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Case Number

Case stated under Section 66(2) of the Indian Income-tax Act (XI of 1922) by the Commissioner of Income-tax, C.P and U.P: [Miscellaneous (Income-tax Reference) No. 613 of 1940]

Judges

Collister
Bajpai, JJ.

Acts

provisions of the Indian Income-tax Act, 1918,
Section 66(2) of the Indian Income-tax Act.
Section 25(3) of the Income-tax Act, 1922,
SECTION 33 A INCOME TAX ACT 1922
SECTION 33 A INCOME TAX ACT
Section 25(3) of the Income-tax Act,
sub-section (4) of Section 5.(2)
Section 66(2). In Section 33
Section 31 or Section 32
Amending Act of 1939
1939, sub-section (5)
Section 66(2).47.
INCOME TAX ACT

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Smart Summary

Structured Summary of the Opinion (Reference under Section 66(2) of the Income-tax Act)

Factual and Procedural Background

The assessee was an advocate of the High Court who accepted temporary judicial appointments in 1932–33. He sat as an Acting Judge from 19 April 1932 to 27 July 1932, practised as an advocate from 1–18 April 1932 and from 28 July–16 October 1932, was appointed Additional Judge on 17 October 1932, and was confirmed as a Puisne Judge (notification dated 20 July 1933, published in the U.P. Gazette dated 22 July 1933).

For the year 1932–33 he was assessed on 22 September 1932 under Section 23(1) on a total income of Rs. 89,865 (of which Rs. 88,007 were professional earnings). For 1933–34 he was assessed on 15 November 1933 under Section 23(1) on a total income of Rs. 53,218 (with salary Rs. 27,917; professional earnings Rs. 21,940; interest on securities Rs. 1,650; other interest Rs. 1,711). The assessee did not appeal these assessments.

On 28 April 1939 the assessee applied for relief under Section 25(3) of the Income-tax Act (1922) claiming that, having discontinued practice on 16 October 1932 on appointment to the Bench, he should have been assessed only on the income of the period (and a refund paid). The Income-tax Commissioner referred the matter to the Central Board of Revenue, which declined to authorise revision; the Commissioner subsequently declined to exercise powers of revision under Section 33 by order dated 29 August 1939. The assessee then sought a reference to the High Court under Section 66(2). The Commissioner (by statement of case) referred a preliminary question and, if necessary, three further questions of law to the High Court.

Legal Issues Presented

Whether the Commissioner's order 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 (preliminary question).
Whether, on the materials before the Income-tax Officer at the time of assessment for 1933–34, the Officer was in law justified in assessing the assessee to income-tax without giving relief under Section 25(3) of the Act.
Whether the assessee's claim for relief under Section 25(3) of the Act in respect of his assessment for 1933–34 is barred by limitation.
Whether the Commissioner's discretion under Section 33 can legally be controlled by the Central Board of Revenue; and if so, whether the Central Board 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 claimed he discontinued his profession on 16 October 1932 on appointment to the Bench 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; he should have been assessed on Rs. 21,940 (professional earnings for the relevant period) rather than Rs. 88,007.
He maintained that he made a verbal claim in March 1939 to the Income-tax Officer and that the formal application in April 1939 did not render his entitlement time-barred by any statute in force prior to the 1939 Amending Act.
The assessee argued that the 1939 amendments (which imposed a one-year bar) could not apply so as to defeat rights that had already accrued before 1 April 1939 in respect of assessments made earlier.

Respondent (Income-tax Department / Commissioner) Arguments

The Commissioner and the Department contended that the assessee's claim was extremely belated and that, as per departmental practice (Income-tax Manual paragraph cited), a claim under Section 25(3) in that situation should have been made not later than the end of the calendar year 1933.
It was argued that the Income-tax Officer had no knowledge of the discontinuance of practice and therefore could not be held responsible for failing to apply Section 25(3) at the time of assessment.
The Department suggested that claims of this nature should be made in writing; the Court noted there was nothing in the Act requiring a written claim.
The Central Board of Revenue declined to authorise exercise of revisionary powers by the Commissioner in this case; the question whether that refusal was a lawful control of the Commissioner's statutory discretion was raised.

