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Vr. C. Rm. Adaikkappa Chettiar Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 115 of 1966 (Reference No. 35 of 1966)
Judge
Reported in[1970]78ITR285(Mad)
ActsIncome Tax Act, 1922 - Sections 35; Income Tax Act, 1961 - Sections 154 and 297(2)
AppellantVr. C. Rm. Adaikkappa Chettiar
RespondentCommissioner of Income-tax
Appellant AdvocateS. Swaminathan and ;K. Ramagopal, Advs.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredKunwarji Ananda v. Commissioner of Income
Excerpt:
direct taxation - construction - section 35 of income tax act, 1922 and section 154 and 297 (2) of income tax act, 1961 - assessee derived income from his own business and service rendered to x - assessee received salary and 1/4th share of profit for services rendered to x - suffered loss in his own business which was carried forward from year to year - income-tax officer subsequently discovered that certain amount which was treated as business income was actually income under head 'salary' - income-tax officer passed order under section 154 that certain amount was under head 'salary' and was not available for set-off - whether income-tax officer's order was illegal and outside scope of section 154 - notice issued under section 154 of new act was treated as one under section 35 of old act.....ramanujam, j.1. the assessee in this case derived income from his own business as a film distributor and also remuneration for service rendered to one s. meyyappan under an agreement of service dated june 2, 1957. under the said agreement of service the assessee was entitled to get a fixed salary of rs. 1,000 per month plus 1/4th share of the profit earned by the said meyyappan as a partner from partnership business of s.k. pictures. for the assessment year 1959-60, the assessee got rs. 25,233 towards his l/4th share in the profits earned by meyyappan, besides a sum of rs. 12,000 as salary, under the terms of the said service agreement. the assessee had sustained a loss of rs. 48,735 in his own business of film distribution in 1953-54 which was being carried forward from year to year. in.....
Judgment:

Ramanujam, J.

1. The assessee in this case derived income from his own business as a film distributor and also remuneration for service rendered to one S. Meyyappan under an agreement of service dated June 2, 1957. Under the said agreement of service the assessee was entitled to get a fixed salary of Rs. 1,000 per month plus 1/4th share of the profit earned by the said Meyyappan as a partner from partnership business of S.K. Pictures. For the assessment year 1959-60, the assessee got Rs. 25,233 towards his l/4th share in the profits earned by Meyyappan, besides a sum of Rs. 12,000 as salary, under the terms of the said service agreement. The assessee had sustained a loss of Rs. 48,735 in his own business of film distribution in 1953-54 which was being carried forward from year to year. In the assessment order dated March 31, 1962, for the year 1959-60 the Income-tax Officer set off this loss of Rs. 48,735 against the total income of Rs. 28,051 which included a sum of Rs. 25,233 being the assessee's 1/4th share under the said service agreement. Subsequently, the Income-tax Officer discovered that the sum of Rs. 25,233 has been wrongly treated by him as the business income though it really constituted the income of the assessee under the head 'Salary' and that the said income of Rs. 25,233 has been wrongly set off against the business loss of the assessee in the earlier orders. He, therefore, initiated proceedings under Section 154 of the Income-tax Act, 1961, to correct the mistake that had occurred in the assessment order, by issuing a notice dated January 18, 1953, to the assessee calling upon him to file his objections, if any, for the proposed rectification of the mistake. The assessee filed his objections to the proposed revision. The Income-tax Officer, however, passed an order dated February 7, 1963, treating the sum of Rs. 25,233 as part of the salary of the assessee and holding that the said amount was not available for being set off against the business loss of the earlier years. Against the said order of the Income-tax Officer, the assessee preferred an appeal to the Appellate Assistant Commissioner contending that the proceedings under Section 154 of the Income-tax Act were illegal as there was no mistake apparent on the face of the record of the original assessment, that the sum of Rs. 25,233 was not the assessee's salary but really his business income and that the said sum was rightly available for being set off against his business losses of the earlier years. The Appellate Assistant Commissioner, however, negatived both these contentions and confirmed the order of the Income-tax Officer.

2. The assessee filed an appeal to the Income-tax Appellate Tribunal, Madras, raising the same two contentions, that is, (1) that the Income-tax Officer was not justified in passing an order under Section 154 of the Act, and (2) that the Income-tax Officer was not justified in treating the sum of Rs. 25,233 as part of the assessee's salary income. The Tribunal also felt that there was no substance in either of the assessee's contentions and dismissed the appeal, upholding the order of the Income-tax Officer passed under Section 154 of the Income-tax Act, 1961. Thereafter, at the instance of the assessee, the Tribunal has referred to us for decision the following two questions:

'Whether, on the facts and in the circumstances of the case,

(1) the order of the Income-tax Officer dated February 7, 1963, is illegal as being outside the scope of Section 154 of the Income-tax Act, 1961? and

(2) the Appellate Tribunal was wrong in holding that the sum of Rs. 25,233 was part of the salary income ?'

