SHAPOORJI PALLONJI MISTRY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IT may be unfortunate that in this case the assessee may escape payment of tax, but we must give effect to the view we have taken with regard to the powers of the A.A.C. and that view cannot be altered to suit the exigencies of a particular situation. As we have pointed out in the case of Narrondas Manordass Bombay v. Commr. of Income -tax. (1957) 31 ITR 909 : (AIR 1958 Bombay 35), the powers of the A.A.C. are very wide and we have indicated in that judgment what the limitations upon that power are. But it would be wrong, in our opinion, to extend those powers to the prejudice of the assessee because in a particular case revenue may suffer by reason of the fact that the A.A.C. does not possess the necessary powers.

(2.) THE facts giving rise to this reference are very few. The assessee was assessed to tax for the assessment year 1947 -48 by the Income -tax Officer. The assesses appealed to the A.A.C. and while the appeal was pending, the I.T.O. wrote to the A.A.C. drawing his attention to the fact that a certain sum of Rs. 40,000/ - had not been included in the assessment of the assessee. In consequence of this letter the A.A.C. included the sum of Rs. 40,000/ - in the assessment of the assessee and brought it to tax. This sum of Rupees 40,000/ - was received by the assessee on 20 -7 -1946 under the following circumstances. He had entered into an agreement with one Zito on 20 -5 -1942 and under this agreement he had lent certain monies to Zito on the mortgage of Zito's properties and a part of the consideration for this loan was that the assessee was to receive a certain share in the business of Ritz Hotel for the working of which this loan had been taken by Zito. A suit was filed by the assessee to enforce this claim against Zito and that suit was compromised and in respect of this consideration the assessee received Rs. 40,000/ -. This was the amount which the A.A.C. brought to tax as the business receipt of the assessee and the question that the assessee raised before the Tribunal was that it was not competent to the A.A.C. exercising his appellate powers to bring this amount to tax.

(3.) NOW , Narrondas Manordass case (1957) 31 ITR 909 : (AIR 1958 Bombay 35) is rather significant from this point of view, that the I.T.O. there subjected to tax an item of Rs. 1,17643/ - which was a business income. There was another item of Rs. 4 lakhs with regard to which the I.T.O. had decided in favour of the assessee. This item, if it was liable to pay tax, would fall u/s. 12 "Other Sources". The assessee appealed against the decision of the I.T.O. with regard to the sum of Rs. 1,17,643/ -. The A.A.C. allowed the appeal of the assessee, but held that the assessee was liable to tax with regard to Rs. 4/ - lakhs; and what was argued before us in that case was that, there being no appeal by the assessee with regard to the head "Other Sources" as far as that particular head of income was concerned the decision of the I.T.O. had become final and conclusive and it was not open to the A.A.C., to reopen that assessment. We rejected that contention and the view we took was that, if a particular source or item of income had been considered by the I.T.O. and had been subjected to the process of assessment, then even though the assessee may not have appealed against that particular source or item, once the appeal was before the A.A.C., his power extended not merely to the subject -matter of the appeal, but to the whole subject -matter of assessment. What gave the power to the A.A.C. was the fact that a particular item or source had been subjected to the process of assessment. Now, the process of assessment would include, not only the subjecting of an item or source to tax, but equally holding that the particular source or item was not subjected to tax; and from that point of view, it would make no difference whether a particular source or item was under one or the other head of income. From that view it would also follow that, if a particular source or item had not been subjected to the process of assessment and even though the I.T.O., may have subjected to tax a particular head of income in which that item or source fell, then it would not be open to the A.A.C. to take into consideration the particular source or item which had not been considered by the I.T.O. Therefore, from both points of view, the question whether a particular item or source fell under a particular head was held by us to be irrelevant. This is perfectly clear, because in our judgment we considered the case of Jagarnath Therani y. Commissioner of Income -tax, (1925) 2 ITC 4 : (AIR 1925 Patna 408) and with respect, agreed with that judgment. In that case the assessee had three businesses at Purnea, Jalpaiguri and Calcutta and the I.T.O. had assessed the assessee only in respect of his income from Purnea. The A.A.C. in appeal assessed him also with regard to the income from the other two businesses and the Patna High Court held that the A.A.C. had no power to do so; and the observations of the Patna High Court were that the appellate authority had no authority to travel beyond the subject -matter of the assessment and he: was not entitled to assess new sources of income. Therefore, if Mr. Joshi was right, then far from agreeing with that Judgment we would have held that the Patna High Court was in error and the A.A.C. had the power to assess income from the other two branches at Jalpaiguri and Calcutta, because the I.T.O. had brought to assessment the business income of the assessee. Therefore, it is clear that what we meant by "Source" was not source in the sense of head of income as used in the Income -tax Act. By "Source" what we meant was the specific source from which a particular income sprung or arose.