Voora Sreeramulu Chetty vs The Commissioner of Income Tax

Alfred Henry Lionel Leach, C.J.—The question which has been referred is whether the case of N.A.S.V. Venkatachalam Chettiar v.

Commissioner of Income Tax, Madras (1934) 68 M.L.J. 227 : ILR 58 Mad. 367 : 8 I.T.C. 74 (F.B.) was rightly decided. The answer depends

on the meaning to be given to the word ''prejudicial'' in Section 66(2) of the Indian Income Tax Act. Section 66(2) states that within sixty days of

the date on which he is served with notice of an order u/s 33 enhancing an assessment or otherwise prejudicial to him the assessee may require the

Commissioner of Income Tax to refer to the High Court any question of law arising out of the order. Section 33 authorises the Commissioner of

Income Tax of his own motion to call for the record of a proceeding under the Act which has been taken by an authority subordinate to him or by

himself when exercising the power of an Assistant Commissioner under Sub-section (4) of Section 5, and having called for the record he is

empowered, subject to the provisions of the Act, to pass such order as he thinks fit, but he may not pass an order prejudicial to an assessee

without hearing him or giving him a reasonable opportunity of being heard. The section makes no mention of the right of an assessee to move the

Commissioner to take action but as the Commissioner may take action of his own motion the assessee must have the right of calling his attention to

a prejudicial order and of asking that action be taken. This in fact frequently happens.

In Venkatachalam Chettiar''s case (1934) 68 M.L.J. 227 : ILR 58 Mad. 367 : 8 I.T.C. 74 (F.B.) the petitioner applied to the Income Tax

Officer for a refund of Income Tax u/s 48 of the Act, but his application was refused. The petitioner then filed an application asking the

Commissioner to revise the order of the Income Tax Officer u/s 33. Having heard the application the Commissioner refused to interfere. The

petitioner then required the Commissioner to refer the matter to the High Court u/s 66(2) of the Act as involving a question of law. The

Commissioner dismissed the application on the ground that it was incompetent. His reason was that his order u/s 33 was not one enhancing the

assessment or otherwise prejudicial to the applicant. In accepting this interpretation, Beasley, C.J., observed:

What Section 33 clearly contemplates is an order made by the Commissioner which alters the position of an assessee or an applicant to that

person''s prejudice. In this particular case, his position had been prejudiced already by the refusal of the Income Tax Officer (o grant him the

refund which he required. The Commissioner''s order did no more than leave him in that position and, it is quite clear to us, was not an order which

was prejudicial to the petitioner in the sense intended, namely, that his position at that time, that is, the dale of the Commissioner''s order, was

altered by that order to one of prejudice to him.

With these observations the other Judges (Ramesam and King, JJ.) agreed.

With great respect I am unable to accept this interpretation. It means that the Commissioner''s order must be more prejudicial than the order

complained of before it can come within the purview of Section 66(2). The section does not say so. All that it contemplates is a prejudicial order.

It seems to me that if an order of the Income Tax Officer is prejudicial an order which confirms it or rejects an application asking that it be revised

is also prejudicial. It could not be said that a decree of an appellate Court dismissing an appeal from a Court of first instance is not prejudicial to

the appellant. It is just as prejudicial as the original decree. There is no difference in this respect between the dismissal of an appeal and the

dismissal of an application for revision when the law permits such an application to be made.

In expressing this opinion I have not lost sight of the first proviso to Section 66(2), which reads as follows:

Provided that a reference shall lie from an order u/s 33 only on a question of law arising out of that order itself, and not on a question of law arising

out of a previous order u/s 31 or Section 32 revised by the order u/s 33.

Section 66(2) also applies to orders made under Sections 31 and 32. Mr. Patanjali Sastri has suggested that the proviso only relates to orders

under Sections 31 and 32 revised u/s 33. In other words he asks the Court to read the second part of the proviso as governing the first part. I do

not read it in that way. I consider the effect of the proviso to be this. A reference shall lie only when a question of law arises out of the order

passed u/s 33 but if the matter is one which relates to an order u/s 31 or Section 32 a question of law which arose out of the previous order alone

cannot be referred.

Reading the first part of the proviso as standing alone it does not mean that the Commissioner can render the provisions of Sub-section (2)

nugatory by dismissing the assessee''s petition without stating his reasons. When the Commissioner receives a petition filed u/s 33 it is his duty to

consider it and pass an order on it. If the petition relates to an order of the Income Tax Officer the consideration of the petition involves the

consideration of the Income Tax Officer''s order and if the Commissioner dismisses the petition without mentioning the question of law, supposing

one arises on the order complained of, the Commissioner''s order must be read with the order of the Income Tax Officer. Whether a question of

law arises on an order of the Commissioner passed on an application u/s 33 will depend on the circumstances of the particular case, but because a

question of law is not set out in an order does not necessarily follow that a question of law does not arise. The Commissioner cannot, of course, be

required to receive a frivolous or belated petition.

Our attention has been drawn to the case of The Central India Spinning, Weaving and Manufacturing Co., Ltd. v. The Commissioner of Income

Tax, Central and United Provinces (1936) 10 I.T.C. 131 in which the Nagpur High Court followed the decision in Venkatachalam Chettiar''s case

(1934) 68 M.L.J. 227 : ILR 58 Mad. 367 : 8 I.T.C. 74 (F.B.) and considered the first proviso to Section 66(2). The Court accepted

Venkatachalam Chettiar''s case (1934) 68 M.L.J. 227 : ILR 58 Mad. 367 : 8 I.T.C. 74 (F.B.) without discussing it and therefore its judgment

does not carry the matter further. With regard to the proviso the Court considered that its true intent is that a question of law that is common to

both the Assistant Commissioner''s and the Commissioner''s order is not a proper subject-matter of a reference unless the question of law is raised

on a reference from the decision of the Assistant Commissioner. This question does not arise in the present case and we are not called upon to

discuss it.

The answer that I would give to the question referred is that N.A.S.V. Venkatachalam Chettiar v. Commissioner of Income Tax, Madras

(1934) 68 M.L.J. 227 : ILR 1934 58 Mad. 367 : 8 I.T.C. 74 (F.B.) was wrongly decided and that an order which dismisses an application asking

for the revision of a prejudicial order must be deemed to be prejudicial within the meaning of Section 66(2).

The costs of this reference will be made costs in the case out of which it arises and we fix the amount at Rs. 150.

Madhavan Nair, J.

I agree.

Varadachariar, J.

I agree.

Venkataramana Rao, J.

I agree.

Abdur Rahman, J.

I concur and wish to add nothing more.