1965 (11) TMI 2 - HC - Income Tax

Whether having regard to the powers and the jurisdiction of the Appellate Assistant Commissioner under section 31 of the Income-tax Act it is open to him to treat the sum of Rs. 30, 000 as income from undisclosed sources when it was treated by the Income-tax Officer as income from speculation

Summary

Issues Involved:
1. Jurisdiction of the Appellate Assistant Commissioner under Section 31 of the Indian Income-tax Act, 1922.
2. Authority to reclassify income from one head to another.
3. Power to include income not considered by the Income-tax Officer.

Detailed Analysis:

1. Jurisdiction of the Appellate Assistant Commissioner under Section 31 of the Indian Income-tax Act, 1922:
The primary issue was whether the Appellate Assistant Commissioner (AAC) had the jurisdiction to treat a sum of Rs. 30,000 as income from undisclosed sources when the Income-tax Officer (ITO) had classified it as income from speculation. The court noted that the AAC's powers under Section 31(3)(a) include confirming, reducing, enhancing, or annulling the assessment. The court emphasized that the division of income into different heads is merely for the purpose of computation, exemptions, and deductions, and does not affect the total income assessed.

2. Authority to Reclassify Income from One Head to Another:
The court held that once the ITO has assessed the total income, the specific heads under which the income falls become irrelevant for determining the tax payable. The AAC has the authority to correct any errors in the classification of income heads made by the ITO. The court cited the Supreme Court's observations in United Commercial Bank Ltd. v. Commissioner of Income-tax, which emphasized that income must be computed under the appropriate head but did not restrict the AAC from reclassifying income under the correct head.

3. Power to Include Income Not Considered by the Income-tax Officer:
The court clarified that the AAC cannot include income not considered at all by the ITO. However, in this case, the ITO had included Rs. 30,000 as part of the total income, albeit under a different head. The court cited various precedents, including Narrondas Manordass v. Commissioner of Income-tax and Commissioner of Income-tax v. McMillan and Co., to support the view that the AAC has the jurisdiction to correct the head under which the income is classified, provided the income was considered by the ITO.

The court concluded that the AAC's power to confirm, reduce, or enhance the assessment includes the power to reclassify income under the correct head. This authority is derived from the broad language of Section 31(3)(a), which does not impose restrictions on the AAC's ability to correct the classification of income. The court noted that the assessee did not suffer any prejudice from the reclassification, as there were no claims for deductions or exemptions affected by the change.

Conclusion:
The court answered the question in the affirmative, confirming that the AAC has the jurisdiction to treat the sum of Rs. 30,000 as income from undisclosed sources, despite the ITO's classification of it as income from speculation. The judgment emphasized the AAC's broad powers to correct errors in the classification of income heads, provided the income was considered by the ITO.

The court directed that a copy of the judgment be sent to the Tribunal and awarded costs of Rs. 200 to the Commissioner of Income-tax, U.P., with counsel's fee assessed at Rs. 200.