1. This reference involves two questions, one relates to the jurisdiction of the Tribunal under section 33(5) of the Income-tax Act, 1922, and the other relates to the status of the firm of Messrs. F. Y. Khambhaty which carried on business at Kano in Nigeria and in which the assessee was a partner along with one Lahorewala and was having a share of sixty per cent. as against the share of forty per cent. of the said Lahorewala. The first question was referred to this court by the Tribunal in the reference made by the Tribunal on June 10, 1960, while the second question has been referred to us as a result of an order passed by this court on November 29, 1962, in Income-tax Application No. 13 of 1962.
2. The two questions arise as a result of assessments having been made against the assessee, F. Y. Khambhaty and the said firm of Kano, hereinafter referred to as the Kano firm, for the assessment years 1950-51 to 1953-54. The relative previous years, in so far as the assessee' share of profits in the profits of the Kano firm is concerned, were the financial years ending March 31, 1950, March 31, 1951, March 31, 1952, and March 31, 1953. We are concerned in this reference with the assessee, F. Y. Khambhaty, in his status as an individual, but since the assessments in question involve his share of profit in the Kano firm, the questions arising under the second proviso to section 4(1) would be relevant.
3. Until the year 1947, the assessee was doing business at Kano as the sole proprietor of that business. In that year, he took the said Lahorewala as a partner along with him, their shares being sixty per cent. and forty percent. respectively. The deed of partnership was not produced before the taxing authorities, but a copy of the deed of dissolution dated September 8, 1952, was produced which showed that the firm was dissolved as from July 31, 1952. The two questions referred to us, therefore, involve the assessment for the assessment years 1950-51 to 1952-53, the firm having come to an end in the year 1952, and question of including the assessee's share of profits in the Kano firm would not arise in the last assessment for the assessment year 1953-54.
4. The business of the Kano firm consisted in importing to Nigeria agate stones and other miscellaneous articles such as sandal-wood, cloth, etc., and selling them in retail at Kano. There is no dispute that the agate stones were almost exclusively purchased at Cambay from concern known as the Cambay Agate Stones and Jewellery Corporation, hereinafter referred to as the Cambay firm. It is also not in dispute that during the period from November 1, 1947, to August 30, 1951, the assessee resided in Cambay and obviously, therefore, Lahorewala during this period would be managing the kano firm at Kano. There was also another concern known as Khambhaty Trading Company carrying on its business at Cambay of which the assessee's wife one Saffoobai, was the ostensible owner. By an agreement dated January 5, 1950, made between Khambhaty Trading Company and the said Cambay firm, it was agreed that the Cambay firm should supply all agates required by the Kano firm and on the purchases so made by or on behalf of the Kano firm, the assessee's wife as the proprietor of Khambhaty Trading Company should be paid commission at the rate of ten per cent. Though it was the case of the assessee that his wife was the proprietor of the said Khambhaty Trading Company, that the case was the disbelieved and both the taxing authorities as also the Tribunal have held in the assessment proceedings against the assessee as also against the Kano firm that Saffoobai was only the benamidar of the assessee and that the business of Khambhaty Trading Company was really the business belonging to the assessee. That part of the orders in both the assessments is no longer in dispute before us and, therefore we will have to proceed on the footing that the Khambhaty Trading Company was the concern of the assessee.
5. The assessee was at first assessed by the Income-tax Officer as resident and an ordinary resident for all the three years. The Income-tax Officer included in the assessee's income for these assessment years his share of profits in the Kano firm on the basis that he was controlling during these years the Kano firm from Cambay. The share of profits in that firm so included in the assessee's taxable income was as follows :
Rs.Assessment year 1950-1951 60,489.Assessment year 1951-1952 59,207.Assessment year 1952-1953 84,874.
6. The reason given by the Income-tax Officer for his conclusion that the assessee was controlling the business of the Kano firm from the taxable territories was that the assessee was a major partner in that firm and that, in the absence of any proof to the contrary, the natural presumption was that, being in Cambay at the material time, it was he who was making all the purchases of agate stones and other stones from the said Cambay firm. Though called upon to produce the correspondence between him and his partner, Lahorewala, the assessee produced only seven letters and except for one letter, the rest were personal letters. The Income-tax Officer, in these circumstances, held that 'the failure of the assessee (to produce proof as to who controlled the Kano firm) in this behalf coupled with the fact that the assessee was a major partner staying at the only purchasing centre of his business would lead safely to the conclusion that the business in Africa was controlled by him from the taxable territories.'
