Commissioner of Income Tax vs P.R. Chockalingam Chettiar and Others

Ramaswami, J.—In this, writ petition the Commissioner of Income Tax, Madras, has prayed for a writ of mandamus or other appropriate

writ or order directing the Income Tax Appellate Tribunal, Madras Bench, to take up the department appeal in I.T.A. No. 6953/53-54 (R.A. No.

714/54-55) and rehear the appeal u/s 66(5) of the Indian Income Tax Act, 1922 (hereinafter called ""the Act""), and decide the appeal in

conformity with the judgment of this court dated November 24, 1959, rendered in R.C. No. 75/ 57. Respondents Nos. 1 and 2 in this writ petition

are the legal representatives of one M. R. M. Perianna Chettiar (deceased), hereinafter called the assessee, and the 3rd respondent is the Income

Tax Appellate Tribunal. Though the relief asked for is a mandamus directing the Tribunal to rehear the appeal, in effect it was for a declaration that

the Tribunal''s order dated August 22, 1960, made u/s 66(5) of the Act was not in conformity with the order of this court in M.R.M. Periannan

Chettiar and Another Vs. Commissioner of Income Tax, Madras, . and that, therefore, the Tribunal should be directed to re-hear the matter. In

fact, the Income Tax Officer, Karaikudi, by a letter dated November 22, 1963, drew the attention of the Tribunal that a mistake has occurred in

the order of the Tribunal dated August 22, 1960, in giving effect to the order of the High Court and that the original appeal filed by the department

before the Tribunal in I.T.A. No. 5963/53-54 (R.A. No. 714/54-55) should be reheard as per the order of the High Court. By an order, dated

February 10, 1964, the Tribunal dismissed this request treating it as an application made by the department u/s 35 in the view that the decision of

the Tribunal u/s 66(5) of the Act has been given rightly or wrongly restoring the Appellate Assistant Commissioner''s order and that order was not

liable to be reviewed, the only remedy of the aggrieved party being to ask for a fresh reference to the High Court on the order made u/s 66(5) of

the Act. It is only, thereafter, this writ petition has been filed by the Commissioner of Income Tax, Madras, contending that the Tribunal was wrong

in its interpretation of the judgment of the High Court and in giving effect to the same. In order to test the veracity of this contention, it is necessary

to trace the facts leading to the reference u/s 66(2) in R.C. No. 75/57 and critically analyse both the decisions of the then Tribunal and the

judgment of the High Court on the reference.

The assessee and his nephew, one Ramaswami Chettiar, who was a congenital blind man, formed members of a Hindu undivided family. The

family owned, among other assets, a money-lending business at Karaikudi, with a branch in Penang, under the vilasam "" M.R.M.M. "" The assessee

in his individual right was also a partner in a Hundial shop under the vilasam, "" M.R.M.S."" which also had its head office at Karaikudi and branch at

Penang. The assessee had been assessed to Income Tax separately as karta of the Hindu undivided family with respect to the income from the

family property and as individual in respect of the income from his separate property. Ramaswami Chettiar died on March 12, 1948. For the

assessment year 1948-49, corresponding to the accounting year ending April 12, 1948, the assessee submitted two returns, one on behalf of the

family and the other as an individual. But, during the assessment proceedings before the Income Tax Officer, the assessee claimed that since

Ramaswami Chettiar died on March 12, 1948, the assessee should be assessed only as an individual in respect of all the sources of his income.

The Income Tax Officer accepted the assessee''s claim and clubbed the two returns and assessed him as an individual for the assessment year

1948-49. One of the items included in this assessment was a sum of Rs. 3,19,162 as a constructive remittance of foreign profits having been

received in India on February 5, 1948. The circumstances under which this amount came to be treated as a constructive remittance of foreign

profits received during the accounting year relevant to the assessment year 1948-49 may be noted now. When the assessee was in need of money

for doing his business in stocks and shares he made the Penang branch of M.R.M.S. Hundial shop in which he was a partner to raise monies from

certain individuals in Penang and remit the same to its head office in India from where the assessee took them over. In 1942, the branch of the

Hundial shop at Penang was closed and the assets and the liabilities of that branch were taken over by the joint family firm, M.R.M.M., at Penang.

Of the credits M.R.M.S. Hundial firm had at the time when it was taken over was one for Rs. 3,19,162 against the head office at Karaikudi. On

February 5, 1948, the joint family firm, M.R.M.M., wrote off the debit balance which stood against M.R.M.S. Penang, though there was an asset

for nearly that amount in the head office of M.R.M.S. shop of Karaikudi, which represented the remittance made to the assessee. The department,

therefore, treated the writing off as a remittance in India on February 5, 1948, and assessed the same as already stated. The assessee filed an

appeal against this order of the Income Tax Officer to the Appellate Assistant Commissioner wherein he contended that the constructive remittance

of foreign profits should bo held to have been made only during the accounting year corresponding to the assessment year 1942-43 when the

monies were actually remitted and when the joint family took over the Hundial firm and not when they were written off in the accounts of the family

business at Penang. This contention the Appellate Assistant Commissioner accepted and deleted the sum of Rs. 3,19,162 from the assessment

relating to the assessment year 1948-49. In the appeal the assessee also raised another contention that the assessment should be made separately

in his two capacities as karta of the joint Hindu family and as an individual, though at his instance the Income Tax Officer clubbed the two returns

and assessed him as an individual. The Appellate Assistant Commissioner rejected this contention.

