GURTU, J. - This is a reference under section 66(1) of the Indian Income-tax Act. The assessee consisted of several persons who combined together with the object of purchasing coal to supply the same to customers for domestic purposes and to other small scale industries. The finding of the Tribunal is that the several persons constituted an association of persons within the meaning of section 3 of the Income-tax Act. The request to refer the question whether the several persons who had so combined, did or did not so constitute an association, was refused by the Tribunal. In this reference, therefore, we start with the position that the assessee is an association of persons.
The Income-tax Officer assessed the assessee to income-tax under section 23(3) of the Act. There is no dispute as to the quantum of the total income computed by the said officer. The tax was levied upon the total income in the hands of the said association of persons (the assessee). The assessee, however, claimed that under section 3 of the Indian Income-tax Act, the Income-tax Officer had a discretion to levy the tax either upon the association of persons as a unit, or on the members individually upon their proportionate income, and that, therefore, in the circumstances of the case and in the interests of justice, the proportionate income should have been assessed in the hands of the individual members. The Income-tax Officer refused to accept that contention as also did the Appellate Assistant Commissioner. In due course an appeal came up before the Tribunal and the assessee agitated this point before it. The Tribunal held that although the Income-tax Officer might have assessed separately the proportionate income of the individual members, as the said officer assessed the total income as that of that of an association of persons the Tribunal had no power under the Act to direct the Income-tax Officer to assess the proportionate individual income of the members separately.
Having regard to this view of the Tribunal request was made to it under section 66(1) to refer and it has referred the following question of law to us :
'If in pursuance to section 3 of the Indian Income-tax Act the Income-tax Officer levies the income-tax in respect of the total income of the previous year of an association of persons upon the said association of persons as a collective unit, whether the Tribunal is competent to direct the Income-tax Officer to levy the income-tax proportionately upon the individual members of the said association of persons proportionately in respect of the proportionate income of each of the members constituting the said association of persons proportionately in respect of the proportionate income of each of the members constituting the said associations of person ?'
In order to answer this question we must refer to several sections of the Income-tax Act. Section 3 lays down as follows :
'Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every.... firm and other association of persons.... or the members of the association individually.'
It is not in dispute that by virtue of this section there is a discretion vested in the Income-tax Officer to assess either the members of the association individually or to assess the association as such.
Section 30 allows any assessee who, inter alia, denies his liability to be assessed under the Act, to appeal to the Appellate Assistant Commissioner against the assessment made on him by the Income-tax Officer.
Section 31 sets down the powers which an Appellate Assistant Commissioner can exercise in the hearing of an appeal. It is not necessary to refer to all the powers, but sub-section (3) (a) empowers the Appellate Assistant Commissioner to confirm, reduce, enhance or annual the assessment and clause (b) empowers him to set aside the assessment. Sub-section (4) of section 31 further lays down that -
'Where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of persons is ordered to made, the Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any member of the association.'
Section 33 provides for appeals by an assessee from the orders of an Appellate Assistant Commissioner to the Appellate Tribunal. Sub-section (4) of section 33 enacts that the Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner. Sub-section (5) states that where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of persons is ordered to be made, the Appellate Tribunal may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any members of the association.
It was contended on behalf of the assessee that sub-section (4) of section 33 confers plenary powers on the Appellate Tribunal. On the other hand, on behalf of the Department it was contended that only the Income-tax Officer had the power to determine whether an association of persons as such should be assessed or the members of the association should be assessed individually, and that it was not open to the Appellate Tribunal to decide when exercising its appellate powers as to whether the association of persons should have been assessed or whether the members of the association individually should have been assessed.
So far as section 3 of the Income-tax Act is concerned it does not expressly provide as to who will exercise the discretion, for section 3 is only a charging section and indicates who are liable to be charged to income-tax.
The Income-tax Officer has, however, been constituted, in the first instance, the taxing authority by the Act. Under section 2, sub-section (7), 'Income-tax Officer' means a person appointed to be an Income-tax Officer under section 5 of the Act. Section 5 indicates who are the income-tax authorities and the Income-tax Officer is one of such authorities. By virtue of section 5, sub-section (6), the Central Board of Revenue may by notification in the Official Gazette, empower Commissioners of Income-tax, Appellate or Inspecting Assistant Commissioners of Income-tax and Income-tax Officers to perform such functions in respect of such classes of persons or such classes of income or such area as may be specified in the notification and thereupon the functions so specified shall cease to be performed in respect of the specified classes of persons or classes of income or area by the other authorities appointed under sub-sections (2) and (3). Sub-section (3) of section 5 empowers the appointment, inter alia, of Income-tax Officers of Class 1 and Class 11 service. Sub-section (5) of section 5 empowers the Commissioner to direct that the power conferred on the Income-tax Officer shall be exercised by the Assistant Commissioner. The Income-tax Officer ordinarily, therefore, is the person who assesses tax in the first instance. So, naturally, it is for him, in the first instance, to decide whether the assessee who is to be charged with income-tax by virtue of section 3 thereof is to be the association or the members of the association individually. In the first instance, no doubt, that is his discretion. But there is nothing in the Income-tax Act to suggest that once the discretion has been exercised by the Income-tax Officer, under no circumstances can the Appellate Assistant Commissioner hold that the discretion has been wrongly exercised and that the association as such should not have been assessed. The powers of the Appellate Assistant Commissioner include the power to set aside the assessment and where the discretion has not been properly exercised and the case is an appropriate one for interference, there does not appear to be anything in the Act to prevent the Appellate Assistant Commissioner from setting aside the assessment. There is, no doubt, an express provision under section 31, being sub-section (4), which deals with the case of change in the assessment of an association of persons, but that does not mean that the general powers of the Appellate Assistant Commissioner to set aside the assessment are cut down by sub-section (4) of section 31.
