1. This is a case stated under Section 66(2) of the Income-tax Act 1922 (hereinafter referred to as the Act). The question referred is:
'Whether the Tribunal was legally right in its view that in the circumstances the order passed by the Appellate Assistant Commissioner was not an order under Section 31 of the Income-tax Act and as such no appeal lay against that order?'
2. The material facts are these: The assessee company was incorporated in September 1936 as a private limited company. It was converted into a public company with effect from 1-10-1941, and since then it is being assessed as such. The company was carrying on business in the sale of Hessian and gunnies. The relevant assessment year is 1946-47. The original assessment for the relevant assessment year was completed on the 20th of March 1947 on an income of Rs. 1,71,694/- which was reduced in appeal to Rs. 1,41,487/-.
3. The successor Income-tax Officer on going through the assessment records found that no additional super-tax under the Finance Act of 1946 had been levied upon the assessee. According to him this was leviable as the dividend declared exceeded both 5 per cent of the capital of the company as well as 30 per cent of the assessed total income. Accordingly a notice under Section 35 of the Act was issued on the 6th August 1947 (not 1954 as stated in the statement of the case). The assessee raised two objections, one, that the provisions of Section 35 were not applicable and the other on the merits that the company was not one which could be deemed to be a company in which the public are substantially interested within the meaning of the explanation to Sub-section (1) of Section 23-A of the Act and as such no additional super-tax under the Finance Act 1946. These objections were repelled and it was held by the Income-tax Officer that, (1) as the additional supertax was inadvertently not levied by his predecessor, the provisions of Section 35 of the Act were attracted, and (2) on the merits, even though no share had in fact been transferred during the relevant year, they were nevertheless freely transferable by the holders to other members of the public and as such it was a company in which the public were substantially interested and therefore additional super-tax was leviable. He accordingly purported to rectify the assessment under Section 35 by adding to the assessment already made, the sum of Rs. 30,310/8/- as additional super-tax by an order dated the 16th of January 1948.
4. The assessee went up in appeal against the order which purported to be under Section 35. The appellate Assistant Commissioner without going into the question as to whether the order was really one under Section 35 or not refused to entertain the appeal, relying upon the decision of the Patna High Court in Harihar Gir v. Commr. of Income-tax Bihar and Orissa, : 9ITR246(Patna) in preference to the 'decision of the Privy Council in Commr. of Income-Tax Bombay and Aden v. Khemchand Ramdas, upon which the assessee had placed reliance for the proposition that even if there was no specific provisions for appeal, nevertheless as the assessee was 'denying his liability to be assessed', an appeal would lie.
5. Against the order of the Appellate Assistant Commissioner dated 24th April, 1948, holding that the appeal was incompetent, the assessee went up in revision under Section 33A(2) to the Commissioner of Income-tax. The Commissioner by his order dated 26th December, 1951, held that as the assessee was denying his liability to be assessed to additional super-tax, the appeal filed before the Assistant Commissioner was not against the order under Section 35 but against the original assessment as modifiedby the order under Section 35. The operative portion of his order reads:
'I, therefore, set aside the order of the Appellate Assistant Commissioner of Income-tax and direct him to restore the appeal to his register and decide the same on merits.'
6. Thereupon, the matter once again went back to the Appellate Assistant Commissioner and he (successor Appellate Assistant Commissioner) again dismissed the appeal as incompetent, notwithstanding the clear directions of the Commissioner of Income-tax to dispose of the appeal on merits, holding that, (1) the Commissioner was wrong in thinking that the appeal against the original assessment was pending and therefore the enhancement made under Section 35 of the Act to the income assessed could be dealt with as a part of the original assessment order and (2) that no appeal was provided under the Act against an order under Section 35 of the Act.
7. The assessee took the matter in second appeal to the Tribunal. The Tribunal while expressing its surprise that the Appellate Assistant Commissioner should have defied the order of the Commissioner of Income-tax by holding that the Commissioner of Income-tax had no jurisdiction to restore the appeal to his file which he had rejected as incompetent, yet itself went on to hold, relying upon the observations of the Supreme Court in Commr. of Income-Tax. Madras v. Arunachalam Chettiar, : 23ITR180(SC) that as the Appellate Assistant Commissioner had refused to exercise jurisdiction and entertain an appeal, the order passed by him was clearly not an order under Section 31 of the Act but one under Section 30 and as such no appeal lay to the Tribunal. Hence, this reference at the instance of the assessee.
