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Jeewanlal (1929) Ltd. Vs. Additional Commissioner of Income-tax and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberCivil Revision Case No. 2312 (W) of 1972
Judge
Reported in[1977]108ITR407(Cal)
ActsIncome Tax Act, 1961 - Sections 154 and 263
AppellantJeewanlal (1929) Ltd.
RespondentAdditional Commissioner of Income-tax and ors.
Appellant AdvocateDebi Prasad Pal and ;Anil Kanti Roy Chowdhury, Advs.
Respondent AdvocateNanda Lal and ;Rupendra Nath Mitra, Advs.
Cases ReferredSirpur Paper Mills Ltd. v. Commissioner of Wealth
Excerpt:
- .....interested. the petitioner also on the 21st of april, 1970, filed an appeal before the appellate assistant commissioner contending, inter alia, that the petitioner-company being one in which the public were substantially interested, the income-tax officer without assigning any reason treated the petitioner-company as one in which the public were not substantially interested. the said ground was taken as ground no. 10 in the appeal preferred before the appellate assistant commissioner. on the 12th of may, 1970, by an order the income-tax officer rectified the assessment order and treated the petitioner-company as a company in which the public were substantially interested. the appeal came up for hearing before the appellate assistant commissioner on the 15th of january, 1972......
Judgment:

Sabyasachi Mukharji, J.

1. In this application under Article 226 of the Constitution, the petitioner challenges the notice dated the 23rd of March, 1972, issued under Section 263 of the Income-tax Act, 1961, by the Additional Commissioner of Income-tax, West Bengal II, Calcutta, for the assessment year 1965-66. In order to appreciate the contentions urged in this application it is necessary to refer to certain facts. On the 18th of March, 1970, assessment of the petitioner-company was completed in the status of a company in which it was held the public were not substantially interested. The Income-tax Officer accordingly applied the rate of tax applicable to such a company to the petitioner. The petitioner on the 7th of April, 1970, made an application under Section 154 of the Income-tax Act, 1961, requesting the Income-tax Officer to rectify the assessment order by recomputing the tax on the basis that the petitioner was a company in which the public were substantially interested. The petitioner also on the 21st of April, 1970, filed an appeal before the Appellate Assistant Commissioner contending, inter alia, that the petitioner-company being one in which the public were substantially interested, the Income-tax Officer without assigning any reason treated the petitioner-company as one in which the public were not substantially interested. The said ground was taken as ground No. 10 in the appeal preferred before the Appellate Assistant Commissioner. On the 12th of May, 1970, by an order the Income-tax Officer rectified the assessment order and treated the petitioner-company as a company in which the public were substantially interested. The appeal came up for hearing before the Appellate Assistant Commissioner on the 15th of January, 1972. At the time of hearing of the appeal before the Appellate Assistant Commissioner the petitioner did not press ground No. 10 in view of the fact that the Income-tax Officer had already made his order under Section 154 of the Act rectifying the original assessment order and had treated the petitioner-company as one in which the public were substantially interested. Thereafter, on the 3rd of February, 1972, the Appellate Assistant Commissioner by an order disposed of the appeal without deciding ground No. 10 as it was not pressed before him. The Additional Commissioner of Income-tax, West Bengal-II, Calcutta, on the 26th of March, 1970, issued a notice under Section 263 of the Income-tax Act, 1961, to show cause why the order as passed by the Income-tax Officer under Section 154 of the Income-tax Act, 1961, should not be rectified as being prejudicial to the interest of the revenue. The petitioner showed cause on the 7th of April, 1972, and on the 10th of April, 1972, moved this application and obtained the rule nisi.

2. Two points were urged in support of the application. It was contended, firstly, that in the facts and circumstances of the case the original orderhaving been amended on the 12th of May, 1970, by an order under Section 154 rectifying the original order what was in operation thereafter was the original order as rectified. When the Appellate Assistant Commissioner disposed of the appeal on the 3rd of February, 1972, the order which was the subject-matter of the appeal was the order as amended. Therefore, the Appellate Assistant Commissioner having disposed of the appeal the original order as rectified became merged in the order of the Appellate Assistant Commissioner. In the premises it was submitted that the Commissioner could not in the exercise of his power under Section 263 rectify that order under Section 154 of the Income-tax Act, 1961, in view of the fact that the operative order was the order of the Appellate Assistant Commissioner. It was, secondly, contended that in the facts and circumstances of the case the Commissioner had acted mechanically at the suggestion of the audit department and the exercise of power by the Additional Commissioner was not a proper exercise of power under Section 263 of the Income-tax Act, 1961. Section 263 gives power of revision to the Commissioner. The Section is to the following effect :

'263. Revision of orders prejudicial to revenue.--(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

(2) No order shall be made under Sub-section (1)-

(a) to revise an order of reassessment under Section 147, or

(b) after the expiry of two years from the date of the order sought to be revised.

