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Mandal Ginning and Pressing Co. Ltd. Vs. Commissioner of Income-tax. Keshavlal Hirachand V. Commissioner of Income-tax. Digvijay Woollen Mills Ltd. V. Commissioner of Income-tax. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax References Nos. 65 and 73 of 1970 and 23 of 1971
Reported in[1973]90ITR332(Guj)
AppellantMandal Ginning and Pressing Co. Ltd.
RespondentCommissioner of Income-tax. Keshavlal Hirachand V. Commissioner of Income-tax. Digvijay Woollen Mill
Cases ReferredGopi Lal v. Commissioner of Income
Excerpt:
- - in proceeding under those provisions, what the income-tax officer does is to correct errors in or rectify orders of assessment made by him, and orders making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment. that takes us to the next question whether the assessee can claim to be entitled to a right of appeal against an order of rectification on the ground that, when he challenges the order of rectification, he 'denies his liability to be assessed under this act'.the assessee contended that it is now well settled by the decision of the supreme court in s. therefore, when the assessee contends that the conditions for the exercise of the power of rectification are not satisfied and the income-tax officer has no power to adopt a.....bhagwati c.j. - the short question of law that arises in these references is :'whether an appeal lies against an order of rectification made by the income-tax officer under section 35, sub-section (1), of the indian income-tax act, 1922 ?'it has always been assumed by those concerned with this rather complex piece of legislation that no appeal lies against such an order of rectification. the question is, whether this assumption is correct. it is a pure question of law and we do not think it necessary to burden this judgment with any statement of facts. it would be enough to formulate the question and straightway embark upon a discussion of it. when an assessment is made by the income-tax officer under section 23 and thereafter, on discovering a mistake apparent from the record of the.....
Judgment:

BHAGWATI C.J. - The short question of law that arises in these references is :

'Whether an appeal lies against an order of rectification made by the Income-tax Officer under section 35, sub-section (1), of the Indian Income-tax Act, 1922 ?'

It has always been assumed by those concerned with this rather complex piece of legislation that no appeal lies against such an order of rectification. The question is, whether this assumption is correct. It is a pure question of law and we do not think it necessary to burden this judgment with any statement of facts. It would be enough to formulate the question and straightway embark upon a discussion of it. When an assessment is made by the Income-tax Officer under section 23 and thereafter, on discovering a mistake apparent from the record of the assessment, the Income-tax Officer makes an order of rectification under section 35, sub-section (1), is the order of rectification appealable under section 30, sub-section (1) ?

The right of appeal against an order made by the Income-tax Officer is conferred under section 30, sub-section (1), and the determination of the question before us must, therefore, turn primarily on the language of the provision. Section 30, sub-section (1), so far as material for the present purpose, reads as follows :

'30. (1) Any assessee objecting to the amount of income assessed under section 23 or section 27, or the amount of loss computed under section 24 or the amount of tax determined under section 23 or section 27, or denying his liability to be assessed under this Act, or objecting to the cancellation by an Income-tax Officer of the registration of a firm under sub-section (4) of section 23 or to a refusal to register a firm under section (4) of section 23 or section 26A, or to make a fresh assessment under section 27, or objecting to any order under sub-section (2) of section 25 or section 25A or sub-section (2) of section 26 or section 28 made by an Income-tax Officer, or objecting to any penalty imposed by an Income-tax Officer under sub-section (6) of section 44E or sub-section (5) of section 44F or sub-section (1) of section 46, or objecting to a refusal of an Income-tax Officer to allow a claim to a refund under section 48, 49 or 49F, or to the amount of the refund allowed by the Income-tax Officer under any of those sections, and any assessee, being a company, objecting to an order made by an Income-tax Officer under sub-section (1) of section 23A may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order : . . . . .'

The assessee relied upon two clauses of sub-section (1) of section 30 in support of his contention that, when an assessment under section 23 is rectified by an order of rectification made under section 35, sub-section (1), the assessee is entitled to appeal against the order of rectification to the Appellate Assistant Commissioner. The first clause was 'any assessee objecting to the amount of income assessed under section 23 . . . . or the amount of tax determined under section 23. . . .' and the second clause was 'any assessee denying his liability to be assessed under this Act'. The main argument of the assessee was based on the former clause and reliance was placed on the latter clause only in the alternative.

