The petitioner, Sheo Nath Prasad Sharma, has been assessed to income-tax for the assessment years 1944-45, 1945-46 and 1946-47 by assessment orders, all made on July 31, 1950. He challenges the validity of those assessment orders and of the recovery proceedings taken consequent thereto. He proceeded in revision under section 33A(2) to the Commissioner of Income-tax against the assessment orders, and he has also challenged the orders of the Commissioner declining to interfere.
Pandit Deo Sharma, elder brother of the petitioner, was a working partner in the firm Messrs. L. N. Gadodia Cawnpore Cotton Mills Agency, which had been appointed as the sole selling agent of the Cawnpore Cotton Mills, Kanpur. As a working partner he was entitled to a one-fourth share in the profits of the firm. Pandit Deo Sharma was also employed to manage a retail cloth shop of the Cawnpore Cotton Mills and was paid a one-fourth share in the net profits accruing to the retail shop.
On November 14, 1942, Pandit Deo Sharma and the petitioner entered into an agreement under which the petitioner undertook to look after the work of the two business, the partnership firm and the retail cloth shop, and in consideration therefor he was entitled to a half share of the income received after deduction of tax by Pandit Deo Sharma. For the assessment years 1944-45, 1945-46 and 1946-47, Pandit Deo Sharma claimed a deduction of the amount to be paid by him to the petitioner under the agreement of November 14, 1942. The deduction was not allowed by the Income-tax Officer, and Pandit Deo Sharma appealed without success to the Appellate Assistant Commissioner and thereafter to the Income-tax Appellate Tribunal. He was denied a reference to this court by the Tribunal under section 66(1) of the Indian Income-tax Act, 1922, and then preferred a reference application under section 66(2) to this court. The court allowed the reference application and directed the Tribunal to refer the case.
Meanwhile, the petitioner filed his returns for the assessment years 1944-45 and 1945-46. He entered the amount received by him under the agreement of November 14, 1942, as part of his total income. He was assessed accordingly. In his return for the assessment year 1946-47, he showed this income as nil and appended a note stating that, as the entire income earned by Pandit Deo Sharma had been assessed in his hands, any receipt by the petitioner out of that income was not liable to tax in the hands of the petitioner. The Income-tax Officer, however, treated the receipt as taxable and assessed the petitioner.
It appears that the petitioner filed appeals against the assessment orders before the Appellate Assistant Commissioner. The appeals were dismissed. He then proceeded in appeal to the Tribunal, but while filing an appeal in respect of the assessment years 1944-45 and 1945-46, he did not file any appeal in respect of the assessment year 1946-47. When the two appeals were called on for hearing before the Tribunal, the petitioner applied for adjournment, but the Tribunal refused to adjourn the appeals and dismissed them.
After the assessment had been made against the petitioner by the Income-tax Officer, proceedings were taken for recovery of the tax assessed thereby but it seems that, subsequently the Income-tax Officer requested the Collector to stay the recovery proceeding because 'the assessment was made in this case as a protective measure in order to safeguard the revenue in case some income is let off in appeal in allied cases.' This position was taken by the Income-tax Officer in respect of the recovery proceedings for all the three assessment years.
Now after the dismissal of his appeals by the Tribunal, the petitioner applied in revision under section 33A(2) to the Commissioner of Income-tax against the assessments for the three assessments years 1944-45, 1945-46 and 1946-47. Those applications were dismissed on October 11, 1957, on the ground that,
'As the assessee has himself shown the incomes on which he has been assessed, there is no force in the present petition filed by the assessee.'
The Commissioner further added :
'However, if as a result of the decision of the honble High Court, the assessment of Pandit Deo Sharma gets confirmed and the incomes which have been assessed in the hands of the petitioner are also assessed in the hands of Pandit Deo Sharma, the petitioner will be allowed necessary relief under section 33A(2) if he applied for the same within one year from the date of the High Courts orders.' Upon this, it is said, Pandit Deo Sharma took no steps to prosecute the reference pending in this court and on February 15, 1962, an order was made returning the reference unanswered to the Tribunal. Then, on January 20, 1963, within one year from the order of the court, the petitioner filed a fresh revision application before the Commissioner, purporting to be in pursuance of the observations of the Commissioner mentioned in his earlier order. Unfortunately for the petitioner the Commissioner now took a different view of the matter and dismissed the revision application by his order dated April 3, 1965, on the ground that, as a final order had been made under section 33A(2), he could not pass another order in revision on a point which had already been covered by the earlier order in revision.
