DESAI C.J. - The Income-tax Appellate Tribunal, Allahabad Bench, has under section 66(2) of the Indian Income-tax Act, 1922, submitted a statement of the case inviting this courts answer to the following question :
'Whether, having regard to the powers and the jurisdiction of the Appellate Assistant Commissioner under section 31 of the Income-tax Act, it is open to him to treat the sum of Rs. 30,000 as income from undisclosed sources when it was treated by the Income-tax Officer as income from speculation ?'
The facts of the case are very brief. The assessee, at whose instance the statement has been submitted, was (he is dead and is now represented by his widow) a medical practitioner and for the year 1946-47 was assessed by the Income-tax Officer on an income of Rs. 1,50,420. He had returned an income of Rs. 420 only as his professional income. The Income-tax Officer found that he had purchased a house in Mussoorie for Rs. 21,000; when he was asked to explain the source of the money, he replied that he had Rs. 30,000 in cash with him. The Income-tax Officer disbelieved this source of the money and, taking other facts into consideration, inferred that he had derived Rs. 1,50,000 from the business of speculation in the relevant account year. The assessee filed an appeal. The Appellate Assistant Commissioner held that the assessee had received during the accounting year only Rs. 30,000 in addition to the returned income and that it was not from the business of speculation but from a source other than the sources specified in section 6 of the Indian Income-tax Act. Accordingly, he reduced the amount of assessment by Rs. 1,20,000. In further appeal to the Tribunal the assessee raised the question of the Appellate Assistant Commissioners jurisdiction to treat the amount of Rs. 30,000 as income from any other source when the Income-tax Officer had found no income under that source and had found the income of Rs. 1,50,000 from business. the Tribunal held that the Appellate Assistant Commissioner had jurisdiction to do what he had done and dismissed the appeal. It refused to state the case and then this court called upon it to do so.
The question before us is of the jurisdiction of the Appellate Assistant Commissioner; we are not concerned with the question whether the assessee received Rs. 30,000 during the accounting year and whether it is income or not. The question presupposes that it is income and what we have to answer is whether the Appellate Assistant Commissioner had jurisdiction to include it in the assessment under a head that could fall under any of the clauses of section 6 when the Income-tax Officer had found the income under that head.
The answer to the question depends upon the provision of section 31(3)(a), which is the only provision relevant in this case. It is that :
'In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, -
(a) confirm, reduce, enhance or annual the assessment......'
Income from all sources is chargeable to tax but the sources have been divided into five heads because the legislature thought it wise to have different rules regarding computation of income, deductions and exemptions for income from different sources. Head (iv) is of profits and gains of business, profession or vocation, and head (v), of 'other sources', i.e., all sources other than those specified in heads (i) to (iv). It may not be strictly correct to say that income from only the five heads is chargeable to tax because head (v) is a residuary head, consisting of all sources other than those specified in heads (i) to (iv). Therefore, income from all sources is chargeable to tax and in addition capital gains are chargeable to tax. Once it is clearly understood that the division of sources into the five heads is only for the purpose of having different rules regarding computation, exemptions and deductions one should have no difficulty in holding that the division of sources into the heads does not serve any other purpose and is not relevant for any other purpose. An Income-tax Officer computes income from each head in accordance with the rules laid down in sections 7 to 12AA and adds up the income from all the five heads and the income from capital gains and total is the income to be charged with the tax.
'Assessment' means determination of the total income, vide section 23, sub-sections (1), (3), (4), (5), and (6) in which the legislature uses the phrases 'assess the total income of the assessee and determine the sum payable in him on the basis of such assessment', 'make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment', 'the total income of the firm has been assessed' and 'the amount of the total income on which the determination has been based.' These phrases make it clear that assessment consists of determining the total income and the tax payable is based on the assessment, i.e., the sum so determined. The rate at which the tax is chargeable on the sum assessed is fixed by law and ordinarily there is no controversy about it; whatever controversy one comes across is about the amount assessed. Once an Income-tax Officer has assessed that total income the question of the heads from which it has come ceases to be of any relevancy to the question of the amount of the tax payable. An appeal is provided to an Appellate Assistant Commissioner from an order assessing the total income as well as from an order determining the amount of tax payable on it. Section 31(3)(a) relates to an appeal of from an order of assessment, i.e., assessing the total income chargeable to tax. In confirming, reducing, enhancing or annulling the assessment, the Appellate Assistant Commissioner is concerned with the question from what heads the income has been derived if the assessee contends that the computation of income or the question whether deduction or exemption should be allowed or not has been decided by the Income-tax Officer correctly according to the rules applicable to the particular head from which the income had been derived; otherwise he is not. If an income is to be computed in the same was whether it is placed in one head or another or if there is no question about any exemption or deduction it does not matter whether the Income-tax Officer held that it was derived from one head and not the other. It follows that if he has treated it as derived of from a wring head the Appellate Assistant Commissioner can treat it as having been derived from the correct head.
