The Commissioner of Income-Tax Vs.
Shapoorji Pallonji Mistry  INSC 54 (14 February 1962)
14/02/1962 HIDAYATULLAH, M.
CITATION: 1962 AIR 1086 1962 SCR Supl. (3)
E 1968 SC 153 (4) D 1976 SC1545 (18) R 1978
SC 40 (3,6) RF 1991 SC 241 (4)
Income Tax-Power of Appellate Assistant
Commissioner to enhance assessment--Items not mentioned in return or consi-
dered by the Income Tax Officer--Whether new sources of incomes could be
taxed-Indian Income Tax Act,, 1922, (11 of 1922),ss. 31(3) (a), 33B, 34.
The assessee had received in July 1946, a sum
40,000/- which according to him represented a
receipt of a capital nature. This fact was brought to the notice of the Income
Tax Officer during the proceedings for the assessment year 1946-47 and the
Income Tax Officer made a note' that the question would be considered again at
the time of 1947- 48 assessment. In the return filed for the assessment year
1947-48 this amount was not shown by the assessee and the Income Tax Officer
also overlooked his previous note, with the result that this item was omitted.
During the pendency of the appeal by the assessee before the Appellate
Assistant Commissioner the Income Tax Officer wrote a letter to the Appellate
Assistant Commissioner inter alia requesting him to assess the amount of Rs.
40,000/-. The amount was assessed and included in the original assessment.
On reference, the High Court answered, that
the Appellate Assistant Commissioner was not competent to enhance the
assessment. The question is whether in an appeal filed by an assessee, the
Appellate Assistant Commissioner can find a new source of income not considered
by the Income-tax Officer and assess it under his powers granted by s. 31 of
the Act and travel beyond the record in enhancing the assessment for any year.
Held, that in view of the provisions of ss.
34 and 33B by which escaped income can be brought to tax, the power of the
Appellate Assistant Commissioner is limited ; he has no power to travel beyond
the record to enhance the assessment of any year by discovering new source of
income not mentioned in the return of the assessee or considered by the Income
Tax Officer in the order appealed from.
Held, further, that provisions of ss. 33B and
34 enable escaped income from new sources to be brought to tax after following
special procedure. Enhancement of assessment by the discovery of new Sources of
income is not contemplated 172 under s, 3 1, because if fresh sources of income
are assessed under that section, the assessee will be deprived of a finding by
two tribunals, and one right to appeal. The powers of remand should be
exercised in such cases.
Narrondas Manordass v. Commissioner of
Income-tax,  31 I.T.R. 909, Jagarnath Therani v. Commissioner of Income
Tax, (1925) I.L.R. 4 Pat. 385, Gajalakashmi Ginning Factory v. Commissioner of
Income-tax,  22 I.T.R. 502, Bishwanath Prasad Bhagwat Prasad v.
Commissioner of Income- tax,  2 9 I.T. R. 748 and The Commissioner of
Income- tax V. M/8. McMillan & Co.  S.C.R. 689, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 420 of 1961.
Appeal by special leave from the judgment and
order dated March 14, 1958, of the Bombay High Court in I.T.R. No. 54 of 1957.
K.N. Rajagopal Sastri and D. Gupta, for the
R.J. Kolah, D. H. Dwarkadas, S. N. Andley,
Rameshwar Nath and P.L. Vohra, for the respondent.
1962. Feburary 14. The Judgment of the Court
was delivered by HIDAYATULLAH, J:-The assessee, who is the respondent here, had
received on July 20, 1946 a a sum of Rs. 40,000/-. In the proceedings for
assessment for the assessment year, 1946-47, this came to the notice of the
Since the receipt fell within the accounting
year relative to the' assessment year, 1947-48, the Income-tax Officer did not
assess the amount making a note, "The question will however be considered
again at the time of 1947-48 assessment." In the return filed for the
assessment year, 1947-48, this amount was not shown by the assessee. The
Income-tax Officer also overlooked the note at the end of his order in the back
year's assessment, with the result that this item was omitted, The asseessee
appealed to Appellate Assistant Commissioner against his assessment for the
year, 1947-48. While the appeal 173 was pending, the Income-tax Officer wrote a
letter to the Appellate Assistant Commissioner intimating him that he would
like to be present, and also requesting him to assess the amount of Rs.
40.000/-. The Appellate Assistant Commissioner, after issuing notice, assessed
the amount and included it in the original assessment The contention of the
assessee was that the amount of Rs. 40,000/- represented a receipt of a capital
nature, while it Was held to be a receipt on the. revenue account. With this
controversy, we are not concerned. The Tribunal agreed with the Appellate
Assistant Commissioner, but on the application of the assesse, referred two
questions to the High Court under s. (66 (1). These questions were :
" (1) Whether on the facts and in the
circumstances of- the cases the Appellate Assistant Commissioner was competent
to enhance the assessment of the Appellant for the assessment year 1947-48 by'
a sum of Rs.