The petitioner contends that the Commissioner was bound to decide his second revision application on the merits when it had been made because of the observation of the Commissioner in the order disposing of the earlier revision application, which, specifically stated that if the assessment of Pandit Deo Sharma was confirmed as a result of the decision of this court and the income assessed in the hands of the petitioner was assessed in the hands of Pandit Deo Sharma, the petitioner would be allowed relief under section 33A(2) if he applied within one year of the date of this courts order. The contention is without force. The Commissioner had no power to decide the same matter over again upon a fresh revision application and I am not satisfied that the view taken by him in that behalf is erroneous. Any observation made by the Commissioner in the order dismissing the earlier revision application could not confer a right upon the petitioner to have his subsequent revision application on the same point considered on the merits by the Commissioner. If there is no jurisdiction in the Commissioner to consider the matter again, any observation made by him in an earlier order cannot confer jurisdiction upon him in that behalf.
It seems to me, however, that the order of the Commissioner rejecting the previous applications, on the mere ground that the petitioner had shown the income in his return, is erroneous. The Commissioner was bound to apply his mind to the question whether the petitioner was taxable on that income. The Income-tax Officer is entitled under section 23(1) to make an assessment on the basis of the return if he is satisfied, without requiring the presence of the assessee or the production of evidence in support of the return, that the return is correct and complete. But it may be that the assessee may have committed a mistake in treating a certain receipt taxable. The mere circumstances that he has shown that receipt as income in his return does not make him liable to tax to tax thereon. An assessee is liable to tax only upon such receipt as can be included in his total income and is assessable under the Income-tax Act. The law empowers the Income-tax Officer to assess the income of an assessee and determine the tax payable thereon. In doing so, he may proceed on the basis that, where an assessee discloses that a certain sum of money has been received by him, the fact that receipt may be accepted without any thing more as constituting an admission on the part of the assessee. That would be an admission as to a state of fact. But whether the receipt can be considered as taxable income is quite another matter, and consideration of that question leads into the realm of law. If the Income-tax Officer assesses an assessee upon a receipt which is not taxable in law, it is always open the assessee to take the case in appeal or in revision thereafter. It is then for the Appellate Assistant Commissioner or the Commissioner of Income-tax, as the case may be, to examine the matter and determine whether, although the money has been received by the assessee, it is taxable in law. The assessee is then within his rights in requiring the appellate or the revisional authority to examine the validity of the assessment to tax of a receipt which, though admitted by him, is not taxable in law. Further, the Commissioner was not right when he observed that the petitioner had disclosed the income in his return for all the three assessment years. That was done by the petitioner only for the assessment years 1944-45 and 1945-46. For the assessment year 1946-47 the petitioner specifically stated that there was no income.
The respondents, however, contend that the revision applications filed by the petitioner before the Commissioner were entirely misconceived in law, and reference is made to clause (c) of the proviso to section 33A(2). Now clause (c) of the proviso does say that the Commissioner shall not revise an order under section 33A(2) if the order has been made the subject of an appeal to the Appellate Tribunal, and it is, therefore, apparent that the Commissioner had no power to interfere with the assessments for the assessment years 1944-45 and 1945-46. In respect of the assessment year 1946-47, however, no appeal having been filed to the Tribunal, it was open to the Commissioner to interfere in the exercise of his revisional jurisdiction. Consequently, his order dated October 11, 1957, on the revision application for the assessment year 1946-47 is liable to be quashed.
The next contention of the petitioner is that there can be no recovery of the tax because the assessments were made as a protective measure. Now, in the first place, the assessments do not disclose that they were made for the purpose of protecting the interests of the revenue in case the assessments against Pandit Deo Sharma were modified. Then, it is not a case where a doubt has arisen whether a certain receipt should be treated as income taxable in the hands of Pandit Deo Sharma or in the hands of the petitioner. There was never any dispute that the income received by Pandit Deo Sharma from the business of the partnership firm and the management of the retail cloth shop constituted his income. The only question was whether he was entitled to a deduction in respect of the amount paid by him to the petitioner under the agreement of November 14, 1942. That is quite a different matter. The considerations upon which it falls to be decided whether Pandit Deo Sharma is entitled to a deduction of the amount paid by him to the petitioner are not necessarily the same as those governing the question whether that amount is taxable as the income of the petitioner. The petitioner relies upon Murlidhar Himatsingka v. Commissioner of Income-tax. In that case the amount in question was held not liable to tax in the hands of the assessee as there was an overriding obligation under a deed of sub-partnership obliging the assessee to pay over a part of his income, as it accrued, to the sub-partners. The agreement of November 14, 1942, cannot, in my opinion, be construed as a deed of sub-partnership. Upon its terms it is merely an agreement for work to be done by his petitioner and remuneration therefor by Pandit Deo Sharma.
Upon all these considerations, in my judgment Writ Petitions Nos. 1896 and 1976 of 1965 which relate to the assessment years 1944-45 and 1945-46 must fail, while Writ Petition No. 1975 of 1965 relating to the assessment year 1946-47 is entitled to succeed.
Writ Petition No. 1975 of 1965 is allowed. The order dated October 11, 1957, made by the Commissioner of Income-tax is quashed. The Commissioner of Income-tax is directed to consider and determine afresh the earlier revision application filed by the petitioner for the assessment year 1946-47. The petitioner is entitled to his costs.