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Narinder Singh Dhingra Vs. the Commissioner of Income Tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome Tax Reference No. 29 of 1968
Judge
Reported inILR1972Delhi583; [1973]90ITR110(Delhi)
ActsIncome tax Act, 1922 - Sections 23(3); Income tax Act, 1961 - Sections 254(1)
AppellantNarinder Singh Dhingra
RespondentThe Commissioner of Income Tax
Advocates: N.D. Karkhami,; R.L. Roshan,; H.K. Puri,;
Cases ReferredHakumchand Mills Ltd. v. Commissioner of Income
Excerpt:
income-tax act (1922) - sections 23(3) & 34(3)--income-tax appellate tribunal--powers of--income-tax act, 1961, sections 254(1) & 143(3).; where as assessment order made section 143(3) of the income-tax act, 1961 on a return for 1961-62 filed prior to 31-3-62, was set aside by the tribunal with directions to the income-tax officer that he should proceed from the return stage and make a fresh assessment under the income-tax act, 1922 the question arose as to whether the tribunal could issue such directions :; that the tribunal could not restore the case to the file of the income-tax officer and direct him to proceed form the return stage and make fresh assessment under the act of 1922. the tribunal has no power to confer jurisdiction on the income-tax officer to remove the bar..........hardy, c.j.(1) the following question of law has been referred to this court by the income-tax appellate tribunal' (delhi bench 'a') arising out of its order dated 20-7-1966. (2) whether the tribunal having held that the order of assessment for the year 1961-62 made under s. 143(3) of the income-tax act, 1961 was invalid, could restore the case to the file of the income-tax officer and direct him to proceed from the return stage and make fresh assessment according to law under the income-tax act, 1922?' (3) the applicant shri narinder singh dhingra is assessed as hindu un-divided family as its karta. the hindu un-divided family is a partner in various partnership concerns and has also interest income from deposits and is als (4) on 8-3-1962 the family filed return of income before.....
Judgment:

Hardayal Hardy, C.J.

(1) The following question of law has been referred to this Court by the Income-tax Appellate Tribunal' (Delhi Bench 'A') arising out of its order dated 20-7-1966.

(2) Whether the Tribunal having held that the order of assessment for the year 1961-62 made under S. 143(3) of the Income-tax Act, 1961 was invalid, could restore the case to the file of the Income-tax Officer and direct him to proceed from the return stage and make fresh assessment according to law under the Income-tax Act, 1922?'

(3) The applicant Shri Narinder Singh Dhingra is assessed as Hindu un-divided family as its Karta. The Hindu un-divided family is a partner in various partnership concerns and has also interest income from deposits and is als

(4) On 8-3-1962 the family filed return of income before the Income-tax Officer. A separate return was filed by Shri Narinder Singh in the status of an individual declaring income of Rs. 19,002.00 being income from remuneration received by him as Director and fee received for attending meetings of Board of Directors. Assessment proceedings were started by the Income-tax Officer vide notice dated 1-7-1962 under Section 23(2) of the Indian Income-tax Act, 1922 but were not finalised. Assessment proceedings were again started by his successor vide notice dated 1-6-1964 on new series of forms labelled as I.T. No. 23 and were finalised on 20-7-1964. The assessment was labelled as under S. 143(3) of the Income-tax Act, 1961. In addition to the income declared by the Hindu undivided family. Director's remuneration of Rs. 10,800.00 and fees of Rs. 600.00 were held to be income of the Hindu un-divided family and included in its assessment. The assessed preferred an appeal before the Appellate Assistant Commissioner on 20-8-1964. The appeal was disposed of by him on 25-1-1965. The order of the Income-tax Officer was up-held including the Director's remuneration and fees in the assessment of the Hindu un-divided family.

(5) The assessed thereupon preferred a second appeal before the Income-tax Appellate Tribunal challenging this finding. It was contended on behalf of the assessed that as the return was filed before 31-3-1962. the assessment ought to have been completed under the old Act under Section 23(3) thereof and not under Section 143(3) of the Income-tax Act, 1961 as had been done by the Income-tax Officer. By its order dated 20th July, 1966 the Tribunal allowed the preliminary objection taken in the appeal before it, viz. that the assessment was invalid because it was made under the new Act. In paragraph 4 of its order the Tribunal stated as follows:-

'the orders passed by the authorities below are set aside and the case is restored to the file on the Income-tax Officer. He should proceed from the return stage and make a fresh assessment according to law under the old Act, viz., the Income-tax Act, 1922'.

