THE COMMISSIONER OF INCOME-TAX vs. SHAPOORJI PALLONJI MISTRY

CIVIL APPEAL No. 420/1961Supreme Court1962 INSC 5314 February 1962Bench: 3 JudgesAuthor: S.K. DAS, M. HIDAYATULLAH, J.C. SHAH SUPREME COURT REPORTS9 pages
AI SummaryDismissed

What were the facts?

The assessee received Rs. 40,000 in July 1946, which he claimed as a capital receipt. This was noted by the Income Tax Officer (ITO) during the assessment for AY 1946-47, with a note to consider it for AY 1947-48. The assessee did not declare this amount in the return for AY 1947-48, and the ITO overlooked his previous note. During the assessee's appeal before the Appellate Assistant Commissioner (AAC) for AY 1947-48, the ITO requested the AAC to assess the Rs. 40,000. The AAC assessed this amount and included it in the original assessment. The High Court held that the AAC was not competent to enhance the assessment.

What did the Supreme Court hold?

The Supreme Court held that the Appellate Assistant Commissioner (AAC) is not competent to enhance the assessment by discovering new sources of income not mentioned in the return or considered by the Income Tax Officer (ITO). The Court reasoned that provisions like Sections 34 and 33B exist for bringing escaped income from new sources to tax through a special procedure. Allowing the AAC to assess new sources under Section 31 would deprive the assessee of a finding by two tribunals and the right of appeal. The Court noted that this interpretation of Section 31 has held sway for a significant period and, in the absence of legislative amendment, should be upheld. The appeal was dismissed, upholding the High Court's decision that the AAC could not travel beyond the record to discover and assess new sources of income.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was competent to enhance the assessment of the Appellant for the assessment year 1947-48 by a sum of Rs. 40,000? (Question of law and fact, concerning Section 31(3)(a) of the Indian Income Tax Act, 1922). Assessee's contention: The AAC cannot discover new sources of income not considered by the ITO and assess them. If a new source is to be considered, the power of remand should be exercised, as assessing new sources under Section 31 deprives the assessee of a finding by two tribunals and one right of appeal. Revenue's contention: The word "assessment" in Section 31 means the ultimate amount an assessee must pay, and "enhance the assessment" is not confined to the assessment reached through a particular process but includes the amount that ought to have been computed if the true total income had been found. The AAC has revisional jurisdiction to revise the assessment with power to enhance.

Which sections of the Income-tax Act were involved?

Section 31(3)(a),Section 33B,Section 34

AI-generated summary — verify with the full judgment below

38.

C.R. SUPREME COURT REPORTS 171 THE COMMISSIONER OF INCJME-TAX v. SHAPOORJI PALLONJI MISTRY (S. K. DAS, M. HmAYATULLAH and J.C. SHAH, JJ.)

Income Tax-Power of Appellate Assistant Commissioner to enhance ass€ss1nent-ltems not mentioned in return or consi· dered by the Income Tax Officer-Whether new source,s of income could be taxed-Indian Income Tax Act, 1922, (11 of 1922), ss. 31(3)(a), 33B, 34. The assessee had received in July 1946, a sum of Rs. 40,000/· which according to him represented a receipt of a capital nature.

This fact was brought to the ·notice of the Income Tax Officer during the proceedings for the assessn1ent year l946-47 and the Income Tax Officer made a note that the question would be considered again at the time of 1947-48 assessment.

In the return filed for the assessment year 1947-48 this amount was not shown by the assessee. and the Income 'fax Officer also overlooked his previous note, with the result that this item was omitted.

During the pendency of the appeal by the assessee before the Appellate Assistant Commissioner the Income Tax Officer wrote a letter to the Appellate Assistant Comlnissioner inter alia requesting him to as

The order continues below.

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