8. It is no doubt true that the right of appeal is one which is a creature of statute and there is no inherent right of appeal but by placing reliance on this proposition the authorities below were merely begging the question which really arose in the case, which was, whether, under the provisions of Section 30, an appeal lay against an order which purported to be one passed under Section 35 of the Act? The authorities appear to have assumed that an order, merely because it is labelled as one under Section 35, is in fact one under that section and as Section 35 is not to be found specifically mentioned in Section 30, as one of the appealable sections, no appeal against such an order was competent. Section 30 of the Act apart from mentioning the various sections which are appealable has also provided an appeal against an order 'denying his liability to be assessed under this Act.' If the assessee denies his liability to be assessed then an appeal would lie.
9. What constitute denial of liability to be assessed, has been agitating courts in India for nearly four decades. The earliest case is that of a Full Bench of the Lahore High Court in Duni Chand v. Commr. of Income-Tax ILR (1929) Lah 596: AIR 1929 Lah 593 , where the question for decision by the Full Bench was, whether a person, who has been assessed by the Income-Tax Officer under section 23 (4) of the Indian Income Tax Act, XI of 1922, is entitled to prefer an appeal to the Assistant Commissioner on the ground that he was not liable to be assessed under the Act or whether the proviso to Section 30(1) of the Act which provided that 'no appeal shall lie in respect of an assessment made under Sub-section (4) of Section 23. ..... .' operatesas a bar to the appeal. Sir Shadi Lal, C.J. while reiterating the well known doctrine that there is no inherent right of appeal held that the mere label put by the Income-Tax Officer on the assessment as one under Section 23(4) would not per se shut out the appeal. In this connection it was observed:
'But the appellate authority must, before denying him the right of appeal, be satisfied that he had really incurred the penalty prescribed by the law, and that the Income Tax Officer had acted legally in assessing him under Section 23(4) of the Act. The mere fact that the assessment purports to have been made under that sub-section dons not shut out the appeal: it must be shown that the circumstances of the case bring it within the scope of that sub-section. When the Assistant Commissioner is satisfied that the assessment was made, not ostensibly but genuinely, under that sub-section, he must stay his hands and decline to adjudicate upon the merits of the appeal on the short ground that the proviso to Section 30(1) bars an appeal in such a case.'
Notwithstanding the fact that there was an express provision barring an appeal, at that time against an order under Section 23(4) of the Act, nevertheless, it was held that an appeal would not be shut out merely on the ground that the order purported to be one under Section 23(4) of the Act.
10. A Full Bench of the Patna High Court in, Kunwarji Ananda v Commr. of Income-Tax, Bihar and Orissa, ILR (1932) Pat 187 : AIR 1931 Pat 306, also when faced with the question as to whether an order refusing to entertain an appeal was one under Section 30 sub-s (1) or under Section 31 held, by a majority that an order of the Assistant Commissioner dismissing an appeal and holding that no appeal lies is an order passed under Section 31, The learned Chief Justice in the leading judgment observed:
'Whatever the technical legal considerations the general duty of the Court to stand between the subject and the Crown in the matter of illegal taxation forces me to regard this contention as very unattractive, and it is, in my opinion, unsound. It is undoubtedly the duty of the Assistant Commissioner when the order of the Income-tax Officer comes before him on appeal to decidewhether or not he is precluded by the Act from going into the amount or rate of the assessment or the liability of the assessee, and, if he is so precluded, he must reject the appeal. In so rejecting the appeal he is, in my opinion, under Section 31 'disposing of an appeal' and such disposal is 'a proceeding' in connection with an assessment under this Act.'
