CIVIL APPELLATE JURISDICTION : Civil Appeal No. 420 of 1961. Appeal by special leave from the judgment and order dated March 14, 1958, of the Bombay High Court in I.T.R. No. 54 of 1957. K.N. Rajagopal Sastri and D. Gupta, for the appellant. R.J. Kolah, D. H. Dwarkadas, S. N. Andley, Rameshwar Nath and P.L. Vohra, for the respondent. 1962. Feburary 14. The Judgment of the Court was delivered by HIDAYATULLAH, J:-The assessee, who is the respondent here, had received on July 20, 1946 a a sum of Rs. 40,000/-. In the proceedings for assessment for the assessment year, 1946-47, this came to the notice of the Income-tax Officer. Since the receipt fell within the accounting year relative to the’ assessment year, 1947-48, the Income-tax Officer did not assess the amount making a note, "The question will however be considered again at the time of 1947-48 assessment." In the return filed for the assessment year, 1947-48, this amount was not shown by the assessee. The Income-tax Officer also overlooked the note at the end of his order in the back year’s assessment, with the result that this item was omitted, The asseessee appealed to Appellate Assistant Commissioner against his assessment for the year, 1947-48. While the appeal was pending, the Income-tax Officer wrote a letter to the Appellate Assistant Commissioner intimating him that he would like to be present, and also requesting him to assess the amount of Rs. 40.000/-. The Appellate Assistant Commissioner, after issuing notice, assessed the amount and included it in the original assessment The contention of the assessee was that the amount of Rs. 40,000/- represented a receipt of a capital nature, while it Was held to be a receipt on the. revenue account. With this controversy, we are not concerned. The Tribunal agreed with the Appellate Assistant Commissioner, but on the application of the assesse, referred two questions to the High Court under s. (66 (1). These questions were :
" (1) Whether on the facts and in the
circumstances of- the cases the Appellate
Assistant Commissioner was competent to
enhance the assessment of the Appellant for
the assessment year 1947-48 by’ a sum of Rs.
40,000/- ?
(2)Whether on the facts and circumstances of
the case the said sum of Rs. 40,000/is a
revenue receipt anti assessable to tax in the
assessment year 1947-48 ?" The High Court answered the first question against the Department, and declined to answer the second, in a much as it become academic. This appeal has been filed with special leave, against the judgment of the High Court of Bombay. The question which arises in this appeal may be formulated thus : whether in an appeal filed by assesee, the Appellate Assistance Commissioner can find a new source of income not considered by the Income-tax Officer and assess it under his powers granted by s. 31 of the Income-tax Act ? Section 31 reads as follows :
"31. (1) The Appellate Assistant Commissioner
shall fix a day and place for the
bearing of the appeal, and may from time to
time adjourn the hearing.
(2)The Appellate Assistant Commissioner
may, before disposing of any appeal, make such
further inquiry as he thinks fit or cause
further inquiry to be made by the Income-tax
Officer.
(3)in disposing of an appeal the Appellate
Assistant Commissioner may, in the case of an
order of assessment,-
(a) confirm, reduce, enhance or annul the
assessment,
(b) set aside the assessment and direct the
Income-tax- Officer to make a fresh assessment
after making such further inquiry as the
Income-tax Officer thinks fit or the Appellate
Assistant Commissioner may direct and the
Income-tax Officer shall thereupon proceed to
make such fresh assessment and determine where
necessary the amount of tax payable on the
basis of such fresh assessment... There is no doubt that the Appellate Assistant Commissioner can "enhance the assessment." It is admitted- also by the assessee that within the four corners of the sources processed by the Income-tax officer, the Appellate Assistant Commissioner can enhance the assessment. This power must, at least, fall within the words ""enhance the assessment", if they are not to be rendered wholly nugatory. The controversy in this case is about his discovering now sources, not mentioned in the return and not considered by the Income-tax Officer. The High Court held, following its earlier view in Narrondas Manordas v. Commissioner of Income-tax (1), that the Appellate Assistant Commissioner has revisional powers, but that they are confined to what was before the Income-tax Officer and considered by the latter. The correctness of this view is challenged in this appeal by the Commissioner of Income-tax, Bombay. The earliest case which considered the meaning of s. 31(3), was Jagarnath Therani v. Commissioner of Income-tax (")decided by the Patna High Court. In that case, the assessee had three businesses at Purnea, Jalpaiguri and Calcutta. His income from Purnea only was assessed by the Income-tax Officer. On appeal by the assessee the Appellate Assistant Commissioner assessed him with regard to the income from the other two businesses. The head of income was the same with s. 6 of the; Income-tax Act, but the sources of income were different. The Patna High Court observed :
"Now this section relating to appeals is
enacted for the benefit of the subject and
also to the limited extent therein stated, for
the benefit of the Crown. But the subject-
mater of the appeal is the assessment and the
scope of the appeal must in my opinion be
limited by the "subject-matter". The
appellate authority has no power to travel
beyond the subject-matter of the assessment
and, for all the reasons advanced by the
appellant, is in my opinion not entitled to
assess new sources of income." The view of the Patna High Court receives support from a decision of the Madras High Court in Gajalakshmi Ginning Factory v. Commissioner of Income-taxwhere the Divisional Bench observed as follows
"Of course, it would not be. open to the
(1) [1957] 31 1. T. R, 909.