This Supreme Court had an occasion to deal with the heads of income in United Commercial Bank Ltd. v. Commissioner of Income-tax Kapur J. observed at page 695 :
'.... every item of income, whatever its source, would fall under one particular head and for the purpose of computing the income for charging of income-tax the particular section dealing with that head will have to be looked at.'
At page 696 he observed :
'.... income-tax is to be charged at the rate or rates prescribed in the Finance Act on the total income of the assessee.... and computed in the manner given in sections 7 to 12 which are not charging sections but are provisions for the computation oftotal income.'
At page 697 he observed :
'.... we have to look at the source of income, profits and gains and then see under what head it appropriately and specifically falls and if it falls under one particular head then computation is to be made under the section which covers that particular head of income...... if an item of income falls under one of these heads then it has to be treated for the purpose of income-tax under that head and no other.'
The above observations were made in connection with the question whether income from interest on securities comes under the head(ii) or head (iv). This is a question entirely different from the question whether an Appellate Assistant Commissioner has power or not to correct the wrong head in which an income has been placed by an Income-tax Officer. If an income can come under the head (ii), it should not be placed in head (iv) but it does not follow that, if it is wrongly placed in head (iv) by an Income-tax Officer, the error cannot be corrected by the Appellate Assistant Commissioner on appeal.
In Narrondas Manordass v. Commissioner of Income-tax, The Bombay High Court rejected the contention that if an Income-tax Officer did not included a certain income under on head on the ground that it was not chargeable to tax, it was not open to the Appellate Assistant Commissioner on appeal to include it in the assessment under that head. The High Court confirmed the order of the Appellate Assistant Commissioner of inclusion of the income because the income had been considered by the Income-tax Officer, the 'item..... had been subjected to the process of assessment'. Chagla C.J. further said at page 919 :
'........ the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Income-tax Officer; a revision authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revision those matters about which the assessee makes a grievance, but a revision authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer but he can revise every process which lead to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount...... but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment........'
These observations were approved by the Supreme Court in Commissioner of Income-tax v. McMillan and Co. In the case of Shapoorji Pallonji Mistry v. Commissioner of Income-tax, Chagla C.J. and S. T. Desai J. said at page 347 :
'..... the process of assessment would include, not only the subjecting of an item or source to tax, but equally holding that the particular source or item was not subjected to tax; and from that point of view, it would make no difference whether a particular source or item was under one or the other head of income....... if a particular source or item had not been subjected to the process of assessment and even though the Income-tax Officer may have subjected to tax a particular head of income in which that item or source fell, then it would not be open to the Appellate Assistant Commissioner to take into consideration the particular source or item which had not been considered by the Income-tax Officer. Therefore, from both points of view, the question whether a particular item or source fell under a particular head was........... irrelevant.'
What the learned Judges meant by 'source' is not the 'head of income' but the specific source from which a particular income sprang or arose. In Commissioner of Income-tax v. McMillan and Co. the Supreme Court observed at page 193 :
'.....the language (of section 31) is wide enough the Appellate Assistant Commissioner to correct the Income-tax Officer not only with regard to a matter which has been considered by the Income-tax Officer, and determined in the course of the assessment.'
It is clear from these authorities that, provided an income was considered by an Income-tax Officer, the Appellate Assistant Commissioner has the fullest jurisdiction in respect of it; he can include it in the assessment, even though it was excluded by the Income-tax Officer, and naturally, when he includes it, he must include it under one head or another. Even though the Income-tax Officer had not included it under any head, it can be included under one head or another. There is no justification for saying that, while he can do so, he cannot take out an income wrongly included under one head by an Income-tax Officer and include it under the correct head.
As regards an income, there are four possible questions that can be raised in an appeal before an Appellate Assistant Commissioner : (1) regarding its amount, (2) regarding its being wrongly included if not included in the assessment by the Income-tax Officer, (3) regarding its being included under a wrong head, and (4) any combination of two or more of the above. If the question is about the amount only, the Appellate Assistant Commissioner has complete jurisdiction to vary it in any way as already explained.