We may first take up for consideration the argument based on the clause 'any assessee objecting to the amount of income assessed under section 23. . . . or the amount of tax determined under section 23. . . . ' The contention of the assessee based on this clause was that, when an order of rectification is made by the Income-tax Officer under section 35, sub-section (1), it rectifies the assessment under section 23 and it is the assessment as rectified by the order of rectification which effects the final quantification of the tax liability. What was an erroneous quantification of tax liability in the original assessment under section 23 is rectified and a corrected quantification of tax liability is substituted for it. The corrected quantification of tax liability is projected and incorporated into the original assessment and becomes an integral part of it and the original assessment as rectified remains an assessment under section 23. The assessee submitted that, when an order rectifying an assessment made under section 23 is challenged in appeal, what the assessee does in substance is to object to the rectified amount of income assessed or tax determined under section 23 and the assessee would, therefore, fall within the clause 'any assessee objecting to the amount of income assessed under section 23 . . . . or the amount of tax determined under section 23' and would be entitled to appeal against the order of rectification. This argument is certainly an ingenious arguments and at first blush, it might appear to be attractive but on closer scrutiny it will be apparent that it is defective in many respects and cannot be accepted. Our reasons for saying so are as follows :

It is clear, on a plain reading of section 30, sub-section (1), that a right of appeal is given by that sub-section against various orders and each of the orders against which a right of appeal is conferred is described by reference to the source of the power under which it is made. The clause on which reliance has been placed on behalf of the assessee is in the same strain. It confers a right of appeal against the amount of income assessed or the amount of tax determined under section 23. It is obvious that the legislature did not intend to confer a right of appeal against the amount of income assessed or the amount of tax determined without references to the section under which the assessment or determination may have been made. If the legislature wanted to give a right of appeal against every assessment of income or determination of tax, there is no reason why the legislature should have added the words 'under section 23' and specifically enacted the source of the power under which the assessment of income or the determined of tax should have taken place in order that the assessee should be entitled to appeal against it. The words 'under section 23' must, therefore, be given due effect in interpreting this clause. These words in the context in which they occur can mean 'by virtue of' or 'in exercise of the power conferred under section 23.' If assessment of income or determination of tax has taken place under any other provision of the Act, it would not attract the right of appeal, unless of course it falls within any other clause of section 30, sub-section (1). Having said so much on the interpretation of the words used in the clause, we may now proceed to consider what is the nature of a proceeding for rectification and what happens when an order of rectifying is made rectifying an assessment under section 23.

Now, the question as to what is the true nature of a proceeding for rectification is no longer open to doubt or controversy. It is settled by the decision of the Supreme Court in S. Sankappa v. Income-tax Officer. The point which arose before the Supreme Court for decision in this case was, whether rectification of an assessment made under section 23 in a case where return of income was filed before the commencement of the Act of 1961, could be made under section 35(5) of the Act of 1922, or section 155 of the Act of 1961. The revenue contended that section 297(2)(a) of the Act of 1961 applied and rectification of the assessment could, therefore, be made only under section 35, sub-section (5), of the Act of 1922. This contention of the revenue required the Supreme Court to consider whether a proceeding for rectification could be said to be a proceeding for assessment within the meaning of section 297(2)(a) of the Act of 1961. The Supreme Court held that the word 'assessment' as used in section 297(2)(a) had a comprehensive meaning and it comprehended the whole procedure for ascertaining and imposing liability upon the taxpayer and it included a proceeding for rectification of tax. The Supreme Court observed :

'...... when proceedings are taken for rectification of assessment to tax either under section 35(1) or section 35(5) of the Act of 1922, those proceedings must be held to be proceedings for assessment. In proceeding under those provisions, what the Income-tax Officer does is to correct errors in or rectify orders of assessment made by him, and orders making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment.'

