Commissioner of Income Tax vs Sundaram Clayton Ltd.

N.V. Balasubramanian, J.—In pursuance of the direction of this court the Appellate Tribunal has stated a case and referred the following

question of law for our consideration :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Commissioner of Income Tax

(Appeals) was justified in partially setting aside the assessment of the Income Tax Officer for considering the question of status ?

The assessee is a company and it was assessed for the assessment year 1974-75 in the status of a company in which the public are not

substantially interested. The assessee went on appeal against the order of assessment to the Commissioner of Income Tax (Appeals) challenging

the part of the order holding that the assessee is a company in which the public are not substantially interested and in the appeal filed, it challenged

certain other disallowances made in the computation of its income. The Commissioner of Income Tax (Appeals) granted relief in respect of certain

additions made but set aside the order of assessment on the question of status alone. The Commissioner of Income Tax (Appeals) held that it was

fair and reasonable to send back the matter to the Income Tax Offieer to deal with the question of status de novo on the lines indicated in the order

of the Appellate Tribunal for the preceding assessment year 1973:74, in I. T. A. No. 275(Mds) of 1977-78, dated December 12, 1978. The

Revenue appealed to the Income Tax Appellate Tribunal in respect of the relief granted and contended that the order of the Commissioner of

Income Tax (Appeals) setting aside the assessment only on one point, viz., the determination of the status of the assessee would create an

anamolous situation for the Income Tax Officer while making the reassessment in pursuance of the direction of the Commissioner of Income Tax

(Appeals). The Tribunal did not accept the contention urged on behalf of the Revenue on the ground that it was purely a matter of judicial

discretion on the part of the Commissioner of Income Tax (Appeals) and when the Revenue did not dispute the position that the question of status

was required to be reconsidered after a thorough investigation of all necessary facts, it will not affect in any way the consideration of the other

matters of the assessment. In this view of the matter, the Tribunal dismissed the appeal preferred by the Revenue and on the basis of the directions

of this court, the question of law set out supra has been referred to us.

Mr. C. V. Rajan, learned, counsel for the Revenue, submitted that if the direction of the Commissioner of Income Tax (Appeals) is given effect

it will create an anamolous situation for the Revenue to give effect to his order as only the question regarding the status of the assessee was set

aside and it would have been better if the entire assessment was set aside.

Mr. P. P. S. Janarthana Raja, learned counsel for the assessee, on the other hand, supported the order of the Tribunal.

u/s 251 of the Income Tax Act, the Commissioner of Income Tax (Appeals) in appeal against an order of assessment is empowered to pass any

order by way of confirming, refusing, enhancing or annulling the assessment order or to set aside the assessment and refer the case back to the

Assessing Officer for making a fresh assessment in accordance with the direction given by the Commissioner (Appeals) and after making such

further inquiry as may be necessary. If he thought fit, he is also empowered to make enhancement of the income assessed. The powers of the

Commissioner, while exercising his appellate powers are wide and it lies purely within his discretion to set aside the entire order of assessment or

to set aside a part of the assessment order with a direction to the assessing authority to consider the point after making such further enquiry as may

be directed by him. The discretion exercised by the Commissioner of Income Tax (Appeals) in the instant case was found by the Appellate

Tribunal neither arbitrary nor unreasonable. The Commissioner felt that the order of assessment should be set aside only on one point in view of the

fact that there was an earlier order by the Appellate Tribunal for the earlier assessment year and he, therefore, directed the Assessing Officer to

determine the question of status after investigating the necessary factual materials. We are of the view that the anamolous situation that is

apprehended on behalf of the Revenue does not exist as the question of status has to be reconsidered after investigating all necessary facts and it

would not in any way affect the consideration of the other matters of the assessment. Hence, we are of the view that the Commissioner of Income

Tax (Appeals) has exercised his discretion properly and the exercise of his discretion in the manner he has done cannot be regarded as neither

arbitrary nor unwarranted. We, therefore, hold that the Tribunal was correct in holding that the direction given by the Commissioner of Income Tax

(Appeals) does not call for any interference.

In Commissioner of Income Tax Vs. S.K. Ulagammal Achi, , this court held that the powers of the Commissioner of Income Tax (Appeals) are

very wide and when the Appellate Assistant Commissioner has decided with respect to two items in the appeal preferred before him and has not

decided with reference to the third item and directed the Income Tax Officer to reconsider the order, such an order passed by the Appellate

Assistant Commissioner was held to be within the powers conferred upon him under the Income Tax Act. Following the said decision we are of

the view that it is open to the Commissioner of Income Tax (Appeals) either to set aside the entire assessment or to pass such an order as he

thinks fit. In the instant case, the Appellate Tribunal for an earlier year directed the Income Tax Officer to determine the question of status and

when the Income Tax Officer determines the status of the assessee the logical consequences that would flow from such a determination of the

Income Tax Officer would be well reflected in the order of assessment made by the Income Tax Officer. Therefore, we do not find that the

Commissioner of Income Tax (Appeals) has exceeded his jurisdiction in directing the Income Tax Officer to consider the question of status alone.

We are, therefore, of the view that there is no infirmity in the order of the Appellate Tribunal in upholding the order of the Commissioner of Income

Tax (Appeals).

Since the question of law proceeds on the basis that there was a partial setting aside of the order by the Commissioner of Income Tax (Appeals)

we are of the view that the question should be reframed and the proper question is as under :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law holding that the Commissioner of Income Tax

(Appeals) was justified in directing the Income Tax Officer to consider the question of status alone, while considering the appeal preferred before

him ?

We hold that there is no infirmity in the order of the Appellate Tribunal and accordingly we answer the question of law reframed by us in the

affirmative and against the Department. There will be no order as to costs.