(1.) This is a reference by the Income-tax Commissioner raising two questions, which arise in the following circumstances. The assessment year was the year 1939-40, and the accounting year was from 1 April 1938 to 31 March 1939. On 22 December, 1939, the Income-tax Officer made his assessment, and it is apparent from the figures given in the case that more than half of the income of the assessee was derived from dividends and interest on securities. Under Sub-section (4) of Section 6, Finance Act of 1939 the Income-tax Officer calculated the income-tax payable at the rates prescribed in the Finance Act of 1938, but he calculated the super-tax at the rates prescribed in the Finance Act of 1939. The assessee appealed to the Appellate Assistant Commissioner against the assessment, and the Appellate Assistant Commissioner, who was Mr. Murphy, held that super-tax, as well as income-tax, ought to have been calculated at the rates prescribed in the Finance Act of 1938. In accordance with his order a refund of super-tax was sanctioned, and the assessee received the refund in March 1940. In August 1940, Mr. Murphy, who had then become the Commissioner, issued a notice to the assessee under Section 33, Income-tax Act, stating that it appeared to him that the Appellate Assistant Commissioner, who was Mr. Murphy himself, had incorrectly reduced the super-tax assessment, and calling upon the assessee to show cause why the Income-tax Officer's order should not be restored. On the hearing of that notice the Commissioner took a different view to that which he had taken as Appellate Assistant Commissioner, and directed that the super-tax demand be enhanced to the figure at which it had originally been assessed by the Income-tax Officer.
(2.) The two questions which, in substance, arise, are, first, whether the Income-tax Commissioner had power under Section 33 to make the order which he did make; and, secondly, if he had such power, whether the order he made was right. The first question depends entirely on the construction of the Income, tax Act, as it existed on the material dates. The assessment was made under Section 23, and under Section 29 notice of demand was served. The demand was complied with, and the tax was paid. Under Section 30 the assessee had a right to appeal to the Appellate Assistant Commissioner, which right he exercised, with the result which I have already stated. Under Section 32 he had a further right of appeal, if he so desired, to the Commissioner. Then comes Section 33, which provides that the Commissioner may of his own motion call for the record of any proceeding under the Act which has been taken by any authority subordinate to him or by himself when exercising the powers of an Appellate Assistant Commissioner under Sub-section (5) of Section 5, and on receipt of the record the Commissioner may make such inquiry or cause such inquiry to be made and, subject to the provisions of the Act, may pass such order as he thinks fit. Then Section 34 provides for the income of an assessee having escaped assessment, and so far as material, provides that if for any reason income chargeable to income-tax has escaped assessment in any year, or has been assessed at too low a rate, the Income-tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22, and may proceed to assess or re-assess such income, and the provisions of the Act, so far as may be, apply accordingly as if the notice were a notice under that sub-section. So that the scheme under Section 34 is that if the Income-tax Officer considers that income has escaped assessment, he serves a notice corresponding to the notice which he would serve for making the original assessment, and then he proceeds to make a fresh assessment, and the assessee would have the same right of appeal against that fresh assessment as he had against the original assessment, In my opinion, it is clear that the Commissioner of Income-tax cannot by a revision order under Section 33 enhance the tax on the ground that income has escaped assessment, unless he proceeds under Section 34. He can, no doubt, under Section 38 direct the Income-tax Officer to take action under Section 34; but, in my opinion, if a re-assessment is to be made on the ground that income has escaped assessment, that can only be done by the procedure laid down under Sec. 34.
(3.) The argument of the Commissioner seems to me to produce most extraordinary results. His contention is that under Section 38 he can call for the papers before the Income-tax Officer, at any rate within the time limited by Section 34, and he can then of his own motion enhance the assessment on the ground that income has escaped assessment, or been assessed at too low a rate. It is argued that there was not an enhancement of the tax, because the amount was restored to the figure at which the Income-tax Officer had originally assessed it. But, in my opinion, if the Commissioner was entitled to enhance the assessment, as it existed under the appellate order of the Assistant Commissioner, he could have enhanced it to any amount, not only to the amount at which it had been assessed by the Income-tax Officer. At the time when the Commissioner took action under Section 33 the assessment was that which had been arrived at as a result of the Appellate Assistant Commissioner's order, and, in my judgment, the Commissioner had no power to increase that amount on the ground that income had escaped assessment, or been assessed at too low a figure, except by directing the Income-tax Officer to proceed under Section 34. That view is in accordance with the views expressed by two High Courts, the Madras High Court in Abdul Kadir V/s. Commr. of Income-tax ( 28) 15 A.I.R. 1928 Mad. 257 and by the Rangoon High Court in Commr. of Income-tax, Burma V/s. Ved Nath Singh ( 40) 27 A.I.R. 1940 Rang. 65.