The department, being aggrieved by the order of the Appellate Assistant Commissioner, holding that the constructive remittances of foreign

profits were made only in the assessment year 1942-43, filed an appeal to the Tribunal in I.T.A. No. 6953/53-54 (R.A. No. 714/54-55). The

Tribunal observed that, in their opinion "" the Income Tax Officer''s assessment is fundamentally incorrect. It is a fact that the Hindu undivided family

continued till March 12, 1948, the profits up to which date are assessable in its hands for the assessment year 1948-49. It is an assessee distinct

and separate from Periannan in his individual capacity. It is only by certain circumstances that the two identities coalesced and telescoped into

Periannan, the individual, towards almost the end of the '' previous year '' in question. The remittances presently in dispute before us are admitted

to relate to only sources that belong to the Hindu undivided family and, consequently, deserve to be considered only in the assessment of the

family. The fact that Periannan is ultimately going to receive both the assessment orders of the family and of himself for the same assessment year

can make no difference to the case......"" With these observations the Tribunal set aside the assessment order and directed the Income Tax Officer

to make a fresh assessment according to law starting from the stage of returns "" and concluded by stating ""the appeal is dismissed"". This order is

dated October 14, 1954.

Treating the direction of the Tribunal to make a fresh assessment according to law starting from the stage of returns as one u/s 34(3) of the Act,

the Income Tax Officer, by an order dated August 20, 1955, requested the assessee to inform him as to whether the return already filed by him

could be taken as relating to the family and if that were not so, requiring him to file a return of income of the family to enable him to carry out the

directions contained in the Tribunal''s order. On September 23, 1955, the Income Tax Officer also issued a notice u/s 34 to the assessee.

Aggrieved by this notice instituting proceedings u/s 34 the assessee filed W.P. No. 950/55 in this court raising various objections. This writ petition

was dismissed on March 21, 1957, with the observation that the assessment was only a protective assessment and no question of collection would

arise.

The assessee having failed to get a reference u/s 66(1), filed C.M.P. No. 9330/55 and got the following two questions referred to the High

Court:

(i) Whether, on the facts and in the circumstances of this case, the Appellate Tribunal having dismissed the appeal by the department, had

jurisdiction to set aside the assessment on the petitioner as an individual and direct a fresh assessment ? and

(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deciding the appeal on the basis of an irregularity

in the assessment while the said irregularity was not specifically taken in the grounds of appeal ?

This court held that it was open to the Tribunal to give a finding that it was the Hindu undivided family and not the assessee that received the

profit, as that opinion was only incidental to an adjudication of the question that the assessee did not in fact receive such profits, which question

was properly before it for adjudication. At the same time this court, after noting that the only question for determination before the Tribunal was

whether the remittance from Penang should be held to have been received during the assessment year 1942-43 or the accounting year relevant to

the assessment year 1948-49, also held that the Tribunal had no jurisdiction to adjudicate as to whether the assessee was to be separately

assessed in his two capacities. This court, thereafter, proceeded to consider the question whether the Tribunal could have remanded the matter for

commencing the assessment proceedings afresh and answered in the negative on two grounds--(1) the Tribunal had no jurisdiction to direct a fresh

assessment on the facts of this case on the ground that it was the family and not the individual that had to be assessed. (2) An order of remand

could not be made unless the Tribunal set aside the order of the Appellate Assistant Commissioner as wrong or unsustainable and that the Tribunal

had not done.

It was next contended by the learned counsel for the assessee in that case that the concluding sentence in the order, namely, "" the appeal is

dismissed "", would govern even what preceded before and that, therefore, the order directing reassessment was wrong. On the other hand, the

learned counsel for the department contended that the substance of the order should be taken and that it was the order of remand that should be

considered as the real order of the Tribunal and no meaning should be attached to the concluding words "" the appeal is dismissed "". With reference

to these rival contentions, this court observed: "" On the terms of the order, as they stand, it would be open to either of the constructions contended

for "", but did not express any opinion accepting or rejecting any of the rival contentions. In the result, this court answered the questions in the

following terms:

Question No. 1 cannot, therefore, arise. As regards the second question, we are of opinion that, as the question as to who received the foreign

profits during the year of account was not properly the subject of appeal, the Tribunal was not competent to decide that question by giving a

rinding that the joint family received the foreign remittance and remand the proceedings for fresh assessment.

After this order the Tribunal made the following order u/s 66(5):

In compliance with the decision of the High Court of Judicature at Madras, in Case Referred No. 75 of 1957, dated 24th November, 1959 (3rd

Agrayana, 1881), we hereby set aside our order in the above case, thereby restoring the Appellate Assistant Commissioner''s order. The Income

Tax Officer shall modify the assessment accordingly.

