John Beaumont, Kt., C.J.
1. This is a reference made by the Commissioner of Income-tax under Section 66(2) of the Indian Income-tax Act, 1922, raising three questions. The first question is :
Whether the Commissioner's refusal to interfere with the Appellate Assistant Commissioner's findingsi on the question of the inadmissibility of the foreign losses was an order prejudicial to the assessee within the meaning of Section 66(2) of the Act ?
The second question relates to the claim to set off foreign losses.
2. So far as the first question is concerned, the Income-tax Officer made his assessment, and there was an appeal to the Assistant Commissioner, who agreed with the Income-tax Officer's order. Then an application was made to the Commissioner to refer a case under Section 66(2) of the Act, but he refused to do so. The assessee did not then apply to the Court to direct the Commissioner to refer a case under Section 66(5), as he might have done, but applied to the Commissioner to revise the order of the Assistant Commissioner under Section 33. The Commissioner heard the parties at length, and made an order declining to interfere with the Assistant Commissioner's order.
3. Section 33 of the Indian Income-tax Act, before the amendment of 1939, provides that the Commissioner may of his own motion call for the record of any proceeding under the Act which has been taken by any authority subordinate to him or by himself exercising the powers of an Assistant Commissioner, and on receipt of the record the Commissioner may make such inquiry or cause such inquiry to be made and, subject to the provisions of the Act, may pass such orders thereon as he thinks fit. Then there is a proviso that he shall not pass any order prejudicial to an assessed without hearing him or giving him a reasonable opportunity of being heard. Section 66(2) provides that within sixty days of the date on which he is served with notice of an order under Section 31 or Section 32, or of an order under Section 33 enhancing an assessment or otherwise prejudicial to him, the assessee may, as therein mentioned, require the Commissioner to refer to the High Court any question of law arising out of such order or decision. Then there is a proviso that a reference shall lie from an order under Section 33 only on a question of law arising out of that order itself, and not on a question of law arising out of a previous order under Section 31 or Section 32, revised by the order under Section 33. Orders under Section 31 are orders made by the Assistant Commissioner in appeal, and those under Section 32 are made by the Commissioner in appeal on certain questions. The question raised by the Commissioner is whether in this case there is any prejudicial order within Section 66(2), and the cases on the subject are not altogether in agreement.
4. A bench of three Judges of the Madras High Court in Venkatachalam v. Commissioner of Income-tax, Madras I.L.R. (1934) Mad. 367 held that Section 33 contemplates an order made by the Commissioner which alters the position of an assessee or an applicant to that person's prejudice, and that if the Commissioner acting under Section 33 merely declines to interfere, his, order, which leaves the assessee in the same position as formerly, is not an order prejudicial to the assessee. But in Sreeramulu v. Commissioner of Income-tax, Madras Mad. 358 a bench of five Judges of the Madras High Court overruled or purported to overrule that decision, and held that an order of the Commissioner upholding an order of an Income-tax authority subordinate to him, which was prejudicial to the assessee, must itself be regarded as prejudicial to the assessee. Although in that case no question under the proviso, which I have read, arose, the learned Chief Justice in delivering the opinion of the Court expressed some views on the effect of the proviso, which I do not find it very easy to understand ; but as the observations were obiter dicta only, and as there is direct authority on the effect of the proviso, to which I will refer presently, I think it unnecessary to discuss the view of the Madras High Court as to the effect of the proviso.
5. The matter then came before the Rangoon High Court in Amulakharai Chhotalal v. Commr. of Inc.-Tax (1940) 8 I.T.R. 382 and the learned Chief Justice, who gave the judgment of the Court, professed to distinguish the decision of the full bench of the Madras High Court, but he held, and the other Judges agreed with him, that there was no ground for a reference under Section 66(2) inasmuch as the order of the Commissioner was not an order prejudicial to the assessee as it in no way altered the position as it existed before the Commissioner chose to review the case. I think the Court there really agreed with the earlier view of the Madras High Court, and not with the Voora Sreeramulu case, but it is suggested that the cases can be reconciled since in the Madras full bench case the Court dismissed the revision application, whereas in the Rangoon case he merely declined to take action. I agree that if the Commissioner calls for the record and decides to take no action, he has not made an order, prejudicial or otherwise. But if he hears the parties and rejects the application, it does not, in my opinion, matter whether he rejects it in express terms, or declines to interfere, as he did in this case. That is merely a matter of form. However in none of those cases was it necessary to consider the effect of the proviso.
