9911796707
TMI Blog1982 (3) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... order as M/s. Kanji Mal Sons, jewellers, Chandni Chowk, Delhi. The firm was running a jewellery shop in Chandni Chowk, Delhi, with branches at New Delhi and Mussoorie. A consolidated profit and loss account was prepared and an income of Rs. 16,043 was returned. The assessment was completed on a total income of Rs. 40,050. It appears that, after the above assessment was completed, the department received some information, regarding certain transactions entered into by the firm during the accounting year relevant to the assessment year 1948-49 (year ending on April 9, 1948), for the sale of jewellery to various parties involving, substantial amounts. In, order to assess this escaped income action appears to have been initiated simultaneously by two ITOs, viz., ITO, District VIII, Ward-E, and ITO, District III, Ward-D. We are concerned in this reference with a reassessment completed by the ITO, District III, Ward-D. We shall for purposes of convenience refer to these two officers as " Ward-D Officer and " Ward-E Officer", respectively. The notice issued by the Ward-D Officer under s. 148-actually the notice under s. 148 for this reassessment was issued by the ITO, District III, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is afforded an opportunity to exercise his remedies thereafter in that matter ends of natural justice require that the present assessment be kept in abeyance. It is accordingly prayed " This was followed up by another letter dated January 7, 1969, stating that the circumstances continued to be the same and requesting " that the present assessment be kept in abeyance till a copy of the order of the learned Commissioner is supplied and the assessee is afforded an opportunity to exercise his remedies thereafter". There was no response to, or action taken upon, these representations made by the assessee. The ITO, D-Ward, continued with the reassessment proceedings and completed the reassessment on March 28, 1969. The assessment order describes the name of the assessee as M/s. Kanji Mal Sons, Chandni Chowk, Delhi (Dissolved firm) through its partners and legal heirs : (1) Lala Parshotam Dass (Partner), (2) Lala Lachhman Dass (Partner), and (3) Lala Ram Dass and Lala Nand Lal, legal heirs of late Sh. Ram Rati Dass. The status of the assessee was taken as an unregistered firm. The assessment order opens with a reference to the original assessment in the case having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside to be made de novo after following the legal procedure as per the Act ". The AAC then deals with objections raised by the assessee to the description of the assessee-firm as contained in the assessment order on the ground that both Ram Ratan Dass and Parshotam Dass having died and the firm having been dissolved the demand notices, addressed to the firm at Scindia House, had not been properly so addressed. The AAC was of opinion that the errors in not mentioning the names of the heirs of the partners correctly or mentioning the address of the firm as " now Scindia House " did not make the assessment illegal or invalid. Having thus held, the AAC concluded with the following directions : " The result is, the assessment is set aside to be made afresh after referring the case for determination of jurisdiction by the Commissioner of Income-tax as mentioned above. The assessee had preferred an appeal to the AAC raising several grounds against the assessment in regard to its validity as well as its correctness. But, as pointed out by the AAC, the main objection taken before him was that the assessment was void ab initio and liable to be annulled for want of the CIT's order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on about the jurisdiction of the ITO the same has necessarily to be referred to the CIT and that if the ITO proceeded to make an assessment without referring the matter to the CIT, such an assessment would be null and void. Such a contention, it found, was supported by the decision in the case of Dina Nath Hemraj [1927] 2 ITC 304 (All). The Tribunal, however, proceeded to consider whether the question of jurisdiction could be gone into by them and observed as follows: " But on a careful reading of that decision and the provisions of section 124(4) and 124(7), we are inclined to the view that section 124(4) if read harmoniously with section 124(7) does not result in an assessment being illegal just because the Income-tax Officer fails to get the jurisdiction determined by the Commissioner of Income-tax. As we see it, there are two alternatives before the authorities. The first alternative is that the issue of jurisdiction is raised before the assessment is completed, it is decided by the Commissioner and the decision of the Commissioner is final. It is to this case that the decision of the Supreme Court in 36 ITR 9 relied on by the departmental representative would apply. The seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicate an overriding significance. We are, therefore, of the view that the failure of the Income-tax Officer in the present case to refer the question of jurisdiction to the Commissioner did not by itself render the assessment illegal if on examination it was found that the Income-tax Officer in question, i.e., the Income-tax Officer, Distt. III,. Ward-D, had jurisdiction to assess the income in the light of the provisions of section 124(7). Turning then to the question of the order to be passed in this case, the Tribunal observed: We agree with the learned counsel for the assessee that the Appellate Assistant Commissioner of Income-tax could not have rendered an assessment which was illegal into a legal assessment by putting the clock back so to speak and enabling the Commissioner of Income-tax to decide the question of jurisdiction. In our view for the exercise of the Commissioner's jurisdiction the sands had clearly run out and the decision of the Supreme Court in [1971] 79 ITR 505 (Estate of Late Rangalal Jajodia v. CIT) did not apply to the facts of the present case. The