7. Subsequently, the Income-tax Officer sought to assess the Kano firm. On behalf of the Kano firm, it was urged that the firm being situate outside India was not resident within the meaning of section 4-A(b) of the Act as the control and management of the firm was situated wholly outside the taxable territories. Considerable amount of evidence was led before the Income-tax Officer but that officer held that the firm had failed to establish the burden of so establishing being on the assessee-firm, that the control and management of the firm was situated wholly outside India. As there was no application for registration, the firm was assessed on the footing of its being an unregistered firm.
8. Both the assessee and the firm appealed to the Appellate Assistant Commissioner against the assessment orders passed against them. After examining the assessee, Khambhaty, the Appellate Assistant Commissioner upheld the assessment orders passed by the Income-tax Officer except for a few modifications which are not material. The reasons which led the Appellate Assistant Commissioner to arrive at that conclusion were that the assessee was in the taxable territories for major part of the accounting years under consideration, that the assessee had failed to prove the original partnership deed and much of the correspondence that had passed between him and his partner, Lahorewala, during the relevant period, although the firm had produced correspondence between Lahorewala and the said Cambay firm showing the arrangement between the Cambay firm and the Khambaty Trading Company, which indicated authority on the part of the assessee to entrust to the Cambay firm the work of supplying goods to the Kano firm, and entries in the personal books of account of the assessee and the books of account of the said Khambhaty Trading Company. The Appellate Assistant Commissioner summed up his conclusion by stating :
'(A) There are reasons to lead to the irresistible and necessary inference of partner, Shri F. Y. Khambhaty, having in the normal and natural course, exercised from Cambay control and management of the appellant's affairs, the appellant not having proved otherwise by producing appropriate evidence.
(B) There is also positive evidence at show that partner Shri F. Y. Khambhaty had, in fact and to some extent, exercised from Cambay control and management of the appellant's affairs.'
9. The Appellate Assistant Commissioner lastly observed that he was of the view that the control and management of the affairs of the Kano firm, though substantially situated and exercised by Lahorewala at Kano, were to some extent situated in the taxable territories and exercised by the assessee and, therefore, as the control and management of the affairs of the Kano firm were not situated, wholly without the taxable territories, the Income-tax Officer was right in treating the firm as a resident under section 4-A(b) of the Act. Thus, the conclusion of the Appellate Assistant Commissioner was both negative and positive, negative by reason of the fact that there was failure on the part of the assessee to produce the correspondence and other documents that had passed between him and his partner, Lahorewala, and positive because, in the matter of the purchase of such articles as cloth and sandal-wood from India, no evidence was produced to show that it was Lahorewala who had as controlled these purchases and, therefore, the presumption was that the assessee had exercised control over these purchases while he was residing at Cambay during the relevant period. As the Appellate Assistant Commissioner confirmed the assessment on the Kano firm, he issued a direction to the Income-tax Officer to revise the assessee's assessment so as to include the assessee's share of profits in the Kano firm in his personal assessment for purposes of rates only. As regard the assessee, he held that he was liable to be assessed in his status as resident but not ordinarily resident. Aggrieved by these orders of the Appellate Assistant Commissioner, both the assessee and the Kano firm filed their respective appeals before the Tribunal. The Tribunal heard the two appears together and passed its orders also on both the appeals on the same day, i.e, September 25, 1959. In the appeal by the assessee, two main contentions were raised, (1) that the assessee's share of profits in the Kano firm should not have been included in his total income even for purpose of rates as the Kano firm was a non-resident firm, and (2) that the income of Khambhaty Trading Company was the separate income of the assessee's wife and therefore could not be included in his income. In the appeal filed by the Kano firm, it was contended : (1) that the assessments made against the firm were bad in law as the firm was a dissolved firm, and (2) that they were also bad as the firm was not a resident on account of the fact that the control and management of the affairs of the firm were wholly situated outside India. In the appeal by the Kano firm the Tribunal accepted the firm's contention that the assessment could not be made against it as the firm was a dissolved firm at the time of the assessments. But, though the Tribunal set aside these orders of assessment against the firm, it went into the question of its status and held that the firm's contention that its control and management were wholly situated outside the taxable territory was rightly rejected. In paragraph 3 of its order, the Tribunal observed that Khambhaty admittedly lived in India from November 1, 1947, to August 30, 1951, that all the purchases were made in Cambay, that a major portion of the purchases was made from the Cambay firm, that some of the purchases were found to have been made through Khambhaty Trading Company and that in respect of such purchases, by an agreement dated January 5, 1950, the Khambhaty Trading Company was entitled to a ten per cent. commission. The Tribunal, however, observed that the business of Khambhaty Trading Company was carried on and conducted by Khambhaty himself and his wife was only a benamindar and that the goods were exported to Africa by Khambhaty either in the name of the Khambhaty Trading Company or through the said Cambay firm. The Tribunal further held that the evidence on record indicated that Khambhaty used to go to the Cambay firm regularly and that he could not have done so unless he was interested in the purchases made from that firm, and summed up its conclusion by stating :
'We think that there is evidence on record to indicate that the control and management of the affairs of the firm were not wholly situated outside India. Khambhaty did take interest in the affairs of the Africa firm. After all, he was the man who had the largest stake in the business. Lahorewala was only a working partner.'
