Decided on November 03,1965

SNEH LATA Appellant


DESAI, J. - (1.)THE Income-tax Appellate Tribunal, Allahabad Bench, has under section 66(2) of the Indian Income-tax Act, 1922, submitted a statement of the case inviting this courts answer to the following question :
"Whether, having regard to the powers and the jurisdiction of the Appellate Assistant Commissioner under section 31 of the Income-tax Act, it is open to him to treat the sum of Rs. 30,000 as income from undisclosed sources when it was treated by the Income-tax Officer as income from speculation ?"

(2.)THE facts of the case are very brief. THE assessee, at whose instance the statement has been submitted, was (he is dead and is now represented by his widow) a medical practitioner and for the year 1946-47 was assessed by the Income-tax Officer on an income of Rs. 1,50,420. He had returned an income of Rs. 420 only as his professional income. THE Income-tax Officer found that he had purchased a house in Mussoorie for Rs. 21,000; when he was asked to explain the source of the money, he replied that he had Rs. 30,000 in cash with him. THE Income-tax Officer disbelieved this source of the money and, taking other facts into consideration, inferred that he had derived Rs. 1,50,000 from the business of speculation in the relevant account year. THE assessee filed an appeal. THE Appellate Assistant Commissioner held that the assessee had received during the accounting year only Rs. 30,000 in addition to the returned income and that it was not from the business of speculation but from a source other than the sources specified in section 6 of the Indian Income-tax Act. Accordingly, he reduced the amount of assessment by Rs. 1,20,000. In further appeal to the Tribunal the assessee raised the question of the Appellate Assistant Commissioners jurisdiction to treat the amount of Rs. 30,000 as income from any other source when the Income-tax Officer had found no income under that source and had found the income of Rs. 1,50,000 from business. the Tribunal held that the Appellate Assistant Commissioner had jurisdiction to do what he had done and dismissed the appeal. It refused to state the case and then this court called upon it to do so.
The question before us is of the jurisdiction of the Appellate Assistant Commissioner; we are not concerned with the question whether the assessee received Rs. 30,000 during the accounting year and whether it is income or not. The question presupposes that it is income and what we have to answer is whether the Appellate Assistant Commissioner had jurisdiction to include it in the assessment under a head that could fall under any of the clauses of section 6 when the Income-tax Officer had found the income under that head.

The answer to the question depends upon the provision of section 31(3)(a), which is the only provision relevant in this case. It is that :

"In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, -

(a) confirm, reduce, enhance or annual the assessment......"

Income from all sources is chargeable to tax but the sources have been divided into five heads because the legislature thought it wise to have different rules regarding computation of income, deductions and exemptions for income from different sources. Head (iv) is of profits and gains of business, profession or vocation, and head (v), of "other sources", i.e., all sources other than those specified in heads (i) to (iv). It may not be strictly correct to say that income from only the five heads is chargeable to tax because head (v) is a residuary head, consisting of all sources other than those specified in heads (i) to (iv). Therefore, income from all sources is chargeable to tax and in addition capital gains are chargeable to tax. Once it is clearly understood that the division of sources into the five heads is only for the purpose of having different rules regarding computation, exemptions and deductions one should have no difficulty in holding that the division of sources into the heads does not serve any other purpose and is not relevant for any other purpose. An Income-tax Officer computes income from each head in accordance with the rules laid down in sections 7 to 12AA and adds up the income from all the five heads and the income from capital gains and total is the income to be charged with the tax.

"Assessment" means determination of the total income, vide section 23, sub-sections (1), (3), (4), (5), and (6) in which the legislature uses the phrases "assess the total income of the assessee and determine the sum payable in him on the basis of such assessment", "make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment", "the total income of the firm has been assessed" and "the amount of the total income on which the determination has been based." These phrases make it clear that assessment consists of determining the total income and the tax payable is based on the assessment, i.e., the sum so determined. The rate at which the tax is chargeable on the sum assessed is fixed by law and ordinarily there is no controversy about it; whatever controversy one comes across is about the amount assessed. Once an Income-tax Officer has assessed that total income the question of the heads from which it has come ceases to be of any relevancy to the question of the amount of the tax payable. An appeal is provided to an Appellate Assistant Commissioner from an order assessing the total income as well as from an order determining the amount of tax payable on it. Section 31(3)(a) relates to an appeal of from an order of assessment, i.e., assessing the total income chargeable to tax. In confirming, reducing, enhancing or annulling the assessment, the Appellate Assistant Commissioner is concerned with the question from what heads the income has been derived if the assessee contends that the computation of income or the question whether deduction or exemption should be allowed or not has been decided by the Income-tax Officer correctly according to the rules applicable to the particular head from which the income had been derived; otherwise he is not. If an income is to be computed in the same was whether it is placed in one head or another or if there is no question about any exemption or deduction it does not matter whether the Income-tax Officer held that it was derived from one head and not the other. It follows that if he has treated it as derived of from a wring head the Appellate Assistant Commissioner can treat it as having been derived from the correct head.

(3.)THIS Supreme Court had an occasion to deal with the heads of income in United Commercial Bank Ltd. v. Commissioner of Income-tax Kapur J. observed at page 695 :
".... every item of income, whatever its source, would fall under one particular head and for the purpose of computing the income for charging of income-tax the particular section dealing with that head will have to be looked at."

At page 696 he observed :

".... income-tax is to be charged at the rate or rates prescribed in the Finance Act on the total income of the assessee.... and computed in the manner given in sections 7 to 12 which are not charging sections but are provisions for the computation oftotal income."

At page 697 he observed :

".... we have to look at the source of income, profits and gains and then see under what head it appropriately and specifically falls and if it falls under one particular head then computation is to be made under the section which covers that particular head of income.

....... if an item of income falls under one of these heads then it has to be treated for the purpose of income-tax under that head and no other."

The above observations were made in connection with the question whether income from interest on securities comes under the head(ii) or head (iv). THIS is a question entirely different from the question whether an Appellate Assistant Commissioner has power or not to correct the wrong head in which an income has been placed by an Income-tax Officer. If an income can come under the head (ii), it should not be placed in head (iv) but it does not follow that, if it is wrongly placed in head (iv) by an Income-tax Officer, the error cannot be corrected by the Appellate Assistant Commissioner on appeal.

In Narrondas Manordass v. Commissioner of Income-tax, The Bombay High Court rejected the contention that if an Income-tax Officer did not included a certain income under on head on the ground that it was not chargeable to tax, it was not open to the Appellate Assistant Commissioner on appeal to include it in the assessment under that head. The High Court confirmed the order of the Appellate Assistant Commissioner of inclusion of the income because the income had been considered by the Income-tax Officer, the "item..... had been subjected to the process of assessment". Chagla C.J. further said at page 919 :

"........ the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Income-tax Officer; a revision authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revision those matters about which the assessee makes a grievance, but a revision authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer but he can revise every process which lead to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount...... but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment........"


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