This decision was followed by a Division Bench of this court in P.M. Bharucha and Co. v. G.S. Venkatesan, Income-tax Officer. It would, therefore, appear that a proceeding for rectification of an assessment under section 23 is a proceeding for assessment; it is part of the procedure for ascertainment and imposition of tax liability on the assessee. When an assessment made under section 23 is rectified by an order of rectification, what was a wrong quantification of tax liability is rectified and a corrected quantification of tax liability is substituted for it. This may result in enhancement of the amount of the tax liability or reduction of the amount of the tax liability. Where the amount of the tax liability is enhanced by reason of the rectification made by the Income-tax Officer, can it be said that the enhanced tax liability is the result assessment under section 23 Is the enhanced tax liability, whether by reason of enhanced computation of the amount of income or by reason of enhanced determination of tax alone, the result of exercise of power under section 23 or is it the result of exercise of power under section 35, sub-section (1) When an order of rectification is passed under section 35, sub-section (1), undoubtedly rectifies the assessment under section 23, but the enhanced tax liability which results from it, owes its validity to the exercise of power under section 35, sub-section (1), and not to the exercise of power under section 23. The source of the power under which the enhanced tax liability arises is not section 23 but section 35, sub-section (1). It is, therefore, difficult to see how the enhanced tax liability, or, in other words, enhanced assessment resulting from the exercise of power under section 35, sub-section (1), can be said to be assessment under section 23. The corrected quantification of tax liability of tax liability which is made by the order of rectification is nothing but a process of assessment and, therefore, the enhanced assessment which results from it is an assessment under section 35, sub-section (1). Once an assessment under section 23 is made, it is final and conclusive, unless the conditions exist which entitle the Income-tax Officer to disturb the finality of the assessment under section 34 or section 35. When the Income-tax Officer disturbs the finality of the assessment by rectifying it in exercise of the power conferred under section 35, sub-section (1), he acts de hors section 23 with a view to overriding an erroneous part of the assessment under section 23. It is impossible to conceive how this act of the Income-tax Officer can be regarded as assessment under section 23. We may point out that there is nothing in the Act which gives a mandate or creates a fiction that, when the Income-tax Officer rectifies an assessment in exercise of the power conferred under section 35, sub-section (1), he must follow the procedure laid down in sections 22 and 23 as we find in section 34 nor is there any fiction created by the statute that when an assessment is rectified in exercise of the powers conferred under section 35, sub-section (1), the rectified assessment shall be deemed to be an assessment under section 23 or shall be treated as an assessment under section 23.

We may also examine the question from a slightly different angle. Let us ask ourselves the question : when an assessee wants to prefer an appeal against an order of rectification, what is it that he is really aggrieved against What is the substance of the objection of the assessee Does he object to the assessment of income under section 23 or against the enhanced assessment made by the order of rectification The answer is clear. The assessee is obviously aggrieved by the enhanced assessment which is the result so exercise of power under section 35, sub-section (1), and not under section 23. His objection is, therefore, not against the amount of income assessed under section 23, but against the enhanced assessment made by the Income-tax Officer in exercise of the power conferred under section 35, sub-section (1). This objection he is not entitled to agitate by way of appeal because section 30, sub-section (1), does not confer a right of appeal against an order of rectification under section 35, sub-section (1). Though it is true that the consequences of a suggested construction do not alter the meaning of a statutory provision, they certainly help to fix its meaning. If the contention urged on the behalf of the assessee were right, the consequence would be that one single order of assessment would have to be compartmentalised into two parts, one part consisting of the original assessment order minus the rectified part and the other consisting of the rectified part and an appeal against the former would have to be filed within the period of limitation computed from the date of the rectification. Thus, there will be two appeals against one single order of assessment, one in respect of one part at one time and the other in respect of the other part at another time. Such an intention cannot be attributed to the legislature, unless there are express words to that effect.