3. We shall first deal with the second question as to the nature of Rs. 25,233 received by the assessee under the terms of the service agreement. The relevant provisions of the service agreement dated June 2, 1957, are extracted below:

'I have pleasure in confirming that I have appointed you (and you have accepted) as my full-time manager for a period of two and a half years commencing from the 1st June, 1957, to look after all my interests and manage and assist me, particularly in Madras (besides elsewhere as and when needed), in all the work relating to my partnership business of S.K. Pictures covered by the partnership deed of 1st June, 1957, entered into between Sri S. Kalyanasundaram Pillai Avergal and myself which document has been perused by you, on the remuneration and the following terms and conditions which have been accepted by you.

In full and complete satisfaction and settlement for all your services under this agreement, I agree to pay you, as from 1st June, 1957, a fixed allowance calculated at rupees one thousand per mensem, throughout the aforesaid period of service, and, in addition, an exact one-fourth share of whatever I earn during the said period by virtue of my right and interest in the said partnership business after deduction of such expenses as may be incurred by me for earning the said income. It is expressly understood between us that there is no relationship of any partnership whatsoever with you. It is only a contract of service. .. . You will fully and loyally give me your best co-operation and help and not engage yourself directly or indirectly in any other business activity during the period of your service under this agreement.... I have made this appointment relying fully and your making available to me whole-heartedly and unreservedly your valuable experience and great capacity in the film production line and I am relying on you for the due satisfactory discharge as my deputy, subject, of course, to my general instructions of all my work and duties in respect of the said partnership business. The question of continuance of this appointment beyond the thirty months will be decided by me in consultation with you before the expiry of the said period.'

4. The above extracts from the service agreement make it clear that the assessee cannot directly or indirectly engage himself in any other business during the period of service under the agreement and that he has to act under the general instructions of the employer, Meyyappan. But the remuneration payable to the assessee consists of a fixed allowance of Rs. 1,000 per month and an additional remuneration of 1/4th share of the profits earned by the employer in his partnership business and the assessee had absolutely no interest in the partnership business of the employer. In the face of these provisions, it is impossible to accept the assessee's contention that the above agreement is not a salary agreement and that the remuneration received by the assessee under the terms of the agreement was only in the nature of business income. The learned counsel for the assessee seeks reliance on the following decisions in Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad, : [1954]25ITR449(SC) , Commissioner of Income-tax v. Manmohan Das, : [1966]59ITR699(SC) , Qamar Shaffi Tyabji v. Commissioner of Excess Profits Tax, : [1960]39ITR611(SC) , Commissioner of Income-tax v. Kundan Lal Lal Chand, : [1961]41ITR245(All) (All.) and Dwijendra Chandra Chowdhury v. Commissioner of Income-tax, : [1966]61ITR97(AP) (Assam).

5. In Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad, the appellant, a private limited company, with objects, inter alia, of acting as agents for Government or other authorities or for any joint stock company and of carrying on all kinds of agency business were appointed, under an agency agreement, as the agents of a company for a period of 30 years. Under the agreement the appellants were to act as such agents until they of their own will resign, and carry on the general management of the business of the company subject to the control and supervision of the directors who have to lay down the general policy and give such directions in regard to the management as may be considered necessary. The appellants were also entitled to assign their agreement and the rights thereunder in certain circumstances and also to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them under the agreement. They were entitled to a remuneration by way of commission of a certain percentage on the amount of sale proceeds of the produce of the company.

6. The question arose as to whether their activities constituted business within the meaning of Section 2(4) of the Excess Profits Tax Regulation, Hyderabad, whether the appellants were acting as employees of the company and whether the remuneration was liable to excess profits tax. The Supreme Court held that the appellants were the agents of the company and not merely its servants remunerated by wages or salary, that what is relevant to consider was as to the nature and scope of the activities and not the extent of the operations that the activities of the appellants constituted a business and the remuneration which they received under the terms of the service agreement was, 'income, profits or gains from business' and, therefore, they were liable to excess profits tax. The learned counsel submits on the basis of the above decision that the test to find out whether the agreement in question is a salary agreement is to see whether there was a continuous activity of operations by the assessee and that if there is such a continuous activity, it has to be construed that the assessee is carrying on a business. Though, under the terms of the service agreement the nature and scope of the activities in the present case clearly show that the assessee is not carrying on any business of his own, but merely carried out certain duties assigned to him by the employer under the agreement, the fact that he has been put in exclusive charge of the business of the employer will not lead to the fact that he is not a servant or a salaried employee, as the Supreme Court itself points out in the above decision that the extent of the operations is not relevant for the purpose of finding out whether the activities of the assessee come within the definition of ' business'.

