By order of this Court dated the 9th day of November, 1925, the Commissioner of Income-tax has referred for the decision of this Court the following questions:
(a) Whether a Commissioner is empowered by way of review or revision to impose the assessment and penalty levied by him by his order dated 8th September, 1925 against the firm of Sheik Adul Khadir Marakkayar and Company.
(b) Whether in the circumstances of this case the powers of review under Sect. 33 of the Income-tax Act 1922 could be exercised by the Commissioner with a view to re-open and enhance an assessment made under the old Income-Tax Act of 1918.
(c) Whether Sects. 33 and 28 of the Income-tax Act 1922 are not controlled by the provisions of Sect. 34 of the same Act.
(d) Whether the Commissioner in exercise of the powers under Sect. 33 can re-open and enhance an assessment more than one year old and levy penalty under Sect. 28 in respect of such an assessment.
All the facts necessary for the reference have been set out in the letter of reference to this Court and for purposes of the answer the facts may be briefly set out.
A firm called Messrs. Sheik Abdul Khadir Marakkayar & Company who were liable to pay income-tax for the assessment year 1923-1924 based on the accounts for the year 1922-1923 escaped income-tax on a portion of their income by reason of certain sources of their income being withheld. Under the provisions of Sect. 34 of the Income-tax Act XI of 1922 the Income-tax Officer was entitled to proceed before the end of year 1924-1925 to re-assess such income. It is admitted that action was taken by the Income-tax Officer under Sect. 34 of the Act and notice also issued before the 31st March, 1925. As the assessees did not make any response to the notice, the Income-tax Officer proceeded to re-assess and as the result thereof an additional tax amounting to Rs. 1,856-11-0 was imposed on the assessees. The notice of demand was served on them on the 13th March, 1925. The assessees thereupon filed before the Income-tax Officer a petition under Sect. 27 of the Act on the ground that the original notice of re-assessment had not been properly served on them, but the Income-tax Officer dismissed the petition holding that there was proper service.
The petitioner thereupon filed an appeal to the Assistant Commissioner and he set aside the order of re-assessment holding that there has been no valid service of the notice of re-assessment. What is required to be done under Sect. 34 of the Act to entitle the Income-tax Officer to restart proceedings and re-assess the parties is the service of a notice of such assessment according to the prescribed form.
Thus, after the order of the Assistant Commissioner in appeal setting aside the order of re-assessment made by the Income-tax Officer there was an end of all the proceedings lawfully started for re-assessment. It was thereupon that the Commissioner of Income-tax purported to take proceedings under Sect. 33 of the Act. That section enables the Commissioner of his own motion to call for the records of any proceeding under the Act and after any enquiry to pass, subject to the provisions of the Act, such orders as he thinks fit. Though this is called “the power of review” in the marginal note to the section, it is clear that the real jurisdiction given under this section is not by way of review but by way of what is generally known as revision or superintendence. Proceeding under that section in effect what the Commissioner said and did was really this:
“The Income-tax Officer started proceedings under Sect. 34 and re-assessed the parties, but the order of re-assessment was set aside by the Assistant Commissioner on appeal on the ground that, there had been no proper service of notice. I will assume that there was no proper service of notice, but as the Income-tax Officer really commenced proceedings I shall under Sect. 33 take up that proceeding at the stage at which it was left and proceed to re-assess the parties by virtuc of the powers vested in me of revision under Sect. 33 of the Act.”
On these facts the first question [question (a)] which is the general question, has to be answered only on the result of the answers to the other questions.
Question (b) as pointed out by the Commissioner does not arise because it appears to have been raised on a misapprehension that the proceedings sought to be reviewed were proceedings that had been taken not under the present Act namely the Act of 1922 but under the old Act of 1918. But it has been pointed out that the proceedings were taken only under the new Act. The question therefore does not arise or require to be answered.
Then as regards question (c) which is as follows;
“Whether Sects. 33 and 28 of the Income-tax Act 1922 are not controlled by the provisions of Sect. 34 of the same Act.”