This view which we are taking is supported by two decisions of the Madras High Court, namely, Commissioner of Income-tax v. Vellingiri Gounder and VR. C. RM. Adaikkappa Chettiar v. Commissioner of Income-tax. These decisions do not contain any independent reasoning as to why, according to the learned judges who decided these cases, no appeal lies against an order of rectification made under section 35, sub-section (1), and they proceed on the assumption that this question concluded by the decision of the Supreme Court in Commissioner of Income-tax v. MTT. AR. S. AR. Arunachalam Chettiar. We do not think this assumption is correct. If we look at the decision of the Supreme Court in Commissioner of Income-tax v. MTT. AR. S. AR. Arunachalam Chettiar, it is clear that there was no question before the Supreme Court whether an appeal lies against an order of rectification under section 35, sub-section (1). The case before the Supreme Court did not involve any question of rectification and it is, therefore, difficult to see how the observations made by the Supreme Court in relation to a totally different question can be construed as laying down that, when an order of rectification is passed by the Income-tax Officer under section 35, sub-section (1), no appeal lies against it under section 30, sub-section (1). The two decisions of the Madras High Court to which we have referred cannot, therefore, with great respect to the learned judges who decided them, be justified on the ground on which they seem to have proceeded and we cannot derive much strength from them. But even so it is heartening to find that the Madras High Court too has taken the same view in these two decisions which we are taking in the present case.

Before we part with this point, we must refer to one decision of the Privy Council on which the strongest reliance was placed by Mr. J. P. Shah, learned advocate appearing on behalf of the assessee in Income-tax Reference No. 65 of 1970. That is the decision in Commissioner of Income-tax v. Khemchand Ramdas. This decision is frequently cited in courts to show that the word 'assessment' has different meanings according to the context in which it is used, but here in the present case, Mr. J. P. Shah relied upon it is order to support his contention that an appeal lies against an order of rectification under section 35, sub-section (1). We do not think this decision lends any support to the contention of Mr. J. P. Shah. What happened in this case was that an order of assessment was made by the Income-tax Officer under section 23, sub-section (4), and by this order no super-tax was levied on the assessee since it was a firm registered under the Income-tax Act. The registration of the assessee was thereafter cancelled by the Commissioner in exercise of the power under section 33, and while cancelling the registration, the Commissioner directed the Income-tax Officer 'to take the necessary action thereupon'. The Income-tax Officer accordingly passed an order levying super-tax on the assessee since the assessee was no longer a registered firm. The assessee preferred an appeal to the Appellate Assistant Commissioner and through a question was raised as to the competency of the appeal, the Appellate Assistant Commissioner went into the merits without deciding the question of competency of the appeal and dismissed it. There was, it appears, no Tribunal in those days and the assessee, therefore, applied to the Commissioner to exercise the powers under section 33 to set aside the orders of the Income-tax Officer and the Appellate Assistant Commissioner levying super-tax and also asked the Commissioner, in the alternative, to make a reference to the High Court. The Commissioner rejected the application under section 33 and also declined to make a reference. The Court of the Judicial Commissioner had, therefore, to be approached and pursuant to the directions given by the Judicial Commissioner, a reference was made by the Commissioner. The reference was disposed of by the High Court in favour of the assessee and the revenue, therefore, carried the matter before the Privy Council. Before the Privy Council, two questions were canvassed, namely, whether the Income-tax Officer had any power to make the order levying super-tax in view of the provisions of sections 34 and 35 and whether the appeal against the order of the Income-tax Officer was competent. The Privy Council held that, apart from sections 34 and 35, the Income-tax Officer had no power to disturb the finality of the assessment already made by him and since, at the time when he made the order levying super-tax. he was hopelessly out of time for taking action either under section 34 or section 35, he was not entitled to make the order levying super-tax. The competency of the appeal against the order of the Income-tax Officer was challenged on the ground that the order was one under section 30, sub-section (1), no appeal lay against the order of the Income-tax Officer. The Privy Council negatived this challenge to the competency of the appeal and held that the order of the Income-tax Officer could not be said to be an order made under section 23, sub-section (4), and the appeal was, therefore, not barred under the proviso to section 30, sub-section (1), and, since the assessee denied his liability to be charged to super-tax, he was entitled to prefer an appeal against the order of the Income-tax Officer levying super-tax upon him. This, and nothing more than this, was decided by the Privy Council in this case. We do not find anything in this decision which goes to show that the order of the Income-tax Officer was treated by the Privy Council as one made under section 35 and an appeal was held to be maintainable against it on the basis that it was an order under section 35. This decision, therefore, does not not compel us to take a different view from the one we are taking.

