DEKA, J. - This is a reference under section 66(1) of the Indian Income-tax Act at the instance of the assessee. The assessee, M/s. Industrial Stores and Agency Co., Dibrugarh, was assessed for the assessment year 1948-49 in the status of an unregistered firm. The assessment order passed by the Income-tax Officer was dated February 26, 1953. Against that order of assessment, while an appeal was pending before the Appellate Assistant Commissioner, the Commissioner of Income-tax passed an order on February 13, 1954, purporting to be one under section 33B of the Income-tax Act whereby the order of assessment as passed by the Income-tax Officer was set aside and he was directed to make a fresh assessment after applying the provisions of section 23(5)(b) so as to charge the partners direct in respect of their shares of income. The Appellate Assistant Commissioner finally disposed of the appeal a little later, on July 12, 1954. An appeal was taken before the Income-tax Tribunal against the order of the Commissioner passed on February 13, 1954, and the same was dismissed by the order of the Tribunal dated November 24, 1958.
Three points were taken before the Appellate Tribunal for the purpose of reference under section 66(1) and the Tribunal formulated the following point for out consideration. The reference runs as follows :
"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the Commissioner had jurisdiction to make the order under section 33B of the Indian Income-tax Act, setting aside the assessment made by the Income-tax Officer ?"
The fact in this case are not disputed and the only thing to be decided is whether the Commissioner of Income-tax exercised his powers correctly under section 33B, which had been the subject-matter of appeal before the Income-tax Appellate Tribunal. The point as taken before the Income-tax Appellate Tribunal was that since an appeal was pending before the Appellate Assistant Commissioner of Income-tax against the order of the Income-tax Officer assessing the tax due by the firm, the Commissioner could not have exercised his powers under section 33B at that stage. That contention has been repelled by the Appellate Tribunal relying mainly on the ground that it was covered by the decision of the Supreme Court in the cause of Commissioner of Income-tax v. Amritlal Bhogilal and Co.
The learned Advocate-General appearing on behalf of the assessee has reiterated the self-same point before us and his argument is divided into two branches : (I) that the Commissioner of Income-tax had no jurisdiction to exercise his power under section 33B while an appeal against the original assessment made by the Income-tax Officer was pending before the Appellate Assistant Commissioner, and (2) that since the Commissioner of Income-tax Officer was erroneous, he could not have interfered with it simply because he considered it to be prejudicial to the interest of Government revenue.
Before entering into a discussion of the points involved, I might quote section 23 (5) (b), which has a material bearing. The paragraph runs as follows :
"In the case of an unregistered firm, the Income-tax Officer may, instead of determining the sum payable by the firm itself, proceed to assess the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, and determine the tax payable by each partner on the basis of such assessment, if, in the Income-tax, if any, payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually, if separately assessed; and where the procedure specified in this clause is applied to any unregistered firm, the proviso to clause (a) of this sub-section shall apply thereto as they apply in the case of a registered firm."
In regard to the first branch of the contention raised by the Learned Advocate-General, we do not think it admits of further consideration after the decision of the Supreme Court referred to earlier where it has been held that the Commissioner is competent to pass an order under section 33B whenever he considers that it has been erroneously passed and is prejudicial to the revenue, even while an appeal was pending from the order of assessment.
The learned Advocate-General, however, has stressed much on the second branch of his argument, namely, that the Commissioner does not find that the order of assessment passed by the Income-tax Officer was erroneous in law, and, therefore, he could not have interfered even if it was found prejudicial to the interest of the Government revenue, as contemplated in section 23 (5) (b) of the income-tax Act. This argument is not of much avail since the statue itself does not lay down that the Income-tax Officer did not apply his mind to the provisions of section 23 (5) (b) which he was required to do, and it is not left to his mere discretion, as contended by the Learned Advocate-General for the assessee.
The provisions of section 23(3) of the Income-tax Act relates to assessment in general and it has no particular reference to a registered or unregistered firm. Section 23 (5) (a) has special reference to the case of a registered firm, and in the case of an unregistered firm, clause (b) of that sub-section has application. Even though the provisions is in the form that the Income-tax Officer may instead of determining the sum payable by the firm itself, proceed to assess the total income of each partner of the firm. including therein his share of its income,. profits and gains of the previous year, he has to examine the aggregate amount of the tax, with a view to ascertain what mode of assessment would be more profitable to the Department. Even though the section is in the form of authorising the officer to examine the point, it indirectly casts a duty on him. Therefore, even if the assessment under section 23(3) may not be illegal or unjustified, the Commissioner can examine as to whether the Income-Officer concerned had in his mind the provisions of section 23(5)(b) at the time and applied the same to the facts of this case, - and an omission thereof may be considered to be an error prejudicial to the interest of the revenue.