question, however, still remined whether the Income-tax Officer in question had the jurisdiction in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer failed to make reference and get the jurisdiction determined by the Commissioner of Income-tax in spite of the challenge by the assessee to the jurisdiction before the Income-tax Officers concerned is correct and sustainable in law ? (iii) Whether, on the facts and in the circumstances of the case, the provisions of section 124(7) of the Income-tax Act, as found by the Tribunal afford power to the Income-tax Officer to exercise jurisdiction and complete the assessment without reference of the issue of jurisdiction to and decision of reference by the Commissioner of Income-tax in spite of the challenge to jurisdiction in the prescribed manner by the assessee ? (iv) Whether, in view of the specific provision of section 124(4) of the Income-tax Act, conferring power solely on the Commissioner of Incometax for determination of the jurisdiction of an Income-tax Officer, the Income-tax Appellate Tribunal on the facts and the circumstances of the case validly conferred power on the Appellate Assistant Commissioner in the form of a direction to determine the issue of jurisdiction not only qua the Income-tax Officer completing the assessment in appeal but also between the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to call in question the jurisdiction of an Income-tax Officer (a) after the expiry of one month from the date on which he has made a return under sub-section (1) of section 139 or after the completion of the assessment, whichever is earlier; (b) where he has made no such return, after the expiry of the time allowed by the notice under sub-section (2) of section 139 or under section 148 for the making of the return". (6) Subject to the provisions of sub-section (5), where an assessee calls in question the jurisdiction of an Income-tax Officer, then, the Income-tax Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under sub-section (4) before assessment is made. (7) Notwithstanding anything contained in this section, or in section 130A, every Income-tax Officer shall have all the powers conferred by or under this Act on an Income-tax Officer in respect of any income accruing or arising or received within the area for which he is appointed." Before proceeding to deal with the questions referred and the contentions raised, we would like to make two general observations as to the manner in which the case has proceeded so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ward-D Officer or Ward-E Officer or neither of them had jurisdiction over the assessee's case and decided the matters once and for all without remanding the matter to the AAC. However, this crucial information was not available and the Tribunal was compelled to remit the matter back to the AAC, even though, on the view taken by it, only a very limited issue survived, viz., whether the assessment could be supported by reference to s. 124(7). The second aspect we would like to refer to is this: The terms of s. 124 are very clear and mandatory. A case may perhaps arise where an assessee may ostensibly question the jurisdiction of an ITO but the issue of jurisdiction may be so plain and clear that the ITO does not consider that there is any real question for determination. But this is not such a case. In this case the ITO himself in the assessment order refers to doubts having been raised regarding his jurisdiction. This is a case where two ITOs are seeking to proceed against the assessee. The assessee had raised an objection to the jurisdiction soon after the receipt of the notice under s. 148 and there was ample time for the ITO to refer the matter for decision by the CIT. No explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... little later but we may first examine the correctness of the point of view of the AAC. The Act no doubt envisages that where an objection regarding the jurisdiction of the ITO is desired to be taken, it should be raised within the period specified by the section and should be decided by the CIT (or the Board) as envisaged by the section. It is settled law that this is matter on which the final decision rests with the administrative and not the appellate-authorities under the Act: vide Rai Bahadur Seth Teomal v ITO [1959] 36 ITR 9 (SC) and Wallace Brothers Co. Ltd. v. CIT [1945] 13 ITR 39 (FC) endorsed therein. If an assessee fails to raise the objection before the ITO and within the time specified, he will be shut out from raising the question altogether. Where he raised the question and it is got decided by the CIT, that decision would be final and cannot be questioned in the appellate forum. But where he raises the issue but the ITO does not refer the question to the CIT as in the present case (or the CIT or the Board does not decide the question before the assessment is completed) what will be the result of such failure ? Clearly, one answer to the question would be that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the Tribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any further direction. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. The statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature. In interpreting s. 25A(1), we cannot also be obivious to cases where there is a possibility of claims of partition being made almost at the end of the period within which assessments can be completed making it impossible for the ITO to hold an inquiry as required by s. 25A(1) of the Act by following the procedure prescribed therefor. We, however, do not propose to express any opinion on the consequence that may ensue in a case where the claim of partition is made at a very late stage where it may not be reasonably possible at all to complete the inquiry before the last date before wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment. It is not necessary for us to express a final conclusion on the above question (though prima facie we are inclined to the former view), since the Tribunal's order on this point has become final and there is no