Manohar Lall, J.:— The Commissioner of Income-tax by an order of this Court was required to state a case upon the question

“whether his review order under section 33 of the Indian Income-tax Act, 1922, dated 17th February, 1640, declining to interfere with the order of the Assistant Commissioner, is an order prejudicial to the assessee within the meaning of section 66, sub-section (2), Indian Income-tax Act, 1922”.

The facts of the case may be briefly stated. The assessee is a private limited company carrying on coal mining business in Jharia. The Khas jharia Company (1933), Limited, hereinafter to be referred to as the ‘Khas Company’, is an allied private concern belonging to the same shareholders and under the same management as the assessee.

This question arises out of proceedings in connection with the assessment for the year 1938-1939 and is admittedly governed by the Indian Income-tax Act, 1922, as it stood before the Amendment Act of 1939. In examining the accounts filed by the assessee the Income-tax Officer found that the sale price of 23,840 tons of coal which was transferred by the assessee to the Khas Company during the period from the 1st of April, 1937, to 31st March, 1938, at an arbitrary rate of Rs. 2 a ton was at a lower rate than that at which steam-coal was sold to other customers in the same period. Accordingly he added Rs. 47,680 to the income declared by the assessee as he thought that the proper sale price was Rs. 4 a ton. The Assistant Commissioner of Income-tax took the same view and dismissed the appeal on the 15th September, 1939. The assessee did not move the Commissioner under section 66(2) of the Act for stating a case to the High Court but was content with moving the Commissioner under section 33 of the Act. The Commissioner rejected this application on the 27th February, 1940. It was urged for the first time before the Commissioner that the assessee had sold steam-coal to B.B and C.I Ry. Co. at Rs. 2-4-0 a ton and, therefore, in any event the amount which was added was excessive and addition could be made only at the rate of 4 annas a ton. The Commissioner did not accept this contention. He held that Rs. 2-4-0 was charged on account of the contract made in the preceding year when the market was actually low. He also disagreed with the argument raised that steam-coal was supplied to the Khas Company at Rs. 2 a ton and was sold by them in turn at Rs. 2-4-0 a ton to the B.B and C.I Ry. and pointed out that the contract rate agreed to by the Khas Jharia Colliery with the said Railway Company was low, because that contract was entered into in the preceding year when the rates were low.

Being dissatisfied with this decision the assessee asked the Commissioner to state a case under section 66(2) of the Act upon certain questions of law framed by him. We directed the Commissioner however to state a case by our order dated the 23rd August, 1940, only upon the question as stated in the beginning of the judgment. The Commissioner in stating the case has pointed out that the order passed by him under section 33 was not prejudicial to the assessee at all within the meaning of section 66(2) of the Act because it did not alter the position of the assessee in the least.

Is such an order prejudicial? The case law is not uniform. The earliest decision to which our attention was drawn is the case of the Madras High Court reported as A.S.V Venkatachalam Chettiar v. Commissioner of Income-tax, Madras. In that case the assessee had applied for refund of tax which had been levied from his father. That application was rejected by the Income-tax Officer on the ground that he was not the assessee on whom the assessment was made. The assessee then applied to the Commissioner under section 33 of the Act for rescission of the order of the Income-tax Officer and for refund. But this application was also rejected. The assessee thereupon moved the Commissioner to make a reference to the High Court and on rejection of this application he applied to the High Court under section 66(3) of the Act and section 45 of the Specific Relief Act for an order directing the Commissioner to make a reference. Beasley, C.J, who delivered the judgment of the Full Bench, held that the order complained against was not an order which was otherwise prejudicial to the assessee because “what section 33 clearly contemplates is an order 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. That being so, he could not apply under section 66(2) to the Income-tax Commissioner, no order to his prejudice having been passed it will be noticed that in this case there was no order under section 31 or section 32 of the Act and the first proviso to section 66(2) was not considered.

Central India Spinning, Weaving and Manufacturing Co., Ltd. v. Commissioner of Income-tax, C.P and U.P is a case from the Nagpur High Court. It followed expressly the decision just considered. The judgment states: “our present impression is that the true intent of the first proviso to the second sub-section of section 66 is that a question of law that is common to both Assistant Commissioner's and the Commissioner's order is not a proper subject-matter of a reference unless the question of law is raised on a reference from the decision of the Assistant Commissioner which is not the case here”.

In 1938 the Madras High Court in a Full Bench of 5 Judges—Voora Sree Ramulu Chetty—overruled the decision in Venkatachalam Chettiar. The learned Chief Justice who delivered the judgment of the Bench (the other learned Judges agreeing) expressly observed that section 66(2) merely contemplates a prejudicial order and “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”. The learned Chief Justice repelled the argument advanced on behalf of the Commissioner that the first proviso to section 66(2) was not complied with in that case by stating that the effect of the proviso was merely this that “a reference shall be only when a question of law arises out of the order passed under section 33 but if the matter is one which relates to an order under section 31 or section 32 a question of law which arose out of the previous order alone cannot be referred”. It should be stated here that in this case also the assessee had not moved the Assistant Commissioner and, therefore, there was no order under section 31.

The learned Chief Justice then considered the correctness of the view expressed by the Nagpur High Court that the true intent of the first proviso was that a question of law that is common to both the Assistant Commissioner's and the Commissioner's order is not a proper subject-matter of a reference unless the question of law is raised on a reference from the decision of the Assistant Commissioner, but as this question did not arise in that case the learned Chief Justice did not discuss it at all.

This decision of the Full Bench of the Madras High Court is an authoritative decision upon the scope of the word ‘prejudicial’ as used in section 66(2) of the Act.

