1964 (10) TMI 1 - HC - Income Tax

Jurisdiction of the Tribunal under section 33(5) - status of the firm - business at Kano in Nigeria and in which the assessee was a partner along with one Lahorewala and was having a share of sixty per cent. as against the share of forty per cent. of the said Lahorewala.

Summary

Issues Involved:
1. Jurisdiction of the Tribunal under section 33(5) of the Income-tax Act, 1922.
2. Status of the firm of Messrs. F. Y. Khambhaty and the inclusion of the assessee's share of profits in the firm's income.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Tribunal under section 33(5) of the Income-tax Act, 1922:
The Tribunal's jurisdiction to issue a direction that effectively bypassed section 34 was questioned. The Tribunal had directed the Income-tax Officer to include the assessee's share of profits from the Kano firm in his individual assessment, not merely for rate purposes but for taxation. This direction was challenged on the grounds that it amounted to an enhancement of the assessee's tax liability, which the Tribunal had no jurisdiction to order without a cross-appeal by the Commissioner.

The court noted that sub-section (4) of section 33 allows the Tribunal to pass orders on the subject matter of the appeal, but it cannot go beyond the scope of the appeal or pass orders that adversely affect the assessee without a cross-appeal by the Commissioner. Sub-section (5) of section 33, which allows the Tribunal to authorize the Income-tax Officer to amend an assessment, was deemed consequential to orders passed under sub-section (4) and not an independent power to enhance assessments. The Tribunal's direction was found to be beyond its jurisdiction, and the court answered the first question in the negative, indicating that the share of profits could only be included for rate purposes.

2. Status of the firm of Messrs. F. Y. Khambhaty:
The second issue concerned whether the share of profits from the Kano firm, where the assessee was a partner, should be included in his total income for assessment purposes. The Tribunal had concluded that the assessee controlled and managed the business of the Kano firm from India, making the profits taxable in India under the second proviso to section 4(1).

The court examined the evidence, including the assessee's residence in Cambay, his visits to the Cambay firm, and the commission arrangement with Khambhaty Trading Company. Despite the assessee's and his partner's affidavits denying control, the Tribunal found sufficient circumstantial evidence indicating that the assessee managed the Kano firm's affairs from India. The court upheld this finding, stating that the Tribunal's conclusion was reasonable and based on evidence.

The second question was reframed to focus on whether there was evidence to support the Tribunal's finding that the profits were income derived from business controlled in India. The court answered this question in the affirmative, supporting the Tribunal's conclusion.

Conclusion:
The court concluded that the Tribunal exceeded its jurisdiction in directing the inclusion of the assessee's share of profits for taxation purposes without a cross-appeal by the Commissioner. However, it upheld the Tribunal's finding that the profits were derived from a business controlled in India, based on the evidence presented. The judgment emphasized the limitations of the Tribunal's powers under section 33 and the necessity of adhering to procedural requirements for enhancing assessments.