TaxTMI 
TaxTMI 
1959 (5) TMI 6
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....ellant, Messrs. Sarupchand and Hukamchand and Co., (hereinafter referred to as the assessee firm) was carrying on business, inter alia, as shroffs, merchants and commission agents at Bombay, Indore, Ujjain and Calcutta. It had, in the relevant account years, two partners, Sir Sarupchand Hukamchand and Sri Hiralal Kalyanmal. The two partners were also separately liable to income-tax, the former as a Hindu undivided family and the latter as an individual. We are concerned here with the assessment years 1940-41, 1941-42 and 1942-43. These correspond to the account years, 1995-1996 (Samvat) to 1997-1998 (Samvat). When the assessment of the assessee firm was made, the Income-tax Officer, Section VIII (Central), Bombay, treated the firm as "resident and ordinarily resident". For the assessment year 1940-41 the Income-tax Officer found a profit of Rs. 80,358, and applying section 23(5)(b) of the Indian Income-tax Act (hereafter called the Act), he proceeded to treat the firm which was unregistered as registered for the purpose of assessment. On March 15, 1945, he therefore assessed the two partners carrying the profit into their individual returns and made no demand upon the firm. It appe....
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....yanmal. The assessee firm, however, was not satisfied, and embarked upon voluminous correspondence beginning with a letter dated September 10, 1949, by which it claimed that inasmuch as it had been shown to have incurred a loss in the first of the three assessment years, it could not for that year be treated as a registered firm, and that as an unregistered firm it was entitled therefore to carry forward the loss to the subsequent years. In addition to the correspondence, the assessee firm moved in turn the Income-tax Officer as well as the Appellate Assistant Commissioner respectively under section 35 of the Act for rectification of the assessment to the same effect. The Officers of the Department at both levels declined to interfere, and stated that the direction of the Income-tax Officer under section 23(5)(b) was not appealable, and had become final. They also pointed out that the period during which the original order of the Income-tax Officer could be rectified (viz. 4 years) had already run out, and that the petitions were accordingly out of time. The assessee firm moved the Commissioner as well as the Central Board of Revenue, but failed to get the desired order. Finally,....
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....tation, or failure to pursue a particular procedure. In the result, the Divisional Bench sustained the order of Tendolkar, J., who had dismissed the petition earlier. This court on May 3, 1954, granted special leave to appeal against the judgment of the Divisional Bench. Before arguing on merits of the appeal, the learned Additional Solicitor-General and subsequently Mr. Rajagopala Sastri who took over the argument, raised three objections to the present appeal. According to them, the petition in the High Court was directed against the Union of India and the two Income-tax Officers who had dealt with this matter, and the relief which was claimed could be granted by none of them. They further argued that mandamus was an inappropriate writ to issue in this matter, when the order passed by the Income-tax Officer under section 23(5)(b) was not appealable and the Appellate Assistant Commissioner could do nothing about it in the appeal against the quantum of assessment. They also stated that the relief asked for in the petition could not be granted by the High Court, and that the powers of this court were accordingly limited. We shall deal with these objections, when we have determin....
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....er made by the Income-tax Officer under section 23(5)(b) of the Act automatically fell to the ground and the loss could only be carried forward in the future assessments of the unregistered assessee firm and not in the account of the partners. The assessee firm contends that the direction by the Appellate Assistant Commissioner to modify the assessments of the three years accordingly implied the re-opening of the entire question whether this unregistered firm could be treated as a registered firm for purposes of assessment in the first year. The Department, on the other hand, refers to the provisions of section 30 of the Act to show that an appeal lies to the Appellate Assistant Commissioner on the grounds expressly mentioned there and none other. It further points out that this is not one of the grounds on which the appeal could have been taken, and the Act cannot by implication be deemed to have conferred on the Appellate Assistant Commissioner a power which he ordinarily did not possess under the Act. The order of the Income-tax Officer to treat the unregistered firm as registered must, therefore, be held to be outstanding, and all that has happened in the case is to take that o....
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....lised if the partners were assessed instead of the firm, and he accordingly decided to apply the procedure laid down in section 23(5)(b) to the firm. In passing his order, the Income-tax Officer observed as follows : " The firm is an unregistered one but the aggregate amount of tax payable by the partners would be greater by applying the procedure laid down in section 23(5)(a) of the Act than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered one. I therefore order under section 23(5)(b) of the Act that the procedure laid down in section 23(5)(a) should be applied and the firm declared N. D. for the assessment year 1940-41." It is no doubt true that if the Income-tax Officer had determined a loss, he could not and probably would not have passed this order, which would have had the immediate effect of loss to the Revenue of the sums which have now been ordered to be refunded to the partners of this unregistered firm. The Department, however, says that the assessment for 1940-41 except in so far as profit was converted into loss has become final and cannot be set aside now. It relies on Commissioner o....
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....en if the order be referred to clause (a) of section 31(3), the effect, in law, was the annulment of the assessment which had been made in the case, and the necessary consequence of the determination of the loss in the assessable income remained to be worked out. The Income-tax Officer worked it out by carrying the losses to the return of the partners. Under what section could he do so except under section 23(5)(b) ? There was no authorisation under section 31(4) of the Act and the second proviso to section 24 was clear. In such a case, the Income-tax Officer was required once again to apply his mind to determine whether it would be in the interests of Revenue to proceed, as he had done before. It is manifest that if he had done this duty in the interests of the Revenue, as the law indeed contemplates, he would never have passed the order that the loss of the firm should be carried to the accounts of the partners immediately in that year of assessment. Learned counsel for the Department admits that no Income-tax Officer would have, with a loss by the firm, given relief on the basis of that loss to the partners, but he contends that this not illegal in view of the special provisions....
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.... carrying a loss from the previous years but, if by treating the firm as registered, the Revenue would be benefited, the proviso can be used. But there is no general power to act this way to the detriment of the Revenue. To give any other interpretation to this proviso will mean that the words "during any year" have not received any meaning and that the proviso is interpreted to make it not incumbent on the Income-tax Officer to consider the interests of the Revenue, as required by clause (b) of section 23(5). The two provisions must be read in harmony, and when so read, yield the only result that proviso (d) is to be invoked, subject to the conditions under section 23(5)(b) to obtain more revenue for the State by applying section 23(5)(a). It would appear, therefore, that the Income-tax Officer in the light of the losses determined by the Appellate Assistant Commissioner, was under a duty to apply his mind de novo to the problem which he had undertaken, when he resorted to section 23(5)(b). It is admitted that if the matter had been so plain to him, he would not have, if he did his duty correctly under that provision, carried the losses to the partners' account. The only quest....
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....tax v. McMillan & Co. and Commissioner of Income-tax v. Amritlal Bhogilal & Co., that if the powers of the Appellate Assistant Commissioner did not involve a review of the determination by the Income-tax Officer under section 23(5)(b), this result could not indirectly follow. No doubt, the Appellate Assistant Commissioner could not, if the matter had gone before him in appeal against the order under that section, have interfered. But the Appellate Assistant Commissioner was exercising his powers under section 31 of the Act and annulling the assessment of the first year and converting a profit in that year into a loss. None can deny that he had that power in the appeal which was before him. Section 31(4) of the Act enjoins that where as the result of an appeal any change is made in the assessment of a firm, the Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm. This power was implicit in the order which the Appellate Assistant Commissioner passed, namely, that there was a loss in the assessment year in question and the assessments for the three years had to be modified. The Income-tax Officer, th....