Commissioner of Income-Tax, Kerala Vs.
M/S. Manick Sons [1969] INSC 44 (14 February 1969)
14/02/1969 SHAH, J.C.
SHAH, J.C.
RAMASWAMI, V.
GROVER, A.N.
CITATION: 1969 AIR 1122 1969 SCR (3) 708 1969
SCC (1) 671
ACT:
Income-tax Act, 1922, s. 33-Tribunal's
powers--Tribunal cannot amalgamate income of two assessment years and divide it
equally between them--Cannot take undertaking from assessee to file fresh
return for earlier year and direct Income-tax Officer to make assessment
accordingly-Cannot make allowance for 'intangible additions' without giving
reasons.
HEADNOTE:
For the assessment year 1952-53 the
Income-tax Officer added a certain amount to the assessee's returned income as
income from undisclosed sources. For the assessment year 1953-54 a still larger
amount was added on account of unexplained cash credits. The Income-tax
Appellate Tribunal when considering the appeal for 1953-54 took the view that
since the income assessed in 1952-53 was much less than in earlier years some
of the undisclosed income of that year must have gone into the cash credits
disclosed in 1953-54. It therefore calculated the income for both the
assessment years 1952-53 and 1953-54 together and after making some allowance
for 'intangible additions' in each year, determined the amalgamated income for
the two years at Rs. 1,00,000 as a round figure. On this basis the assessment
for 1953-54 was reduced to Rs. 50,000 from the higher figure determined by the
Appellate Assistant Commissioner. In respect of the year 1952-53 an undertaking
was taken from the assessee to file a fresh voluntary return for Rs. 50,000 in
place of the much lower income originally assessed. At the instance of the
department a reference was made to the High Court, and Tailing there, the
department appealed to this Court.
HELD : The appeal must be allowed.
Under s. 33(4) of the Income-tax Act, 1922,
the Income-tax Appellate Tribunal may after giving both parties to the appeal
an opportunity of being heard, pass such orders thereon as it thinks fit. The
power conferred by that sub- section is wide, but it is still a judicial power
which must be exercised in respect of matters that arise in the appeal and
according to law. The Tribunal in deciding an appeal before it must deal with
questions of law and fact which arise out of the order of assessment made by
the Income-tax Officer and the order of the Appellate Assistant Commissioner.
It cannot assume powers which are inconsistent with the express provisions of
the Act or its scheme. [712 E-F] In the present case the Tribunal was entitled
to enquire whether the source of cash credits was explained : if it held that
they represented capital or income of earlier years it could exclude them from
income liable to be taxed in the year to which the appeal related. But the
Tribunal had no power to find on amalgamation of income an average of more
years than one, and to divide it for the purpose of assessment between the two
years 1952-53 and 1953-54--equally. [712 G; 714 D] In working out the
amalgamated income for the two assessment years in question the Tribunal could
not without giving any reasons, and without supporting evidence, make allowance
as it did for "intangible additions". [714 G] 709 The Tribunal
hearing an appeal may give directions for reopening assessment of the year to
which the appeal relates : it cannot give any directions to reassess in case of
a period not covered by that year. There was no sanction in law to enforce the
undertaking given by the respondent when urging his appeal in respect of the year
1953-54, to make a voluntary return for the year 1952-53; and even if the
respondent carried out that undertaking the assessment of 1952-53 could not be
reopened otherwise than in the manner prescribed by the Act. The undertaking
must therefore be ignored. The implied direction given by the Tribunal to the
Income-tax Officer to reassess the income for year 1952-53 was without
jurisdiction. [712 D-E; 714 A] The questions raised on behalf of the revenue
clearly flowed from the contentions raised before the Tribunal and enquiry into
those questions was not barred. [712 D-E; 714 A] Commissioner of Income-tax,
Madras v. S. Nelliappan, 66 I.T.R. 722, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2459 of 1966.
Appeal by special leave from the judgment and
order dated August 2, 1965 of the Kerala High Court in Income-tax Referred Case
No. 20 of 1964.
Sukumar Mitra and B. D. Sharma, for the
appellant.
S. Swaminathan and R. Gopalakrishnan, for the
respondent.
The Judgment of the Court was delivered by
Shah, J. For the assessment year 1952-53 respondents M/s. Manick & Sons
were assessed to tax in the status of a registered firm and their income was
computed at Rs. 15,331 inclusive of Rs. 15,000 being undisclosed income. For
the assessment year 1953-54 the respondents returned Rs. 40,887 as their income
from business. The Income-tax Officer discovered an aggregate amount of Rs.
74,692 as "cash credits" which, in his view, were not satisfactorily
explained by the respondents. The Income-tax Officer accordingly brought to tax
a total income of Rs. 1,31,179 being Rs. 56,487 as income from business and Rs.
74,692 as income from "other sources" and assessed the respondents as
an unregistered firm. The Appellate Assistant Commissioner in appeal reduced the
income of the respondents from business to Rs. 38,420 and income from
"other sources" to Rs. 46,620. In second appeal the Tribunal reduced
the income from business to Rs. 28,820 and confirmed the finding that the
source of the cash credits aggregating to Rs. 46,620 had remained unexplained.