Fazl Ali, J., as he then was, at p. (214) (of ILR Pat)=(at p. 316 of AIR) in this connection observed:
''The question is whether this order or decision was or was not one under Section 31, The learned Assistant Government Advocate contends that once it is found that no appeal lay to the Assistant Commissioner the order passed by that officer cannot be regarded as one passed under Section 31. Now Section 31 provides that the Assistant Commissioner may in disposing of the appeal confirm, reduce, enhance or annul the assessment or may set it aside and direct the Income-tax Officer to make a fresh assessment after making such further enquiry as the Income-tax Officer thinks fit. In this case the Assistant Commissioner passed an order which is at least in form an order under Section 31. In passing the order the Assistant Commissioner also purported to act as the ordinary appellate authority and as far as I am aware there is no section in the Income-tax Act except Section 31 under which the order could have been passed,'
11. The Judicial Committee in (supra) specifically approved the dictum of Sir Shadi Lal in Duni Chand's case, ILR 10 Lah 596: AIR 1929 Lah 593 (supra). The question there was that under the Act as it then stood there was no appeal against the order of the Commissioner passed under Section 33 (corresponding to Section 33 B of the Act of 1922). The Commissioner acting under Section 33 had cancelled the registration of the firm which had been granted by the Income-Tax Officer on the 17th January 1927 as being an order prejudicial to revenue The law at that time was that if the firm was registered it had not to pay any super-tax. Therefore, in the original assessment which had been completed on 17th of January 1927, no super-tax was levied observing:
'The firm having applied for registration is registered, therefore, no super-tax is levied.'
This assessment was made under Section 23(4) of the Act and the notice of demand under Section 29 was also issued, and therefore, so far as the assessees were concerned their assessment for the relevant year had become final and conclusive subject only to the passing by the Commissioner of an order under Section 33 of the Act. The Commissioner having substantially cancelled the order registering the firm by his order dated 13th February 1928, directed the Income-tax Officer to take necessary action. Consequent upon the Commissioner's order the Income-Tax Officer levied super-tax by his order dated 4--5-1929, demanding supertax of Rs. 5,468/12/- A notice of demand was also served upon the assessee. Against that order an appeal was filed under Section 30(1) asking that order to be set aside. That appeal was not entertained as being incompetent. The Judicial Committee holding that an appeal did lie observed that 'section 30(1) giving a right to appeal to the Assistant Commissioner in the case of an assessee denying his liability to be assessed under the Act', which must mean in that context 'charged with tax under the Act,' is as much applicable to super-tax as it is to ordinary Income-tax.' If the matter had rested there, there would have been no difficulty in holding that an appeal lay but in that case there was the further complication of the proviso to Section 30(1) which specifically barred any appeal against an assessment made under Section 23(4) of the Act. After setting out the relevant provisions of Section 31(3)(a), their Lordships observed, that the Commissioner was plainly wrong in holding that no appeal lay against an assessment purporting to be one under Section 23(4) of the Act. It was further observed:
'One of the questions of law arising out of the order of the Assistant Commissioner was whether the appeal to him was competent in view of the proviso to Section 30(1). By deciding the question himself adversely to the respondents, the Commissioner could not deprive the respondents of the right of having the question decided by the Court.'
12. Two questions were formulated by the Judicial Committee and they were
'(1) Was the appeal to the Assistant Commissioner from the order of May 4, 1929. competent? (2) Had the Income-tax Officer any power to make that order in view of the provisions of sections 34 and 35 of the Act to which reference will presently be made.'? in deciding these questions it was observed :
'But it is not true that after a final assessment under those sections has been made, the Income-tax Officer can go on making fresh computations and issuing fresh notices of demand to the end of all time........ Until all such questionsare determined and all such proceedings have come to an end, there can be no final assessment. But when once a final assessment is arrived at, it cannot in their Lordships' opinion be reopened except in the circumstances detailed in Sections 34 and 35 of the Act (to which reference is made hereafter) and within the time limited by those sections. In the present case, the liability of the respondents both for income-tax and forsuper-tax was determined by the Income-tax Officer on January 17, 1927 .......
It was indeed, contended before. Their Lordships that the assessment could not be regarded as haying been determined inasmuch as the Commissioner might at any time, arid apparently after any lapse of time, however long, cancel the registration of the respondents as a registered firm and so subject the respondents to liability to pay super-tax. Their Lordships would, in any case, hesitate long before acceding to a contention that would lead to so extravagant results. In their opinion, however, the contention cannot prevail. The Commissioner's powers under Section 33, can only be exercised subject to the provisions of the Act of which the provisions in sections 34 and 35, are in this respect of the greatest importance. . . .'
Finally it was concluded :--
'For the order could only be justified, if at all, as one made, not under Section 23 (4) but under either Section 34 or Section 35. If it was made as the Commissioner has found, in purported exercise of the powers given by Section 23(4) the assessee nevertheless had a right of appeal to the Assistant Commissioner under Section 33 and the Commissioner was in error when he quashed the proceedings on that appeal.'
Therefore, by merely holding that the appeal was not competent would not make it any the less an order under Section 31 of the Act.