40,000/- ? (2)Whether on the facts and
circumstances of the case they said sum of Rs. 40,000/is a revenue receipt anti
assessable to tax in the assessment year 1947-48 ?" The High Court
answered the first question against the Department, and declined to answer the
second, in a much as it become academic. This appeal has been filed with
special leave, against the judgment of the High Court of Bombay.
The question which arises in this appeal may
be formulated thus : whether in an appeal filed by assesee, the Appellate
Assistance Commissioner can find a new source of income not considered by the
Income-tax Officer and assess it under his powers granted by s. 31 of the
Income-tax Act ? Section 31 reads as follows :
"31. (1) The Appellate Assistant
Commissioner shall fix a day and place for the 174 bearing of the appeal, and
may from time to time adjourn the hearing.
(2)The Appellate Assistant Commissioner may,
before disposing of any appeal, make such further inquiry as he thinks fit or
cause further inquiry to be made by the Income-tax Officer.
(3)in disposing of an appeal the Appellate
Assistant Commissioner may, in the case of an order of assessment,- (a)
confirm, reduce, enhance or annul the assessment, (b) set aside the assessment
and direct the Income-tax- Officer to make a fresh assessment after making such
further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant
Commissioner may direct and the Income-tax Officer shall thereupon proceed to
make such fresh assessment and determine where necessary the amount of tax
payable on the basis of such fresh assessment...
There is no doubt that the Appellate
Assistant Commissioner can "enhance the assessment." It is admitted-
also by the assessee that within the four corners of the sources processed by
the Income-tax officer, the Appellate Assistant Commissioner can enhance the
assessment. This power must, at least, fall within the words
""enhance the assessment", if they are not to be rendered wholly
nugatory. The controversy in this case is about his discovering now sources, not
mentioned in the return and not considered by the Income-tax Officer. The High
Court held, following its earlier 175 view in Narrondas Manordas v.
Commissioner of Income-tax (1), that the Appellate Assistant Commissioner has
revisional powers, but that they are confined to what was before the Income-tax
Officer and considered by the latter.
The correctness of this view is challenged in
this appeal by the Commissioner of Income-tax, Bombay.
The earliest case which considered the
meaning of s. 31(3), was Jagarnath Therani v. Commissioner of Income-tax
(")decided by the Patna High Court. In that case, the assessee had three
businesses at Purnea, Jalpaiguri and Calcutta. His income from Purnea only was
assessed by the Income-tax Officer. On appeal by the assessee the Appellate
Assistant Commissioner assessed him with regard to the income from the other
two businesses. The head of income was the same with s. 6 of the; Income-tax
Act, but the sources of income were different. The Patna High Court observed :
"Now this section relating to appeals is
enacted for the benefit of the subject and also to the limited extent therein
stated, for the benefit of the Crown. But the subject- matter of the appeal is
the assessment and the scope of the appeal must in my opinion be limited by the
"subject-matter". The appellate authority has no power to travel
beyond the subject-matter of the assessment and, for all the reasons advanced
by the appellant, is in my opinion not entitled to assess new sources of
income." The view of the Patna High Court receives support from a decision
of the Madras High Court in Gajalakshmi Ginning Factory v. Commissioner of
Income-taxwhere the Divisional Bench observed as follows "Of course, it
would not be. open to the (1)  31 1. T. R, 909.
(2)  1. I. R. 4 Pat. 385.
(3)  22 T. T. R. 502 510.
176 Appellate Assistant Commissioner to
introduce into the assessment new sources, as his power of enhancement should
be restricted only to the income which was the subject matter of consideration
for purposes of assessment by the Income-tax Officer." ' In Bishwanath
Prasad Bhagwat Prasad v. Commissioner of Income-tax (1) the Appellate Assistant
commissioner had actually remanded the case, but while considering the powers
of the Appellate Assistant Commissioner, the Divisional Bench appears to have
approved of the above-quoted passage from Madras case. the observations in that
case may be treated as obiter. In Narrondas Manodas v. Commissioner of
Income-tax (2) is to be, found the earlier case of the Bombay High Court which
was followed in the judgment under appeal. In that case , the assesse was
carrying on business in 'Bombay and also in Rajkot. The profits from the Rajkot
business were assessed by the Income-tax Officer-at Rs- 1,17,643/-. The
Income-tax Officer also found remittances to the extent of Rs. 4 lakhs from
Rajkot to Bombay, but did not include that amount in the assessment in view of
the concession allowed by the Part B States Taxation Concession Order. The
assessee appealed with respect to the sum of Rs.
