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TMI Blog1971 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act, 1961 (hereinafter referred to as "the new Act"). The applicant is the Commissioner of Income-tax while the respondent, who will hereafter be referred to as "the assessee", is a partner in as many as 15 to 16 firms. Two of these firms carry on business at Delhi while the other firms carry on business outside Delhi in various places such as Amritsar, Kanpur, Kashgarh, Bombay, Nagpur and Calcutta and other places. The various references relate to different out-station firms. Originally the Commissioner had applied to the Tribunal to refer to the High Court two questions of law arising oat of the Tribunal's order dated March 20, 1965, in I.T.R. No. 3253 of 1964-65. The questions read as follows : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer's order of rectification under section 154/155 of the Income-tax Act, 1961, in so far as it imposed the special surcharge on the assessee's income from share in the income of his various firms was illegal? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer's enhancement of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to rectification of the assessment, on the finalisation of the assessment of the respective firms. Penal interest was also charged in the original assessment for short payment of advance tax under section 18A(2) of the old Act. Subsequently, the Income-tax officer received information from various Income-tax Officers assessing the out-station firms, in which the assessee was a partner, about the correct share income on the completion of the assessments of the respective out station firms. Revision of the assessment, therefore, became necessary in order to increase the assessee's share from these firms to the correct figures reported by the respective Income-tax Officers. The Income-tax Officer had first issued a notice under section 35 of the old Act on December 17, 1962, which was served on the assessee on December 19, 1962. A second notice was later issued on April 15, 1963, and this was under section 155 of the new Act, as in the meantime the new Act had come into force. The are sent a reply to the notice dated April 15, 1963, by his letter dated April 23, 1963. It was stated in the reply that the assessee agreed to the substitution of the reported share income from the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Kanpur firm in connection with 1957-58 assessment year, the Appellate Assistant Commissioner on appeal had allowed earned income relief after going through the voluminous correspondence and after having satisfied himself that all the partners of Kanpur firm including the assessee were actively engaged in the conduct of the business of that firm. It was claimed that this finding of the Appellate Assistant Commissioner in connection with the appeal of the Kanpur firm, applied equally to the cases of the other partnership firms operating at other stations. In any case, it was contended that the question of levy of special surcharge could not be the subject-matter of rectification under section 154/155 of the new Act, as this point could be decided only after prolonged investigation and after hearing the arguments of the assessee. The contention found favour with the Appellate Assistant Commissioner and it was held that the question whether special surcharge was leviable in respect of the share income of the assessee in the various out-station, firms, could be decided only after going into the particular facts of each case, as to whether or not the assessee was actively engaged in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 154/155. Before making that order the Income-tax Officer made inquiries at least in respect of one firm at Calcutta and he was informed by the Income-tax Officer assessing the Calcutta firm that the assessee was residing in Delhi and was not actively engaged in the conduct of the Calcutta firm. This information was conveyed in a letter dated May 17, 1963, written by the Income-tax Officer, Calcutta, to the Income-tax Officer, Delhi. On a perusal of the letter, the Tribunal found that the Income-tax Officer, Calcutta, was not certain as to whether the partners residing in Delhi were actively engaged in the conduct of the business of the Calcutta firm or not. The Tribunal also found that the assessment on the Calcutta firm was completed on June 13, 1959, for 1958-59 assessment year and the report which the Income-tax Officer had sent to the Income-tax Officer, Delhi, was in May, 1963, i.e., nearly four years after the completion of the assessment of the Calcutta firm. In the circumstances, the Tribunal held that the presumption of the Income-tax Officer, Calcutta, was not based on any finding of fact in the assessment order of the Calcutta firm completed in 1959. The Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under section 154 shall be made after the expiry of four years from the date of the order sought to be amended. So, the only limitation on the power of the Income-tax Officer to amend the order of assessment of the partner is to the extent laid down in sub-section (7) of section 154. The remaining provisions of section 154 can apply to the order of amendment, so far as they may be ". But, assuming that were so, still that would not confer any jurisdiction on the Income-tax Officer to treat the income of the assessee as unearned income. In the original assessment the share income of the assessee from out-station firms in which he was a partner, though taxed provisionally at the figure disclosed in the return, was shown as earned, income but in the order made by the Income-tax Officer on May 23, 1963, the Income-tax Officer came to the conclusion on the basis of a letter received by him from the Income-tax Officer, Calcutta, on May 17, 1963, that the assessee was not actively engaged in the conduct of the business of the Calcutta firm. His share income was, therefore, enhanced. A similar situation had arisen in a case decided by the Mysore High Court in Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n firms were carrying on their business. Daily reports received from out-station firms also established that the assessee was actively engaged in the conduct of the business of those firms. There was also evidence to show that throughout in the past, the assessee was allowed earned income relief under section 2(6AA) read with section 15 of the old Act, in respect of his share income from the out-station firms which clearly indicated a finding by the Income-tax Officer that the assessee was actually engaged in the conduct of the business of the out-station firms. In the case of Kanpur firm the question of earned income relief was considered by the Income-tax Officer and though he refused to allow earned income relief to the in respect of the share income from the Kanpur firm in connection with the 1957-58 assessment year, the Appellate Assistant Conimissioner on appeal allowed earned income relief after going through voluminous correspondence after satisfying himself that all the partners of the Kanpur firm including the assessee were actively engaged in the conduct of the business of that firm. The Tribunal no doubt largely based itself on the presumption arising under the letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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