As regards question No. 2, there are authorities laying down that an Appellate Assistant Commissioner cannot include in the assessment an income not considered at all by the Income-tax Officer : vide Narrondas Manordass v. Commissioner of Income-tax, Jagannath Therani v. Commissioner of Income-tax, Shapoorji Pallonji Mistry v. Commissioner of Income-tax and Commissioner of Income-tax v. Shapoorji Pallonji Mistry, confirming the above decision and Commissioner of Income-tax v. Jagdish Mills Ltd. The third is the question which is before us and on which there is no direct authority. The cases of Narrondas Manordass, Jagannath Therani, Shapoorji Pallonji Mistry and Jagdish Mills Ltd. did not deal with the question whether an Appellate Assistant Commissioner can change the head of income. They simply decided that an Income-tax Officer cannot include an income not touched by the Income-tax Officer. In the instant case, the Income-tax Officer had included Rs. 30,000 in the assessment; it is a part of Rs. 1,50,000 included by him. Consequently, when the Appellate Assistant Commissioner treated Rs. 30,000 as part of the assessees total income, he did not include an income not considered or touched by the Income-tax Officer; all that he did was to treat it as capable of falling under any of the heads in section 6 and not merely under the head (iv) in which it was placed by the Income-tax Officer. The only restriction on an Appellate Assistant Commissioners powers is that he cannot travel outside the record, e.g., the return filed by the assessee and the assessment order, with a view to finding out new sources of income not disclosed in either : sec Commissioner of Income-tax v. Shapoorji Pallonji Mistry at page 895. The Supreme Court recognised that it is possible to take the view that an 'assessment' means the ultimate amount on which the tax is to be charged, the power to enhance is not confined to including in the assessment an income considered, but excluded by the Income-tax Officer, and that any other income which ought to have been included can be included, even though it was not even considered by the Income-tax Officer. But it held that an income not considered at all cannot be included because there are provisions like sections 34 and 33b dealing with escaped income and, in view of the doctrine of stare decisis, it did not consider it advisable to depart from the view taken by the High Court. Thus, even in respect of an income not considered by an Income-tax Officer, it cannot be said categorically that section 31(3)(a) does not permit an Appellate Assistant Commissioner to include it in the assessment. In any case, the authorities that have been cited before us do not lay down that an Appellate Assistant Commissioner has no jurisdiction to transfer an income from one head to another. In respect of an income not considered by an Income-tax Officer it can be said that when the Appellate Assistant Commissioner includes it under a particular head he assessee a new source or head of income as observed by the High Court of Patna in the case of Jagannath Therani, but when the transfers it from one head to another it cannot be said that he assessee a new head of income. It was made clear by Chagla C.J. in the case of Shapoorji Pallonji Mistry that nothing turns upon whether a particular head as a source of income had been considered by the Income-tax Officer or not and that an Appellate Assistant Commissioner acquires jurisdiction to make any order in respect of an income from the mere fact that it had been considered by the Income-tax Officer.
The power conferred by section 31(3)(a) is in widest terms; not only does it include the power to do anything that is possible to be done with the amount of the total income determined by the Income-tax Officer but also there are no restrictions imposed by the provision. The answer to the question that one is prima facie inclined to give is in the affirmative and there is nothing to justify the rejection of this prima facie answer. There is nothing in section 31 to suggest that an Appellate Assistant Commissioner has no power to change the head of income. Further, the assessee has not suffered in the instant case from the change of the head by the Appellate Assistant Commissioner. There is not question of computation of the income; it has been estimated. The assessee was not entitled to any deduction or exemption if it was treated as falling under the head (iv) to which it would not be entitled if it falls under any other head. It has not claimed any deduction or exemption at all. In other words, it is not at all affected by the correction made by the Appellate Assistant Commissioner. It is true that, if the Appellate Assistant Commissioner did not have the power to do so, the assessee was entitled to succeed before the Tribunal; the Tribunal did not have to search for damage arising out of what he did. But a stronger reason is required for implying a restriction on his power when no damage or prejudice results than for implying it when it does result. As we explained earlier, the total income that is determined by an Income-tax Officer consists of the total of the incomes under each of the five heads determined by him and the power conferred by section 31(3)(a) to confirm, reduce or enhance the assessment means the power to confirm, reduce or enhance the income determined by him under any of the heads. Changing the head of an income means reducing the income under one head and enhancing the income under another head; both these acts are within the statutory power, the only restriction imposed by the judge-made law being that no income which was not the subject-matter of a decision or order by the Income-tax Officer can be added under any head. Since the question of correcting a head arises only in respect of an income that was the subject-matter of a decision or order by the Income-tax Officer, the restriction does not apply and the Appellate Assistant Commissioner remains fully competent to correct the head.
As the object behind an assessment proceeding is to assess the total income, all the decisions and order of an Income-tax Officer are for the sole purpose of determining what is the total income. An Appellate Assistant Commissioner has complete jurisdiction over the assessment, i.e., he can do anything to the amount assessed. This power to do anything with the amount assessed necessarily includes the power to interfere with any order or decision of the Income-tax Officer which has led to the assessment. In other words, if he has treated a certain income as falling under one head, the Appellate Assistant Commissioner has jurisdiction to hold that it was derived from another head. As regards varying the amount of the income assessed, it cannot be disputed that it can be maintained or reduced or enhanced.
Our answer to the question is, therefore, in the affirmative.
We direct that a copy of the judgment shall be sent to the Tribunal under the seal of the court and the signature of the Registrar as required by section 66(5) of the Income-tax Act. The Commissioner of Income-tax, U. P., shall get his costs of the reference which we assess at Rs. 200. Counsels fee is assessed at Rs. 200.