6. Now, looking to the wording of the proviso, apart from authority, the scheme of the Act seems to be that where the Assistant Commissioner has made an order, the assessee can within the time limited under Section 66(2) apply to the Commissioner to refer a case raising a question of law arising out of the Assistant Commissioner's decision, and if the Commissioner refuses, the assessee can ask the Court under Sub-section (3) to require the Commissioner to refer the case. If in a case, which has been decided by the Assistant Commissioner under Section 31, the assessee asks the Commissioner to review the decision under Section 33, he cannot then require the Commissioner to refer a case raising a question of law arising under his own revisional order, unless that question of law arises only under the revisional order, and does not arise as well under the previous order of the Assistant Commissioner under Section 31. So what it comes to, in my view, is that if the Commissioner in a case under Section 33, and in which he has revived an order made under Section 31 or Section 32, agrees with the view taken by the Officer under one of those sections, then the proviso precludes him from making a reference; the assessee has got to ask for the reference direct from an order under Section 31 or Section 32 within the time limited. But if in reviewing an order under Section 33 the Commissioner differs from the order on a point of law, or upholds it on a different point of law to that which influenced the lower tribunal, then a reference can be made against the order under Section 33, because it raises a point of law arising only under that order. That, I should say, apart from authority, is the effect of the proviso, and that has been held to be its effect in a decision of the Patna High Court in East Khas Jharia, Colliery Co., Ltd. v. Commr. of Inc.-tax : 10ITR296(Patna) where the whole question was discussed. The decision arrived at by the Patna High Court is also in accordance with a dictum of the Nagpur High Court in Central India Co. v. Commr. of Inc-tax, C.P. in which the learned Judges stated (p. 270):.Our present impression is that the true intent of the first proviso to the second Sub-section (2) of Section 66 is that a question of law that is common to both Assistant Commissioner's and the Commissioner's order is not a proper subject-matter of a reference unless the question of law is raised on a reference from the decision of the Assistant Commissioner which is not the case here,' I think that is the right view.
7. Sir Jamshedji Kanga has contended that the question as to the effect of the proviso to Section 66(2) is not raised by the Commissioner. It is true that the question he raised does not refer in terms to the proviso. But he does ask whether his order refusing to interfere is an order prejudicial to the assessee within Section 66(2) of the Act, and we cannot answer that question without considering the effect of the proviso. I think the correct answer to the question raised is that it is not an order prejudicial to the assessee referable to the Court under Section 66(2) of the Act. In answering the question in that way I am assuming, as the Patna High Court did in the case to which I have referred, that the later decision of the full bench of the Madras High Court is correct without expressing any opinion of my own upon the point.
8. On that answer to the first question, the second question
Whether, in the event of question (1) being answered in the affirmative, the Commissioner was, in the circumstances of this case, correct in law in declining to interfere with the said findings of the Appellate Assistant Commissioner on the question of the inadmissibility of the foreign losses ?' does not arise. At the Commissioner's own request we have held that the question was not raisable, and, that being so, I do not think we ought to answer it. The Commissioner cannot approbate and reprobate, and having affirmed that the question was not referable, he cannot ask us to answer it; though I should not feel much difficulty in answering it if it arose.
9. The third question relates to income which the assessee says was held on the charitable trust, and was, therefore, exempt from tax under Section 4(3) (i) of the Indian Income-tax Act. On that point the Commissioner, acting under Section 33, varied as against the assessee the order of the Assistant Commissioner. Therefore, so far as relates to that question, it is not disputed that the order was a prejudicial one, and was one properly referred. But the question is really one of fact. The Commissioner has held that the income in question was received by the assessee in July, 1935, and a trust of the property out of which the income was received was not made until November, 1935. The assessee maintains that ever since 1931 the property had been held upon an oral charitable trust, but there is no finding to that effect. The finding of the Commissioner is :
The interest was both receivable as well as actually received at a time when the ownership of the securities was vested in the assessee.
In the face of that finding it seems to me that we have no ground on which we can interfere with the Commissioner's order. We must, therefore, answer the third question, which is :
Whether, in the circumstances of the case, the interest from the securities in question was correctly included in the total income of the assessee for the assessment year 1936-37.
in the affirmative.
10. The assessee to pay costs.
11. The first question raised really involves two questions : first, whether the order made by the Commissioner under Section 33 of the Indian Income-tax Act is a prejudicial order ; and, secondly, if it is a prejudicial order, whether it is referable under Section 66 (2) of the Act As regards the first question, we have the decision of the full bench of the Madras High Court reported in Sreeramulu v. Commissioner of Income-tax, Madras  Mad. 358 and I agree with the learned Chief Justice that in considering the second question we must proceed on the assumption that that decision is correct. I might point out that in that decision the order made by the Commissioner was that he confirmed the order of the Income-tax Officer. The order made here by the Commissioner is sought to be distinguished from the order made in that case on the ground that the order made here is : ' I therefore decline to interfere on this issue also.' Now what we must really look at is the substance of the order and not merely its form, and I do not think in substance there is any distinction whether the Commissioner confirms the order of the subordinate Income-tax Officer or refuses or declines to interfere with that order if in fact he has gone into the merits of the application, has heard the application and then has made the order declining to interfere with the order of the subordinate Income-tax Officer. It is not disputed in this case that the Commissioner did go into the merits of the application. The matter was heard at great length, and then the Commissioner made this order.
12. With regard to the second question, I agree with the learned Chief Justice that we must follow the decision of the Patna High Court reported in East Khas Jharia Colliery Co., Ltd. v. Commissioner of Income-Tax, Bihar and Orissa I.L.R. (1942) Fat. 653. It is not disputed here that the question of law which Sir Jamshedji Kanga asks us to consider is the same question which was raised before the Appellate Assistant Commissioner of Income-tax and, therefore, the question of law was common to the decision of the Appellate Assistant Commissioner and the Commissioner of Income-tax; and, following the decision of the Patna High Court, I think that the proviso applies and, therefore, this question is not referable.
13. I, therefore, agree with the learned Chief Justice that the first question ought to be answered in the manner he has suggested.
14. I have nothing more to add with regard to the third question.