That takes us to the next question whether the assessee can claim to be entitled to a right of appeal against an order of rectification on the ground that, when he challenges the order of rectification, he 'denies his liability to be assessed under this Act'. The assessee contended that it is now well settled by the decision of the Supreme Court in S. Sankappa v. Income-tax Officer that a proceeding for rectification of an assessment under section 23 is a proceeding for assessment. It is a proceeding for rectifying an error in the assessment under section 23 with a view to making a proper and correct assessment. Therefore, when the assessee contends that the conditions for the exercise of the power of rectification are not satisfied and the Income-tax Officer has no power to adopt a proceeding for rectification, what he does is to deny his liability to be assessed under section 35, sub-section (1). He tells the revenue : 'You want to assess me by adopting proceeding for assessment under section 35, sub-section (1), but the conditions which entitle you to adopt such a proceeding are not satisfied and you have, therefore, no right to assess me and I am not liable to be assessed'. The assessee in such a case denies his liability to be assessed under the Act and is consequently entitled to appeal, when the assessment is made by rectification under section 35, sub-section (1). This contention was sought to be supported on behalf of the assessee by reference to several decided cases of which we may mention only four, namely, Commissioner of Income-tax v. Kanpur Coal Syndicate, S. M. Modi v. Commissioner of Income-tax, Gopi lal v. Commissioner of Income-tax and Gokuldas v. Kikabhai Abdulali. The question is, whether this contention is justified on the terms of section 30, sub-section (1).

The determination this question rests entirely on the true interpretation of the words 'any assessee.... denying his liability to be assessed under the Act.' What do these words mean Do they include a case where an assessee contends that he is not liable to be proceeded against under section 35, sub-section (1), because the conditions for the exercise of the power under that provision are not satisfied To answer this question, we may first look at the words in their proper context and collocation and try to arrive at their meaning, uninfluenced by any judicial decisions. Of course, if there are any decisions of the Privy Council or the Supreme Court which have interpreted these words, such interpretation would bind us, whatever be our own view as to the true meaning of these words. But, before we go to the decisions it would be helpful if we consider for ourselves what these words mean according to their plain natural connotation. Now it is a well-settled rule of interpretation that, in order to arrive at the true meaning of a sentence or clause, it is not proper to interpret these word in the sentence or clause separately as if it stood alone and then to construe the sentence or clause by the separate meaning of each such word. We must look at the sentence or clause as a whole and arrive at a proper meaning. The context and the collocation may give a meaning to the words different from that which they might bear in a different context or collocations. Here the words are 'any assessee.... denying his liability to be assessed under this Act.' The word 'assessment', it is well-known, has different meanings accordings to the context in which it is used. It may mean sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure for ascertaining and imposing liability on the taxpayer : vide Commissioner of Income-tax v. Khemchand Ramdas The question would, therefore, be what is the sense in which the word 'assessed' is used in this context Obviously, it is used in a comprehensive sense to mean 'subjected to the whole procedure for ascertaining and imposing liability on the taxpayer.'

There is nothing in the context of section 30, sub-section (1), which compels us to give a narrow meaning to the word 'assessed'. On the contrary, the words 'under this Act' clearly go to show that the reference here is to the whole procedure laid down in the Act for imposing liability upon the taxpayer. The legislature has deliberately and advisedly used the words 'under this Act' and not 'under' 'a' or 'any' provision of this Act. What is meant by the expression 'any assessee.... denies his liability to be assessed under this Act' is that the assessee contends that he is not liable to be assessed under any provision of the Act, or, in other words, he is not liable to be subjected to any part of the procedure laid down in the Act for imposing liability to tax. When an assessee claims that he is not liable to be proceeded against under section 35, sub-section (1), which, paraphrasing it in the language of S. Sankappas case, means that he is not liable to assessed by a proceeding for rectification under section 35, sub-section (1), he is not 'denying his liability to be assessed under this Act.' His objection then is only against a proceeding for assessment under a particular provision of the Act. He does not say : 'I am not liable to be assessed at all under any provision of the Act' which is what is connoted by the expression 'denies his liability to be assessed under this Act.' Of course, we must make it clear that denial of liability to be assessed may be in respect of the whole income or any part of the income. It may be based on any ground, whether of fact or of law, and it may be total denial of liability or denial of liability under particular circumstances. But, the denial must be of 'the liability to be assessed under this Act' and not merely under any particular provision of the Act.