Concessions Noted by the Court

It was conceded (by the Advocate-General and by Mr. Ansari in his order) that the assessee had been overcharged, that he had a good claim on the merits, and that relief could have been granted if the Income-tax Officer had been aware of the discontinuance.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Venkatachalam Chettiar v. Commissioner of Income-tax, Madras (1935) 3 I.T.R. 55	Held that where Commissioner refuses to review an Assistant Commissioner's order, and the assessee's position is not altered thereby, the Commissioner's order is not "prejudicial" within Section 66(2).	Described and contrasted: this earlier Madras decision was followed by some Courts but later overruled by the five-Judge Madras Full Bench (Voora).
Voora Sreeramulu Chetty v. Commissioner of Income-tax, Madras (1939) 7 I.T.R. 263 (Full Bench, five Judges)	Interpreted "otherwise prejudicial" in Section 66(2) to include an order of the Commissioner under Section 33 which confirms or leaves intact a prejudicial earlier order; held that such a Commissioner's order can be an order prejudicial to the assessee.	The Court expressly adopted and stated full accord with this five-Judge Madras Full Bench decision. It was treated as the correct interpretation of Section 66(2) and dispositive on the preliminary question of competence of the reference.
Central India Spinning, Weaving and Manufacturing Co. Ltd. v. Commissioner of Income-tax, C.P. & U.P. (1937) 5 I.T.R. 267	Nagpur Bench followed the Madras Venkatachalam decision and held that Commissioner's refusal to review did not constitute a prejudicial order for purposes of Section 66(2).	The Court noted this decision but observed it followed the now-overruled earlier Madras decision and therefore did not carry the matter further in light of Voora (Madras Full Bench).
Amulakharai Chottalal v. Commissioner of Income-tax (Rangoon)	Considered whether the Commissioner's review was prejudicial; the Rangoon Full Bench held that in the particular facts the Commissioner's action was not prejudicial.	The Court reviewed this decision and explained that the Rangoon case differed on its facts from the Madras Full Bench case; Rangoon accepted the Voora decision but found the specific order there was not shown to be prejudicial.
Indarchand Kagriwal v. Commissioner of Income-tax (Bihar & Orissa)	Cited as potentially supporting the Income-tax authorities' view that a Commissioner's refusal to review may not be a prejudicial order.	The Court noted the decision but recorded that the Patna High Court's treatment of "prejudice" was brief and without extensive authority.
Nanhe Mal Janki Nath v. Commissioner of Income-tax (Lahore)	The Lahore Court indicated inclination to agree with the Madras Full Bench view (Voora), observing differences in the sense of "prejudicial" used in different sections.	The Court cited this as supportive of the Voora Full Bench approach and noted the Lahore judge's inclination in that direction, although the Lahore court did not finally decide the point in that case.

Court's Reasoning and Analysis

The Court proceeded in stages, addressing the preliminary question first and, if necessary, the three subsequent questions.

1. Interpretation of Section 33 and Section 66(2) (Preliminary Question)

The Court examined the text of Section 33 (power of the Commissioner to call for records and pass orders, with proviso that he shall not pass any order prejudicial to an assessee without hearing him) and Section 66(2) (right to require the Commissioner to refer to the High Court any question of law arising out of an order under Section 33 which is "enhancing an assessment or otherwise prejudicial").
It considered competing authorities: a line of decisions (including Venkatachalam and those following it) treated a Commissioner's refusal to review as not being an order "otherwise prejudicial" because it left the assessee's position unchanged; the five-Judge Madras Full Bench in Voora took the opposite view, holding that a Commissioner's confirmation or refusal to grant revision is itself prejudicial and therefore within Section 66(2).
The Court stated it was in full accord with the five-Judge Madras Full Bench (Voora) interpretation and with its reasoning about the proviso to Section 66(2). Applying that view, the Court held the Commissioner's order of 29 August 1939 was "otherwise prejudicial" to the assessee and the reference was competent.

2. Whether the Income-tax Officer Was Justified in Making the 1933–34 Assessment without Section 25(3) Relief (First Question)

The Court reviewed the materials that were actually before the Income-tax Officer at the time of the assessment: (a) an acknowledgement slip showing the notice to submit a return was addressed to "The Hon'ble Mr. Justice Iqbal Ahmad" (served 4 April 1933); (b) the assessment form of 15 November 1933 showed the assessee's name as "The Hon'ble Mr. Justice Iqbal Ahmad"; and (c) the appointment as Puisne Judge had been published in the Gazette on 22 July 1933, before the assessment order.
On these facts the Court reasoned that the Income-tax Officer had materials that should have put him on inquiry as to whether the assessee had discontinued practice and therefore was entitled to relief under Section 25(3). The Officer could not lawfully ignore that possibility simply because he had not independently checked every Gazette notice.
Conclusion: The Income-tax Officer was not justified, in law, in assessing the assessee for 1933–34 without giving relief under Section 25(3).