13. in Commr. of Income Tax, Bombay City v. Jagdish Prasad Ramnath : 27ITR192(Bom) , the court took the view that though there was no appeal provided against an order levying penal interest under Section 18A(8), nevertheless, the order of the Income-Tax Officer imposing penal interest was an order under Section 31 as a part of the assessment order and therefore it was an order under Section 31 which was appealable to the Tribunal.
14. in S.M. Modi v. Commr. of Income-Tax, Bombay City I, : 33ITR529(Bom) , the question before the Bombay High Court was. whether in the absence of a provision in Section 30 for an appeal against an order under Section 18(7) of the Act holding the assessee to be an assessee in default because he was the person responsible for paying salaries and had failed to deduct tax, the order could be appealed against? It was held that, the relevant words of Section 30(1) of the Act were 'any assessee denying his liability to be assessed under this Act' and as the assessee was denying his liability to be charged with such tax he had a right of appeal under Section 30(1) of the Act.
15. In view of these authorities, It is clear that in the present case ordinarily an appeal would lie. The Tribunal too might have entertained an appeal but for certain observations of the Supreme Court inArunachalam Chettiar's case. : 23ITR180(SC) (supra) which it with all respect misconstrued. The Tribunal, undoubtedly, misunderstood what was meant. In a later decision in, Mela Ram & sons v. Commr. of Income Tax, Punjab : 29ITR607(SC) the Supreme Court itself was at pains to explain the observations made by it at page : 23ITR180(SC) , thus :
'But when read in the context of the point that actually arose for decision in that case (Arunachalam Chettiar's : 23ITR180(SC) those observations lend no support to the conclusion reached by the learned Judges. There, the facts were that an appeal was preferred by the assessee under Section 30(1) against an order of the Income-tax Officer, and that was dismissed by the Appellate Assistant Commissioner on 19th November, 1945, as incompetent. No appeal was filed against this order, and it became final. But acting on a suggestion made in the order dated 19th November, 1945, the assessee filed an 'original miscellaneous application' before the Appellate Tribunal for relief, and by its order dated 20th February, 1945, the Tribunal set aside the findings of the Income-tax Officer, and directed him to make a fresh computation. Then, on the application of the Commissioner of Income-tax, the Tribunal referred to the High Court under Section 66(1) of the Income-Tax Act the following question : 'Whether in the facts and circumstances of the case, the order of the Bench dated 20th February, 1946, in the miscellaneous application is an appropriate order and is legally valid and passed within the jurisdiction and binding on the Income-tax Officer.'
The High Court declined to answer this reference on the ground that the order of the Tribunal was not one passed in an appeal under Section 33(1), and that in consequence, the reference under section 86(1) was itself incompetent. The correctness of this decision was challenged on appeal to this Court, and, in affirming it, this Court observed :
'........ .When on 19th November,1945, the Appellate Assistant Commissioner declined to admit the appeal, the assessee did not prefer any appeal but only made a miscellaneous application before the Appellate Tribunal. There is no provision in the Act permitting such an application. Indeed, in the statement of the case the Appellate Tribunal states that in entertaining that application and correcting the error of the Income-tax Officer it acted in exercise of what it regarded as its inherent powers. There being no appeal under Section 33(1) and the order having been made in exercise of its supposed inherent jurisdiction, the order cannot possibly be regarded as one under Section 33(4) and there being no order under Section 33(4) there could be no reference under Section 66(1) or (2), and the appellate Court properly refused to entertain it.
There is, of course, nothing in the decision itself which bears on the point how under discussion. But certain observations occurring at pages 474 and 475 were referred to by the learned Judges as leading to the conclusion that an order dismissing an appeal as barred by time would fall under Section 30(2). Now, those observations cams to be made by way of answer to a new contention put forward by the learned Attorney General in support of the appeal. That contention was that the miscellaneous application presented to the Tribunal might be treated as an appeal against the order dated 19 November, 1945, in which case the order passed there on 20th February, 1946, would fall under Section 33(4) and the reference would be competent. in disagreeing with this contentions, this Court observed that the appeal to the Appellate Assistant Commissioner was incompetent under Section 30(1) that even if it was competent, the order dated 19th November, 1945, was not one contemplated by Section 31, and there could be no appeal against such an order under Section 33(1). Now, it should be noticed that the question actually referred under Section 66(1) was the correctness and legality of 'the order passed in a miscellaneous application and not of any order made in an appeal preferred under Section 33(1)'. In this context, the point sought to be raised by the learned Attorney-General did not arise at all for decision, and the observations in answer thereto cannot be read as a pronouncement on the question of the maintainability of the appeal much less as a decision that an order dismissing an appeal as barred by limitation is one under Section 30(2). Accordingly, the question whether an order dismissing an appeal as barred by limitation falls under Section 30(2) or Section 31 remains unaffected by the observations in : 23ITR180(SC) '. (Underlining (here in ' ') is ours)
Their Lordships of the Supreme Court, inter alia, approved the aforesaid decision of the Patna High Court in ILR 11 Pat 187 AIR 1931 Pat 306 (supra) and finally observed :
'There is thus abundant authority for the position that Section 31 should be liberally construed so as to include not only orders passed on a consideration of the merits of the assessment but also orders which dispose of the appeal on preliminary issues such as limitation and the like.'