This view which we are taking received considerable support from the decision of the Privy Council in Commissioner of Income-tax v. Khemchand Ramdas. The words 'liability to be assessed under this Act' came up for consideration before the Privy Council in this case and the Privy Council gave the following interpretation :

'Having regard to section 58(1) of the Act, the provisions contained in section 30(1) giving a right to appeal to the Assistant Commissioner in the case of an assessee denying his liability to be assessed under the Act, which must mean in that context charged with tax under the Act is as applicable to super-tax as it is to ordinary income-tax.'

This interpretation given by the Privy Council is binding upon us, unless we find anything said in any decision of the Supreme Court which has the effect of overriding this interpretation. It was contended on behalf of the assessee that the decision of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate, does override this interpretation given by the Privy Council. We shall presently consider that decision, but, for the time being, it is sufficient to state that we do not think there is anything in that decision which suggests that a contrary interpretation was accepted by the Supreme Court. This interpretation given by the Privy Council clearly shows that the words 'assessed under this Act' mean 'changed with tax under this Act'. The denial of liability contemplated by section 30, sub-section (1), is, therefore, denial of liability to be charged with tax under the Act, which is the same thing as saying that the assessee is not liable to be assessed at all under any provision of the Act or to be subjected to any part of the procedure laid down in the Act for imposing liability to tax.

We must then proceed to consider the decision of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate. This was a case where the assessee, who was an association of persons, was assessed to tax by the Income-tax Officer. The assessee contended before the Income-tax Officer that, in the circumstances of the case, the assessee should not be assessed to tax as an association of persons but the proportion of the income in the hands of each of the members of the association should be assessed to tax instead. The Income-tax Officer did not accept this contention of the assessee and assessed the assessee to income-tax. The assessee thereupon preferred an appeal to the Appellate Assistant Commissioner and in the appeal, the assessee raised the same contention but the appeal was dismissed. The matter was carried in further appeal by the assessee and the Tribunal held that, though the Income-tax Officer has power to assess the income of the association of persons as such or in the alternative to assess the individual members in respect of their proportionate share of the income, the Tribunal had no power under the Act to direct the Income-tax Officer to exercise his power in one way or the other. The question was thereupon referred to the High Court, whether, in a case where the Income-tax Officer levies income-tax on an association of persons as a collective unit in respect of its total income, the Tribunal is competent to direct the Income-tax Officer to levy income-tax proportionately upon the individual members of the association of persons in respect of the proportional income of each member. While considering this question, Subba Rao J. made the following observations, which were strongly relied upon on behalf of the assessee :

'We, therefore, hold that section 3 impliedly gives an option to an appropriate authority to assess the total income of either the association of persons or the members of such association individually.

The next question is whether the said option is given only to the Income-tax Officer and is denied to the Appellate Assistant Commissioner and the Appellate Tribunal. Under the Act the Income-tax Officer, after following the procedure prescribed, makes the assessment under section 23 of the Act. Doubtless, in making the assessment at the first instance he has to exercise the option whether he should assess the association of persons or the members thereof individually. It is not because that any section of the Act confers an exclusive power on him to do so, but because it is part of the process of assessment; that is to say, he has to ascertain who is the person liable to be assessed for the tax. If he seeks to assess an association of persons as an assessable entity, the said entity can object to the assessment, inter alia, on the ground that, in the circumstances of the case, the assessment should be made on the members of the association individually. The Income-tax Officer may reject its contention and may assessee the total income of the association as such an impose the tax on it. Under section 30 an assessee objecting to the amount of income assessed under section 23 or the amount of tax determined under the said section or denying his liability to be assessed under the Act can prefer an appeal against the order of the Income-tax Officer to the Appellate Assistant Commissioner. It is said that an order made by the Income-tax Officer rejecting the plea of an association of persons that the members thereof shall be assessed individually does not fall under one or other of the three heads mentioned above. What is the substance of the objection of the assessee The assessee denies his liability to be assessed under the Act in the circumstances of the case and pleads that the members of the association shall be assessed only individually. The expression denial of liability is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances. In either case the denial is a denial of liability to be assessed under the provisions of the Act. In one case the assessee says that he is not liable to be assessed to tax under the Act, and in the other case the assessee denies his liability to tax under the provisions of the Act if the option given to the appropriate officer under the provisions of the Act is judicially exercised. We, therefore, hold that such an assessee has a right of appeal under section 30 of the Act against the order of the Income-tax Officer assessing the association of members instead of the members thereof individually.'

