1970 (3) TMI 34 - HC - Income Tax

Summary

Issues Involved:
1. Power of the Appellate Assistant Commissioner under Section 31(3) of the Indian Income-tax Act, 1922.
2. Applicability of the first proviso to Section 10(5)(a) for depreciation allowance.
3. Legality of setting aside the assessment and directing a fresh assessment.

Detailed Analysis:

1. Power of the Appellate Assistant Commissioner under Section 31(3) of the Indian Income-tax Act, 1922

The primary issue was whether the Appellate Assistant Commissioner (AAC) had the power under Section 31(3) to set aside the assessment and direct the Income-tax Officer (ITO) to make a fresh assessment to recompute the depreciation allowance for the ship "S. S. Englestan."

Contentions:

- Department's Argument: The AAC's powers under Section 31(3) are plenary and co-extensive with those of the ITO. The AAC can exercise the power available under either clause (a) or (b) of Section 31(3), and these clauses are alternative, not limiting each other.

- Assessee's Argument: The AAC could not enhance the assessment because the ITO did not exercise his discretion under the first proviso to Section 10(5)(a). The AAC's action of setting aside the assessment was to indirectly achieve what he could not directly do.

Judgment:

The court held that the AAC's powers are indeed plenary and co-extensive with those of the ITO, as established in the case of Narrondas Manordass v. Commissioner of Income-tax. The AAC can review not just the aspects complained of by the assessee but the entire assessment. The AAC is a revising authority and can correct errors in the assessment process, including the non-exercise of discretion by the ITO.

2. Applicability of the First Proviso to Section 10(5)(a) for Depreciation Allowance

The issue revolved around whether the first proviso to Section 10(5)(a) should apply to the depreciation allowance for the ship, and whether the AAC could direct the ITO to reconsider this.

Contentions:

- Assessee's Argument: The ITO did not consider the first proviso to Section 10(5)(a) in the initial assessment. The AAC's action of setting aside the assessment was based on knowledge from other assessment years (1953-54 and 1954-55), which was outside the record for the year 1952-53.

Judgment:

The court found that the AAC could take into account facts from subsequent years' assessments. The AAC has the power to correct non-exercise of power by the ITO, as established in Commissioner of Income-tax v. McMillan and Co. The AAC could set aside the assessment to enable the ITO to reconsider the depreciation allowance under the first proviso to Section 10(5)(a).

3. Legality of Setting Aside the Assessment and Directing a Fresh Assessment

The court examined whether the AAC's order to set aside the assessment and direct a fresh assessment was within his legal powers.

Contentions:

- Assessee's Argument: The AAC's power to set aside the assessment should only benefit the assessee, not cause detriment. The AAC indirectly aimed to reduce the depreciation allowance, which he could not do directly.

Judgment:

The court held that the AAC's power to set aside an assessment is not limited to benefiting the assessee. The AAC can direct a fresh assessment if the original assessment suffers from an infirmity, including the non-exercise of discretion by the ITO. The AAC's order was valid as it aimed to correct the ITO's oversight regarding the first proviso to Section 10(5)(a).

Conclusion:

The court answered the question in the affirmative, confirming that the AAC had the power under Section 31(3) to set aside the assessment and direct the ITO to make a fresh assessment to recompute the depreciation allowance for the ship "S. S. Englestan." The assessee was ordered to pay the costs of the department.