3. Limitation — Whether the Claim Was Time-barred (Second Question)

The Court noted that the 1939 Amending Act (coming into force 1 April 1939) added subsection (5) to Section 25, providing that no claim under subsection (3) shall be entertained unless made within one year of the date of discontinuance.
The Court observed the assessee's right to relief had accrued before 1 April 1939. It accepted (for present purposes) that the assessee had made a verbal claim in March 1939 to the Income-tax Officer and a formal application in April 1939.
Legally, the Court held that prior to the 1939 amendment there was no statutory limitation barring such a claim; a limitation cannot be read into the statute in the absence of express provision. The fact that the Legislature later added a one-year bar in 1939 demonstrated awareness that no such bar existed previously.
Conclusion: The claim was not barred by limitation.

4. Whether the Central Board of Revenue Can "Legally" Control the Commissioner's Discretion under Section 33 (Third Question — First Part)

The Court accepted that a Commissioner must follow departmental orders in practice, but distinguished administrative obedience from legal control over a statutory discretion.
Because the discretion under Section 33 is vested by statute in the Commissioner, it cannot be "legally" controlled by the Central Board of Revenue; the only lawful control is judicial (i.e., the requirement that the discretion be exercised judicially). The Court therefore answered the first part of this question in the negative.
The Court stated that having taken this view, the second part of the question (whether the Board acted judicially in refusing authorisation) was unnecessary to decide.

Holding and Implications

Holding:

The preliminary question was answered in the affirmative: the Commissioner's order dated 29 August 1939 under Section 33 was an order "otherwise prejudicial" to the assessee within Section 66(2), and therefore the reference to the High Court was competent.
The first question was answered in the negative: the Income-tax Officer was not in law justified in assessing the assessee for 1933–34 without giving relief under Section 25(3), because material before the Officer should have put him on inquiry.
The second question was answered in the negative: the assessee's claim for relief under Section 25(3) was not barred by limitation (the one-year bar in the 1939 Amending Act did not operate retrospectively to bar this right which accrued earlier).
The first part of the third question was answered in the negative: the Commissioner's discretion under Section 33 cannot be "legally" controlled by the Central Board of Revenue; it must be exercised judicially. The second part of that question was not answered as unnecessary.

Implications / Direct Effects:

The High Court found the reference competent and decided the substantive questions in favour of the assessee on the points considered: the assessment should have been reconsidered with Section 25(3) relief in view of the materials available to the Income-tax Officer and the claim was not statute-barred pre-amendment.
Practically, the decision requires that the Commissioner's order be treated as prejudicial for purposes of Section 66(2) and allows the assessee's challenge to proceed on the law points determined.
The Court directed costs: the Advocate-General was awarded a fee of Rs. 200 and the assessee was entitled to his costs; a copy of the order was to be sent under seal to the Commissioner of Income-tax.
The Court declared that no legal control (in the sense of statutory ouster) can be exercised by the Central Board over the statutory discretion conferred on the Commissioner; the Commissioner remains bound to exercise the discretion judicially.

Reference answered accordingly. (Order concluded: preliminary question affirmative; first and second questions negative; first part of third question negative; second part unnecessary.)

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Mr. Justice Iqbal Ahmad, In Re

1. This is a reference under Section 66(2) of the Indian 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 the 19th April of that year. He remained on the Bench until the 27th July of that same year, when the High Court rose for the vacation. On the 17th October 1932 he was appointed as Additional Judge and on the 17th July 1933 he was confirmed as a Puisne Judge. The notification of his appointment was dated the 20th July 1933 and was published in the U.P Gazette dated the 22nd July 1933. During the financial year 1932-33 the assessee practised as an advocate from the 1st to the 18th April and again from the 28th July to the 16th October 1932. For the year 1932-33 he was assessed under Section 23(1) of the Act on the 22nd September 1932 upon his total income for the previous year. The total income was Rs. 89,865 of which Rs. 88,007 represented his professional earnings. For the year 1933-34 he was again assessed under Section 23(1) of the Act on the 15th November 1933 on the total income of the previous year, which amounted to Rs. 53,218.

