ASTON, A.J.C. - This is an application under s. 66, cl. (3) Income Tax Act, XI of 1922, applying to this court for an order to direct the Commissioner to state the case and refer it to this court, The facts briefly are as follows. On 17th January, 1927, the applicants, Messrs. Khemchand Ramdas, who are the firm doing business at Bunder Abbas and Carmine, were assessed as a registered firm for income-tax for the year 1926-1927, and the assessment was duly levied. On 4th February, 1928, proceedings were taken by the Income-tax Collector, Sikarpur, under Section 34 for re-assessment on the income for the year 1926-1927. On 13th February, 1928, the Commissioner of Income-tax cancelled the registration of the firm and the proceedings under Section 34 were dropped. On 7th May, 1929, the applicants were served with a notice demanding a sum of Rs. 9,468-12-0 as super-tax for the year 1926-1927. An appeal was made to the Assistant Commissioner against the super-tax. On 12th April, 1930 the appeal was dismissed by the Assistant Commissioner under Section 31. An application was made under Section 33 to the Income-tax Commissioner for revision of that order. On 29th August, 1930, the revision application was rejected. The Commissioner by the same order in which the application was rejected quashed the proceedings culminating with the order of the Assistant Commissioner dismissing the appeal against super-tax on the ground that no appeal lay to the Assistant Commissioner. The applicants then made an application under Section 66, cl. (2), to the Commissioner to refer questions of law to this Court. On 22nd September, 1930, the application was rejected by the Commissioner on the ground that there being no appeal the Assistant Commissioner, no question of law arose which could be referred to this court.
Our attention has been drawn to numerous points of law which are connected with the circumstances of the present case. The applicant in his application has referred to five of them namely : (1) Whether the fact that all the partners did not sign a partnership agreement was a valid ground for rejecting registration : (2) whether super-tax for a 1926-27 could be levied after 31st March, 1928; (3) whether super-tax could be levied without an assessment having been made on an unregistered firm; (4) whether the levy of a super-tax was legal in the absence of a notice demanding super-tax at the same time as the demand was made for income-tax; (5) lastly, whether it was legal to demand super-tax in view of the dropping of proceedings under Section s. 34.
The learned Government Pleaded on behalf of the Commissioner has taken the preliminary objection that question of law within the meaning of Section 66 arises since there was no appeal to the Assistant Commissioner from a notice demanding the payment of super-tax. In this connection, our attention has been drawn to Section 58, Income Tax Act and Sections 34 and 35 and in view of these sections we are unable to hold on the preliminary point that the Assistant Commissioner had to jurisdiction to inquire into the appeal from the order demanding super-tax. The second ground on which it is contented by the learned Government Pleader that this application should not be granted is that the rejection of the application under Section 66, cl. (2), was not on the ground that there was no question of law arising. In this connection, it is necessary to set out the order of the Commissioner of Income-tax. It is as follows :
'As the appellate order has been quashed, no reference to the High Court can lie under Section 66(2) of the Act as such a reference is to be made only on questions of law arising out of such an order if it does exist. The assessment being under Section 23(4), however, no appeal will lie against it to the Assistant Commissioner and so there is no appellate order under S. 31.'
The contention, therefore, of the learned Government Pleader comes to this. That if the Commissioner sees fit to hold the proceedings before the Assistant Commissioner ultra vires and a nullity, this court has no power to inquire into the validity of the Commissioners order since the quashing of the proceedings before the Assistant Commissioner results in the absence of any order which this court can inquire into. It seems to me clear that the ultimate authority on the question whether proceedings before the Assistant Commissioner. There would appear to me to be grounds for believing that questions of law arose in this case. I am of opinion that the questions of law raised by the applicants challenge the very foundation of the assessment of super-tax and that the applicants are entitled to have a case stated. I would therefore direct the Commissioner to state the case and refer it to this court. This is without prejudice to any contentions he may raise at the hearing.
RUPCHAND, A. J. C. - Mr. Lobo has raised two points : (1) that no question of law arises out of the order of the Assistant Commissioner of Income-tax as that order has been vacated by the Commissioner of Income-tax as being ultra vires; and (2) that as the Commissioner of Income-tax has not refused to state a case to the court on the ground that no question of law arises out of the order of the Assistant Commissioner, but on the ground that there is no order of the Assistant Commissioner and not on the ground that no question of law arises, clause (3) does not apply.
