Commissioner Of Income-Tax vs Smt. Kishni Bai
1973 Latest Caselaw 150 Del

JUDGMENT

Kapur, J.

1. On the 28th February, 1964, Shrimati Kishni Bai filed a voluntary return declaring an income of Rs. 29,547 before the income-tax authorities at Delhi. The income was for the year ending 31st March,

1959, and related to the assessment year 1959-60. The Income-tax Act, which was in force during the assessment year was the Act of 1922, but the return was filed when the Act of 1961 was in force. The Income-tax Officer issued a notice under Section 143(2) of the Income-tax Act, 1961, but in the assessment order stated that the assessment had been made under Section 23(3), which was the relevant provision of the Act of 1922. The assessment order shows that the income was computed at Rs. 30,801.

2. The assessed appealed to the Appellate Assistant Commissioner partly on the ground that the assessable income had been increased and partly on the ground that the assessment could not be made under the Act of 1922. The Appellate Assistant Commissioner held that the assessment should have been made under the Act of 1961 in view of Section 297(2)(b) thereof. He held that the mention of Section 23(3) in the assessment order might be an oversight, but the notice of demand had also been issued under Section 29 of the old Act, which invalidated the assessment proceedings. He held that the Income-tax Officer had wrongly assessed the appellant under the provisions of the Indian Income-tax Act, 1922. Accordingly, the assessment order was set aside and the Income-tax Officer was directed to complete the assessment under the Act of 1961.

3. The assessed was not satisfied and appealed to the Tribunal on the ground that the direction to the Income-tax Officer to make the assessment under the Act of 1961 was invalid. The ground taken by the assessed was that the Appellate Assistant Commissioner had revived the assessment which had become barred by time. Thus, the contention of the assessed was that the initial assessment had been made under the wrong Act and the Appellate Assistant Commissioner could not direct the assessment to be made under the correct Act after the time limit of four years prescribed by Section 153(1)(a) of the Act of 1961 had expired. The Tribunal accepted this contention ; it held that the Appellate Assistant Commissioner's powers were circumscribed by Section 251 and he could not infuse life in what had already become dead. If the assessment was otherwise valid and had been made within the prescribed period of four years from the end of the assessment order, the Appellate Assistant Commissioner was competent to refer the case back to make a fresh assessment in accordance with his direction. However, if the assessment was not an assessment in the eyes of law, then the period for making a valid assessment could not be extended by the Appellate Assistant Commissioner. The Tribunal relied on the decision of the Supreme Court in S. C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR (SC) 1. The direction of the Appellate Assistant Commissioner was set aside and the appeal allowed. The Commissioner of Income-

tax sought a reference to this court, which had led to the following question being stated for our opinion :

"Whether, on the facts and in the circumstances of the case, the order of the Appellate Assistant Commissioner directing the Income-tax Officer to make the assessment under the provisions of the Income-tax Act, 1961, was incompetent ?"

4. It is apparent from the facts set out above that the basis of the Tribunal's decision is that the initial assessment by the Income-tax Officer which was made under the Act of 1922 was without jurisdiction as that Act was no longer in force. The assessment was thus treated as being non est. If there was no initial assessment, it would follow that the Appellate Assistant Commissioner could not remand the case back to the Income-tax Officer. If, on the other hand, the Tribunal's conclusion on this part of the case is not correct, then the Appellate Assistant Commissioner had the power to make the remand.

5. It is urged by learned counsel for the department that the assessment order made by the Income-tax Officer was not non est, but was only a mistake regarding which the Act was applicable. It is urged that if the Income-tax Officer had power to make the assessment under the Act of 1961, the exercise of the power in the present case should be made relatable to that power and not to the non-existing power which he formerly had under the Indian Income-tax Act, 1922. On the other hand, learned counsel for the assessed urges that the question referred to us is concerned only with the power of the Appellate Assistant Commissioner to remand the case and we are not competent to disturb the decision of the Tribunal to the effect that the Income-tax Officer acted without jurisdiction. If it is taken for granted that the Income-tax Officer could not make an assessment under the Act of 1922 and his order is, therefore, non-existent and null and wholly void in the eyes of law, then it follows that the Appellate Assistant Commissioner could not make a remand. There is some force in this contention.

6. Therefore, the primary question for consideration is whether we have power to disturb the Tribunal's finding that the Income-tax Officer acted wholly without jurisdiction.

7. For ascertaining how the Tribunal dealt with the appeal before it, it is necessary to refer to its appellate order, which is annexed to the statement of the case and forms part of it. The Tribunal held that the Income-tax Officer dealt with the case under the belief that he was acting under the Indian Incomes-tax Act, 1922. It then proceeded to hold that the assessment order was a nullity and, therefore, four years had, expired without the Income-tax Officer passing a lawful order. On the termination of the period of four years, the Income-tax Officer lost his power to make an assessment and, consequently, the Appellate Assistant Commissioner could not give a fresh lease of life to the Income-tax Officer by remanding the

case. The order proceeds on the basis that the Income-tax Officer's order of assessment was wholly null in the eyes of law. The question referred to us is concerned with the power of the Appellate Assistant Commissioner in dealing with an appeal directed against such an order. The answer to this question must necessarily depend on the true legal effect of the Income-tax Officer's order. It would be impossible to answer the question without first ascertaining whether the Income-tax Officer passed an order which was null and void in the eyes of law, or was merely incorrect. It, therefore, seems to us that it is within our jurisdiction in answering the question referred to us to ascertain the nature of the order passed by the Income-tax Officer and also to determine whether it is non est or it is merely incorrect. I shall advert back to this question after dealing with the true legal effect of the Income-tax Officer's order.