After this decision of the Supreme Court, explaining Arunachalam Chettiar's oase : 23ITR180(SC) there cannot be any doubt that an order such as the one in the present case passed by the Appellate Assistant Commissioner was an order under Section 31 and not underSection 30 as the assessee in substance was denying his liability to super-tax.
16. A reference may also be made to the decision of the Calcutta High Court in Kooka Sidhwa and Co., Calcutta v. Commr. of Income-tax : 54ITR54(Cal) , where the aforesaid two cases of the Supreme Court in the cases of Arunachalam Chettiar, : 23ITR180(SC) and Mela Ram : 29ITR607(SC) were considered and reconciled and it was held that the Madras High Court had misread the decision in Arunachalam Chettiar's case, : 23ITR180(SC) and in applying the principle of that case to the facts in the case of Ramaswami Chettiar v. Commr. of Income-Tax Madras : 30ITR281(Mad) . It was further pointed out that the substance of the order should be looked into to decide whether an appeal lies and an order passed by the Income-Tax Officer revising the assessment made originally under Section 23 of the Act under the direction of the Appellate Tribunal would partake the character of a fresh assessment order and would be no less an order as made under Section 23(3) of the Act within the ordinary acceptation of the term from which an appeal would lie to the Appellate Assistant Commissioner. In that case the Appellate Assistant Commissioner and the Tribunal had refused to admit the appeals as the order of the Income-tax Officer appealed against had purported to give effect to the orders passed by the Tribunal in appeal.
17. We also find it difficult, with all respect, to accept the view taken by the Madras High Court in, Commr. of Income-tax, Madras v. Vellingiri Gounder and Brothers, : 24ITR166(Mad) . There too the Madras High Court had on a misunderstanding of Arunachalam Chettlar's case : 23ITR180(SC) (Supra) held that no appeal lay to the Appellate Assistant Commissioner against the order of the Income-tax Officer under Section 35 and as such the order of the Appellate Tribunal was not an order under Section 33(4) and referred under Section 66(1) was incompetent. As against the Madras view this court in, Municipal Board, Agra v. Commr. of Income-tax : 19ITR63(All) was inclined to take the view that an appeal would lie against an order under Section 35 and the issue of a fresh notice of demand pursuant thereto when such an order resulted in an enhancement of the assessment. It is, however, at present, unnecessary to express a concluded opinion on this point in the view that we are taking, that the matter has to go back to the Tribunal with the direction to entertain the appeal and decided whether the order passed was really one under Section 35 and if so whether it would interfere with it.
18. The learned Standing Counsel relied upon the decision of the Punjab HighCourt in Delhi Registered Stockholders (Iron & Steel) Association Ltd. v. Commr. of Income-tax, Delhi , where it was held that no appeal would lie against an order of the Income-tax Officer under Section 2(11)(i) and (a) refusing to permit the previous year to be changed. That decision does not help the Department as there was no question of denying liability to be assessed and the only question was whether the assessment should be made partly in one year and partly in another year. In any event, in view of the decision of the Supreme Court in Mela Rani's case : 29ITR607(SC) the position must be taken to be settled that an appeal is no less an appeal because it is irregular or incompetent and an order refusing to admit or reject the appeal on a preliminary ground, for example, because of irregularity and incompetency, is likewise, in all cases an order passed in the appeal and must be regarded as one passed under Section 31 of the Act.
19. For the reasons given above we would answer the question referred in the negative and against the department. The department will pay the costs of this reference which we assess at Rs. 300. Counsel's fee is also assessed at Rs. 300.