(6) It is this part of the order of the Tribunal by which the assessed felt aggrieved and he asked for the question of law mentioned above being referred to this Court.

(7) It is apparent that as the return was filed before 31-3-1962, the proceedings for assessment had to be completed under Section 297(2)(a) of the Income-tax Act, 1961 under the Income-tax Act of 1922. Under Section 34(3) of that Act the assessment had to be completed within four years from the end of the year in which the income, profits or gains were first assessable. In the present case, the previous year ended on 31-3-1961, the assessment year being 1961-62, and thereforee no assessment could be made after the expiry of four years from that period. The Tribunal's order was made on 20-7-1966. That was long after the expiry of the period of four years and thereforee the Tribunal could not direct that the Income-tax Officer should proceed from the return stage and make a fresh assessment according to law under the old Act. The Tribunal appreciated this difficulty and yet made the impugned order. The question thereforee is whether the Tribunal had the power to do so after the period of limitation prescribed by Section 34(3) had run out.

(8) Counsel for the assessed referred us to a decision of Madras High Court in Commissioner of Income-Tax, Coimbatore v. Estate of Late Shri N. Veeraswami Chettiar (49 Itr 13) (1). The assessment year in question was 1950-51. On appeal the Appellate Assistant Commissioner cancelled the order of re-assessment and as a part of his order he said : 'As a valid order has never been passed under S. 23A the Income-tax Officer Will now proceed under s. 34 of the Act to include the dividends in the hands of the share-holder. The time limit for such a proceeding will be four years from the last day of the financial year in which the income first became assessable in the hands of the share-holder on 25-6-56. The time limit will thereforee be up to 31-3-1961.' Following up this, the Income-tax Officer issued a notice under Section 34 on October 27, 1956 and completed the re-assessment. The question was whether the order made by the Appellate Assistant Commissioner operated so as to remove the bar of limitation prescribed by Section 34 by virtue of the second proviso to Section 34(3) and the re-assessment made pursuant to his order was valid. It was held that the direction to assess the income in this case was not one that could naturally flow from the subject-matter of the appeal that was before the Appellate authority. Section 31(3) of the Act confers upon the Appellate authority power to set aside the assessments and direct the Income-tax Officer to make fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct. But that contemplates that the assessment proceedings themselves had been validly initiated and were set aside only for the reason that a proper inquiry had not been made by the Income-tax Officer, that is to say, the Income-tax Officer had been seized of jurisdiction in the matter and only the final order made by him was defective for some reason or other.

(9) The next case to which our attention was invited is a decision of the Supreme Court in Commissioner of Income-tax, Bombay City Ii v. Ranchhoddas Karsondas (36 Itr 569(2). That was a case in which a return had been voluntarily submitted before assessment. The return was however ignored by the Income-tax Officer and a notice of re-assessment and consequent assessment was made under Section 34. It was held that the return could not be ignored.

(10) Counsel for the assessed contended that a return had been filed by the assessed and under Section 34(3) an assessment or reassessment could only be made within a period of four years. That return could not be ignored nor could the Tribunal extend the period of limitation once it had started running out on the basis of the return that had been filed. Counsel then referred us to another decision of Madras High Court in N. Naganatha lyer v. Commissioner of Income-tax, Madras : [1966]60ITR647(Mad) , where it was said that a direction can not be given by the Appellate Assistant Commissioner in the exercise of his powers under Section 31 which goes to the extent of conferring jurisdiction on the Income-tax Officer where he is not lawfully seized of jurisdiction.

(11) On the basis of these authorities, it was contended that the Income-tax Appellate Tribunal having held that the assessment was invalid because it was made under the Act of 1961 when it should have been made under the Act of 1922, the Tribunal could not restore the case to the file of the Income-tax Officer and direct him to proceed from the return stage and make fresh assessment under the Act of 1922 when the time for making such assessment had already run out and no fresh assessment could be made on the basis of that return.