Taking Sect. 33 first, generally speaking no doubt every section in an enactment is in a sense subject to every other section in the enactment or in other words all the sections have to be read together. But it will not be correct to say that Sect. 33 of the Act is in any other sense controlled by the provisions of Sect. 34 of the same Act. If there was a proceeding under Sect. 34 of the Act that would undoubtedly be a proceeding which is capable of being revised under Sect. 33 by the Commissioner. It will therefore not be quite correct to say that Sect. 33 is controlled by the provisions of Sect 34. But Sect. 33 also speaks of the Commissioner making such orders as he thinks fit only subject to the provisions of the Act. That expression clearly indicates that the power of the Commissioner to pass such orders as he thinks fit on revision is subject to the provisions of the Act. In other words, though the section says that the Commissioner may pass such orders as he thinks fit, the section indicates that the orders to be passed by him must be in accordance with the provisions of the Act and should not contravene such provisions. What then is the nature and scope of the power of the Commissioner to make any such re-assessment as he has done in this case? The power to re-assess is given expressly only by Sect. 34 and that section prescribes the condition precedent to any such valid re-assessment, the condition precedent being service within one year of the proper notice on the assesses giving notice of the intention on the part of the Income-tax Officer to re-assess. The power of re-assessment is given in express terms only to the Income-tax Officer and not to any other officer, the Assistant Commissioner or the Commissioner. If it was intended by the legislature that the Commissioner or the Assistant Commissioner should also have similar powers, there is no reason why all of them should not have been mentioned as in the case of Sect. 28. When it is a question of re-opening an assessment already completed and when the statute prescribes the particular mode in which alone re-assessment can be effected, it is clear that the condition should be rigidly observed before the power is purported to be exercised.
Though in the letter of reference it is admitted that the Commissioner of Income-tax would not generally initiate either assessment or re-assessment proceedings, still it is claimed that as a matter of law he has the right to do so.
Having regard therefore to the terms of Sect. 34 it is impossible to recognise the right of the Commissioner to initiate any such proceedings. It may well be that no such right was expressly given to the Commissioner or even to the Assistant Commissioner because they can always by an official direction require the Income-tax Officer to take such proceedings; and further under Sect. 33 the Commissioner has the power to revise any proceedings by the Income-tax Officer.
Thus from the scheme of the Act it would be clear that it is the Income-tax Officer alone that can initiate re-assessment proceedings. But if the Income-tax Officer should make a mistake and after having started re-assessment proceedings fail to re-assess the parties, the proceedings of the Income-tax Officer would, undoubtedly be open to revision by the Commissioner under Sect. 33 and he may thereupon pass any order as he thinks fit. But it must be borne in mind that the condition precedent to this exercise of the power of re-assessment is the proper service of notice indicated in Sect. 34. We may even go further and indicate that in this very case although the Assistant Commissioner set aside the order of re-assessment made by the Income-tax Officer on the view that the Assistant Commissioner took of the validity of the service of the notice, it was still open to the Commissioner, under Sect. 33, to revise that order of the Assistant Commissioner, set it aside and restore the order of the Income-tax Officer. But this was not what was done or even purported to be done.
The Commissioner for purposes of his order of re-assessment assumed that the order of the Assistant Commissioner regarding the validity of the service of the first notice was right and proper, and that finding has not been set aside.
The question then resolves itself into whether in the absence of service of notice within the year as indicated in Sect. 34, it is open to the Commissioner to serve another notice after the lapse of the year and seek to re-assess the parties. It seems to me having regard to the scheme of the Act that the condition precedent for re-assessment being service of the notice as indicated in Sect. 34 and such service of notice not having been effected according to the findings, the Commissioner had no right to initiate further or fresh proceedings for re-assessment. The power of revision given in Sect. 33 is a power merely of revision and such powers cannot be regarded as being larger than the powers of a Court of Appeal. It therefore follows that so long as the Commissioner did not in revision, seek to set aside the finding of the order of the Assistant Commissioner with reference to the service of the notice, it follows we must proceed on the footing that there had been no valid service of notice within the time under Sect. 34 of the Act and that therefore the condition precedent for re-assessment has not been satisfied or complied with.
We find it absolutely impossible to agree to the extravagant claim actually put forward in the letter of reference that without any limitation as to time the Commissioner under the powers of Sect. 33 might, at any time, in respect of any matter, pass any order he thinks fit, and that the Court has no right to interfere with the same. Obviously, even though no limitation of time is prescribed for interference by way of revision under Sect. 33 the Court would almost always incline in favour of taking the view that such exercise of power should be within a reasonable time of the proceeding sought to be revised, reasonable time being computed by the Court having regard to all the other provisions of the Act, to the facts of the particular case and the special features, if any, in it.
