decree. There is no difference in this respect between a dismissal of an appeal and the dismissal of an application for revision when the law permits such an application to be made.”

    16. The learned Chief Justice then considers proviso 1 to S. 66(2) and says:

    “Mr. Patanjali Sastri has suggested that the proviso only relates to orders under Ss. 31 and 32, revised under S. 33. In other words, he asks the Court to read the second part of the proviso as gov-erning the first part. I do not read in this way. I consider the effect of the proviso to be this: A reference shall lie only when a question of law arises out of the order passed under S. 33, but if the matter is one which relates to an order under S. 31 or S. 32 a question of law which arose out of the previous order alone cannot be referred.”

    17. We are in full agreement with this interpretation of the proviso. At p. 267 the learned Chief Justice refers to the Nagpur decision which we have already 6 mentioned and says: “The Court accepted Venkatachalam Chettiar's case without discussing it and therefore its judgment does not carry the matter further.” The other four learned Judges concurred with the judgment of Leach C.J This decision was referred to by a Full Bench of the Rangoon High Court in 8 I.T.R 3824 The judgment was delivered by Roberts C.J, and was concurred in by the other two learned Judges. At p. 402 the learned Chief Justice states the facts as follows:

    “The assessee had been the subject of an assessment which, upon the face of it, was a perfectly good one. It had been made year after year. After the death of a man named G.D Paul the assessee, who had taken no notice of the income-tax authorities demands for payment, suddenly came forward and declared that the assessment had been made without his knowledge and that G. Paul had been impersonating him. But this was found as a fact against him by the Commissioner.”

    18. At page 403 the Chief Justice says:

    “In my opinion, this was clearly not an order to the prejudice of the assessee. It in no way altered the position as it existed before the Commissioner chose to review the case; and, therefore, looking at the provisions of Section 66(2) of the Act there is no ground for a reference to be made in the events that have happened.”

    19. Further on he refers to the casein 7 I.T.R 2639 and observes:

    “No doubt the decision of the High Court of Madras to which we have been referred makes it clear that there may be an order which, in confirming a prejudicial order, is in itself prejudicial, but that is not the case here, for nothing has been done to alter an order which it is not proved was prejudicial in any sense of the word.”

    20. Thus in the Rangoon case the order was not prejudicial to the assessee; in the Madras case it was. The learned Advocate-General refers us to the case in 7 I.T.R 5065, which appears to afford some support to the view taken by the income-tax authorities; but the question of “prejudice” was dealt with in a few lines by the learned Judges of the Patna High Court and no authorities were referred to. In 8 I.T.R 4376, Dalip Singh, J. was inclined to agree with the view taken by the Madras High Court in 7 I.T.R 263 An argument was addressed to the learned Judges of the High Court at Lahore fl with a view to show that the above mentioned decision was wrong, and at p. 439 Dalip Singh, J. observes:

    “It is unnecessary to decide this point in view of the decision to which we have come on the other point, but I have remarked that the word ‘prejudicial’ in S. 33 need not have the same meaning as the word ‘prejudicial’ in S. 66(2). In S. 33 there is no application necessarily before the Commissioner at all. If he does act on his own motion, there is no necessity for him to pass any order at all and therefore when S. 33 says that he cannot pass an order prejudicial to the assessee without hearing him, the word ‘prejudicial’ there is obviously used in the narrower sense of a prejudice occasioned to the assessee by the order of the Commissioner himself. In S. 66(2) the reasoning does not apply because S. 66(2) is dealing with the right of the assessee to make an application from such an order and, therefore, as at present advised, without expressing any final opinion on the point, I am inclined to hold that the decision of the Full Bench of the Madras High Court is correct, but it is unnecessary to decide this point for the proviso to S. 66(2) expressly lays down that a reference from an order under S. 33 lies only on a question of law arising out of that order itself.”

    21. We have carefully examined the various authorities and we find ourselves in full accord with the view taken by the five learned Judges of the Madras High Court in 7 I.T.R 263 We agree with the interpretation which that Court placed on the words “otherwise prejudicial” and with the reasoning upon which their view is based. In the present case the assessee had admittedly been overcharged; he had a perfectly good case on merits; another Judge of this Court had obtained relief in similar circumstances; and the assessee's application for review was disallowed. It therefore appears to us that the order of the Commissioner of Income-tax dated 29th August, 1939 whether right or wrong was an order “otherwise prejudicial” to the assessee within the meaning of Section 66(2) of the Act. The reference is therefore competent and the preliminary question must be answered in the affirmative. We now approach the three questions of law arising out of the Commissioner's order of 29th August, 1939. The first question is:

    “Whether on the materials before the Income-tax Officer at the time of the assessment for 1933–1934, he was in law justified in assessing the assessee to income-tax without giving him relief under Section 25(3) of the Act?”

    22. Section 25(3) provides as follows:

    “Where any business, profession or vocation on which tax was at any time charged under the provisions of the Income-tax Act, 1918, is discontinued, no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference.”