The scheme of the Act if examined is of material help to decide this vexed question. The assessee has a right to get the opinion of the High Court upon a question of law which arises out of an appellate order by moving within 60 days of the date upon which he is served with a notice of that order. The assessee has an alternative remedy, namely, to seek relief from the hands of the Commissioner by invoking his jurisdiction under section 33. If the assessee after moving the appellate Court earlier fails to get relief from the Commissioner, the assessee has no further remedy at all unless the Commissioner's order gives rise to another and a new question of law provided his order is prejudicial also. It is the assessee's own fault that he did not choose to avail of the remedy provided by section 66(2) by getting the order of the Assistant Commissioner corrected by getting a favourable opinion from the High Court. It was never the intention of the legislature that where the Commissioner merely affirms the order of the Assistant Commissioner the assessee would have a further right to go to the High Court and thereby render nugatory the provision as to limitation which is expressly provided by section 66(2) Before the amendment of section 66(2) by which the first proviso was inserted in 1933 no reference was permissible to the High Court from any order under section 33. The result was that in many cases where the Commissioner revised the order passed by his subordinate authority to the great prejudice of the assessee, the assessee had no remedy whatsoever. To take an illustration: an Income-tax Officer imposes a penalty under section 28 of the Income-tax Act; the assessee appeals to the Assistant Commissioner and is successful because it is found that there was grave irregularity in the procedure adopted by the Income-tax Officer. The assessee moves the Commissioner of Income-tax to revise that part of the assessment order as to the assessable income which had been decided adversely against him both by the Income-tax Officer and the Assistant Commissioner. The Commissioner, while declining to interfere, himself imposes an identical amount of penalty under section 28 of the Act not upon the ground which appealed to the Income-tax Officer but upon a different ground whatsoever. The assessee had no right to move the High Court against this imposition of the penalty because it had, no power to call for a statement of the case from the Commissioner against the order passed by him under section 33 of the Act. This anomaly was pointed out by my brother Fazl Ali in Surajmull Brijlal v. Commissioner of Income-tax, Bihar and Orissa. Similarly where the Commissioner enhanced the assessment while acting under section 33 the assessee had no remedy [See Sin Seng Hin v. Commissioner of Income-tax, Burma, Ratanchand Khimchand Motishaw v. Commissioner of Income-tax, Bombay and Mohamad Farid-Mohamad Shaft v. The Commissioner of Income-tax, Punjab]. It was to meet such a situation that the Act was amended in 1933. In my opinion the intention of the legislature is clearly expressed by the first proviso so carefully worded that the assessee will have a right to ask for the opinion of the High Court only upon a question of law which arises out of that order itself but not on a question of law which arises out of a previous order under section 31.

In 1940 the Rangoon High Court had to consider the same question in Amulakha Rai Chota Lal. But the learned Chief Justice was able to dispose of the case before him on the ground that the order complained against was not an order to the prejudice of the assessee because nothing was done to alter the order which it was not proved was prejudicial in any sense of the word. This case, therefore, has no direct relevance to the question before us: In the same year the Lahore High Court had to consider the question but Dalip Singh, J., who delivered the judgment of the Court, held that it was unnecessary to decide this point in view of the decision at which he had arrived. But he incidentally remarked that the word ‘prejudicial’ in section 33 need not have the same meaning as the word ‘prejudicial’ in section 66(2) although the learned Judge did not express any final opinion upon the point.

The most recent decision on this point is the case reported as The Hon'ble Mr. Justice Iqbal Ahmad, In re. The learned Judges in that case expressly approved of the decision of the Full Bench of the Madras High Court in Voora Sree Sree Ramuln Chetty's case. In that case again it will be observed that there was no order passed under section 31 or section 32 of the Income-tax Act. The assessee never appealed from the assessment order made by the Income-tax Officer but made an application to the Commissioner to revise the assessment in so far as it offended the provisions of section 25(3). He made a belated application. The Commissioner refused to grant relief upon the ground that the assessee's claim was barred by limitation. Thereafter the assessee upon the refusal of the Commissioner to state a case moved the High Court which called upon the Commissioner to state’ a case. One of the points raised was whether the order of the Commissioner was prejudicial to the assessee. The learned Judges held that the order was prejudicial to the assessee even though it merely affirmed the order passed by the Income-tax authority. But the first proviso to section 66(2) was neither considered nor did it expressly arise for consideration in that case.

As a result of the review of all these authorities I am of opinion that now there appears to be the view of two High Courts that an order passed by the Commissioner of Income-tax under section 33, which merely affirms the order passed by the subordinate Income-tax authorities, should be treated as an order otherwise prejudicial to the assessee.

But even if this view is accepted as correct it does not help the assessee at all in this case because the assessee is hit by the first proviso. The only question of law which can arise out of this order passed by the Commissioner on the 19th April, 1940, is the same question of law which arose out of the order under section 31 passed by the Assistant Commissioner on the 15th September, 1939. The assessee, as already stated, never moved the Commissioner to state a case to the High Court upon that question of law which arose out of the appellate order. I respectfully agree with the view expressed in the Nagpur case referred to above that the true intent of the first proviso to the second sub-section of section 66 is that a question of law that is common to both Assistant Commissioner's and the Commissioner's order is not a proper subject-matter of a reference unless the question of law is raised on a reference from the decision of the Assistant Commissioner. If the Commissioner of Income-tax had decided the question of law which arose out of his order under section 33 but which did not arise out of the order under section 31 or 32 the assessee would have been in a position to ask the opinion of this Court.

For these reasons it is unnecessary to answer this question because even if the question is answered in favour of the assessee he will get no relief, The assessee must pay the costs of this reference. The Commissioner is entitled to his costs. I would assess the hearing fee at 5 gold mohurs. The Commissioner will retain the sum of Rs. 100 which is in deposit with him.

Harries, C.J:— I agree.

S.A.K

Answer accordingly.