10. The Tribunal, however, agreed that the assessment could not be made as the against the firm as the firm was a discovered one and as the proceedings were initiated on July 20, 1955, when the firm was already dissolved with effect from July 31, 1952, assessments ought to have been made against the partners of the dissolved firm and not against the firm itself. On this basis, the Tribunal set aside all the three assessments and this was done on the footing of a decision of the Calcutta High Court where it was held that such assessments were not valid. In the appeal by the assessee, the Tribunal dismissed his appeal, holding that the department was right in treating the income of Khambhaty Trading Company as the assessee's income on the footing that his wife was a mere benamidar of the assessee, and also upholding the department's view that the assessee's share in the profits of the kano firm was includible in his income. But as this share of the profits was included only for the purpose of rates and as the Tribunal had set aside the assessments against the Kano firm, the Tribunal adopted what it called a short cut and issued a direction to the Income-tax Officer to assess the share of profits of the assessee in the Kano firm in his assessment for all the three years. In para 2 of its order in this appeal, the Tribunal observed :
'Even though we have set aside the assessments made on the firm, we do not think it is necessary to exclude the income from the appellant's assessment. There is no dispute as to the quantum of the income assessed in the hands of the appellants. This income will not only be included for the purposes of the rate but brought to assessments as the appellant's income. It may be mentioned here that we have adopted a short cut method with a view to save the parties unnecessary expenses and bother.'
11. In the result, the Tribunal dismissed the appeal by the assessee.
12. The position resulting from these orders of the Tribunal was as follows : the tax assessed on the Kano firm was ordered to be refunded in view of the orders of assessment passed against the firm having been set aside. The amounts to be refunded to the firm were as follows :
Rs.For the assessment year 1950-51 33,704.94For the assessment year 1951-52 51,574.00For the assessment year 1952-53 85,420.81----------------Total Rs. 1,70,699.75---------------- The effect of the direction given by the Tribunal in the appeal by the assessee was that his assessment was enhanced in the matter set out below : ----------------------------------------------------------------------Assessments Year Tax liability before Tax liability afterthe appeal the appeal----------------------------------------------------------------------Rs. Rs.1. 1950-51 15,280 43,1332. 1951-52 9,380 35,4833. 1952-53 16,841 62,698
13. The Tribunal however, seemed to feel that, in spite of the abovementioned position, there was really no enhancement as a consequence of its direction, for, as a result of its order, the Kano firm gained a refund of an aggregate amount of Rs. 1,70,699.75 in respect of the three assessment years 1950-51 to 1952-53, and, as against this reduction, the assessee, by way of an additional amount, had to pay altogether Rs. 79,666 and that, therefore, the actual result was that there was reduction on the two liabilities to the extent of Rs. 91,035. The Tribunal was of the view that it could not be disputed that, after its aforesaid orders, the department could have taken action under section 34 against the persons who were the partners in the Kano firm before its dissolution. Such proceedings would have led to prolonged proceedings and expense to the parties, and to avoid that consequence the Tribunal gave the aforesaid direction as a short cut and in the interest of justice to the effect that the assessee's share of profit in the profits of the kano firm should be taxed in his individual assessments and not merely included for purposes of rates. As the Tribunal observed, this was done as there was no dispute as to the quantum of the share of profits, of the assessee in the Kano firm during the three relevant assessment years.
