Commissioner of Income Tax vs Lakshmi Narayanan

Ramanujam, J.—The following two questions have been referred to us for our opinion by the Income Tax Appellate Tribunal at the instance

of the Revenue :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Commissioner could not have considered

the order of the Income Tax Officer to be prejudicial to the Revenue inasmuch as the finding of the Income Tax Officer was in confirmity with the

decision of the Tribunal for the assessment years 1970-71 and 1971-72 on identical issues even though not accepted by the Department and

which decision was available to the Income Tax Officer before he completed the assessment ?

If the answer to the first question is in the negative, whether the Tribunal was right, on the facts and in the circumstances of the case, in holding

that only 1/7th of the share income from M/s. Southern Mercantile Corporation was includible in the hands of the assessee ?

The assessee was a partner in a firm called Southern Mercantile Corporation and not the entire income from the said Corporation for the said

two years. That claim was not accepted by the Income Tax Officer but when the matter reached the Tribunal, the Tribunal held that only 1/7th of

the share income from the firm in the hands of the assessee should be assessed. Based on the said decision, the assessing authority, for the

subsequent year 1973-74, assessed 1/7th share income of the firm in the assessee''s hands. The Commissioner of Income Tax issued a show-

cause notice to revise the said assessment of the assessing authority for the year 1973-74 on the ground that it is prejudicial to the Revenue and,

therefore, it has to be revised. Subsequently, the decision of the Tribunal rendered with reference to the assessment years 1070-71 and 1971-72

holding that it is only the 1/7 share income of the firm in the hands of the assessee that could be assessed was challenged before this court and this

court in Commissioner of Income Tax Vs. Smt. Lakshmi Narayan, , disagreeing with the view taken by the Tribunal held that the entire income

from the firm should be taxed in the hands of the assessee. The order of the Commissioner in consequence of the initiation of the proceedings by

the Commissioner of Income Tax for the assessment year 1973-74 also came before the Tribunal. The Tribunal has taken the view that since the

notice proposing to revise the order of the Income Tax Officer has been issued at a stage when the judgment of the Tribunal for the assessment

years 1970-71 and 1971-72 held the field, the revisional proceedings cannot be sustained and in that view it set aside the revisional order of the

Commissioner and sustained the order of the Income Tax Officer holding that only 1/7th share income of the firm should be included in the hands

of the assessee. Aggrieved by the order of the Tribunal with reference to the assessment year 1973-74, the above two questions have been

referred to this court at the instance of the Revenue.

So far as the first question is concerned, it is seen that the Tribunal was of the view that the Commissioner was in error in proceeding on the

basis that the order of the Income Tax Officer holding that only 1/7th share income of the firm is includible in the hands of the assessee is

prejudicial to the Revenue cannot be sustained as the decision of the Tribunal for the assessment years 1970-71 and 1971-72 held the field and

that the mere fact that the Revenue has not accepted the decision of the Tribunal is not a ground for ignoring the same and proceeding to revise the

order of the Income Tax on the basis that the Tribunal''s decision is not correct. However, having regard to the fact that the decision of the Tribunal

in respect of the assessment years 1970-71 and 1971-72 had subsequently been set aside by this court in Commissioner of Income Tax Vs. Smt.

Lakshmi Narayan, , the notice proposing to revise the order of the Income Tax Officer issued by the Commissioner should be taken to be valid.

Though the said decision of this court was rendered subsequent to the order of the Tribunal in this case, the said decision should be taken to be

declaratory and that should be taken to be the law on the date when the notice to revise the assessment was issued by the Commissioner.

Therefore having regard to the said decision in Commissioner of Income Tax Vs. Smt. Lakshmi Narayan, taking a view different from the view

taken by the Tribunal for the assessment years 1970-71 and 1971-72, the Tribunal is not right in holding that the Commissioner was not justified in

issuing a notice proposing to revise the order of the Income Tax Officer. In this view, the first question has to be answered in the negative and in

favour of the Revenue.

Coming to the second question, it is seen that this court has held in Commissioner of Income Tax Vs. Smt. Lakshmi Narayan, , that the entire

share income from the firm of M/s. Southern Mercantile Corporation should be included in the hands of the assessee and following the said

decision which was rendered in the assessee''s own case for the earlier years, the second question has to be answered in the negative and in favour

of the Revenue. There will, however, be no order as to costs.

Learned counsel for the assessee makes an oral application for grant of leave to appeal to the Supreme Court against the judgment just now

rendered. According to the learned counsel for the assessee, against the decision in Commissioner of Income Tax Vs. Smt. Lakshmi Narayan, ,

the Supreme Court has granted special leave and now that this court has answered the reference in the light of the said decision, leave to appeal to

the Supreme Court may be granted in this case. Having regard to the fact that the decision of this court in the abovementioned case is already the

subject-matter of an appeal before the Supreme Court and as we have followed the said decision of this court in this case, Leave to appeal to the

Supreme Court is accordingly granted.