7. The decision in Qamar Shaffi Tyabji v. Commissioner of Excess Profits Tax also arose under the Hyderabad Excess Profits Tax Act. In that case the trustees of an industrial trust fund formed by a Hyderabad Firman of 1929 were appointed secretaries, treasurers and agents of two cotton mills. The agreements between the trustees and the mills provided that the general conduct and management of the business and affairs of the mills will vest with the trustees, that they were 'entitled to appoint employees and delegate to other persons all or any of the powers, authorities, discretions, etc., vested in them under the agreement subject to the approval by the board of directors of the respective mills. The assessee in that case was appointed managing agent of the business of the trustees as secretaries, treasurers and agents and as selling agents of the two mills and he was given full powers of management and of the selling agency, subject to the general control of the trustees. The remuneration of the appellant consisted of Rs. 2,000 per month and a commission calculated at l/5th of the total commission which the trust was entitled to get out of the actual profits as per its agreement with the mills. When the question arose as to whether the remuneration received by the appellant under the agreement was income derived from business and liable to excess profits tax, the Supreme Court held that the appellant was neither a servant nor a mere sub-agent of the trustees but an agent of the principal for such part of the business of the agency as was entrusted to him. The appellant was held to have undertaken a business of his own in accepting the duties and responsibilities of managing the two mills under the general control of the trustees and the remuneration received by the appellant under the agreement was held to be income from business liable to excess profits tax. In this case the learned judges pointed out that the difference between the relations of master and servant and of principal and agent lay in the fact that a principal has the right to direct what work the agent has to do but a master has got a further right to direct how the work has to be done. An agent has to be distinguished on the one hand from a servant and the other from an independent contractor. A servant acts under the direct control and supervision of the master in the course of his work while an agent is not subject to the direct control or supervision of the principal in the exercise of the work allotted to him. The above decision may not apply to the facts of the present case where the assessee has not been treated as an agent or an independent contractor as was treated in that case. From the facts of that case it is clear that the trustees had delegated their entire responsibility and function under the agreement which they had entered into with the mills and the assessee was in exclusive management of the mills and in those circumstances, it was not possible to say that they were the servants of the trustees. But in the case on hand the assessee, who is said to be a full-time employee, has been expressly prohibited to do any business of his own and he has to serve the employer fully and loyally by giving his best co-operation and help in the conduct of the employer's partnership business. It also provides that the assessee has to act under the general instructions of the employer in the course of the execution of his work and duties in respect of the partnership business as a full-time manager. There is no evidence in this case that the assessee was in exclusive management of the business as was the case in the above decision. The employer, was one of the partners in the firm doing business of film distribution and the assessee has been shown as his full-time manager in the conduct of the partnership business representing his employer and looking after his interest. He has no other responsibility such as providing funds for the business or employing his own personnel, and he has been specifically directed to carry out his duties under the general directions of the employer. On the facts of this case it is not possible to say that the assessee is not a servant of the employer.

8. In Commissioner of Income-tax v. Kundan Lal Lal Chand, the Allahabad High Court, following the decision of the Supreme Court in Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad, held that the karta of a Hindu undivided family, appointed as a Government treasurer with a duty to keep true and faithful accounts of the property entrusted and of his dealings under written orders of his superior officers and to submit such returns and accounts as may be called for, along with a discretion in the matter of appointment and dismissal of his subordinates and an actual control over day-to-day work of the staff, was not a servant of the Government. The question was whether the remuneration paid to the karta as a treasurer was salary or income from the business of the Hindu undivided family, and it was held that the remuneration of the treasurer was not salary within the meaning of Section 7, but business income chargeable under Section 10 of the Income-tax Act. It was also held in that case that the question whether a certain income was received as salary or as income from the business is essentially a question of fact depending on the facts and circumstances of each case. As we understand the above decision, it is rested mainly on the fact that the appointment as treasurer was that of a Hindu undivided family and not of the karta as an individual in the view of the learned judges a Hindu undivided family cannot as such accept service or be appointed as servant. They considered the contract for accepting appointment as treasurer as one entered into by the karta on behalf of the Hindu undivided family and in their view a Hindu undivided family consisting of numerous persons cannot as a whole become servants of the Government. Having regard to the special position of the karta in a Hindu undivided family with reference to his powers to bind the other members of the family by entering into contracts, the 'Court held that the assessee's services as a treasurer in that case was only that of an agent or an independent contractor and not in the capacity of a servant.