8. In L. Hazari Mal Kuthiala v. Income-tax Officer the Supreme Court had to consider the validity of an order passed by the Commissioner of Income-tax, Punjab, which had been passed under Section 5(5) and (7A) of the Indian Income-tax Act, 1922, which related to the assessment year 1946-47. The said order had transferred the assessed's case from the Income-tax Officer, Patiala, to the officer at Ambala, In consequence of this transfer, the officer at Ambala issued a notice under Section 34 of the Patiala Income-tax Act of Samvat 2001. His jurisdiction was challenged on the ground that the transfer was invalid because in the assessment year 1946-47, the Income-tax Act which applied was the Patiala Income-tax Act and not the Indian Income-tax Act. The Supreme Court held that although the Commissioner of Income-tax had referred to the Indian Income-tax Act in passing the order of transfer, there were provisions which were almost similar to the Indian Income-tax Act to be found in the Patiala Income-tax Act. The court held while repelling the contention of the assessed (page 16):

"This argument, however, loses point, because the exercise of a power will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory. This principle, is well settled : See Pitamber Vajirshet v. Dhondu Navlapa, [1887] 2nd 12 Bom 486."

9. This statement of law has been relied upon to stress the view that the Income-tax Officer's order of assessment should be related to the jurisdiction which he did have and not which he did not have. Thus, it should be assumed that the order was passed under the Act of 1961 and not the Act of 1922.

10. Vr. C. Rm. Adaikkappa Chettiar v. Commissioner of Income-tax [1970] 78 ITR 285 (Mad) is a judgment of the Madras High Court in which the question was whether the jurisdiction of the Income-tax Officer was affected by his mentioning Section 154 of the Act of 1961 instead of Section 35 of the Act of 1922. It was held that the officer did have jurisdiction to rectify the assessment by reason of Section 297(2)(a) of the Income-tax Act, 1961, but by reason of that section the power under Section 35 of the Act of 1922 had to be invoked and not the corresponding power under Section 154 of the new Act of 1961. It was, however, held ([1970] 78 ITR 285 at p. 301):

"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."

11. This quotation is fully applicable to the facts of this case. The Income-tax Officer was fully competent to pass an order of assessment under the Act of 1961 but instead he referred to the Act of 1922. There is no essential difference or indeed any difference between the power to assess under the Act of 1922 and the Act of 1961. These two decisions are, therefore, sufficient to show that when a wrong provision of law is mentioned, or power is apparently exercised under a provision which is not applicable, then the order should not be treated as null and void, but should be tested and, if possible, treated as valid under the correct provision of law. This would mean that Income-tax Officer's order of assessment in this case could not be treated as null and void and must be treated as being relatable to the power he obviously had to pass the order in question under the Act of 1961. That being so, the Appellate Assistant Commissioner had two courses open to him when the appeal came for hearing before him. He could treat the order passed by the Income-tax Officer as an order validly passed- under the Act of 1961, in which case he had not to remand the case, but could have proceeded to hear the appeal on the merits. On the other hand, it was equally open to him to refer the case back to the Income-tax Officer to pass the assessment order under the Act of 1961. The initial order not being null and void, but being merely irregular, gave the Appellate Assistant Commissioner the power either to make a correct assessment himself, or to direct the Income-tax Officer to make the correct order of assessment. In both cases, the Appellate Assistant Commissioner would be acting within the scope of his power as set out in Section 251 of the Income-tax Act, 1961.

12. It is only necessary to refer to the power set out in Sub-Clause (a) of Subsection (1) of that section, which reads:

"(1) In disposing of an appeal, the Appellate Assistant Commissioner shall have the following powers :

(a) in an appeal against an order of assessment he may confirm, reduce, enhance or annul the assessment; or he may set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the directions given by the Appellate Assistant Commissioner and after making such further enquiry as may be necessary, 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."

13. This provision of law gives the Appellate Assistant Commissioner the power to alter the assessment, or to set it aside and refer the case back. Thus, the Appellate Assistant Commissioner was within his power in setting aside the assessment and referring the case back to the Income-tax Officer.

14. To advert back to the submission that this court has no power to determine whether the Income-tax Officer's order was null and void or merely irregular, which has been made on behalf of the assessed, it is necessary to say that without determining that question, it is impossible to answer the question referred to us. It is, therefore, an inherent part of the question referred to us. On the view that the order of the Income-tax Officer is not null and void, but has to be related to the provisions of the law which gave him jurisdiction, it follows that the Appellate Assistant Commissioner could set aside the assessment and refer the case back to the Income-tax Officer.

15. In view of this conclusion, the answer to the question referred to us has to be in the negative, in favor of the department and against the assessed. In view of the peculiar circumstances of the case, we leave the parties to bear their own costs.