Under the revisional powers, it is clear that the authority revising, can only do that which the original authority could have done or ought to have done. If ex concessis there had been no valid service of notice of re-assessment within the year prescribed by Sect. 34 and therefore the Income-tax Officer had no power to reassess after the expiry of one year, it seems impossible to agree to the contention that under Sect. 33 in exercising the powers of revision the Commissioner could do what the Income-tax Officer could not possibly have done. The very terms of Sect. 33 of the Act would seem clearly to indicate that the order passed by the Commissioner is only by way of revision and limited to what could or ought to have been done by the authority whose proceeding is revised. The proceeding sought to be revised by the Commissioner on which the order of re-assessment has been made by him, could be regarded at the stage at which it was taken up by the Commissioner, only as a resolution by him to proceed under Sect. 34 and a mere resolution by him without the service of the notice would not be effective or sufficient to give him the power of reassessment. We are therefore of the opinion that for purposes of initiating proceedings of re-assessment, Sect. 33 of the Act is subject to the provisions of Sect. 34 of the Act and that the Commissioner has no right of initiating or independently starting re-assessment proceedings. This answer however as indicated already does not deny to the Commissioner, if he had chosen or thought fit to exercise it, the power to revise and set aside the order of the Assistant Commissioner and his finding with regard to the service of the notice.
Then with regard to Sect. 28 and the question whether that section also is controlled by the provisions of Sect. 34 it must be, to begin with, observed, that the power to levy penalty under Sect. 28 is said to be, if, in the course of any proceedings under this Act, the officer is satisfied that an assessee has concealed the particulars of income, etc. There can be no doubt whatever that if the Commissioner had the power of re-assessing or initiating or starting re-assessment proceedings, that would have been a proper proceeding under the Act and if in the course thereof it was clear to him that the party was guilty of the concealment of income, referred to in Sect. 28 he might have levied a penalty.
If there had been a proper order with regard to re-assessment which was being revised by the Commissioner, there might be said to be a proceeding in the course of which it was open to him to discover the concealment and levy the penalty. In the present case the Commissioner was not really exercising the powers of revision but was purporting to initiate and start independent proceedings. If he had no right to initiate or start independent proceedings it follows that anything done by the Commissioner with reference to it cannot be regarded as a proceeding under the Act. If there is no proceeding under the Act, there is no room for anything being discovered in the course of such proceeding. But the question propounded is whether Sect. 28 of the Act is controlled by the provisions of Sect. 34 of the Act and we do not see how it can be said that Sect. 28 is controlled by Sect. 34. But if what was intended by the question should be, whether in respect of re-assessment proceedings, such proceedings should properly have originated by service of notice under Sect. 34 of the Act before any action can be taken under Sect. 28, it seems to us that re-assessment proceedings under Sect. 34 should have been started before the power to levy penalty under Sect. 28 is exercised. In the present case the Commissioner has undoubtedly levied penalty only purporting to exercise powers of re-assessment but if he had no power of re-assessment it follows that there could also be no power to levy penalty.
Question (d) so far as the present case is concerned, has also been answered in the course of the answer to (c). But the language of this question leaves also much to be desired. If by the expression “assessment more than a year old,” is meant re-assessment proceedings under Sect. 34 after the end of the year following the year of assessment, then proceedings by way of re-assessment under Sect. 34 are not clearly open to the Commissioner. But so far as any assessment made by the Subordinate Officer is concerned, there is nothing in Sect. 33 which prevents the Commissioner from enhancing the assessment made on the materials available.
As regards the power to levy a penalty referred to in this question, it also follows that such a power cannot be exercised as in re-assessment proceedings, if, proceedings by way of re-assessment have not been properly commenced. But if on the materials with reference to any original assessment itself it should on revision appear to the Commissioner that there has been any concealment within the meaning of Sect. 28, then Sect. 33 would undoubtedly empower him to levy penalty.
Finally passing on to question (a) it follows from the answers already given to the other questions that what the Commissioner has purported to do was not to revise the order of the Assistant Commissioner and set aside his finding and order with regard to the service of notice and that therefore as there was no proper service of the notice under Sect. 34 of the Act no re-assessment proceedings could have been taken by the Income-tax Officer and the Commissioner of Income-tax has no right to initiate or start such independent proceedings himself. It also follows that the penalty levied by him which would have been proper if he had the power of initiating or starting independent proceedings, was also wrong.
The assessees will have their costs of this reference Rs. 300 (Rupees Three hundred) inclusive of the costs of the original application to direct the reference.
W. S. S.Reference allowed.