14. The question is whether the Tribunal had the jurisdiction to issue such a direction which had the effect of by passing section 34, and also in view of the fact that the Commissioner had not filed any appeal against the orders passed by the Appellate Assistant Commissioner and there being therfore no ground of appeal before the Tribunal asking for relief that the share of profits of the assessee in the profits of the Kano firm should be taxed in his assessments. Section 33 deals with appeals against the orders of the Appellate Assistant Commissioner. Sub-section (1) provides for such appeal by an assessee and sub-section (2) provides for appeals by an Income-tax Officer at the instance of the Commissioner. Sub-section(2A) confers power on the Tribunal to admit an appeal after the expiry of the prescribed period if a sufficient cause for the delay were to be shown to its satisfacation. Sub-section (4) sets out the powers of the Tribunal and provides that the Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it things fit. Sub-section (5) provides :
'33. (5) Where as the result of an appeal any change is made in the assessment of the 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 member of the association.'
15. Mr. Mehta's contention was that the Tribunal had no jurisdiction to give such a direction which would work adversely to the assessee. He urged that the direction given by the Tribunal had the effect of enhancing the tax upon the assessee, for the result of the direction was that the Income-tax Officer was authorised to include in the income of the assessee his share profits not merely for the purposes of rates but for bringing it to tax. That amounted to enhancement because if the assessee had not filed an appeal before the Tribunal, since the Commissioner had not filed any appeal, the share of profits of the assessee in the profits of the Kano firm would have, under the orders passed by the Appellate Assistant Commissioner, been included in his assessments only for the purposes of rates and though the order of the Tribunal in the firm's appeal set aside the assessment order against the firm, so far as the assessee was concerned,he, in his assessments as an individual, would be levied a larger amount of tax as a result of the share of profits being made chargeable to tax. There was, therefore no doubt that the direction amounted to an enhancement which the Tribunal had no jurisdiction to order. Mr. Mehta urged that through the Tribunal had wide powers under sub-section (4), which contains such words as 'pass such orders thereon as it thinks fit', the word 'thereon' in that expression has the effect of limiting the Tribunal's jurisdiction to the subject-matter of the appeal and the subject-matter of the appeal would mean the grounds of appeal or such additional grounds as may be raised in the appeal as are allowed by the Tribunal. Therefore, he argued, the Tribunal could not go beyond the scope of the appeal before it, that is to say, the appeal by the assessee which did not and could not involve a question of the assessee's share of profits in the Kano firm being brought to tax in his assessment. There being no appeal by the Commissioner before the Tribunal and consequently no such grounds of appeal, the Tribunal traversed beyond its jurisdiction and the direction given by it therefore was invalid. In support of his contention. Mr. Mehta cited the Bombay decision in Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax where the word 'thereon' used in section 33(4) was construed to mean only 'on the appeal' which must mean on the grounds raised in the appeal. The High Court in that decision held that sub-section (4) only gave power to the Appellate Tribunal to give its decision and pass orders in respect of all grounds urged on behalf of the appellant in respect of the decision appealed against. In deciding those grounds it could pass appropriate orders, but it was not open to the Tribunal itself to raise a ground or permit the party who has not appealed to raise a ground which would work adversely to the appellant. The High Court also observed that the words of the section were not wide enough to include a power of enhancing without an appeal by the commissioner. In Indira Balkrishna v. Commissioner of Income-tax, where the question was whether certain income should be taxed in the hands of the assessee separately as and individual or as an association of persons, Chagla C.J. spoke words of caution observing that in giving findings and expressing opinions, the Tribunal must confine itself to the question that really arises in the appeal before it and should not travel outside the ambit of its jurisdiction which might help the department in taking proceedings against the assessee, for instance, under section 34 of the Act. In Puranmal Radhakishan and Company v. Commissioner of Income-tax, following the decision in Motor Union Insurance Co. Ltd., the High Court again held that in an appeal by an assessee to the Tribunal under section 33 of the Act, it was not open to the Tribunal to raise any ground which would work adversely to the appellant and pass an order which would make his position worse than what it was under the orders appealed against if the department had not appealed from such order, and that the word 'thereon' in the expression 'may pass such order thereon as it thinks fit' in section 33 meant on the grounds raised in the appeal and the words of the section were not wide enough to include a power of enhancement without an appeal by the Commissioner. In that case, the assessee, who was a dealer in shares, had purchased certain shares at Rs. 1,100 per share and a year later he sold them at the rate of Rs. 225 per share. The dispute between the department and the assessee was whether the assessee was entitled to loss on the basis of the