The argument of the assessee based on these observations was that the words 'denial of liability' do not mean total denial of liability; they are comprehensive enough to include 'the liability to tax under particular circumstances.' We entirely agree. The denial of liability contemplated in section 30, sub-section (1), is not confined to absolute or total denial of liability. The assessee may deny his liability to be assessed under the Act in respect of a particular receipt on the ground that in the particular circumstances of the case he is not liable to be assessed, that is, charged to tax in respect of such receipt under any provision of the Act. The assessee in the case before the Supreme Court contended that the option given by section 3 of the Act ought to be exercised in favour of assessing the members of the association of persons and if that were done, the assessee would not be liable to be assessed, that is, charged to tax, under any provision of the Act in respect of the income received by the assessee as an association of persons. The assessee denied his liability to tax under the provisions of the Act by saying that the option should be exercised in such a manner that the members of the association of persons. The Supreme Court applied the same that which we have discussed above and on an application of that test, the Supreme Court said that the assessee denied his liability to tax under the particular circumstances and was, therefore, entitled to appeal. We do not, in the circumstances, find anything in this decision of the Supreme Court which militates against the view we are taking. On the contrary, it supports what we have said in regard to the true meaning of the words 'liability to be assessed under this Act'. It is also significant to note that the Supreme Court has used the words 'liability to tax under the particular circumstances' which is the same thing as liability to be charged with tax under the particular circumstances; that is precisely the same thing which we find (sic) by the Privy Council in Khemchand Ramdass case.

Then we must refer to the decision of the Bombay High Court in S. M. Modi v. Commissioner of Income-tax. There the question was, whether the assessee who failed to deduct income-tax at the maximum rate from the salary paid to two employees who were foreigners was entitled to prefer an appeal against an order made by the Income-tax Officer holding that, since those two employees were not resident in the taxable territories, the assessee was liable to pay income-tax and super-tax with appropriate surcharge in respect of the income of those two employees. The revenue contended that the assessee had no right of appeal because the only right of appeal conferred on him was under section 30(1A), and that section was not applicable. The assessee sought to sustain the right of appeal by reference to the words 'any assessee.... denying his liability to be assessed under this Act'. The assessee contended that he denied his liability to be assessed in respect of the income of the two foreign employees and was, therefore, entitled to appeal against the order of the Income-tax Officer. This contention was accepted by the Bombay High Court and Tendolkar J., speaking on behalf of the Division Bench, made the following observations :

'The next question then is : Does the applicant before us have a right of appeal under section 30(1) The relevant words of that section are : any assessee denying his liability to be assessed under this Act may appeal to the Appellate Assistant Commissioner; and the question is whether the applicant before us is a person denying his liability to be assessed. Now, the words assessed under this Act have been interpreted by their Lordships of the Privy Council as being synonymous with charged with tax under the Act in Commissioner of Income-tax v. Khemchand Ramdas, and there can be no doubt whatever that the applicant before us has been charged with tax under the Act and if he has been charged with tax under the Act and he denies his liability to be charged with such tax, he has a right of appeal under section 30 (1).'