1,17,64311, contending that the Rajkot
business had no profits but only loss. The Appellate Assistant Commissioner
accepted this contention, but set aside the assessment and remanded the case to
the Income-tax Officer for reassessment with a view to assessing the sum of Rs.
4 lakhs. In dealing with the case, the High Court held that the powers of
remand were extremely wide, but- it quoted with approval the decision of the
Patna High Court in Jaqarnath Therani v. Commissioner of Income-tax (3) and
also the above observation of the Madras High Court. The learned Chief Justice
on the occasion (1)  31 T. T. R. 909 (2)  1. L. R. 4 Pat.
(1)  22 1. T. R. 502, 510.
177 added that there was a distinction
between the subject- matter of the appeal and the subject matter of the
assessment, and that the Appellant Assistant Commissioner',s powers under s.
.31 were not confined to the subject-matter of the appeal but extended to the
subject-matter of the assessment. Those powers included a power of remand to
include in the assessment something which ought to have been so included by the
Income-tax Officer, and a remand in that case was, therefore, proper.
The Commissioner of Income-tax v. M/s
McMillan & Co. (1);
but the question, with which we are
concerned, was left open. There is, however, a passage in the judgment,
approving of the observations of Chaola, C. J., in Narrondas Manordass v.
Commissioner of Income-tax (2) to the following effect:
"It is clear that the Appellate
Assistant Commissioner has been constituted a revising authority against the
decisions of the Income- tax Officer; a revising authority not in the narrow
sense of revising what is the subject matter of the appeal, not in the sense of
revising those 'matters about which the assessee makes a grievance, but a
revising authority in the sense that once the appeal is before him he can
revise not only the ultimate computation arrived at by the Income-tax Officer
but he can revise every process which led to the ultimate computation or
In other words, what he can revise is not
merely the ultimate amount which is liable to tax, but he is entitled to revise
the various decisions given by the Income-tax. Officer in the course of the
assessment and also the various incomes or (1)  S. C. R. 689,701.
(2)  1. L. R. 4 Pat. 385. 178
deductions which came in for consideration of the Income-tax Officer." The
learned Chief Justice in the judgment under appeal considers that this Court
has thus given approval to his view and also the view of the Patna High court
in the earlier case.
In our opinion, this Court must be held not
to have expressed its final opinion on the point "arising here, in view of
what was stated at pp. 709 and 710 of the Report.
This Court, however, gave approval to the
opinion of the learned Chief Justice of the Bombay High Court that s. 31 of the
Income-tax Act confers not only appellate powers upon the Appellate Assistant
Commissioner in so far as he is moved by an assessee but also a revisional
jurisdiction to revise the assessment with power to enhance the assessment.
So much, of course, follows from the language
of the section itself. The only question is whether in enhancing the assessment
for any year he can travel outside the record, that is to say, the return made
by the assessee and the assessment order passed by the Income-tax Officer with
a view to finding out new sources of income, not disclosed in either. It is
contended by the Commissioner of Income-tax that the word "'assessment"
here means the ultimate amount which an assessee must pay, regard being had to
the charging section and his total income. In this view, it is said that the
words "enhance the assessments are not confined to the assessment reached
through a particular process but the amount which ought to have been computed
if the true total income had been found. There is no doubt that this view is
also possible. On the other hand, it must not be overlooked that there are
other provisions like s. 34 and 33B which enable escaped income from new
sources to be brought to tax after following a special procedure. The assessee
contends that the powers of the Appellate 179 Assistant Commissioner extend to
matters considered by the Income-tax Officer, and if a new source is to be considered,
then the power of remand should be exercised. By the exercise of the power to
assess fresh sources of income, the assessee is deprived of a finding by two
tribunals and one right of appeal.
The question is whether we should accept the
interpretation suggested by the Commissioner. in preference to the one, which
has held the field for nearly 37 years. In view of the provisions of ss. 34 and
33B by which escaped income can be brought to tax, there is reason to think
that the view expressed uniformly about the limits of the powers of the
Appellate Assistant Commissioner to enhance the assessment has been accepted by
the legislature as the true exposition of the words of the section. If it were
not, one would expect that the legislature would have amended s. 31 and
specified the other intention in express words. The Income- tax Act was amended
several times in the last 37 years, but no amendment of s. 31(3) was undertaken
to nullify the rulings, to which we have referred. In view of this, we do not
think that we should interpret, s. 31 differently from what has been accepted
in India as its true import, particularly as that view is also reasonably
The appeal is, therefore, dismissed; but in
the circumstances of the case, we make no order about costs.