2. The details were as below:

Rs. Salary … … … 27,917 Professional earnings … … 21,940 Interest on securities … … 1,650 Other Interest … … … 1,711 Total 53,218

3. The assessee did not appeal from either of these two assessments.

4. On the 28th April, 1939, the assessee preferred an application for relief under Section 25(3) of the Act in respect to the assessment of 1932-33. Paragraph 3 of that application is in the following terms: “That during the assessment year 1932-33 the petitioner practised the profession of law, as stated above, partly in April and partly between the months of July and the 16th of 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.”

5. From paragraph 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 the 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.

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.

That the petitioner submits that in 1932-33 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.

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 paragraph 104, p. 268 of the Income-tax Manual, 1937).

Wherefore your petitioner prays that you may be pleased in the exercise of your powers 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.”

6. Section 25(3) of the Act read as follows:

“Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian 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.”

7. By a letter dated the 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 Section 25(3) during the course of the proceedings for the assessment year 1933-34. In fact according to paragraph 96 of the Income-tax Manual (7th Edn.), a claim to be assessed under Section 25(3) could only be admitted, in this particular case, if it was made not later than the end of the calendar year 1933.”

8. The rule to which the Commissioner refers is admittedly a departmental rule, which can in no way affect a legal claim.

9. 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.”

10. 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 singularly unhappy language.

11. By a letter dated the 28th July, 1939, the Board regretted that it was unable to authorise the Commissioner to exercise his powers of revision in favour of the assessee.

12. 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 Section 25(3) that these claims could only be made in the course of the assessment for 1933-34. The assessee could claim that the income, which he had earned during July to October 1932 from profession should not be assessed in 1933-34 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 1933-34, 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 Section 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, paragraph 104, Income-tax Manual (7th Edn.). In view of the above provision, my predecessor consulted the Central Board of Revenue if the application under Section 33 could be entertained, but the Board has replied to the effect that it is unable to authorise 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.”

13. On the 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 the 18th January he sent a reply to that letter. Paragraph 3 of the reply reads as follows:

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

14. On the 15th 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 the Hon'ble Mr. Justice Mohammad Ismail 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 refund the amount and said that I must make a proper application for review to the Income-tax Commissioner.

2. Accordingly I made an application for review in April, 1939. I therefore submit that the claim having been made to the Income-tax Officer at Allahabad in March, 1939, no question of limitation under Section 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 Section 33, which practically amounted to asking the Income-tax Department to undo the wrong which it had done.”

15. 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 the 1st April, 1939—and the assessee said:

“I am advised that that proposition is not legally correct and the amended Act, or to be more precise paragraphs 4 and 5 of Section 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 Section 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 thereon for the consideration of the Hon'ble Court.”

16. On the 31st July, 1940, the Commissioner of Income-tax Mr. V.R Wall made this reference to the High Court.

17. 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 assessee; 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 1933-34.

18. 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 the 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?”

19. Section 33 of the Act provides;

“33. (1) The Commissioner may of bis 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-section (4) of Section 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.”

20. 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.

21. 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.

22. 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 Section 31 or Section 32 or of an order under Section 33 enhancing an assessment or otherwise prejudicial to him or of a decision by a Board of Referees under Section 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.”

23. There are two provisos to this sub-section, the first of which is that “a reference shall lie from an order under Section 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 Section 31 or Section 32, revised by the order under Section 33.”

24. 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 Section 31 or Section 32, revised by the order under Section 33. What we have to decide is whether the order of the Commissioner dated 29th August, 1939, under Section 33 was or was not an order “otherwise prejudicial” to the assessee.

25. In Central India Spinning, Weaving and Manufacturing Co., Ltd. v. Commissioner of Income-tax, C.P and U.P 1937 5 I.T.R 267., 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 1935 3 I.T.R 55., held that where the Commissioner of Income-tax, acting under Section 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 Section 66(2) and an application for reference is incompetent. The decision in Venkatachalam Chettiar's Case was, however, overruled by a Pull Bench of five Judges in Voora Sreeramulu Chetty v. Commissioner of Income-tax, Madras 1939 7 I.T.R 263. 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 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 the Income-tax Officer under Section 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 Section 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 Section 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.”