9. In Dwijendra Chandra Chowdhury v. Commissioner of Income-tax, a question arose as to whether the managing directors were agents of the company and the remuneration paid to them was business income assessable under Section 10 or whether they were mere servants of the company and the remuneration paid to them was salary assessable under Section 7 of the Act and the court, after referring to the distinction between an agent, a servant or an independent contractor, expressed the view that managing directors were not employees or servants of the company and their duties and powers correspond to those of an agent as distinguished from a mere servant of the company. The said decision mainly rested on the articles of association of the company and the duties assigned to the managing directors therein. Reliance was also placed on the decision in Commissioner of Income-tax v. Manmohan Das, where the assessee who was appointed as a treasurerof a bank with full powers to manage the affairs of the bank was held to carry on business and the remuneration received by him was held not to be salary within the meaning of Section 7 of the Income-tax Act. The facts arising in that case are clearly distinguishable from the facts of the present case. Having regard to the fact that the service agreement between the assessee and the employer treats him as a full-time employee to carry on the business of film distribution in partnership under the employer's direction, he has no independent discretion in carrying out his duties. Having regard to the specific provisions in the agreement, the assessee is not correct in his contention that it was not a salary agreement at all and that the remuneration received was not part of his salary income.

10. Mr. Swaminathan, learned counsel for the assessee, raised a two-fold contention with respect to the first question as to the competency and validity of the proceedings under Section 154, of the Income-tax Act, 1961.

11. He submitted that the order purported to have been passed by the Income-tax Officer under Section 154 of the Act of 1961 is not an order rectifying a mistake apparent on the record of the assessment and that therefore Section 154 could not have been properly invoked in this case. According to him, the impugned order was in effect a revisional order, which the assessing authority has no power to pass. The second objection which was raised before us was that in relation to the assessment proceedings for the year 1959-60, it is the provisions of the old Act of 1922 that has to apply and not the provisions of the new Act of 1961, and that, therefore, the proceedings initiated under Section 154 of the new Act will be without jurisdiction.

12. As regards the scope of Section 154 of the new Act, the learned counsel for the assessee contends that the assessing authority was conscious of the nature of the income of Rs. 25,233 when he made the original assessment and he treated the said amount received under the service agreement as business income after making a distinction between this amount and the fixed remuneration of Rs. 12,000, and it is not open to him to invoke the provisions of Section 154, merely because he changes his view at a later stage as to the nature of the income. According to him the power exercised is one of revision and not one of rectification. We are of the view that the submission made by the learned counsel as to the scope of Section 154 cannot be accepted. In this case the assessing authority has treated the said sum of Rs. 25,233 as business income while in fact it is salary income. Though the sum of Rs. 12,000 received at the rate of Rs. 1,000 per month as salary was treated as salary income of the assessee, the amount of Rs. 25,233 received by the assessee as part of the remuneration under the same agreement of the service was wrongly treated as business income and this mistake is apparent from the orders of the original assessment. One part of theremuneration received under the service agreement was treated as salary and the other part as business income, which can be considered as an obvious mistake. The entire remuneration received under the service agreement should be taken either as salary income or as business income, depending upon the construction of the service agreement. The remuneration received under the same agreement for service rendered cannot go under two heads of income, that is 'salary' and ' business'. The assessee's contention that even if it is a mistake apparent on the face of the record, it should be corrected only by a revisional authority and not by the assessing authority itself does not appeal to us. The learned counsel how ever relied on the decision in Burmah-Shell Refineries Ltd. v. G.B. Chand, Income-tax Officer, [1968] 67 I.T.R. 653 (Bom.), where an Income-tax Officer computed the capital employed in an undertaking for the purpose of granting relief to the assessee under Section 15C of the Indian Income-tax Act, 1922, on the basis of the written down value of the assets as per the income-tax records without deducting initial depreciation from the written down value and subsequently sought to rectify his own assessment under Section 154 of the Income-tax Act of 1961 on the ground that there was an 'error apparent from the record', a Division Bench of the Bombay High Court held that the question whether initial depreciation was to be deducted or not was a question of substance and complexity and that it could not be said that there was 'an error apparent from the record' which could be rectified under Section 154 of the Act. On the basis of this decision the learned counsel submits that the question whether the sum of Rs. 25,233 received on the terms of the service agreement was really in the nature of salary is a complex question and that the Income-tax Officer having decided the question in a particular way earlier, he could not change his opinion and seek to rectify the order on the ground of mistake invoking Section 154. After going through the above decision, we are of the view that the said decision may not be of any assistance to the assessee. In this case it cannot be said that the Income-tax Officer decided the nature of the income received by way of remuneration under the service agreement. The Income-tax Officer merely accepted the return filed by the assessee which showed, out of the total amount received as remuneration under the service agreement, Rs. 12,000 as salary, and the balance of Rs. 25,233 as business income, without deciding the question whether the remuneration received under the service agreement was business income or salary income. In the case above cited, the Income-tax Officer considered the question of deduction of initial depreciation and he proceeded to reconsider that question at a later stage in rectification proceedings and it was held that he was not entitled to do.