But the Tribunal observed that "there were certain special features in the
case which needed proper consideration in determining the final
assessment." The Tribunal then aggregated the income for 710 the assessment
years 1952-53 and 1953-54 for the two years, which he rounded off at Rs.
1,00,000 and apportioned in equal shares in the two years. For the assessment
year 1952-53, the Tribunal recorded that the respondents had given an
undertaking to file a voluntary return for assessment on the basis of total
income of- Rs. 50,000.
At the instance of the Commissioner of
Income-tax, four questions were referred to the High Court of Kerala :
"(1) Whether it was not beyond the
jurisdiction of the Appellate Tribunal to reopen the concluded assessment for
assessment year 1952-53 and to direct that the income should, be revised in
that year at Rs. 50,000 as against Rs. 15,331 already fixed ? (2) Whether on
the facts and circumstances of the case and the evidence on record, the Tribunal
was justified in directing that any portion of the cash credits be assessed to
income-tax in any year other than the assess- ment year 1953-54 ? (3) Whether
on the facts and circumstances of the case and evidence on record, the Tribunal
was-,justified in finding that a portion of the cash credits were covered by
the intangible additions made in 1952-53 and 195354 assessment ? (4) Whether on
the facts and circumstances of the case and the evidence on record, the
Tribunal *as justified in directing that the income under the head 'business'
for the assessment year 1953-54 be reduced to Rs. 50,000 ?" The High Court
declined to answer questions (1)_& (2) and answered questions (3) & (4)
in the affirmative. The Commissioner appeals with special leave.
The judgment of the Tribunal is not a
reasoned decision on the questions arising before it; it is cryptic and in
parts obscure, and gives no grounds for its conclusion. The judgment again
lends countenance to a method of assessment which the Indian Income-tax Officer
aggregated to Rs. 74692 which amount was the Tribunal observed that the cash
credits discovered by the Income-tax Officer aggregated to Rs. 74692 which
amount was reduced by the Appellate Assistant Commissioner to Rs. 50,620. (It
is common ground that the correct figure should be Rs. 46,620.) The Tribunal
then observed that on the evidence on record "these residuary items must
remain unexplained." But the Tribunal thought that because in the
assessment year 1952-53 the total income of Rs. 15,331 was comparatively small
compared to the 711 income of the earlier years "some of that year's
profits must have come into the profits of the next year". The Tribunal
then set out a consolidated statement of account for two years :
"1. Trade profits assessed for
assessment Rs.
year 1952-53 15,331
2. Trade profits on the basis of books and
without the estimates and additions impugned in this appeal (Rs. 56,487 less
Rs. 45,600)40,887 3. Trading deficiency:
(a) Palluruthy branch 1,000 (b) Pavaratty
branch 5,000 6,000
4. Unexplained cash Credits 50,620 Less set
off- Intangible addition for 1952-53 Rs. 15,000 Intangible addition for 1953-54
as above.
Rs. 6,000 21,000 29,620 ---------- Assessable
for both the year 91,838" and observed The assessee has undertaken to file
a voluntary return for assessment year 1952-53 on the basis of a total income
of Rs. 50,000. In these circumstances, the total business income of the
assessee for the year under appeal is reduced to Rs. 50,000 only." The
unexplained cash credits found by the Appellate Assistant Commissioner and
accepted by the Tribunal were Rs. 46,620. The total income of the two years on
the basis adopted by the Tribunal was therefore Rs. 87,838. But the income of
the two years was rounded off at Rs. 1,00,000 and divided equally between the
two years. For making up a consolidated statement of account the Tribunal gave
no reasons nor did it give any reasons "for debiting the intangible
additions" of Rs. 15,000 and Rs. 6,000 against the cash credits. Counsel
for the respondents suggested that the Tribunal was presumably of the view that
Rs. 15,000 brought to tax as business income in the assessment in 1952- 53 must
have been entered in the books of account of the next year and that Rs. 6,000
called "trading deficiency" in the two branches was entered as cash
credit.
The appeal before the Tribunal raised a
simple question-- whether the cash credits aggregating to Rs. 46,620 or any
part thereof were liable to be taxed as income of the respondents in 712 the
year 1953-54. For that purpose the, Tribunal had to consider whether the
respondents furnished any explanation leading to a justifiable inference that
the amount or a part thereof did not represent income of the respondents In the
view of the Tribunal the cash credits had remained unexplained. But the
Tribunal still reduced the cash credits by Rs. 21,000, and then proceeded to
amalgamate the income for the two years and to divide it equally. For reducing
the cash credits by Rs. 21,000 no reasons have 'been given, and amalgamation of
the income for the two years and apportionment is without authority of law.
