High Court invalidates assessment for lack of jurisdiction, affirms annulment over remand.

The High Court held that the reassessment was without jurisdiction as the Income-tax Officer (ITO) failed to refer the jurisdictional issue to the Commissioner of Income-tax (CIT) before completing the assessment. The Appellate Assistant Commissioner's direction to set aside the assessment and refer the matter to the CIT was deemed procedurally correct but insufficient to validate the assessment. The Tribunal's examination under Section 124(7) found the assessment invalid due to income from multiple jurisdictions. The High Court ruled the assessment should have been annulled rather than remanded to the AAC. The High Court disposed of the reference with no order as to costs.

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Issues Involved:
1. Jurisdiction of the Income-tax Officer (ITO) in making the reassessment.
2. Validity of the reassessment without the Commissioner's determination of jurisdiction.
3. Applicability and interpretation of Section 124(7) of the Income-tax Act.
4. Powers and jurisdiction of the Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT) in directing reassessment.
5. Finality and legality of the reassessment order.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer (ITO) in making the reassessment:
The reassessment was initiated by two ITOs, Ward-D and Ward-E, leading to a jurisdictional dispute. The assessee objected to the jurisdiction of the ITO, District III, Ward-D, claiming that the assessment could not proceed without the determination of jurisdiction by the Commissioner of Income-tax (CIT) as per Section 124(4). The AAC upheld this objection, noting that the CIT's order referred to by the ITO did not pertain to the relevant assessment year and that the ITO should have referred the matter to the CIT before completing the assessment.

2. Validity of the reassessment without the Commissioner's determination of jurisdiction:
The AAC set aside the assessment, directing it to be made afresh after referring the case for determination of jurisdiction by the CIT. The Tribunal, however, found that the AAC could not render an illegal assessment into a legal one by putting the clock back and enabling the CIT to decide the question of jurisdiction. The Tribunal emphasized that if the ITO proceeded to make an assessment without referring the matter to the CIT, such an assessment would be null and void.

3. Applicability and interpretation of Section 124(7) of the Income-tax Act:
The Tribunal considered whether the assessment could be supported under Section 124(7), which states that every ITO shall have all the powers conferred by or under the Act in respect of any income accruing or arising or received within the area for which he is appointed. The Tribunal directed the AAC to examine if the assessment could be sustained on the basis of Section 124(7). The Tribunal held that if the assessment could be supported under Section 124(7), it would be valid despite the procedural lapses.

4. Powers and jurisdiction of the Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT) in directing reassessment:
The Tribunal's direction to the AAC to determine the jurisdiction under Section 124(7) was challenged. The Tribunal clarified that the AAC could not give directions to enable the CIT to decide the question of jurisdiction after the assessment was completed. The Tribunal's decision to remit the matter to the AAC was based on its interpretation of Section 124(7), which it believed could override the procedural requirements of Section 124(4) to (6).

5. Finality and legality of the reassessment order:
The Tribunal concluded that the legality of the assessment should be determined on a harmonious reading of Section 124(4) and Section 124(7). It directed the AAC to examine whether the assessment could be supported strictly on the terms of Section 124(7). However, the High Court found that the assessment could not be sustained under Section 124(7) as the assessee's income accrued in multiple jurisdictions, and the Act does not contemplate piecemeal or partial assessments. The High Court held that the Tribunal should have annulled the assessment as being without jurisdiction and should not have remanded the matter to the AAC.

Summary of Conclusions:
1. The ITO should have referred the jurisdictional issue to the CIT before completing the assessment.
2. The AAC's direction to set aside the assessment and refer the matter to the CIT was procedurally correct but not sufficient to validate the assessment.
3. The Tribunal acted within its jurisdiction in examining the validity of the assessment under Section 124(7).
4. The assessment could not be sustained under Section 124(7) as it involved income from multiple jurisdictions.
5. The Tribunal should have annulled the assessment instead of remanding the matter to the AAC.

Disposition:
The High Court disposed of the reference accordingly, with no order as to costs.

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