reference to us against it at the instance of the CIT. The Tribunal had decided this issue in favour of the assessee and the assessee was only too happy to accept this decision. Its grievance is that, on this finding, the Tribunal should have annulled or cancelled the assessment but, instead of doing so, it committed the same mistake that the AAC had done and it proceeded to remit the matter to the AAC for determining the; question of jurisdiction which he had no power to decide. We do not, however, think that Shri Chopra is right in saying that the Tribunal has committed the same mistake which it had said, the AAC had done. Though there is a sentence in the order of the Tribunal (in the portion earlier extracted and underlined by us) suggesting that once an assessment is completed without deciding the assessee's objection it loses immunity from attack to jurisdiction under ss. 124(4) and 124(5) and would be open to review by the appellate authorities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The second contention of Sri Chopra, urged with some vehemence, was that the Tribunal has exceeded its jurisdiction in setting aside the order of the AAC and directing him to dispose of the appeal afresh. This contention forms the subject-matter of the second part of the first question referred to us. Sri Chopra invites our attention to the arguments raised by the assessee before the Tribunal. He says that the scope of the appeal before the Tribunal was very much restricted. Before the AAC the assessee had contended, not that the ITO had or had no jurisdiction to assess but only that the assessment completed without having a determination made by the Commissioner under s. 124(6) was invalid. His only grievance before the Tribunal was that the AAC while accepting this contention nevertheless set aside the assessment to be re-done after a reference to the Commissioner was made. The Tribunal, he submits, was not at all called upon to consider the question whether the ITO had or had no jurisdiction over the assessee's case whether under s. 124(7) or any other provision. Indeed, even the department had contended before the Tribunal that the question of jurisdiction of the ITO was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication to the present case, it could not be said that the failure to get the CIT's decision vitiated the assessment. That is why, while sending the case back to the AAC, the Tribunal has not left the matter at large but has directed the AAC to confine himself to a very narrow and limited question as to whether the assessment could be supported strictly on the terms of s. 124(7). The Tribunal has not given a free scope to the assessing or appellate authority to render valid that which was invalid. All that they directed was that if the assessment was sustainable on the terms of s. 124(7), there was no reason why it should not be so sustained. In construing the scope of the assessee's appeal before the Tribunal, we should look not merely at the relief sought for by the assessee but also at the substance of his grounds of grievance. The AAC had held that though the CIT's decision was not taken, the assessment was not void and illegal but could be regularised by the decision being obtained and the assessment being completed afresh. The assessee told the Tribunal that the assessment was not valid because the CIT's consent was not taken, so the AAC should have simply annulled it. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so refer to the jurisdiction of the ITO. Sub-s. (7), on the other hand, only talks of an ITO exercising powers conferred by or under the Act in respect of income accruing, arising or received within the area in which he is appointed. His contention was that sub-s. (7) has nothing to do with the question of jurisdiction of the ITO and does not and cannot override the provisions of subs s (1) to (6). At best, sub-s. (7) can only be said to confer some kind of residual territorial jurisdiction and that should again be subject to the CIT's determination under sub-ss. (4) to (6). In other words, his argument is that s. 124(7) can be resorted to only in cases where no objection is raised under sub-s. (4) or (6). He points out that an assessee may be deriving income which may accrue, arise or be received in areas falling within the territorial jurisdictions of a large number of officers and s. 124(7) cannot be construed in such a manner as to envisage multiple assessments by large number of officers controlled by different CITs and be a justification of the assessment completed by each of them under s. 124(7). Such an interpretation, he submits, will render sub-ss. (1) to (6) otiose and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly reveal the relative importance of ss. 124(4) to (6) on the one hand and s. 124(7) on the other. Sub-section (1) empowers the CITs to determine the jurisdiction of the ITOs on the basis of (a) area, (b) income or classes of income, (c) persons or classes of persons, and (d) cases or classes of cases. The first of these can be called the territorial jurisdiction for purposes of convenience and embodies the principle that, generally speaking, an ITO will have jurisdiction over persons residing or having their principal plate of business within the specified area. But complexities of modern economic life render this too simple a classification to be of practical utility jurisdiction is, therefore, assigned by the CITs on the basis of the other three criteria, which have what may be loosely described as " extra territorial " impact. Sub-section (2) outlines the possibilities of these classifications overlapping and its later amendments envisage a concurrent exercise of jurisdiction by more than one designated officer, subject to general or special orders of higher authorities. Section 126 contemplates an allocation of jurisdiction among the ITOs by the Board. