1971 (2) TMI 36 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that it was within the competence of the Appellate Assistant Commissioner while disposing of the appeal under the Income-tax Act, 1961, to have set aside the assessment with a direction to the Income-tax Officer to make a fresh assessment from the return stage under the provisions of the Indian Income-tax Act, 1922 - we answer the question referred to us in the affirmative, that is, in favour of the department and against the assessee

Summary

Issues:
1. Competence of the Appellate Assistant Commissioner to set aside an assessment and direct a fresh assessment under different tax acts.
2. Validity of the assessment completed under the wrong tax act.
3. Jurisdiction of the Income-tax Officer in applying the wrong provision of law.

Analysis:

The High Court was tasked with determining whether the Appellate Assistant Commissioner had the authority to set aside an assessment and instruct the Income-tax Officer to conduct a fresh assessment under a different tax act. The case involved a cooperative society engaged in transport business that initially filed a return showing income but later filed a revised return indicating a loss. The Income-tax Officer completed the assessment under the wrong tax act, leading to a dispute regarding the validity of the assessment under the 1961 Act as opposed to the 1922 Act. The Appellate Assistant Commissioner, utilizing powers under section 251(1)(a) of the 1961 Act, decided to set aside the assessment and refer the case back for a fresh assessment under the 1922 Act. The Appellate Tribunal upheld this decision, prompting the reference of the legal question to the High Court.

The High Court analyzed the relevant provisions of the Income-tax Act, emphasizing that the Appellate Assistant Commissioner had the power to set aside an assessment and direct a fresh assessment under different tax acts. The Court noted that the Income-tax Officer, while initiating proceedings under the 1922 Act, was misled into completing the assessment under the 1961 Act due to a revised return filed by the assessee. Despite the error in applying the wrong law, the Court held that the assessment was not wholly without jurisdiction, likening it to a situation where a Tribunal applies the wrong law but does not render its order void. The Court cited previous judgments to support this position, highlighting that the jurisdiction under which the proceedings were initiated should determine their validity.

Ultimately, the High Court ruled in favor of the department and against the assessee, affirming the competence of the Appellate Assistant Commissioner to set aside the assessment and direct a fresh assessment under the appropriate tax act. The Court emphasized that the Income-tax Officer's error in applying the wrong provision of law did not invalidate the assessment entirely. The department was awarded costs, and the legal question was answered in the affirmative, supporting the actions taken by the tax authorities in this case.