13. As against the said view taken by the Bombay High Court in Burmah-Shell Refineries Ltd. v. G.B. Chand, Income-tax, Officer, we have got a decision of this court in T. S. Rajam v. Controller of Estate Duty, : [1968]69ITR342(Mad) (Mad.), where it was held that where a rectification of a mistake which is apparent from the record is called for, the mere complexity of the problem or that genuine argument is necessary to discover the same may not by themselves be sufficient to oust the jurisdiction of the statutory tribunals to rectify such a mistake. In that case the court was construing the scope of Section 62 of the Estate Duty Act, 1953, which is practically the same as Section 154 of the Income-tax Act of 1961. There the deceased sold within two years before his death 1,000 shares of Rs. 100 each in a private limited company to his sons and grandsons for a consideration of Rs. 1,00,000. The Assistant Controller of Estate Duty took the view that the sale was a disposition in favour of the relatives within the meaning of Section 27 of the Estate Duty Act and rectified his earlier order which did not take this aspect into consideration, and fixed the value of each share at Rs. 310 as on the date of death and brought the difference in value as property passing on death. On appeal, the Board adopted the value of Rs. 258 per share. On a reference to this court it was held that the 'mistake' referred to in Section 62 of the Estate Duty Act is not only arithmetical or clerical error but it comprehends errors which are discerned after a judicious probe into the record from which it is supposed to emanate, that it is difficult to axiomatise and lay down dictas for the discovery of a mistake from official records that it is inherently indefinite in scope and mostly subjective, the dividing line being thin and undiscernible, and that, in the ultimate analysis, the conclusion a well-equipped and trained judicial mind will reach after scrutinising the record will govern and his finding whether it is a mistake or not has to be accepted by the court. With respect we agree with the view expressed by this court in the above decision. We, therefore, hold that the Income-tax Officer has correctly invoked his jurisdiction under Section 154 of the Act and that his order dated February 7, 1963, properly falls within the scope of the said section. Of course this is on the assumption that the new Act applied to the proceedings in question.

14. The assessee's learned counsel then raised the second contention thateven if the rectification proceedings are held to be within the scope of thepowers of the Income-tax Officer, the proper provision to be invoked is Section 35 of the old Act of 1922, and not Section 154 of the new Act of 1961.The learned counsel for the revenue, however, submitted that such acontention is not open to the assessee as it is outside the scope of thequestion referred to this court. According to the re venue the questionreferred to this court is whether the revised order of the Income-tax Officeris illegal as being outside the scope of Section 154 of the Act of 1961 and as such the only objection that is open to the assessee is based on the scope of Section 154. It was argued that the assessee's present objection that section of 154 of the new Act should not have been invoked, but that the corresponding provision in the old Act should have been invoked, will not arise on the question referred to this court especially when such a contention was not raised at any earlier stage. The Tribunal was not called upon by the assessee to decide the said issue and, therefore, the present contention does not arise from the Tribunal's order. It was also urged by the revenue that the assessee cannot be permitted to raise this question at this late stage when any corrective step or measure will be time-barred. The learned counsel for the assessee concedes that this objection was not specifically raised at any earlier stages, but contends that the question referred to this court is sufficiently wide to cover the present objection raised as to the jurisdiction of the Income-tax Officer to invoke Section 154 of the new Act in relation to an assessment year 1959-60.

15. In S. Sankappa v. Income-tax Officer, : [1968]68ITR760(SC) the Supreme Court has held that the rectification is part of assessment proceedings, that rectification proceedings could not, therefore, be taken under Section 154 of the Act of 1961 in relation to the assessment years when the Act of 1922 was applicable and that such proceedings could be taken only under Section 35 of the Act of 1922, in view of the saving provisions contained in Section 297(2)(a) of the Act of 1961. The assessee has chosen to take this objection as to the jurisdiction and competence of the Income-tax Officer to proceed under Section 154 of the Act of 1961, in relation to years when the old Act was in force, only after the Supreme Court rendered the above decision. The learned counsel for the assessee refers to the decision in Bhanji Bhagwandas v. Commissioner of Income-tax, : [1968]67ITR18(SC) in support of his stand that he is entitled to raise this objection as coming within the scope of the question referred to this court. There the question referred was as to whether the impugned order had been passed beyond the period prescribed under the statute and when the reference was pending, there was an amendment of the statute and the assessee was allowed to make his submissions in relation to the change of law and the court went into the question whether the impugned order was barred with reference to the statutory provisions as amended. While permitting the assessee to make his submissions with reference to the amended provisions, the court expressed the view that it was only one aspect of the question of limitation that was referred for decision to the court. We find that the said decision in Bhanji Bhagwandas v. Commissioner of Income-tax is based on an earlier decision in Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax, [1963] 48 I.T.R. (S.C.) 92, 100; [1963] Supp. 1 S.C.R. 871 , where it was laid down that :

