THE COMMISSIONER OF INCOME-TAX vs. M/S. MCMILLAN & CO.

CIVIL APPEAL No. 29/1955Supreme Court[1958] 1 S.C.R. 68916 October 1957Bench: 3 JudgesAuthor: NATWARLAL HARILAL BHAGWATI, S.K. DAS, J.L. KAPUR S.C.R. SUPREME COURT REPORTS THE COMMISSIONER OF INCOME50 pages
AI SummaryAllowed

What did the Supreme Court hold?

The Supreme Court, in a majority decision (S. K. Das and J. L. Kapur, JJ., with Bhagwati, J. dissenting), held that the questions must be answered in the affirmative, and the appeal must succeed. The majority reasoned that Section 31, read with the proviso to Section 13, does not prevent the AAC, in an assessee's appeal, from exercising the powers available to the Income-tax Officer under the proviso to Section 13. While the Income-tax Officer initially decides the accounting method, their decision is not final and must be reasonable and judicial. The AAC's powers under Section 31(3) are broad and are not limited by the proviso to Section 13 once the matter is properly before them. The AAC also has the power to apply Rule 33 for income computation. The ratio is that the appellate powers of the AAC under Section 31(3) are not curtailed by the specific powers vested in the Income-tax Officer under the proviso to Section 13, allowing the AAC to correct errors in the assessment, including rejecting the accounting method and recomputing income. The appeal was allowed. The dissenting judgment held that the power to reject the accounting method under the proviso to Section 13 is exclusively vested in the Income-tax Officer, and the AAC cannot exercise this power, but can only set aside the assessment and direct a fresh one.

What were the facts?

The respondent, a non-resident company selling books and magazines, filed a return using a fixed percentage of the marked price as the cost of production for publications sold in India. The Income-tax Officer accepted this accounting method and assessed income at Rs. 82,623. The assessee appealed on other grounds. The Appellate Assistant Commissioner (AAC), issuing a notice under Section 31(3), found a significant difference in gross profit percentages between Indian sales and worldwide operations. He rejected the assessee's accounting method, deeming it inadequate for deducing true income, and enhanced the assessment to Rs. 1,11,616 by applying Rule 33. The assessee appealed to the Appellate Tribunal, which, relying on a Bombay High Court decision, held the AAC lacked jurisdiction to enhance income in this manner. The matter was referred to the High Court, which ruled against the assessee, and the assessee then appealed to the Supreme Court.

What were the issues?

1. Whether the Appellate Assistant Commissioner (AAC), under Section 31(3) of the Indian Income-tax Act, 1922, has the power to reject the method of accounting followed by the assessee and accepted by the Income-tax Officer, as provided in the proviso to Section 13, and compute the income, profits, or gains under Rule 33 of the Indian Income-tax Rules. Assessee's Contention (implied from the High Court's decision and the dissenting judgment): The proviso to Section 13 vests the power to reject the accounting method and recompute income solely with the Income-tax Officer. The AAC's powers under Section 31(3) are limited to the subject matter of the assessment and do not extend to overriding the Income-tax Officer's decision on the accounting method. The AAC cannot reject the method suo motu but can only set aside the assessment and direct a fresh assessment by the Income-tax Officer. Revenue's Contention (implied from the majority judgment): The AAC, in an appeal preferred by the assessee, can exercise the powers that the Income-tax Officer can exercise under the proviso to Section 13. Section 31, read with the proviso to Section 13, does not restrict the AAC's wide powers under Section 31(3) once the matter is before him. The AAC also has the power to apply Rule 33 for correct computation of income, even if the Income-tax Officer did not.

Which sections of the Income-tax Act were involved?

Section 31,Section 13

AI-generated summary — verify with the full judgment below

Cited by 156 judgments on BharatTax

See all citing judgments →

Counted from the text of the judgments hosted here. Most recent first.

... S.C.R. SUPREME COURT REPORTS THE COMMISSIONER OF INCOME-TAX v. M/s. McMILLAN & CO. (BHAGWATI, S. K. DAs and J. L. KAPUR, JJ.) 689 Income-Tax-Assessment-Acceptance by Income-tax Officer <f he assessee's method of accounting-Power of Appellate Assistant Commissioner in appeal-If can reject such method and adopt a11otlzer-India11 Income-tax Act (XI of 1922), ss. 31, 13 proviso-- Indian Income-tax Rules, R.

33.

The respondent assessee, a non-resident company, sold and published books and magazines in various parts of the world. lt submitted for the assessment year in question a return in which a :fixed percentage of the marked price. of all publications sold in India, printed in India or elsewhere, was adopted as the cost of production and this method of accounting was followed in the return. The Income-tax Officer accepting this method, assessed the income at Rs. 82,623. The assessee preferred an appeal on other grounds to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner was of opinion that the true income of the assessee could not be deduced from the method of accounting followed by him and accepted by the Income-tax Officer and

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 31

All 329 judgments and leading authorities on Section 31 →

Recent GST High Court judgments

Search GST case law →