difference between the cost price, namely Rs. 1,100, and his sale price, Rs. 225, or on the difference between Rs. 715, the market rate at the date of the purchase, and the sale price, namely, Rs. 225. Both the Income-tax Officer and the Appellate Assistant Commissioner held in favor of the department, and thereupon the assessee filed an appeal before the Tribunal contending that he should be allowed loss on the basis of the difference between Rs. 1,100 and Rs. 225. The Tribunal not only dismissed his appeal by also gave a finding that the assessee was entitled to loss only on the difference between Rs. 524-6-0, that being the market value on the date on which he converted these shares in no stock-in-trade, and Rs. 225 and that there was a clear case of under assessment. On the basis of this finding, proceedings under section 34 were started against the assessee. The High Court held that under section 33 the Tribunal itself could not have directed the Income-tax Officer to assess the assessee on the basis of the price of the shares being Rs. 524-6-0 per share. What it could not do directly, equally it could not do indirectly, and if it could not give a finding that the price of the shares was Rs. 524-6-0 per share for the purpose of directing the Income-tax Officer to reassess the assessee on the basis of the price, it could equally not give that finding so as to afford the Commissioner an opportunity of reopening the assessment under section 34. The High Court also held on the facts of that case that the finding given by the Tribunal was a finding adverse to the assessee and was one which did not arise from any question raised in the appeal and therefore it was beyond the competence of the Tribunal to give that finding. It is thus clear that the word 'thereon' occuring in sub-section (4) confines the power of the Tribunal to pass order on the subject-matter of the appeal before it and the Tribunal cannot go beyond the scope of the appeal or pass an order or give a direction which would work adversely to the assessee if such a direction or order does not fall within the subject-matter of the appeal i.e., the grounds of appeal where there is no cross appeal by the Commissioner. The fact that on the basis of its order the department would have to resort to proceedings under section 34 and that such a course would lead the parties to furher proceedings and expense would be no ground for giving such a direction on the plea that it would serve as a short cut which, according to the Tribunal, would save the parties from further proceedings.
16. The learned Advocate-General countered these arguments by relying upon sub-section (5) of section 33 and urged that though under sub-section (4) the power of the Tribunal may be restricted to the subject matter of the appeal before the Tribunal, the Tribunal has the power under sub-section(5) to authorise the Income-tax Officer to amend an assessment where a change is made by it in an assessment of a firm or an association of persons or where a new assessments of a firm or an association of persons is ordered to be made. He argued that the direction in question was given by the Tribunal under sub-section (5) and, therefore, the authorities cited by Mr. Mehta, which were on sub-section (4) cannot be applied so as to the restrict the power of the Tribunal under sub-section (5). He contended that as a result of the appeal by the Kano firm, assessment order against that firm had been set aside by the Tribunal and in doing so, if the Tribunal felt that though the firm could not be held liable, as it was a dissolved firm, on the footing of the law as was then understood, the Tribunal had the power under this sub-section to give a direction authorising the Income-tax Officer to amend the assessment made on a partner who was liable to be assessed on the share of profits coming to him from the profits of the firm. For this contention, he relied upon two decision of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate and Sarupchand Hukamchand & Co. v. Union of India, the first dealing with the Tribunal's power under sub-section (5) of section 33, and the second dealing with the power of the Appellate Assistant commissioner under section 31(4) which uses the same language as sub-section (5) of section 33.
17. In the case of Kanpur Coal Syndicate the, question was whether the Tribunal had the power to direct the Income-tax Officer to levy tax on the members of an association of persons individually in respect of the proportionate income of each of the members consistuting such an association where, the exercise of his power under section 3, the Income-tax Officer chooses to levy tax in respect of the total income of the association of persons upon assessment as a collective union. In considering this question, the Supreme Court examined section 33, and observed that under section 33(1), an assessee objecting to an order passed by the Appellate Assistant Commissioner under section 28 or under section 31 may appeal to the Appellate Tribunal within sixty days of the date on which such order is communicated to him. The Supreme Court thereafter quoted the provisions of sub-section (4) and (5) of section 33 and observed as follows :
'Under this section the Appellate Tribunal has ample power to set aside the assessment made on the association of persons and direct the Income- tax Officer to assess the individuals or to direct the amendment of the assessments already made on the members. The comprehensive phraseology used both in section 31 and section 33 of the Act does not countenance the attempt of the revenue to restrict the powers of the Appellate Assistant Commissioner or of the Appellate Tribunal; both of them have power to direct the appropriate authority to assess the members individually instead of the association of persons as a unit'.