' ......section 66 of the Income-tax Act empowered the High Court to answer a question of law arising out of the order of the Appellate Tribunal and it did not confer any jurisdiction to decide a different question of law not arising out of such order, but it was possible that the same question of law may involve different facts and the High Court could amplify the question to take in all the facts but the question must still be one arising out of the Appellate Tribunal's order which was before the Tribunal or was decided by it. It could not decide an entirely different question.'

16. If we construe the question referred to us as a limited one as argued by the revenue, the present contention cannot be treated as one of the many facts arising out of the question referred. We are; however, inclined to treat the question raised as a comprehensive one as contended for by the assessee. The question that has been referred to us is as to the scope of Section 154 of the 1961 Act, and the present contention raised by the assessee that the provisions of Section 154 of the new Act cannot be applied to the proceedings in relation to the assessment year 1959-60 can also be said to relate to the scope of Section 154 covered by the question already referred. Though the present contention as to the competency and jurisdiction of the Income-tax Officer to proceed under Section 154 of the Act of 1961 was not raised before the Tribunal and the question of jurisdiction was not an issue at any stage before it, if the question referred to us is considered to be wide so as to comprehend the present objection of the assessee, we are of the view that it can be entertained and considered in answering the question already referred to this court. The decisions in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., : [1961]42ITR589(SC) and T.D. Kumar and Brothers (P.) Ltd. v. Commissioner of Income-tax, : [1967]63ITR67(SC) are relevant on the point.

17. In Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. the Supreme Court has summed up the position thus, while construing the scope of the power contained in Section 66(1) of the 1922 Act:

(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it and is, therefore, one arising out of its order.

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of, its order notwithstanding that it may arise on the findings given by it.

18. According to the learned judges it is only a question that has been raised before and decided by the Tribunal that could be held to arise out of its order. The learned judges, however, expressed:

'Section 66(1) speaks of a question of law that arises out of the order of the Tribunal. Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that Section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of Section 66(1) of the Act.'

19. In T. D. Rumor and Brothers (P.) Ltd. v. Commissioner of Income-tax, at page 70, the Supreme Court referred to the earlier decision in Commissioner of Income-tax, v. Scindia Steam Navigation Co. Ltd. and held that in respect of the question which was not raised before the Tribunal, argued or decided by the Tribunal, a reference under Section 66(2) of the Indian Income-tax Act could not be asked for, and that, however, the question referred to was couched in general terms and the Tribunal having decided the question against the assessee, there is no further limitation that the reference must be limited to aspects of the question which had been argued before the Tribunal.

20. In this case the assessee did admittedly raise the question of jurisdiction of the Income-tax Officer to proceed under Section 154 of the Act before the Tribunal, but he confined his objection only to the scope of Section 154. Though the assessee has raised the objection as to the competence and jurisdiction of the Income-tax Officer to proceed under Section 154 of the new Act only at this stage, we are inclined to treat the said objection as one of the aspects of the main question of jurisdiction under Section 154 referred to this court.

21. In view of the decision in S. Sankappa v. Income-tax Officer referred to earlier, the assessee's contention that with reference to the assessment order for the year in question, Section 154 of the Act of 1961 cannot be invokedhas to be accepted as correct. The saving provision in Section 297(2)(a) specifically provides that the proceedings for assessment for the years prior to the commencement of the Act of 1961 shall be made in accordance with the provisions of the Act of 1922. In this ease the Income-tax Officer has purported to act under Section 154 of the Act of 1961 while he should have acted under Section 35 of the Act of 1922. The revenue, however, takes up the stand that though the officer has purported to exercise the power to rectify under Section 154 of the Act of 1961, such a power is referable to Section 35 of the old Act of 1922, and that the mere mention of Section 154 of the new Act instead of Section 35 of the old Act will not invalidate the impugned order. The learned counsel for the revenue invites our attention to a decision in Hazari Mal Kuthiala v. Income-tax Officer, : [1961]41ITR12(SC) , where an order of the Commissioner of Income-tax passed under Sections 5(5) and 5(7A) of the Indian Income-tax Act, 1922, was attacked as ultra vires and incompetent for the reason that the correct provision to be invoked for the assessment in question was Section 5(5) of the Patiala Income-tax Act. The Supreme Court upheld the order treating the same as one passed under the provisions of Section 5(5) of the Patiala Income-tax observing that:

'The exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it would be nugatory.'

