1980 (7) TMI 9 - HC - Income Tax

Summary

Issues:
1. Assessment of compensation received by the assessee-firm.
2. Validity of the orders issued by the Additional Commissioner under section 263 of the Income Tax Act, 1961.
3. Allegation of violation of principles of natural justice by the Additional Commissioner.
4. Refusal of the Tribunal to refer questions of law to the High Court.

Analysis:

1. The assessment year in question is 1966-67, where the assessee-firm earned income from supplying electricity to a town. The Income Tax Officer (ITO) assessed the compensation received by the firm in different years. However, it was noted that the ITO allowed continuation of registration without considering that the profit and loss allocation amongst partners was not in line with the partnership deed, even allocating losses to minors. This led to a notice under section 263 of the Income Tax Act being issued by the Additional Commissioner to reassess the compensation in one year and cancel the registration.

2. The Additional Commissioner, after providing the assessee an opportunity to be heard, set aside the ITO's assessment and directed a fresh assessment. Additionally, the continuation of registration granted to the firm was also canceled. The assessee appealed to the Appellate Tribunal, which overturned both orders of the Additional Commissioner, citing a violation of natural justice principles as the reason. The Tribunal found that the assessee's request for an adjournment had been denied by the Additional Commissioner, leading to the question of whether natural justice was indeed violated.

3. The High Court was tasked with determining whether the principles of natural justice were breached by the Additional Commissioner. The court opined that the question of natural justice violation is not solely a matter of fact but can also involve legal considerations. It was established that in this case, the application of natural justice raised a legal question, leading the court to direct the Tribunal to refer the issue for the High Court's opinion.

4. The Tribunal's refusal to refer certain questions of law to the High Court, specifically regarding the justification of not remanding the case for fresh assessment after providing the assessee with sufficient hearing opportunities, was also challenged. The High Court found that these questions were indeed matters of law and should have been referred for the court's opinion. Consequently, the High Court directed the Tribunal to refer these questions for consideration, emphasizing the importance of legal clarity in such matters.