18. The learned Advocate-General relied upon the observation in this passage where the Supreme Court has stated that under section 33, the Appellate Tribunal had ample power to set aside the assessment made on the association of persons and direct the Income-tax Officer to assess the individuals or to direct the amendments of the assessment already made on the members. He argued that this observation clearly laid down that the Tribunal has, independently of sub-section (4), power under sub-section (5) to set aside an assessment on a firm and to direct the Income-tax Officer to assess the partners of that firm, or direct an amendment of the assessment made on the partners. We do not agree with the construction of the aforesaid observation by the Supreme Court placed by the learned Advocate-General. In our view, the Supreme Court has not laid down any proposition on the construction of sub-section (5), namely, that that sub-section confers such an independent and a separate power on the Tribunal. The observation relied upon by the learned Advocate-General was made by the Supreme Court in the light of the facts of the case and in the light of the appeal before the Tribunal wherein a specific ground of appeal was taken, namely, that, in the circumstances, of the case, the income should not be assessed to tax in the hands of the association collectively but in the hands of each of the members of the association. That ground of appeal was before both the Appellate Assistant Commissioner and the Tribunal. What the Supreme Court held was that under the provisions of section 31 and section 33, both the Appellate Assistant Commissioner and the Tribunal had the power to deal with that ground of appeal in view of the comprehensive phraseology used by the legislature in these two sections. The observation stressed by the learned Advocate-General is not an observation interpreting sub-section (5), but is an observation dealing with the contention of the assessee, namely, that the Income-tax Officer should have assessed the members in respect to the proportionate income of such members and not the association collectively in respect of the whole of the income under the power given to him under section 3 which is to assess either the members or the association as two different and alternative entities, and what the Supreme Court held there was that the Appellate Assistant Commissioner and the Tribunal had the power under section 31 and section 33 respectively to direct the Income-tax Officer to assess the members and not the association. The decision in Sarupchand Hukamchand also does not subscribe to the construction which the learned Advocate-General sought to canvass. In that case, the Income-tax Officer assessed the assessee-firm as a resident and, for the assessment years 1940-41 to 1942-43, determined the total income for those years at certain sums. Under section 23(5)(b), the Income-tax Officer treated the firm, which was unregistered, as registered for the purpose of assessment for the year 1940-41 with the result that the partners alone were assessed to tax. The Appellate Assistant Commissioner held that the assessee was a non-resident and found that the assessee incurred a loss for 1940-41 and made certain variations in the amounts of income for the years 1941-42 and 1942-43. Accordingly, he directed the Income-tax Officer to modify the assessment. When the matter came before him, the Income-tax Officer allocated the loss of the year 1940-41 to the partners. The assessee claimed that as the firm had incurred loss for the year 1940-41, it could not be treated as registered and therefore the loss had to be carried forward to the subsequent years and could not be carried to the assessment of the partners. These contentions were rejected both by the department as also by the Central Board of Revenue and the assessee filed an application before the High Court under article 226 of the Constitution. That application was also dismissed. On appeal to the Supreme Court, the Supreme Court held that when the Appellate Assistant Commissioner found that the assessee had incurred loss, the earlier decision of the Income-tax Officer to act under section 23(5)(b) automatically fell through and that the powers of the Appellate Assistant Commissioner under section 31(4) to amend an assessment of the partners was implicit in the order which he passed, namely, that there was loss in the assessment year 1940-41 and the assessments for the three years had to be modified. The Supreme Court observed that even if the order be referred to clause(a) of section 31 (3), the effect, in law, was the annulment of the assessment which had been made in the case, and the necessary consequence of the determination of the loss in the assessable income remained to be worked out. The Income tax Officer worked it out by carrying the losses to the returns of the partners. That could only be done under section 23(5)(b). In such a case, the Income-tax Officer was required once again to apply his mind to determine whether it would be in the interest of the revenue to proceed as he had done before, and if he had done this duty in the interest of the revenue, he would never have passed the order that the loss of the firm should be carried to the accounts of partners immediately in that year of assessment. It will be seen that what the Supreme Court here laid down was