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... picture as an overriding clause, which brushes away all the technicalities of the earlier sub-sections in the eventuality contemplated by it. The non obstante clause at the beginning of sub-s. (7) is very wide and makes it clear that it is intended as a saving provision against the technical objections and disputes that may be raised in view of the other sub-sections. Having set out elaborately in sub-ss. (1) to (6) the basis of the determination of jurisdiction of the officer and also having outlined a procedure whereby any disputes regarding jurisdiction can be sorted out, if raised in sufficient time, the, Act nevertheless provides a safety valve whereby the validity of assessments are protected notwithstanding an error in the exercise of jurisdiction in accordance with the earlier sub-sections if there has been no injustice to the assessee, and he has been assessed only by an officer who is having jurisdiction over the area in which the assessee resides or carries on the business and that too only in respect of income falling within the area covered by that jurisdiction. It will be appreciated that this is a very limited saving clause. We may briefly illustrate the situation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion No. (ii), referred to us, is answered accordingly. For the same reasons we have to answer question No. (iii) which seems to be substantially the same as question No. (ii), by saying that the Tribunal was right in holding that the provisions of s. 124(7) enable the ITO to exercise jurisdiction over a case and complete the assessment on an assessee without pursuing the procedure outlined in sub-s. (4) despite the challenge to the jurisdiction in the prescribed manner made by the assessee. On this part of the case Sri Chopra placed considerable reliance on decision of the Allahabad High Court in the case of Dina Nath Hemraj v. CIT [1927] 2 ITC 304. In our opinion, this decision has relevance to the discussion that will be necessary while answering question No. (v). We shall, therefore, reserve discussion of this case to a later stage of this judgment. Sri Chopra also relied on the decision of the Supreme Court in Raza Textiles Ltd. v. ITO [1973] 87 ITR 539 (SC), for the proposition that no authority can confer jurisdiction on itself by deciding a jurisdictional fact wrongly. We do not see how the principle of this decision has any application to the present case. The Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question accordingly. But in doing so we may observe that the last part of this question appears to have no relevance to the present case. In the present case there is no suggestion that the ITOs, 'D' and 'E', were subordinate to two different Commissioners but, in our opinion, even if such were the position that would not stand in the way of the competence of the direction given by the Appellate Tribunal in the present case. The Tribunal has nothing to do with the question of the jurisdiction of Commissioners over ITOs. All that it is concerned with is whether the procedure outlined in s. 124(4) has been followed or not and, if not, whether s. 124 (7) saves the assessment. Now, turning to question No. (v) it consists of two parts, the later part being in parenthesis. There is also a typographical error in the portion in parenthesis, the words " in that contention " apparently being a mistake for " on that basis ". This part of the question has already been dealt with by us when discussing the answer to the first question and we have held that the Tribunal has not exceeded its jurisdiction or travelled beyond the scope of the appeal in dealing with the matter as it did. This part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction. In order to appreciate the true scope of the section it has to be remembered that under s. 143 of the Act as well as the other provisions of the Act the business of the ITO is not to determine the income accruing, arising or received within any particular area but to determine the total income of an assessee, an expression which has been defined as the total of the income, profits and gains derived by the assessee computed and calculated in the manner provided by the Act. There is no provision in the Act which would enable the ITO to assess an assessee in regard to a part of his total income. We have earlier referred to an argument of Sri Chopra that the interpretation placed by the Tribunal on s. 124(7) might lead to a negation of earlier sub-sections and might cause good deal of confusion by permitting multiple assessments being made on the same assessee by more than one ITO. In our opinion, such a situation is totally inconceivable under the provisions of the Act. The duty of the ITO is to assess the total income of the assessee. Section 124(7) cannot be construed as authorising in the case of an assessee having businesses in a large number of places, each of the ITOs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal assessment as well as the reassessment bring to tax not merely the income in Delhi/New Delhi (which, we may assume, pending determination by the AAC, to be within the territorial jurisdiction of the ITO, Ward-'D' or Ward-'E') but also the income in the Mussoorie and certainly the income arising in New Delhi/Delhi Mussoorie cannot all be within the jurisdiction of the said officer. Indeed, in neither of the assessments has the ITO purported to exercise jurisdiction only over income which arises within the area over which he holds territorial jurisdiction. In our opinion, therefore, the provisions of sub-s. (7) of s. 124 cannot be availed of to support the assessment. It seems to us, therefore, that once it is held that the assessment is invalid for being made without following the procedure outlined under sub-ss. (1) to (6) the provisions of sub-s. (7) will be of no avail to sustain the validity of an assessment which includes income from beyond the territorial jurisdiction of the ITO who made it. We answer this question accordingly. Though we have discussed the problem raised by each of the questions referred to us and indicated our answers to those questions, the impact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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