22. The Supreme Court also referred to an early decision of the Bombay High Court in Pitamber Vajirshet v. Dhondu Navlapa, [1887] I.L.R. 12 Bom. 486. There a suit cognizable by a court of small causes was entertained and tried by a subordinate judge as an ordinary suit under the Code of Civil Procedure and on the rejection of the plaintiffs claim, there was an appeal to the District Court which allowed the appeal and decreed the plaintiff's suit. Before the High Court it was contended by the defendant that the District Court had no jurisdiction to entertain an appeal under the Civil Procedure Code as the suit claim was one of small cause nature. In answer, the plaintiff urged that as the suit was tried as an ordinary suit, the District Court could entertain the appeal under the Civil Procedure Code. A Division Bench of the Bombay High Court held that though the subordinate judge entertained and tried the suit as an ordinary suit under the Civil Procedure Code, since the suit was small cause, he should be deemed to have acted within the small cause jurisdiction and that as no appeal lay to the District Court in respect of a small cause, there was absolute want of jurisdiction in the district judge to entertain the appeal. The learned judges expressed:

'We must ascribe his (subordinate judge's) acts to an actual existing authority under which they would have validity rather than to one under which they would be void.'

23. Having regard to the categorical pronouncement on this aspect of the case by the Supreme Court in Hazari Mal Kuthiala v. Income-tax Officer and of this court in Kandaswami v. Commissioner of Income-tax, : [1963]49ITR344(Mad) , we are asked to treat the order purported to have been passed under Section 154 of the Act of 1961, as one under Section 35 of the Act of 1922. It is not disputed that the provisions of Section 154 of the new Act of 1961 are substantially the same as those contained in Section 35 of the old Act of 1922. If we test the validity of the impugned order, in the light of the provisions in Section 35 of the old Act which is of the same scope as Section 154 of the new Act, the impugned order cannot be questioned as being outside the scope of Section 35 of the old Act. The, learned counsel for the revenue also points out a further difficulty in the way of the assessee in this case if the impugned order of the Income-tax Officer is treated as an order under Section 35 of the old Act of 1922. It is seen that there is no appeal provided against an order under Section 35 to the Appellate Assistant Commissioner and as such the order passed in this case by the Appellate Assistant Commissioner and that of the Appellate Tribunal will be without jurisdiction, resulting in the reference being incompetent.

24. The learned counsel for the, assessee, however, submits that it is not open to us to treat the order purported to have been passed by the Income-tax Officer under Section 154 of the new Act as one under Section 35 of the old Act, that the Income-tax Officer invoking the powers conferred on him under the provisions of the new Act in respect of the assessment year in question will be acting without jurisdiction and that any such order passed by him cannot be validated by treating the same as one passed under the earlier Act. According to him, the powers under the repealed enactment cannot, be deemed to have been exercised when the officer purports it exercise the powers conferred on him under the new Act. He also relies on the decision in Narayana Chetty v. Income-tax. Officer, : [1959]35ITR388(SC) and submits that the jurisdiction under Section 35 of the old Act can be invoked only after issuing a proper notice under that section, that in this case the notice itself, proceeds on the basis that the power invoked is under Section 154 of the new Act and not under Section 35 of the old Act and that since the notice itself is invalid the requisite condition precedent for invoking the jurisdiction under Section 35 of the old Act is not satisfied. It is true that in the said decision it was held that the issue of a notice is not a procedual requirement which forms the foundation for the exercise of the jurisdiction. The learned counsel also relied on, the decision in Commissioner of Income-tax v. Ramsukh Motilal, : [1955]27ITR54(Bom) (Bom.), where the notice issued under Section 34 of the old Actwas found io be defective in that it did not give the requisite time for filing objections and for that reason the order passed under Section 34 on the basis of such notice was held invalid. The above decision may not help the assessee as it does not purport to say that the Income-tax Officer lacked jurisdiction to pass an order under Section 34 merely because the notice did not give the requisite period of 30 days for filing objections. There the court merely held that the order passed was vitiated as the requisite time provided in the statute was not given to the assessee to file his objections. The learned counsel for the assessee contends that the jurisdiction to reopen an assessment is dependent upon a valid notice and he cites instances where the courts had held that the orders passed under Section 34 were invalid for the reason that the notice was defective. Our attention was invited to the decision in S.S. Gadgil v. Lal and Co., : [1964]53ITR231(SC) and Nyalchand Malukchand Dagli v. Commissioner of Income-tax, : [1966]62ITR102(Guj) (Guj.). In S.S. Gadgil v. Lal and Co. proceedings under Section 34 of the old Act was sought to be initiated after the statutory amendment of the section when before the amendment of the statute the Income-tax Officer had lost his jurisdiction to reassess under Section 34. In Nyalchand Malukchand Dagal v. Commissioner of Income-tax the notice issued under Section 34 did not give the year of assessment for which the proceedings are taken. In the above two cases the reasoning for invalidating the order passed by the Income-tax Officer was quite obvious as the defect noticed in those cases was in relation to the jurisdiction of the officer.