simply that where a firm is assessed and the assessment order against the firm is modified in appeal by the Appellate Assistant Commissioner, the assessment order passed by the Income-tax Officer under section 23(5)(b) automatically falls through and, therefore, there is implicit in the appellate order of the Appellate Assistant Commissioner the power to amend the assessment of the partners, and, therefore, the Income-tax Officer is bound to modify the assessment of the partners. These observations mean that if, in exercise of his appellate jurisdiction, the Appellate Assistant Commissioner passed an order setting aside or altering an order passed by an Income-tax Officer against a firm, the Appellate Assistant Commissioner has the power to direct the Income-tax Officer to modify his order passed against the partners assessed so as to bring their assessment in line with and consistent with the order passed by him. To take a simple case, if a registered firm's income has been computed at X amount and consequently the partners have been assessed on that footing in respect of their shares, if in appeal the Appellate Assistant Commissioner were to reduce the profits from X to Y, the assessments on the partners have to be proportionately reduced by the Income-tax Officer. This is what the Supreme Court said when it observed that the power of the Appellate Assistant Commissioner to direct is implicit in the order passed by him as his appellate order and the Income-tax Officer is bound to modify the assessment of the partners accordingly. In our view, neither of these two decisions comes to the assistance of the learned Advocate-General. We are of the view that sub-sections (4) and (5) of section 33 have to be read together and, if so read, it is clear that sub-section (5) of section 33 is consequential to what may be done under sub-section (4) in an appeal and the power under sub-section (5) to amend 'accordingly' an assessment made on a partner of the firm is as result of an order passed under sub-section (4). Sub-section(5), therefore, does not authorise the Tribunal to direct an Income-tax Officer to bring to tax in an assessment of an assessee his share of profits in a firm in which he is a partner. What it does empower the Tribunal to do is to direct the Income-tax Officer to amend the assessment of a partner in a firm assessed as such partner, where such amendment becomes necessary and consequential as a result of an order passed in an appeal by the Tribunal for or against such a firm. Question No. 1, therefore has to be answered in the negative.
19. The result of our answer to question No. 1, therefore would be that the share of profits of the assessee in the Kano firm could be included in his assessments for the purposes of rates only. But the learned Advocate-General contended that the Bombay decisions on the interpretation of section 33(4) were not correct and that, according to him, the powers of the Tribunal under sub-section (4) included the power of enhancement even where there is no cross appeal by the Commissioner. We cannot agree with this view, and, in any event, those decisions are binding upon us. As a further alternative, the learned Advocate-General argued that the Direction of the Tribunal did not result in enhancement and, therefore, the aforesaid Bombay decisions would not apply. The Income-tax Officer had in his assessment orders included the share of the profits of the assessee and brought to tax that share in his assessments. The Income-tax Officer had, at the same time, brought to tax the total profits in the hands of the Kano firm in the firm in the firm's assessment. The Appellate Commissioner confirmed both the orders, but had held that as he had upheld the order of assessment against the firm, the order of assessment of the Income-tax Officer against the assessee had to be modified so as to include his share of profits for purposes of rates only and not for taxing it in the hands of the assessee, for otherwise the orders of assessment passed by the Income-tax Officer would result in double taxation of the same income. That was the order before the assessee filed his appeal before the Tribunal. According to the learned Advocate-General, what the Tribunal did was to restore the position which prevailed when the Income-tax Officer passed his orders bringing to tax in the assessee's hands his share of profits in the firm. We, however, cannot agree with this contention, for it is clear that, had not the assessee filed his appeal before the Tribunal, his position would have been better off than what it became as a result of the Tribunal's direction. In that case, the share of profits would have been included in his assessment only for purposes of rates. It is, therefore, not possible to say that the result of the direction was not enhancement. The direction of the Tribunal, in our view, was not consequential in the sense that it would be in the case of a firm, where as a result of a change in the firm's assessment, the assessment of a partner has to be modified. The direction in the present case was a direction to assess the assessee as an individual and adding to his income his share of profits which could only be done by proceedings taken under section 34 if such proceedings were available under the provisions of that section, and the direction, in our view, therefore, was without jurisdiction.
