1962 (10) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction and powers of the Appellate Assistant Commissioner under the Indian Income-tax Act, 1922.
2. The scope of the term "assessment" in the context of appeals.
3. Whether the Appellate Assistant Commissioner can enhance an assessment by considering new sources of income not considered by the Income-tax Officer.

Detailed Analysis:

Jurisdiction and Powers of the Appellate Assistant Commissioner:
The primary issue in this case revolves around the jurisdiction and powers of the Appellate Assistant Commissioner (AAC) under the Indian Income-tax Act, 1922. Section 31 of the Act outlines the AAC's powers, including the ability to confirm, reduce, enhance, or annul the assessment. The AAC can also set aside the assessment and direct the Income-tax Officer (ITO) to make a fresh assessment. The AAC's powers are both appellate and revisional, enabling him to fully review the assessment made by the ITO. However, these powers are not unlimited and are subject to judicial interpretation.

Scope of the Term "Assessment":
The term "assessment" as used in Section 31 has been subject to judicial interpretation. The AAC's powers are not as broad as they may initially appear. The AAC can only consider matters that the ITO has considered and determined in the course of the assessment. This was established in the case of Jagarnath Therani v. Commissioner of Income-tax, where the court held that the AAC could not assess new sources of income that were not part of the original assessment by the ITO.

Enhancement of Assessment by Considering New Sources of Income:
The AAC's power to enhance an assessment by considering new sources of income not considered by the ITO was a key issue. The Tribunal held that the AAC had no power to consider new sources of income that the ITO had not considered. This was supported by the Supreme Court's decision in Commissioner of Income-tax v. Shapoorji Pallonji Mistry, which stated that the AAC could not travel outside the record, i.e., the return made by the assessee and the assessment order passed by the ITO, to find new sources of income.

Case Law References:

- Jagarnath Therani v. Commissioner of Income-tax: This case established that the AAC could not assess new sources of income not considered by the ITO.

- Narrondas Manordass v. Commissioner of Income-tax: This case extended the AAC's powers to matters considered by the ITO but not necessarily brought to tax. However, it reaffirmed that the AAC could not travel beyond the subject matter of the assessment.

- Commissioner of Income-tax v. McMillan & Co.: The Supreme Court agreed with the observations in Narrondas Manordass, affirming that the AAC could correct the ITO on matters considered during the assessment.

- Commissioner of Income-tax v. Shapoorji Pallonji Mistry: The Supreme Court held that the AAC could not enhance the assessment by considering new sources of income not disclosed in the return or considered by the ITO.

Tribunal's Findings:
The Tribunal found that the ITO had not considered the matter of income accruing from purchases made in British India. Therefore, the AAC had no jurisdiction to consider this matter and enhance the assessment. This finding was in line with the established judicial interpretations of the AAC's powers.

Conclusion:
The High Court answered the question in the negative, holding that it was not competent for the AAC to go into the question of, and add any sum as income or profit accruing or arising on, purchases effected in British India, as the ITO had not considered this matter. The Commissioner was ordered to pay the costs of the reference, and no order was made on the Civil Application No. 6 of 1962 filed by the Commissioner for altering the question raised.