John Beaumont, Kt., C.J.
1. This is a reference made by the Commissioner of Income- tax under Section 66(3) of the Indian Income-tax Act, 1922, this Court having directed him to raise the question :
Whether the order of the Commissioner of Income-tax, Bombay, Sind and Baluchistan, under Section 33 of the Income-tax Act, dated April 15, 1940, is a valid order
2. The material facts are that the assessees were assessed for the year 1938-39, so that the assessment year expired on March 31, 1939. The Income-tax Officer included in the assessment certain cash items which he considered formed part of the income of the assessees, though the assessees disputed it. The assessees then appealed to the Assistant Commissioner, who took the view that these cash items did not form part of the income of the assessees in the year of assessment, and he, therefore, reduced by a large extent the assessment made by the Income-tax Officer. Thereupon the Commissioner of Income-tax issued a notice upon the assessees under Section 33 of the Indian Income-tax Act calling upon them to show cause why the Income-tax Officer's and the Appellate Assistant Commissioner's orders should not be set aside and the Income-tax Officer be directed to assess their firm afresh. On hearing the parties under that notice the Commissioner on April 15, 1940, set aside the order of the Appellate Assistant Commissioner and the assessment proceedings of the Income-tax Officer to the stage where notices under Section 23(2) and Section 22(4) were issued and directed the Income-tax Officer to make a further and fuller inquiry and give the assessees full opportunity to produce such evidence as they wished and then to proceed to assess in accordance with the provisions of the Act. It will be noticed that that order was made more than a year after the close of the assessment year, and, therefore, it would not have been open to the Commissioner to direct the Income-tax Officer to take proceedings under Section 34 of the Act and make a fresh assessment on the ground that income had escaped assessment. But it is, of course, obvious that the intention of the Commissioner in directing the Income-tax Officer to make a fresh assessment was that that assessment should involve an increase in the assessment as altered by the Assistant Commissioner. The argument presented to us by the assessees is in substance that the Commissioner, when exercising his revisional powers under Section 33, is not entitled to do something which involves enhancing the assessment, unless he proceeds under Section 34. We are dealing with the Act before the amendment of 1939, and it may be noticed that the revisional powers of the Commissioner under Section 33A of the amended Act are considerably restricted. We are only dealing with the powers under Section 33 of the unamended Act.
3. Now, the scheme of the Income-tax Act is this. Under Section 22 the Income-tax Officer can serve a notice upon an assessee to furnish a return, and under Section 23 he makes an assessment, and under Section 29 makes a demand for the amount at which the income has been assessed. That was done in this case. Then under Section 30 the assessee can appeal to the Assistant Commissioner against the assessment. We are not concerned here with the case of a best judgment assessment under Section 23(4). The powers of the Assistant Commissioner in appeal are prescribed ins. 31, and under Sub-section (3) (b) of that section the Assistant Commissioner can 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 Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment. So that, the Assistant Commissioner can in appeal direct the Income-tax Officer to make a fresh assessment. But it is to be noticed that there is a time limit for appeal to the Assistant Commissioner. Then comes Section 32 under which there is a limited appeal to the Commissioner, but only in two events. The assessee can appeal against an order enhancing his assessment under Section 31(3) or against an order imposing a penalty under Section 28. Then comes Section 33, which provides :
(1) The Commissioner may of his own motion call for the record of any proceeding under this Act which has been taken by any authority subordinate to him or by himself when exercising the powers of art Assistant Commissioner under subsection (4) of Section 5.
(2) On receipt of the record the Commissioner may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such orders thereon as he thinks fit:
Provided that he shall not pass any order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being heard.
It will be noticed that there is no time limit in Section 33, so that, the Commissioner may at any distance of time send for the record and make an order under Section 33. Then Section 34 also must be noticed, and that provides :
If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year, or has been assessed at too low a rate, the, Income-tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22, and may proceed to assess or re-assess such income, profits or gains.
But the time limit in that section is : 'one year of the end of that year,' which means ' one year after the end of the year of assessment,' which in this case was March 31, 1939, and, therefore, the time limit expired on March 31, 1940.