I am afraid, the learned Government Pleader has not followed carefully the wording of Section 66 of the Act. Clause (2) of that section gives a right to an assessee to apply that questions of law arising out of an order passed under Section 31 be referred to the court. On the date on which the assessee made this application under clause (2), the order of the Assistant Commissioner was in existence. It had not been set aside by the Commissioner; prima facie therefore, the application of the assessee under clause (2) was in order. The proviso to that clauses reads as follows :
'Provided that, if in exercise of this power of review under Section 30, the Commissioner decides the question, the assessee may withdraw his application and if he does so, the fee paid shall be refunded.'
In clear terms this proviso gives the power to the assessee to withdraw his application, if he so wishes. Where the question of law which he desires the Commissioner to refer to the court is satisfactorily decided in his favour there is no question that he will withdraw his application. But where he does not withdraw his application, there is an obligation upon the Commissioner to refer all question of law arising out of that order. If the Commissioner finds that the order cannot be supported, he cannot merely by vacating the order and at the same time affording no relief to the assess, deprive him of his right to have the questions of law arising out of that order decided by this court one way or the other and thus prevent the assessee from obtaining relief. It is not contented by the learned Pleader that no questions of law arise out of the order of the Assistant Commissioner. But all that is said is that as no appeal lay to the Assistant Commissioner he had no jurisdiction to deal with the questions of law raised before him and therefore such questions cannot be made the subject-matter of a reference to this Court. The above statement is in itself sufficient to distinguish the present case from that reported as Khemchand Ramdas v. Commissioner of Income-tax, Bombay (1932) 136 Ind. Cas 762; A.I.R. 1932 Sind 1; 26 S.L.R. 235.
The record now before us is incomplete. It is difficult to know exactly what are the rival contentions of the parties. From the order of the Assistance Commissioner and from what has been stated at the Bar, it appears that the Income-tax Officer levied an ex parte assessment against the applicants under Section 23, clause (4) but at the same time recognised them as a registered firm; and he did this in consequence of an application made to him by the assessee in that behalf period to the date of his order. As a registered firm the assessees were not liable to pay super-tax. The income-tax Officer therefore levied the income-tax as assessed by him but made no demand for super-tax. More than a year later, the Commissioner, in exercise of his powers under Section 33, held that the Income-tax Officer was in error in registering the applicants as a firm. As a matter of fact he passed that order after the Income tax Collector had started certain proceedings against the applicants under Section 34 to re-assess them on the ground that they had escaped proper assessment. In view however, of the order of the Commissioner holding that the applicants could not be registered as a firm, the Income tax Collector dropped the proceedings under Section 34, and in lieu there of called upon the applicants to pay super-tax in addition to the income-tax already levied from them. The contention of the applicants was that it was not within the competence of the Income-tax Collector to levy super-tax as more than one year had expired from the date on which they were taxed as a registered firm. Although a firm is not a legal entity according to ordinary law, it would appear that for income-tax purposes a firm registered with the Income-tax authorities is treated as a separate and distinct entity from its partners. The applicants case appears to be that their firm had never been assessed as an unregistered firm and that after the expiry of one year they could not be assessed as such and thus made to bear the extra burden of super-tax. Their position may be very bad. Surely they had a right of appeal to have a decision on this point. The Assistant Commissioner of Income-tax has decided against them and it follows that they have a right to challenge that decision in this court.
The point raised by the applicants is of considerable importance and its answer depends upon the meaning to be attached to Section 58 of the Act read with Sections 34 and 35. Mr. Lobo has argued that as super-tax is ipso facto levied on the assessment fixed, there is no right of appeal with regard to super-tax if the assessment has been made summarily under the provisions of Section 23(4) of the Act and that, as in this case, the assessment was summary there was no right of appeal against the assessment and therefore no right of appeal against demand for payment of super-tax. The contention of the other side appears to be that although they may have had no right of appeal, if the assessment was levied from them as a registered firm, they could not be deprived of their right of appeal to pay a much larger sum than that paid by them as a registered firm. The answer to these questions again depends upon the true construction of Section 30 of the Act and particularly of the words 'denying his liability to be assessed under the Act'. With regard to registration, again we have not got materials before us on the record to show why it was cancelled. All that we are told is that it was cancelled in consequence of the opinion held by the Commissioner that before by all the partners. It that was the ground on which the Commissioner proceeded to cancel the registration it could not be maintain in view of the decision of this court in Bulchand Keshavdas v. Commissioner of Income-tax, Bombay (128 Ind. Cas. 678; A.I.R. 1930 Sind 301; 25 S.L. R. 182). At this stage, I have no intention of expressing any opinion one way or the other on the questions arising out of this case, and all that I am prepared to hold is that on the materials before us, there can be no doubt that the learned Commissioner was in error in refusing to state the questions of law which arose out of the order complained against. I would therefore, direct that the Commissioner of state a case to the court. It would be open to him to press his contentions which express his opinion on the case and then it will be the proper time to consider them.