An assessment which has become final may be
reopened in appeal by the Appellate Assistant Commissioner or the Tribunal or
in revision by the Commissioner, or under an order of rectification of mistake,
or pursuant to a notice of reassessment. The Tribunal hearing an appeal may
give directions for reopening assessment of the year to which the appeal
relates : it cannot give any directions to reassess in case of a period not
covered by that year.' There is no sanction in law to enforce the undertaking
given by the respondent-when urging his appeal in respect of the year 1953-54,
to make a voluntary return for the year 1952-53;
and even if the respondents carried out that
undertaking the assessment of 1952-53 could not be reopened otherwise than in
the manner prescribed by law. The undertaking must therefore be ignored. Under
S. 33(4) of the Income-tax Act, 1922, the Income-tax Appellate Tribunal may,
after giving both parties to the appeal an opportunity of being heard, pass
such orders thereon as it thinks fit. The power conferred by that sub-section
is wide, but it is still a judicial power which must be exercised in respect of
matters that arise in the appeal and according to law. The Tribunal in deciding
an appeal before it must deal with questions of law and fact which arise out of
the order of assessment made by the Income-tax Officer and the order of the
Appellate Assistant Commissioner. It cannot assume powers which are
inconsistent with the express provisions of the Act or its scheme.
The Tribunal was entitled to enquire whether
the source of the cash credits was explained: if it held that they represented
capital or income of earlier years, it could exclude them from income liable to
be taxed in the year to which the appeal related. But the Tribunal had no power
to find on amalgamation of income an average of more years than one, or to give
credit for what is called intangible additions, without explaining why credit
was given.
There is no warrant for the claim made by
counsel for the respondents that the order passed by the Tribunal was by
consent. The Tribunal has not stated so, and if the order was made by consent
of the departmental 'authorities and the respondents, 713 the objection should
have been prominently raised when the Commissioner asked for a reference to the
High Court.
Counsel urged that the final order passed by
the Tribunal operates to the prejudice of the respondents, and the Commissioner
is not aggrieved by that order. Counsel said that even though the Tribunal has
found that the total income for the two years in question was approximately Rs.
91,838 (which if a correction account had
been made would have been Rs. 87,838), the Tribunal has directed assessment of
Rs. 50,000 in the year 1952-53 and another Rs. 50,000 in the year 1953-54. But
this is only a superficial way of looking at the matter. In the assessment year
195253 the respondents were assessed in the status of a registered firm and the
income of the firm had to be distributed amongst the partners, and the shares
of the partners could be assessed to tax in their hands. The rate of tax on
this income unless the partners have large individual income would be
comparatively low. In the year 1953-54 the respondents were an unregistered
firm and the total income of the unregistered firm was liable to be taxed.
It was also coin-tended that the arguments
raised before this Court were never set up either before the Tribunal or before
the High Court and should not be permitted to be raised. The question raised
clearly flow from the contentions raised before the Tribunal and contemplate an
enquiry into matters urged by counsel by the Commissioner.
The decision of this Court Commissioner of
Income-tax, Madras v. S. Nelliappan(1) on which reliance was placed by counsel
for the respondents has little bearing in this case.
In S. Nelliappan's case(2) it was held that
the conclusion whether a cash credit in the books of account of an assessee is
properly explained is one on a question of fact on which no reference can be
made to the High Court under s. 66 of the Indian Income-tax Act. The Court in
that case did not lay down that it is open to the Tribunal to make a
consolidated assessment of tax in respect of the assessment of income for the
two years and then divide the income in equal shares.
Turning then to the questions : counsel for
the respondents conceded that the Tribunal had no Jurisdiction to direct the
Income-tax Officer to reopen the assessment for the year 195253. He submitted
however that the Tribunal did not give any such directions : it merely recorded
an undertaking given by the respondents that they will voluntarily submit a
return for Rs. 50,000 for the year 1952-53. But the context in which the
statement recording the undertaking occurs in paragraph 7 of the (1) 66 I.T.R.
722.
714 judgment of the Tribunal and the
direction given in paragraph 8 leave no room for doubt that the Tribunal did
give a direction to the Income-tax Officer to reassess the income for the year
1952-53. On the answer to the first question no further enquiry need be made on
the second question.
The Tribunal has given no reasons in support
of the view that the "intangible additions" of Rs. 21,000 covered a
part of the cash credits. Our attention has also not been invited to any
evidence which establishes a connection between the cash credits for Rs. 21,000
and the additions of Rs. 15,000 made in the assessment for 1952-5.3 and Rs. 6,000
added in 1953-54.
The fourth question contemplates an inquiry
whether the Tribunal was justified in directing that the income under the head
"'business" for the assessment year 1953-54 be reduced to Rs. 50,000.
The question is somewhat misleading.
The direction of the Tribunal was that the
total income of the respondents be reduced to Rs. 50,000 for the year 1953- 54,
the business income being Rs. 28,820 and the balance being income from other
sources. For reasons already set out the Tribunal had no jurisdiction to
proceed to combine the income for the two years 195253 and 1953-54 and to
divide it for the purpose of assessment between the two years equally. The
Tribunal had to assess the income for the year in question.
The appeal is allowed, and the answers to the
questions re- corded by the High Court are discharged. The answers to the
questions will be as follows :
Q. (1)-Tribunal had no jurisdiction.
Q. (2)-Tribunal had no jurisdiction.
Q. (3)-in the negative.
Q. (4)-in the negative.
There will be no order as to costs in this
appeal.
G.C. Appeal allowed.
Back
