COMMISSIONER OF INCOME-TAX, CALCUTTA vs. RAI BAHADUR HARDUTROY MOTILAL CHAMARIA

CIVIL APPEAL No. 535/1966Supreme Court[1967] 3 S.C.R. 50807 April 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI COMMISSIONER OF INCOME10 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the High Court was correct in its decision. The power of enhancement granted to the Appellate Assistant Commissioner (AAC) under Section 31(3) of the Indian Income-tax Act, 1922, is restricted to the sources of income that were the subject-matter of consideration by the Income-tax Officer (ITO) from the perspective of taxability. 'Consideration' in this context does not mean incidental or collateral examination. In this case, while the ITO noted the remittance of Rs. 5,85,000, it was only to test the genuineness of other entries. The ITO did not apply his mind to the taxability of the Rs. 5,85,000 itself. Therefore, the AAC lacked the jurisdiction to enhance the assessment by including this amount, as it was not a subject-matter considered by the ITO for taxability. The appeal was dismissed.

What were the facts?

The assessee, Rai Bahadur Hardutroy Motilal Chamaria, for assessment year 1952-53, claimed to have borrowed Rs. 2,50,000, Rs. 1,50,000, and Rs. 30,000 from parties in Nepal. The Income-tax Officer (ITO) added these amounts to the assessee's total income, considering them as secret income from inflated raw jute purchases. The ITO also noted a withdrawal of Rs. 5,30,000 from a Calcutta bank on March 31, 1952, and a transfer of Rs. 5,85,000 to the Forbesganj branch on the same day, deeming the transfer physically impossible and thus the amount unexplained. The Appellate Assistant Commissioner (AAC) confirmed the addition of Rs. 4,30,000 and, considering the Rs. 5,85,000 transfer, added a further Rs. 4,05,000 after an allowance. The Tribunal reduced this enhancement to Rs. 1,55,000. The High Court, in reference, held the AAC had no power to add the Rs. 5,85,000 as it was not considered by the ITO for assessment.

What were the issues?

1. Whether the Appellate Assistant Commissioner (AAC) had the power under Section 31(3) of the Indian Income-tax Act, 1922, to enhance the assessee's income by including the sum of Rs. 5,85,000, which was not considered by the Income-tax Officer (ITO) for the purpose of assessment? Assessee's contention (as presented by the High Court and Supreme Court): The AAC had no authority to enhance the income on the ground that the sum of Rs. 5,85,000 was not the subject-matter of assessment by the ITO. The High Court held that the AAC could not make the addition as the sum of Rs. 5,85,000 had not been considered by the ITO for the purpose of assessment. Revenue's contention (as presented by the Supreme Court): The AAC had jurisdiction to enhance the quantum of income because the fact of the alleged transfer of Rs. 5,85,000 to the Forbesganj branch was noted by the ITO, and the fact that it did not reach Forbesganj on the same day was also noted. Therefore, the AAC had jurisdiction to deal with the taxability of this amount.

Which sections of the Income-tax Act were involved?

Section 31(3)

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508 COMMISSIONER OF INCOME-TAX, CALCUTTA A v. RAI BAHADUR HARDUTROY MOTILAL CHAMARIA April 1, 1967 [J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.] Indian Income-tax Act, 1922, s. 31-Powers of Appellate Assistant CommisJioner in tippeal-Whether can enhance income of assessee in respect of sources of Income not considered by Income-·tax Officer for purpose of taxation.

The account books of the respondent for the assessment year 1952-53 showed three swns of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000 as borrowed from parties in Nepal. The income-tax. Officer added these amounts to the total income of the assessee as secret income falsely shown as loans. The Income-tax.

Officer noted that the assessee bad withdrawn ·at Calcutta <in March 31, 1952 a sum of Rs. 5,30,000 from a Calcutta Bank and had sent a sum of Rs. 5,85,000 to bis Forbesganj branch on the same day to enable that branch to pay Rs. 2,50,000 to one of the creditors. The transfer of the money from Calcutta to Forbesganj on the same day was considered by the Income-tax Officer to be a physi- cal impossibility. When the matter was in appeal before the Appellate Assistant Commissioner, the latter not o

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