We fail to see how these observations are of any help to the assessee. On the contrary, they affirm that the words 'assessed under this act' mean 'charged with tax under the Act' as held by the Privy Council in Khemchand Ramdass case, which is exactly what we have said. Even apart from the decision of the Privy Council this interpretation of the words 'assessed under this Act' placed by the Bombay High Court would be binding upon us.

The decision of the Bombay High Court in Gokuldas v. Kikabhai Abdulali also does not help the assessee. The Division Bench of the Bombay High Court pointed out in that case that where the Income-tax Officer determines who the partners are and what are their shares, an appeal against this part of the order would lie under section 30 at the instance of anyone who denies his liability to be a partner. Obviously, when a person is sought to be assessed as a partner in respect of income which is alleged to have been accrued to him from the firm and he claims that he is not a partner, he would be denying his liability to be assessed under the Act in respect of the income which is sought to be taxed in his hands as a partner and, therefore, an appeal would lie at his instance against the order determining that he is a partner and seeking to assess him as such.

The last decision to which we must refer is the decision of the Punjab High Court in Gopi Lal v. Commissioner of Income-tax. It is no doubt true that a Division Bench of the Punjab High Courts held in this case that if a partner is not satisfied with the reallocation of profits made by the Income-tax Officer pursuant to the direction given by the Tribunal under section 33(5) and says that the same is not in accordance with the direction of the Tribunal, he, in effect, denies his liability to be assessed under the Act to the extent to which he claims to have been wrongly assessed. But, with the greatest respect to the learned judges who decided this case, we are of the view that it does not lay down the correct law. It ignores the true meaning of the words 'denies his liability to be assessed under this Act' which has been laid down by the Privy Council in Khemchand Ramdass case, and impliedly accepted by the Supreme Court in Kanpur Coal Syndicates case. We do not see how challenge to an over-assessment made in the hands of a partner as a result of reallocation under section 33(5) can be said to be a denial of liability to be assessed under the Act. There could be no denial of liability to be assessed under the Act where the only contest raised by the assessee is that the assessment made is an over-assessment and not that there should have been no assessment at all.

We are, therefore, of the view that the assessee has no right of appeal against an order of rectification made under section 35, sub-section (1), rectifying an assessment under section 23. We may point out that this has been the accepted view of the law at any rate since the decision given in been the accepted view of the law at any rate since the decision give in 1953 in Commissioner of Income-tax v. Vellingiri Gounder. The view taken in this decision has held the field for over twenty years and, even if two view were possible, we do not think that we would lightly depart from a view which consistently held the filed, particularly when there is always a right of revision to the Commissioner under section 33A and if an order of rectification is made without the conditions of the exercise of the power of rectification is made without the conditions of the exercise of the power of rectification being fulfilled, this court can always be approached in the exercise of its jurisdiction under article 226 or 227 of the Constitution for the purpose of quashing and setting aside such order of rectification. Moreover, under the Act of 1961, a right of appeal is expressly provided against an order of rectification under section 246(f).

There is only one question referred to us in Income-tax Reference No. 65 of 1970, and that is :

'Whether, on the facts and in the circumstances of the case, appeals lay to the Appellate Assistant Commissioner against the orders of rectification dated September 15, 1964, and January 22, 1966 ?'

Our answer to this question referred to us for our opinion is in the negative. So far as Income-tax Reference No. 73 of 1970 is concerned, two question have been referred to us for our opinion. Question No. (1) has not been pressed on behalf of the assessee and it is, therefore, not necessary to answer it. Question No. (2) is in the following terms :

'(2) If the answer to the above question is in the affirmative, whether on the facts and in the circumstance of the case the Tribunal was correct in holding that no appeal lay before the Appellate Assistant Commissioner against the order of the Income-tax Officer rectifying the assessment ?'

The answer to this question will be in the affirmative.

There are three question referred to us for our opinion in Income-tax Reference No. 23 of 1971. Question Nos. (1) and (3) are not pressed on behalf of the assessee and we need not, therefore, answer them. So far as question No. (2) is concerned, it is in the same terms as question No. (2) in Income-tax Reference No. 73 of 1970, and we answer it in the affirmative.

Since the assessee has lost in each of the three references, the assessee will pay the costs of each reference to the Commissioner.


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