25. We have given our due consideration to the submissions made by the learned counsel for the assessee and the revenue. We are not prepared to say in this case that the mere fact that the notice issued before rectification referred to Section 154 of the new Act instead of Section 35 of the old Act would take away the Income-tax Officer's jurisdiction to rectify the assessment. In our view if the notice issued by the Income-tax Officer purporting to be under Section 154 of the new Act is treated as one under Section 35 of the old Act, it cannot be considered, to be defective or invalid and the validity of the notice does not depend upon the number of the section referred to therein. The validity of the notice will depend upon its substance and it is admitted that the notice issued in this case by the Income-tax Officer prior to the rectification contained all the essential requirements mentioned in Section 35. In the circumstances, we are not inclined to consider the notice issued in the case by the Income-tax officer as invalid so as to take away the jurisdiction of the Income-tax Officer to rectify his earlier order.

26. It is now well-settled, as pointed out in R.P. Kandaswami v. Commissioner of Income-tax, at page 349:

' . . . . that the jurisdiction of any Tribunal does not depend upon the wrong provisions of law upon which the Tribunal might have purported to Act, but upon the question whether the Tribunal had jurisdiction on a proper view of the functions and powers with which it is clothed under the law or the statute creating it. In other words, the Tribunal will not lose its jurisdiction which it undoubtedly has in a particular case because of its having misquoted the provision of law under which it exercised the jurisdiction.'

27. A wrong reference to the power under which an order is made does not per se vitiate the order if there is some other power under which the order could lawfully be made. The validity of the impugned order has to be tested by reference to the question whether the Income-tax Officer had any power at all to make an order of this nature. If the power is otherwise established, the fact that the source of power has been incorrectly described would not make the order invalid. As there is no difference in the nature and content of the power whether it is exercised under Section 35 of the old Act or under Section 154 of the new Act, the order of rectification cannot, therefore, be assailed on the ground that it has been made in exercise of power which did not exist. As already noted, having regard to the decision of the Supreme Court in Hazri Mal Kuthiala v. Income-tax Officer, we are justified in treating the order of the Income-tax Officer purported to have been passed under Section 154 of the new Act as one passed under Section 35 of the old Act. In the event of our treating the order as one under Section 35 of the old Act, the assessee's appeal to the Appellate Assistant Commissioner, his further appeal to the Tribunal and the reference by the Tribunal to this court will all be without jurisdiction in view of the decision in Commissioner of Income-tax v. Arunachalam Chettiar, : [1953]23ITR180(SC) , where it was held that the reference by the Tribunal was bad and incompetent for the reason that there was no statutory appeal under Section 35 of the old Act to the Appellate Assistant Commissioner and to the Tribunal. Hence, the position seems to be that the present reference itself cannot be entertained and answered, if the impugned order of the Income-tax Officer is treated as an order under Section 35 of the old Act.

28. As regards the question of the validity of the reference in the light of our treating the impugned order of the Income-tax Officer as one passed under Section 35 of the old Act, the learned counsel for the assessee submits that the reference will not become incompetent for that reason. According to the learned counsel if the order passed by the Income-tax Officer under Section 154 of the new Act is considered to be invalid and without jurisdiction, the assessee can question and avoid the same only by filing an appeal to the Appellate Assistant Commissioner and by a further appeal to the Tribunal under the provisions of the new Act and it cannot be said that the orders passed by the Appellate Assistant Commissioner and the Tribunal are without jurisdiction. Kunwarji Ananda v. Commissioner of Income-tax, [1931] 5 I.T.C. 417 (Pat.), was cited before us in support of the said contention. In that case an order of an Appellate Assistant Commissioner rejecting an appeal against an assessment under Section 23(4) of the Act of 1922 as not maintainable was treated as an order within the meaning of Section 30(1) and a question of law was held to arise thereon for reference, under Section 66 as to the application of the proviso to Section 30(1) as regards the appealability of the order. That case will not apply to the facts of this case.

29. In the view we have taken of the rectification proceedings in this case as arising under the Act of 1922, we have to reject the reference as incompetent and decline to answer the questions aforesaid. Revenue is entitled to its costs. Counsel's fee Rs. 250.


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