(3) Notwithstanding anything contained in Sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.

Explanation.--In computing the period of limitation for the purposes of Sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 and any period during which any proceeding under this Section is stayed by an order or injunction of any court shall be excluded.'

3. The section gives the Commissioner the power to call for and examine the record of any proceeding under the Act and if he considers that any order passed by the Income-tax Officer, in so far as it is prejudicial to the interest of the revenue, he might after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary pass such order thereon as the circumstances of the case might justify. Therefore, the power that he exercises under the section is a power in respect of the order of the Income-tax Officer. He has no power to rectify the order passed by the Appellate Assistant Commissioner. In this case the question is, whether at the time when the impugned notice was issued the order under Section 154 stood by itself as an order of the Income-tax Officer or not. In my opinion Section 154, in so far as it rectifies the original order, has the effect of rectifying the original order and, therefore, after the order under Section 154 of the Income-tax Act, 1961, was passed the order was the order as rectified by the order under Section 154. In support of this proposition reliance may be placed on the observations of the Madras High Court in the case of Vedantham Raghaviah v. Third Addl. Income-tax Officer, Madras : [1963]49ITR314(Mad) and the observations appearing at page 320 of the report. The same view was reiterated by the Madras High Court in the case of S. Arthanari v. First Income-tax Officer, Salem : [1972]83ITR828(Mad) . The application of the doctrine of merger, however, depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or revisional jurisdiction. Reliance in this connection may be placed on the observations of the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. : [1967]1SCR732 and in the case of Commissioner of Income-tax v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) In the instant case whether the petitioner was a company in which the public were substantially interested or not is a point which could have been the subject-matter of appeal and decision by the Appellate Assistant Commissioner under Clause (c) of Section 246 of the Income-tax Act, 1961. In the aforesaid view of the matter the order of the Income-tax Officer on this aspect, namely, whether the public were substantially interested in the company, merged in the order of the Appellate Assistant Commissioner. Thereafter, the Commissioner was incompetent to revise the said order. Reliance in this connection may be placed on the observation of Chagla C.J. in the case of Commissioner of Income-tax v. Tejaji Farasram Kharawala : [1953]23ITR412(Bom) . If the original assessment order as rectified was the effective and operative order, the same was the subject-matter of appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner having passed the order thereafter, that was the only effective order and the original order had merged in that order. In the premises, in the facts and circumstances of the case, in my opinion, it cannot be said that the Commissioner had jurisdiction to rectify this order. Furthermore, to give the Commissioner power to rectify the order under Section 154 in the facts and circumstances of the case would be highly prejudicial to the assessee in this case. The Income-tax Officer originally had held that the assessee was a company in which the public were not substantially interested. That was one of the grounds taken in the appeal. The assessee did not press that ground because before the appeal came up for hearing the Income-tax Officer had rectified that part of the order. If that was the position now, to allow the Income-tax Officer to go back on that position would deprive the assessee of a forum of appeal before the Appellate Assistant Commissioner.

4. The second ground of attack was, as I mentioned before, that this order was passed at the suggestion of the audit department of the revenue and not by the Additional Commissioner in exercise of bis quasi-judicial discretion. I have noticed the terms of Section 263 of the Act which empowers the Commissioner to call for examination of the record and thereafter to make an order. In this case the Commissioner purported to exercise the power at the suggestion of the audit department. This position would be clear if one refers to the averment made in paragraph 4(d) of the affidavit-in-opposition, by one Madan Mohan Lal, filed on behalf of the respondents. From the facts it is apparent that the Additional Commissioner did not exercise his discretion and judgment. In the aforesaid view of the matter, on the basis of the principles enunciated by the Supreme Court in the case of Sirpur Paper Mills Ltd. v. Commissioner of Wealth-tax : [1970]77ITR6(SC) , this notice cannot also be sustained. The notice, therefore, issued on the 24th of March, 1972, is hereby quashed and set aside. The respondent-Commissioner is restrained from giving effect to the same. If any order has been passed by the Commissioner, the same is also set aside and quashed. The rule is made absolute to the extent indicated above. There will be no order as to costs.

5. Let the operation of this order be stayed for a period of six weeks from date.


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