We now come to section 33 which deals with the powers of the Appellate Tribunal. It is to sub-section (4) thereof that we must turn, and it reads as follows :
'The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner.'
It seems impossible to deny that sub-section (4) gives plenary powers and there is no reason why the language of sub-section (4) should be so construed as to bring about a deprivation of the power to interfere with the discretion of the Income-tax Officer if that discretion has not been exercised in accordance with well accepted principles. No doubt the Appellate Tribunal would only interfere with the discretion of the Income-tax Officer if that discretion has not been exercised in accordance with correct principles. But this goes to the mode of exercising the power and does not touch the question of the power itself.
It was contended that there is no specific power conferred on the Appellate Assistant Commissioner or on the Tribunal, in case the assessment of the association is set aside, to order the assessment of the individuals comprising the association, for the powers granted under sub-section (4) of section 31 and under sub-section (5) of section 33 are confined to a case where there is a change made in the assessment. But this does not mean that the plenary power granted to the Appellate Assistant Commissioner under section 31, sub-section (3) (a) or (b), or to the Appellate Tribunal under sub-section (4) of section 33 is cut down. It would be open to the Appellate Tribunal to set aside the assessment made against the association and to leave it to the Income-tax Officer to take such proceedings against the individuals comprising the association as are open to him to take. Further having regard to the principle accepted by section 31(4) and section 33(5) of the Act, I think that even in a case where the assessment is set aside and not merely varied directions may be given to the Income-tax Officer to make consequential changes in the assessment of a member of the association, even though that member be not a party to the appeal. Accordingly, I think that there is power in the Tribunal to both set aside the assessment on the association and to give directions as indicated above to the Income-tax Officer.
No direct authority has been cited before us by either party to help us in the decision of the express question before us, though there are authorities which establish that the power under section 33, sub-section (4), is a plenary power given to the Tribunal. In the circumstances, the question had to be decided with reference to the relevant provisions of the Income-tax Act. Learned counsel for the assessee tried to draw analogies from the Civil Procedure Code. But inasmuch as only certain professions of the Civil Procedure Code have been made applicable to income-tax proceedings by section 37 of the Income-tax Act, I do not think that this matter should be decided on the basis of analogies, particularly as the Income-tax Act is a fiscal statute.
The question raised before the Tribunal as drawn up for our answer involves the question as to whether the assessment made on the association can be set aside because it is only after the assessment has been set aside that the question of the Appellate Tribunal directing the Income-tax Officer to levy the income-tax proportionately upon the individual can arise. It, therefore, appears that in answering the question as it has been answered no new question can be said to have been raised and answered. The question framed really contains two questions as indicated above. The first question is as to the power of the Appellate Tribunal to set aside the Income-tax Officers assessment against the association, and the second question is as to the Tribunals power to give consequential and ancillary directions.
UPADHYA, J. - I respectfully agree that the Income-tax Appellate Tribunal is legally competent to set aside an assessment made on an association of persons if it finds that the Income-tax Officer should have properly assessed the members of the association severally.
The association which is assessed as a body may prefer an appeal to the Appellate Assistant Commissioner and section 31(4) provides that if any change is made in the assessment of the association the Appellate Assistant Commissioner may 'authorise the Income-tax Officer to amend accordingly any assessment made on any member of the association,' This provision appears to empower the Appellate Assistant Commissioner to authorise the Income-tax Officer to make consequential changes in the assessment of a member of the association even though that member be not passing any order affecting a person who is not a party to the proceedings is intended to safeguard the interests of revenue and of taxpayers in cases where the liabilities tax of members may have to be varied as a consequence of a change in the liability of the association by reason of an appellate order. The rule applies to firms and partners as well. If, for instance, the total income of a registered firm which appeals is reduced in appeal the Income-tax Officer may be authorised to reduce accordingly the total income of the partners who have been assessed after inclusion of their shares of the firms profits in their total income. A similar provision is embodied in section 33(6) and confers like powers on the Appellate Tribunal. These provisions indicate that the appellate authorities are competent to adjudicate upon the correctness or otherwise of the exercise of his powers by an Income-tax Officer in making an assessment. As observed by my learned brother there is nothing to justify the view that the Income-tax Officer is the sole arbitrator in the matter and that the propriety of his action cannot be questioned by any appellate authority.
BY THE COURT. - Our answer is that the Appellate Tribunal may set aside the assessment as made on the association of persons leaving the Income-tax Officer free to made fresh assessments on the members of the association or may authorise consequential changes in their assessments if already made.
The assessee will have his costs which we assess at Rs. 200. Fee of the counsel for the Department is fixed at the same amount.
Reference answered accordingly.