The learned Advocate-General has further argued that the Commissioner was not explicit in the matter of saying that there was an error is not considering the provisions of clause (5)(b) of section 23 by the Income-tax Officer. But, his order, in substance, indicates that prejudice to the interest of revenue was caused because of the Income-tax Officer not taking into consideration the provision of that section, and that is why he exercised his powers under section 33B of the Income-tax Act. We think, therefore, that this contention has not much force either and the Tribunal was justified in upholding this order.
In these circumstances we think the question referred to us should be answered in the affirmative and in favour of the Department. We, therefore, direct that the reference be answered as indicated above and the assessee pay the costs of hearing of this reference, which we assess at Rs. 100.
MEHROTRA, J. -I agree with the order proposed. In my opinion the question should be answered in affirmative, The facts have already been set out by my Lord,. The assessee was assessed for the assessment year 1948-49 in the status of an unregistered firm. He filed an appeal against the order of assessment before the Appellate Assistant Commissioner. During the pendency of the appeal a revision was filed against the assessment and the Commissioner acting under section 33B of the Income-tax Act set aside the order of assessment and remanded the matter to the Income-tax Officer to make a fresh assessment on the partners directly under section 23(5) (b). An appeal was filed against the order of the Commissioner under section 33B to the Appellate Tribunal and the Tribunal rejected the appeal, and affirmed the order passed by the Commissioner. The main point taken before the Appellate Tribunal was that no power could be exercised by the Commissioner under section 33B during the pendency of the appeal. The Tribunal in the short order referred to the judgment of the Supreme Court in Amritlals case : 34ITR130(SC) and relying upon that held that there was no bar to the Commissioners power being exercised under section 33B during the pendency of the appeal, and, consequently the appeal was rejected.
The learned Advocate-General, who appears for the assessee, has not seriously pressed the point that the Commissioner had no jurisdiction during the pendency of the appeal to exercise his power under section 33B, though he has not admitted that point. The main point urged by him is that under section 33B the Commissioner could exercise his power only if the order of the appeal to exercise his power under section 33B, the Commissioner could exercise his power only if the order of the Income-tax Officer was erroneous and was prejudicial to the Department. His contention is that the Commissioner has neither given a finding to the effect that the order of the Income-tax Officer was erroneous; nor could he come to the conclusion on the facts and circumstances of the present case. His short point is that the Income-tax Officer had a discretion in the matter, he could tax the income of the firm itself, or he could tax the partners under section 23(5)(b), and, if he exercised his discretion in a particular manner, the Commissioner cannot set aside the order and regard the discretion as erroneous or not in accordance with law.
In my opinion, section 33B does not speak of the errors of law alone. It speaks of erroneous assessment. Section 23(3) gives power to the Income-tax Officer to assess the total income of any unregistered firm. It also gives the alternative power to the Income-tax Officer to act under section 23(5) (b) and assess the partners of an unregistered firm. If the Income-tax Officer exercises his powers under section 23(3), it is open to the Commissioner, having regard to the circumstances of the case to come to the conclusion that the case justified exercise of powers under section 23(5) (b) and to that extent he could regard the order of the Income-tax Officer as erroneous. In fact, the Income-tax Commissioner could have said, having regard to the circumstances, that the Income-tax Officer should have exercised his power under section 23(5) (b) and not having exercised that he has committed an error. If that error was examinable by the Commissioner, the Commissioner could interfere with the decision of the Income-tax Officer on that point. It is not as if the law has given any discretion in the matter to the Income-tax Officer and it was as if the Income-tax Officer had exercised a particular discretion after considering the entire material and that was not examinable by the Commissioner in revision.
Nothing has been pointed out on the materials to show that the order of the Commissioner was erroneous or that the order of the Income-tax Officer was not erroneous. Having regard to the circumstances that it was prejudicial to the revenue of the State, the Income-tax Officer, in the opinion of the Commissioner, should have exercised his powers under section 23(5) (b) and to that extent he thought the order of the Income-tax Officer to be erroneous. In my opinion, therefore, it cannot be said that the Tribunal in the circumstances of this case in affirming the order of the Commissioner has acted in any manner illegally. The question as framed, which has already been set out, requires this court to give its opinion as to whether in the circumstances the Commissioners jurisdiction was properly exercised and the Tribunal was right in affirming the order of the Commissioner. As I have already indicated it cannot be said that the order of the Commissioner was in any manner without jurisdiction.
Reference answered accordingly.