26. In the five Judges 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 Section 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.”

27. The learned Chief Justice then considers the first proviso to Section 66(2) and says:—

“Mr. Patanjali Sastri has suggested that the proviso only relates to orders under Sections 31 and 32 revised under Section 33. In other words, he asks the Court to read the second part of the proviso as governing the first part. I do not read it 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 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”.

28. We are in full agreement with this interpretation of the proviso.

29. At page 267 the learned Chief Justice refers to the Nagpur decision which we have already mentioned and says:

“The Court accepted Venkatachalam Chettiar's Case without discussing it and therefore its judgment does not carry the matter further.”

30. The other four learned Judges concurred with the judgment of Leach, C.J

31. This decision was referred to by a Full Bench of the Rangoon High Court in Amulakharai Chottalal v. Commissioner of Income-tax, Burma. The judgment was delivered by Roberts, C.J, and was concurred in by the other two learned Judges. At page 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 assessments 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.”

32. 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.”

33. Further on he refers to the case of Voora Sreeramulu Chetty v. Commissioner of Income-tax, Madras, 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.”

34. Thus in the Rangoon case the order was not prejudicial to the assessee in the Madras case it was.

35. The learned Advocate-General refers us to the case of Indarchand Kagriwal v. Commissioner of Income-tax, Bihar and Orissa, 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.

36. In Nanhe Mal Janki Nath v. Commissioner of Income-tax, (Lahore) Dalip Singh, J., was inclined to agree with the view taken by the Madras High Court in Voora Sreeramulu Chettys' case. An argument was addressed to the learned Judges of the High Court at Lahore with a view to show that the above mentioned decision was wrong, and at page 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 may remark that the word ‘prejudicial’ in Section 33 need not have the same meaning as the word ‘prejudicial’ in Section 66(2). In Section 33 there is no application necessarily before the Commissioner at all. If he does act of his own motion, there is no necessity for him to pass any order at all and therefore when Section 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 Section 66(2) the reasoning does not apply because Section 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 Section 66(2) expressly lays down that a reference from an order under Section 33 lies only on a question of law arising out of that order itself.”

37. 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 Voora Sreeramulu Chetty's case. 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.

38. 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 1933-34, he was in law justified in assessing the assessee to income-tax without giving him relief under Section 25(3) of the Act?”

39. Section 25(3) provides as follows:

40. 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 1933-34 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 1933-34. 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 return, but there is an acknowlegment 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 the 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.

41. 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 1933-34, made in the circumstances stated above, is barred by limitation?”

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

“No claim to the relief afforded under sub-section (3) or sub-section (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……”

43. The right had accrued to the assessee before the 1st April, 1939, The application for relief under Section 25(3) was preferred on the 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 Justice Iqbal's interview with me some 14 months back, I am unable to give from memory the details desired by you. Justice Iqbal had seen me at the Income-tax Office, Central Circle, about Section 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.”

44. 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 Section 25(3) was not made till the 28th April, 1939, when the assessee's application under Section 33 was presented to the Commissioner.”

45. 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 Chapter IV, which is headed “Deductions and Assessments” and which contains Sections 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.

46. 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 Section 33, as there was no mention of any such claim having been made either in the petition under Section 33 or in the application under Section 66(2).”

47. 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 Section 33, did not say that the application of the assessee was barred by time; he only said that it was not preferred within reasonable 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 Section 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.

48. Our reply to this question is in the negative.

49. 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?”.

50. 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.

51. 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.

52. 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 of the Court and the signature of the Registrar to the Commissioner of Income-tax.

53. Reference answered accordingly.

Mr. Justice Iqbal Ahmad, In Re

Structured Summary of the Opinion (Reference under Section 66(2) of the Income-tax Act)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Respondent (Income-tax Department / Commissioner) Arguments

Concessions Noted by the Court

Table of Precedents Cited

Court's Reasoning and Analysis

1. Interpretation of Section 33 and Section 66(2) (Preliminary Question)

2. Whether the Income-tax Officer Was Justified in Making the 1933–34 Assessment without Section 25(3) Relief (First Question)

3. Limitation — Whether the Claim Was Time-barred (Second Question)

4. Whether the Central Board of Revenue Can "Legally" Control the Commissioner's Discretion under Section 33 (Third Question — First Part)

Holding and Implications

Mr. Justice Iqbal Ahmad, In Re

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