1964 (7) TMI 39 - HC - Income Tax

Appellate jurisdiction limited in assessments. Ruling favors assessee on remittance & penalty charges appeal.

The Supreme Court held that the Appellate Assistant Commissioner lacked jurisdiction to direct assessment for a different year while dealing with an ... - Issues Involved:1. Validity of proceedings under Section 34.2. Competence of the Appellate Assistant Commissioner to give directions in relation to the assessment of capital gains and profits for a different assessment year.3. Assessment of remittance of profits.4. Competence of appeal against the charge of penal interest.Issue-wise Detailed Analysis:1. Validity of Proceedings under Section 34:The first question pertained to the validity of the proceedings under Section 34 for the assessment year 1947-48. The assessee, Mathuradas Mohta, filed returns in the status of an individual, claiming a partition in 1944. However, the Income-tax Officer assessed him as a Hindu undivided family (HUF). As a precautionary measure, the Income-tax Officer issued a notice under Section 34 and assessed him individually for the same income. The Supreme Court later confirmed that Mathuradas Mohta should be assessed as HUF until the assessment year 1947-48. Consequently, the Income-tax Officer canceled the individual assessment, rendering the question academic. Therefore, it was deemed unnecessary to answer this question.2. Competence of the Appellate Assistant Commissioner to Give Directions for a Different Assessment Year:The second question addressed whether the Appellate Assistant Commissioner was competent to direct the assessment of capital gains and profits arising from the sale of textile mills for the year 1948-49 while dealing with the appeal for the assessment year 1947-48. The facts revealed that the sale of the textile mill occurred on October 25, 1946, resulting in capital gains. The Appellate Assistant Commissioner, while dealing with the appeal for 1947-48, directed that the capital gains be assessed for 1948-49. The Supreme Court in Income-tax Officer, Sitapur v. Murlidhar Bhagwan Das [1964] 52 I.T.R. 335 (S.C.) held that the jurisdiction of the Appellate Assistant Commissioner under Section 31 was confined to the assessment order of the particular year under appeal. Therefore, the Appellate Assistant Commissioner had no jurisdiction to decide the appropriate year for income assessment in an appeal for a different year. The answer to this question was in the negative, favoring the assessee.3. Assessment of Remittance of Profits:The third question involved the assessment of remittance of profits amounting to Rs. 42,361 (Rs. 25,451 from Rajnandgaon and Rs. 16,910 from Bikaner) for the assessment year 1950-51. The Income-tax Officer included these amounts in the total income, asserting they were remittances of profits from non-taxable territories. The Appellate Assistant Commissioner found that the profits available for remittance amounted to Rs. 49,287 but held that the amounts brought in 1950-51 were not liable to be included in the total income. The Tribunal, following Commissioner of Income-tax v. Annamalai Chettiar [1944] 12 I.T.R. 226, concluded that even capitalized profits brought from non-taxable territories were taxable. However, the court held that the original character of profits changes upon partition, becoming part of the family estate. Thus, the amounts brought by the assessee were part of his assets from the partition and not income or profits. The Tribunal erred in holding these amounts taxable. The answer to the third question was in the negative, favoring the assessee.4. Competence of Appeal Against Charge of Penal Interest:The fourth question addressed whether an appeal against the charge of penal interest was competent. The assessee had not paid advance tax as an individual but as HUF, and the Income-tax Officer imposed penal interest under Section 18A(8) for failure to pay advance tax. The Appellate Assistant Commissioner accepted the assessee's contention that penal interest was not chargeable since advance tax was paid as HUF. The Tribunal, however, held that the Appellate Assistant Commissioner was incompetent to entertain this contention. The court held that the levy of interest under Section 18A is part of the machinery for assessing tax liability, thus constituting a tax. The assessee, denying liability to pay interest, had a right to appeal under Section 30(1). The answer to the fourth question was in the affirmative, favoring the assessee.Conclusion:- The first question was deemed academic and not answered.- The second question was answered in the negative, favoring the assessee.- The third question was answered in the negative, favoring the assessee.- The fourth question was answered in the affirmative, favoring the assessee.The department was directed to bear half the costs of the assessee.