20. On the second question, Mr. Mehta argued that the Tribunal was in error in coming to the conclusion that the share of profits of the assessee in the Kano firm was includible in his total income even for rate purposes in his assessment on the ground that the profits were derived from a business controlled in Indian by the assessee. He contended that there was no sufficient evidence to justify such a conclusion. He relied upon the affidavit of the assessee and his cross-examination by the Appellate Assistant Commissioner and also upon the affidavit made by Lahorewala in which it was denied both by the assessee and Lahorewala that the affairs of the Kano firm were controlled or managed by the assessee while he was in India. Mr. Mehta argued that the evidence indicated that the purchases of agate stones, which were the main purchases by the Kano firm, though made in Cambay, were upon the orders placed by Lahorewala from Kano and that the several affidavits produced by the assessee indicated that, though he was visiting the Cambay firm, he did not have anything to do with those purchases and that his visits to that firm were not for supervising or controlling the purchases of agate stones from that corporation. He also argued that in relying upon the fact that the Khambhaty Trading Company was really the business of the assessee and that his wife was a mere benamidar, the Tribunal had relied upon an irrelevant and extraneous circumstance in coming to its aforesaid conclusion. There was, however, considerable evidence of a circumstantial nature before the Tribunal and if the Tribunal relied upon such circumstantial evidence, as it appears from its order it had done, it would not be possible for us in our limited jurisdiction to interfere with a finding of fact arrived at by the Tribunal. In spite of the denial in their respective affidavits by the assessee and Lahorewala that the assessee controlled or managed the affairs of the Kano firm while he was residing at Cambay, if the Tribunal, on an appreciation of the entire evidence before it, came to the conclusion that that denial was not reliable or trustworthy, the Tribunal undoubtedly had the power to do so. What the Tribunal appears to have done was to consider the evidence produced before the Income-tax Officer and the Appellate Assistant Commissioner as a whole and, on an appraisal of that evidence in its entirety, found the following circumstances from which it arrived at its conclusion, viz., (a) that the assessee was a major partner residing at the material time in Cambay from where a major part of the agate stones and other articles were being supplied to the Kano firm, (b) that the assessee could not be said to be disinterested in the purchase of agate stones from the said Cambay firm as the assessee, as the proprietor of Kahambhaty Trading Company, was getting ten per cent. Commission from the Cambay firm on all purchases made from that firm, and (c) that the assessee was almost daily visiting the Cambay firm during the material time and that in spite of his denial it could not be said that he was visiting the said firm as he had no other place to go to and that his assertion that his visits had nothing to do with the affairs of the Kano firm, especially the purchases of agate stones of considerable value from that firm, was not true. According to the affidavit of Hasmukhlal, one of the partners of the Cambay firm, the assessee was visiting that firm daily and for about an hour a day. If from these facts the Tribunal came to the conclusion that the affairs of the Kano firm were being controlled and managed by the assessee while he was residing at Cambay, it would not be possible to say that such a conclusion was either unreasonable or was not based upon evidence. In paragraph 5 of its order in the appeal by the firm, the Tribunal has in fact stated that there was evidence on record indicating that the control and management of the affairs of the Kano firm were not wholly situated outside India and that the assessee did take interest in the affairs of that firm. Nor can it be said that the conclusion of the Tribunal was unreasonable when it stated that he could not be visiting the Cambay firm without having any interest whatsoever in the purchases made by the Kano firm thorough the Cambay firm.
21. On these facts and on these conclusions of the Tribunal, the question as framed and on which the Tribunal was called upon to submit a supplemental statement of the case would appear to be purely a question of fact. The question as framed would also, strictly speaking, not fall under the second proviso to section 4(1). We have, therefore, thought it fit to reframe that question. Mr. Mehta also agreed with us that the question required reframing. In our view, the second question, in order that it may bring out the proper controversy between the parties, should read as follows :
'Whether there was any evidence to support the finding of the Tribunal that the sixty per cent. share of profits from Messrs. F. Y. Khambhaty at Kano was income derived from business controlled in Indian within the meaning of the second proviso to section 4(1) ?'
22. For the reasons given above, our answer to that question will be in the affirmative. There will be no order as to costs.
23. Question answered in the affirmative.