4. The Privy Council held in Commissioner of Income-tax, Bombay v. Khemchand : (1938)40BOMLR854 that the powers of the Commissioner under Section 33 are restricted, by reason of the words ' subject to the provisions of this Act', by the terms of Sections 34 and 35, and if the Commissioner desires to enhance the assessment under Section 34, he must proceed within the time limited by that section. In Commissioner of Income-tax v. Edulji Dinshaw (1943) 45 Bom. L.R. 589 this Court held that the Commissioner could not, under Section 33, himself enhance the assessment, although we pointed out that he might, under his revisional powers, direct the Income-tax Officer to take proceedings under Section 34 for the purpose of enhancing the assessment. In this case, no doubt, the Commissioner has not purported himself to enhance the assessment. He could not have directed the Income-tax Officer to take proceedings under Section 34, because the proceedings would have been out of time. What he has done is merely to direct the Income-tax Officer to proceed from the point at which notice was given under the old assessment; and to make a new assessment, and I agree with the Commissioner's argument that there is nothing in the terms of Section 33 to prevent such an order being made. The Commissioner is doing something which the Assistant Commissioner might do in appeal within the time limited under Section 31. But, to my mind, one cannot ignore the effect of the Commissioner's order. As I have already pointed out, it is obvious that the order is intended to result in the assessment as passed by the Assistant Commissioner being enhanced. If that is done, then the Commissioner has done exactly what the Privy Council, and this Court, in the cases I have referred to, decided that he could not do, and he has in fact caused the assessment to be enhanced without regard and contrary to the provisions of Section 34. In my opinion, he cannot do that. We must assume that the result of the new assessment would be to enhance the figure. If that were not the result intended, obviously the assessee would not object to it. But assuming that to be the result, in my judgment, it is not competent to the Commissioner under Section 33 to bring about that result.
5. I think, therefore, that the question raised must be answered in the negative.
6. Commissioner to pay costs. Costs to include costs of the rule and the order made thereon which were reserved. Commissioner to refund the Rs. 100 deposited by the assessees.
7. In this case the assessee was assessed by the Income-tax Officer under Section 23(5) of the Indian Income-tax Act, 1922, on September 5, 1939. In this assessment the Income-tax Officer included certain items of cash credits on the ground that they represented hidden sales or secret profits. From this assessment order of the Income-tax Officer an appeal was preferred by the assessee to the Appellate Assistant Commissioner, and the Appellate Assistant Commissioner made his order on January 15, 1940, holding that the amount of cash credits was not rightly included in the assessment of the assessee and that they did not represent hidden sales or secret profits and hence they should be excluded from the assessment.
8. Now it is important to note that no appeal lies from this order of the Appellate Assistant Commissioner. The only right of appeal to the Commissionerfrom an order of the Appellate Assistant Commissioner is given under Section 32 of the Indian Income-tax Act, and that only provides for an appeal when the Appellate Assistant Commissioner makes an order under Section 28 or makes an order enhancing his assessment under Sub-section (3) of Section 31. In my opinion, therefore, on the Appellate Assistant Commissioner passing his order on January 15, 1940, the assessment became final.
9. It has been contended by Mr. Setalvad that the assessment did not become final because the Commissioner had revisional powers under Section 33, and that till those revisional powers had been exercised, the assessment could not become final. If one were to accept Mr. Setalvad's arguments, it would lead to most startling results. According to him, no assessment could ever become final till the end of all time because no time limit is prescribed within which the Commissioner must exercise his revisional powers under Section 33 of the Act. In my opinion, once the assessment becomes final-and, as I have said, it did become final on January 15,1940, the assessment cannot be re-opened except in circumstances detailed in Sections 34 and 35 of the Indian Income-tax Act, and so the Privy Council held in Commissioner of Income-tax, Bombay v. Khemchand : (1938)40BOMLR854 . Their Lordships of the Privy Council laid down (p. 867) :-
In their Lordships' opinion the provisions of the two sections (namely, Sections 34 and 35) are exhaustive, and prescribe the only circumstances in which and the only time in which such fresh assessments can be made and fresh notices of demand can be issued.
10. It has been argued by Mr. Setalvad that the Income-tax Act does provide for contingencies where assessments can be quashed and fresh assessments can be ordered. That can be done under two circumstances : first, as detailed in Section 27 of the Act where an assessment is made under Section 23(4) and that is sought to be re-opened; and, secondly, under Section 31 where the Appellate Assistant Commissioner has been given the power while exercising his appellate powers to set aside the assessment and direct the Income-tax Officer to make a fresh assessment. But it must be noticed that in both these cases power is given to the Income-tax authorities to quash the assessment and order a fresh assessment only before the assessment becomes final. Once the assessment becomes final, the only power to re-open it or to order a re-assessment is that contained in Sections 34 and 35 of the Act and the conditions laid down under those sections must be strictly complied with and the time limit also prescribed in those sections must be observed.
11. Therefore I hold that it was not competent to the Commissioner to set aside the assessment proceedings and order a fresh assessment and, therefore, I agree with the learned Chief Justice that the question raised in this reference should be answered in the manner he has suggested.