(12) Shri G. C. Sharma, counsel for the Revenue, made a distinction between the provisions contained in S. 31(3) and S. 33(4) of the Income-tax Act, 1922. Under S. 31(3) the Appellate Assistant Commissioner had the power while disposing of an appeal to afirm, reduce, enhance or annual the assessment or set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct. The Income-tax Officer has then to proceed to make such fresh assessment and determine where necessary, the amount of tax payable on the basis of such fresh assessment. But the powers of the Income-tax Appellate Tribunal are much wider under Section 33(4) for it provides that the Appellate Tribunal may, after giving both parties to the appeal, an opportunity of being heard, pass such further order thereon as it thinks fit. The powers of the Tribunal are thereforee couched in language of the widest amplitude in dealing with appeals before it. It was said by the Supreme Court in Hakumchand Mills Ltd. v. Commissioner of Income-tax, Central Bombay : [1967]63ITR232(SC) that the powers of the Appellate Tribunal in dealing with appeals are expressed in Section 33(4) of the Income-tax Act, 1922 in the widest possible terms. The only restriction is about the use of the word 'thereon' in Section 33(4) which confines the jurisdiction of the Tribunal to the subject-matter of the appeal.

(13) There can be no doubt that the powers of the Tribunal in hearing appeals are very wide indeed but the question still remains whether it has the power to confer jurisdiction on the Income-tax Officer to remove the bar of limitation and to proceed on the basis of a return long after the period prescribed by Section 34(3) of the Act.

(14) Counsel for the revenue contended that the only mistake that the Income-tax Officer had made was that he had used Section 143 of the Income-tax Act of 1961 whereas he should have used Section 23 of the Income-tax Act of 1922. Merely because wrong sections of the statute had been inserted the order of assessment could not be held to be invalid. If that were the only mistake, counsel for the Revenue was possibly right. But this mistake could be corrected within the period prescribed by Section 34(3) and not after the expiry of that period. No help could be derived by the counsel for the Revenue from the second proviso to S. 34(3). which lays down that nothing contained in this section which limits the time within which no action can be taken or any order, assessment or re-assessment may be made, shall apply to a re-assessment made in S. 27 or to an assessment or re-assessment made on the assessed or any person in consequence of or to give effect to any finding or direction contained in an order under Section 31, Section 33, Section 33A, Section 33B Section 66 or Section 66A. Counsel for the Revenue no doubt did urge that the order made by the Tribunal could be treated as a finding or direction given in Section 33 of the Act and he thereforee submitted that a perusal of the order made by the Tribunal clearly showed that the assessment was being set aside because a wrong section of the Act had been applied. The return filed by the assessed was thereforee still on record and the Income-tax Officer had jurisdiction to make an assessment pursuant to a direction given by the Tribunal. Counsel thereforee submitted that the order of the Tribunal could be supported on that basis for the assessment as such was not invalid. All that had happened was that the assessment had been set aside because of the mistake committed in the use of a wrong section of the statute. Un-happily for the Department, however, if that was the view, it was open to the Department to have asked the Tribunal to refer the question to this Court as to whether the assessment made by the Income-tax Officer was invalid because it was made under new Act. The Department however did not ask for any such reference. On the other hand the question submitted to this Court starts with the premise that the assessment made under Section 143(3) of the Act of 1961 was invalid and thereforee the Tribunal could restore to file of the Income-tax Officer and direct him to proceed from the return stage and make fresh assessment according to law. The question itself having been based on the invalidity of the assessment, counsel for the Revenue is not right when he submits that all that the Tribunal had done was to set aside the assessment. There was no doubt some confusion in the mind of the Tribunal inasmuch as in the order dated 20-7-1966 made by it, the Tribunal had stated that the assessment had to be set aside but when the question was formulated for the opinion of this Court, it was made clear that the assessment itself was invalid. In other words, according to the Tribunal the assessment did not exist and was non-est.

(15) In that view of the matter, the question has to be answered in favor of the assessed. But in the circumstances of the case, there will be no order as to costs.


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