The controversy in this writ petition relates to the correctness of this order.

Though we are not sitting in judgment over the decision of this court in R. C. No. 75/57 (Periannan Chettiar v. Commissioner of income tax1),

we are called upon to decide as to what exactly was decided by the Tribunal and the High Court in order to test the correctness of the order made

u/s 66(5). We, accordingly, proceed to put on our own glass and interpret the decisions of the Tribunal and the High Court.

The order of the Tribunal held:

(1)the income of the individual and the joint family could not have been clubbed and they should have been assessed separately.

(2) The constructive remittance of foreign profits could not be included in the assessment of the individual but had to be included only in the

assessment of the joint family.

(3) In view of the above findings, whether the remittance was in the accounting year relevant to assessment year 1942-43 or 1948-49 was

immaterial as that would be relevant only if the joint family is to be assessed.

(4) Since the appeal before the Tribunal by the department was against the finding of the Appellate Assistant Commissioner that the constructive

remittance of foreign profits could not be included in the assessment of the individual in the assessment year 1948-49 and the Tribunal found that

the same could not be included in the individual assessment at all as it was not the income of the individual, the appeal is liable to be dismissed and

is accordingly dismissed.

The High Court held that the Tribunal went beyond its jurisdiction in deciding: (1) that the individual and joint family should be separately

assessed and the remittance is to be assessed in the assessment of the joint family ; and (2) remanding the matter to the Income Tax Officer for

fresh assessment from the stage of the returns. At the same time it was also held by the High Court that the Tribunal did not set aside the order of

the Appellate Assistant Commissioner and also could not have set aside the same as the only matter in dispute in the appeal before it was not

decided by the Tribunal. The High Court also did not hold that the concluding sentence in the order of the Tribunal to the effect that "" the appeal is

dismissed "" was wrong but contented itself by saying that "" on the terms of the order as they stand it would be open to either of the constructions

contended for "" on the rival contentions placed before it. It seems to us that the High Court could not have accepted the interpretation of the

department that the order of remand should be considered as the real order of the Tribunal and that no meaning should be attached to the

concluding words dismissing the appeal as the department have not questioned that portion of the order in any reference or otherwise directly. It

would not have been open to them to advance that contention on a reference at the instance of the assessee, rightly or wrongly, we say so because

we are not called upon to decide the same, the Tribunal thought that they can dismiss the appeal on the ground that the remittances could not at all

be included in the assessment of the individual and at the same time give direction to the Income Tax Officer to include the same in the assessment

of the joint family and make a fresh assessment starting from the stage of returns. The assessee questioned the direction given by the Tribunal in the

reference to the High Court but the department did not choose to question the dismissal of the appeal by asking for any reference u/s 66. It might

be that the department at that time thought that they could assess the remittance in the joint family assessment and that is why notice u/s 34 was

issued on March 29, 1955, after disposal of the appeal by the Tribunal. But, we need not have any such assumption. Suffice it for us to say, that

since the department allowed the order of dismissal of the appeal to stand, they cannot now question the same. Since the Tribunal had jurisdiction,

as held by this court, to decide the question whether the remittance could be assessed at all in the assessment of the individual and it gave a finding

that it could not be assessed, the dismissal of the appeal by the Tribunal appears to be proper. It seems to us, therefore, that the order passed u/s

66(5) is perfectly in order and the writ petition is liable to be dismissed.

This writ petition is also liable to be dismissed on the ground of unreasonable and unexplained delay and laches on the part of the department.

The order of the Tribunal was made in the year 1957. The judgment of the High Court was dated November 24. 1959, and the order u/s 66(5)

itself was made on August 22, 1960, after notice to the parties. The letter of the Income Tax Officer which was treated by the Tribunal as an

application u/s 35 to correct the alleged mistake in the order made u/s 66(5) was itself dated November 22, 1963, and the order dismissing that

application and refusing to interfere with the order dated August 22, 1960, was made by the Tribunal on February 10, 1964. Even, thereafter, no

proceedings were taken and only on June 24, 1968, this writ petition was filed. As we have already stated, if the department was aggrieved by the

order of dismissal of the appeal they should have asked for a reference even at that time. The petitioner, if he felt aggrieved by the order u/s 66(5)

of the Act, could have asked for a reference against that order also. That such a remedy is open has been decided in Income Tax Appellate

Tribunal, Bombay and Others Vs. S.C. Cambatta and Co. Ltd., . Having missed these two alternative remedies, the petitioner could not be

permitted to invoke the extraordinary remedy under Article 226 of the Constitution. We also find that after the order u/s 66(5) the petitioner has

waited for nearly eight years before filing this writ petition. The assessment itself relates to the assessment year 1948-49. We are, therefore, not

satisfied that this is a case where we should interfere with the order of the Tribunal invoking our powers under Article 226 of the Constitution. The

writ petition, therefore, fails and it is dismissed with costs. Counsel''s fee Rs. 150.