(2) [1925] 1. I. R. 4 Pat. 385.
(3) [1942] 22 T. T. R. 502 510.
Appellate Assistant Commissioner to introduce
into the assessment new sources, as his power
of enhancement should be restricted only to
the income which was the subject matter of
consideration for purposes of assessment by
the Income-tax Officer." ’ In Bishwanath Prasad Bhagwat Prasad v. Commissioner of Income-tax (1) the Appellate Assistant commissioner had actually remanded the case, but while considering the powers of the Appellate Assistant Commissioner, the Divisional Bench appears to have approved of the above-quoted passage from Madras case. the observations in that case may be treated as obiter. In Narrondas Manodas v. Commissioner of Income-tax (2) is to be, found the earlier case of the Bombay High Court which was followed in the judgment under appeal. In that case , the assesse was carrying on business in ’Bombay and also in Rajkot. The profits from the Rajkot business were assessed by the Income-tax Officer-at Rs1,17,643/-. The Income-tax Officer also found remittances to the extent of Rs. 4 lakhs from Rajkot to Bombay, but did not include that amount in the assessment in view of the concession allowed by the Part B States Taxation Concession Order. The assessee appealed with respect to the sum of Rs. 1,17,64311, contending that the Rajkot business had no profits but only loss. The Appellate Assistant Commissioner accepted this contention, but set aside the assessment and remanded the case to the Income-tax Officer for reassessment with a view to assessing the sum of Rs. 4 lakhs. In dealing with the case, the High Court held that the powers of remand were extremely wide, but- it quoted with approval the decision of the Patna High Court in Jaqarnath Therani v. Commissioner of Income-tax (3) and also the above observation of the Madras High Court. The learned Chief Justice on the occasion (1) [1957] 31 T. T. R. 909 (2) [1925] 1. L. R. 4 Pat. (1) [1952] 22 1. T. R. 502, 510. added that there was a distinction between the subjectmatter of the appeal and the subject matter of the assessment, and that the Appellant Assistant Commissioner’,s powers under s. .31 were not confined to the subject-matter of the appeal but extended to the subject-matter of the assessment. Those powers included a power of remand to include in the assessment something which ought to have been so included by the Income-tax Officer, and a remand in that case was, therefore, proper. The Commissioner of Income-tax v. M/s McMillan & Co. (1); but the question, with which we are concerned, was left open. There is, however, a passage in the judgment, approving of the observations of Chaola, C. J., in Narrondas Manordass v. Commissioner of Income-tax (2) to the following effect:
"It is clear that the Appellate Assistant
Commissioner has been constituted a revising
authority against the decisions of the Income-
tax Officer; a revising authority not in the
narrow sense of revising what is the subject
matter of the appeal, not in the sense of
revising those ’matters about which the
assessee makes a grievance, but a revising
authority in the sense that once the appeal is
before him he can revise not only the ultimate
computation arrived at by the Income-tax
Officer but he can revise every process which
led to the ultimate computation or assessment.
In other words, what he can revise is not
merely the ultimate amount which is liable to
tax, but he is entitled to revise the various
decisions given by the Income-tax. Officer in
the course of the assessment and also the
various incomes or
(1) [1958] S. C. R. 689,701.
(2) [1925] 1. L. R. 4 Pat. 385.
deductions which came in for consideration of
the Income-tax Officer." The learned Chief Justice in the judgment under appeal considers that this Court has thus given approval to his view and also the view of the Patna High court in the earlier case. In our opinion, this Court must be held not to have expressed its final opinion on the point "arising here, in view of what was stated at pp. 709 and 710 of the Report. This Court, however, gave approval to the opinion of the learned Chief Justice of the Bombay High Court that s. 31 of the Income-tax Act confers not only appellate powers upon the Appellate Assistant Commissioner in so far as he is moved by an assessee but also a revisional jurisdiction to revise the assessment with power to enhance the assessment. So much, of course, follows from the language of the section itself. The only question is whether in enhancing the assessment for any year he can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income, not disclosed in either. It is contended by the Commissioner of Income-tax that the word "’assessment" here means the ultimate amount which an assessee must pay, regard being had to the charging section and his total income. In this view, it is said that the words "enhance the assessments are not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. There is no doubt that this view is also possible. On the other hand, it must not be overlooked that there are other provisions like s. 34 and 33B which enable escaped income from new sources to be brought to tax after following a special procedure. The assessee contends that the powers of the Appellate Assistant Commissioner extend to matters considered by the Income-tax Officer, and if a new source is to be considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of a finding by two tribunals and one right of appeal. The question is whether we should accept the interpretation suggested by the Commissioner. in preference to the one, which has held the field for nearly 37 years. In view of the provisions of ss. 34 and 33B by which escaped income can be brought to tax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commissioner to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended s. 31 and specified the other intention in express words. The Incometax Act was amended several times in the last 37 years, but no amendment of s. 31(3) was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should interpret, s. 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible. The appeal is, therefore, dismissed; but in the circumstances of the case, we make no order about costs. Appeal dismissed.