    23. The words “no tax shall be payable” impose a duty on the Income-tax Officer and this is conceded but it is contended that the Income-tax Officer was in no way responsible for the non-performance of this duty for the reason that he had no knowledge of the fact that the assessee had discontinued his profession. In his order of 29th August, 1939, Mr. Ansari has stated that the Income-tax Officer “was bound to exclude this income from the assessment of 1933–1934 if he only could be aware of the discontinuance of the profession, but it appears that he had no idea of the discontinuance.” The appointment of the assessee as a puisne Judge was notified, as we have already said, in the Gazette of 22nd July, 1933, that is to say, four months before the order of assessment for the year 1933–1934. It may be said with reason that the income-tax authorities cannot be expected to acquaint themselves with every appointment notified in the Gazette; but there are other circumstances which indicate that the Income-tax Officer was aware of the fact that the assessee had become a Judge of the High Court. Curiously enough, there is no copy on the record of the notice asking for a return, but there is an acknowledgment slip (No. 183) which shows that the notice to submit a return was addressed to “The Hon'ble Mr. Justice Iqbal Ahmad.” The notice was served upon the assessee on 4th April, 1933, at which date he was an Additional Judge of this Court. In the assessment form of 15th November, 1933 the name of the assessee is shown as “The Hon'ble Mr. Justice Iqbal Ahmad.” By that time the assessee had become a puisne Judge of the Court. Thus the Income-tax Officer had materials before him which should have put him on inquiry as to whether the assessee was entitled to relief under Section 25(3) of the Act. This question must be answered in the negative. The next question referred to us is as follows:

    “Whether the assessee's claim for relief under Section 25(3) of the Act in respect of his assessment for 1933–1934, made in the circumstances stated above, is barred by limitation?”

    24. In the Amending Act of 1939, which came into force on 1st April 1939, sub-s. (5) was added to S. 25. It provides as follows:

    “No claim to the relief afforded under sub-s. (3) or sub-s. (4) shall be entertained, unless it is made before the expiry of one year from the date on which the business, profession or vocation was discontinued.”

    25. The right had accrued to the assessee before 1st April 1939. The application for relief under S. 25(3) was preferred on 28th April, 1939, but it is alleged on behalf of the assessee that he made a verbal claim at the office of the Income-tax officer in March 1939. In reply to a question referred to him by the Commissioner, the Income-tax officer said:

    “Regarding your inquiry about Iqbal, J.'s interview with me some 14 months back, I am unable to give from memory the details desired by you. Iqbal J. had seen me at the Income-tax office, Central Circle, about S. 25(3) affair and I remember I had asked him to make a formal application if he liked. I cannot give any further details from memory. I might have made some note on the file.”

    26. The Commissioner in his statement of the case says:

    “It may be taken as established that an interview took place between the assessee and the Income-tax Officer on the subject of the former's claim in March 1939, but a formal application for a refund under S. 25(3) was not made till 28th April, 1939, when the assessee's application under Sec. 33 was presented to the Commissioner,”

    27. Thus it is a matter of admission that the assessee did make a verbal claim in March 1939. It is contended on behalf of the Department that a claim for relief under Section 25(3) of the Act should be in writing; but there is nothing in the Act to justify, this contention. The learned Advocate-General pleads that, having regard to the scheme of the Act as it appears from Chap. 4, which is headed “Deductions and Assessments” and which contains Ss. 18 to 39, it must be held to have been contemplated by the Legislature that any such application should be preferred during the assessment year. What the Legislature may have contemplated is a matter of speculation, but a claim for refund of tax wrongly assessed cannot be barred except by statute and there was no such bar before the amending Act. A bar of limitation cannot be read into the provisions of an Act in which no such bar is expressed. The amended sub-section itself goes to show that the Legislature was aware of the absence of any bar of limitation in the existing Act. The Commissioner in his statement of the case says:

    “The question whether the claim was within time if it were assumed to have been made verbally in March 1939 does not arise out of the order under Sec. 33, as there was no mention of any such claim having been made either in the petition under S. 33 or in the application under S. 66(2).”

    28. This is true so far as it goes, but the question has been raised for the first time by the Commissioner in his statement of the case. His predecessor in office, when he declined to grant relief under S. 33, did not say that the application of the assessee was barred by time; he only said that it was not preferred within prescribed time, which is very different from saying that it was barred by a statutory provision. The question of limitation therefore can either not be advanced by the Department at all or, if it can be advanced, it can be met by facts which came to light at the time when the question of a reference to the High Court under S. 66(2) was being considered by the Commissioner. The interview of the assessee with the Income-tax Officer in March 1939 was brought to the notice of the Commissioner when he thought that the application ought to have been presented within a year. Our reply to this question is in the negative. The last question referred to us is:

    “Whether the Commissioner's discretion under Section 33 of the Act can legally be controlled by the Central Board of Revenue; and if so, whether the Central Board of Revenue acted judicially in refusing to authorise the Commissioner to exercise his power of revision in this case?”

    29. A Commissioner of Income-tax has no option but to obey departmental orders of the Central Board of Revenue; but it cannot possibly be said that his discretion can be “legally” controlled inasmuch as the discretion is vested in him by statute and there is no statutory control of such discretion. A Court or an official functioning as a Court must exercise its discretion judicially; but that is the only form of control which is known to the law. This being our view, the second part of the question does not arise.

    30. To sum up we answer the preliminary question in the affirmative and the first and second questions of law in the negative. We also answer the first part of the third question of law in the negative. As regards the second part of this question, it is unnecessary to return an answer. The Advocate-General is entitled to a fee of Rs. 200. The assessee is entitled to his costs. A copy of this order will be sent under the seal it the Court and the signature of the Registrar to the Commissioner of Income-tax.

    K.S/R.K

    31. Question answered.

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    Income-Tax Commissioner v. Iqbal Ahmad
    (Feb 5, 1942)