# COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH v. M/S. BHIKAJI DADABHAI & CO

- **Citation:** [1961] 3 S.C.R. 923
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeal No. 434 of 1960
- **Bench:** J. L. Kapur, M. HrnAYATULLAH, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-andhra-pradesh-v-m-s-bhikaji-dadabhai-co-1947
- **Pages:** 7

## Headnote

Income-tax-Assessment
proceedings
pending-Hyderabad
Inc
1
odme-tax Act repealed-Penalty, whether. an additional tax-If
'· .. t
cou
be imposed-Appellate Assistant Commissioner-Jurisdiction--
l
Assessment, meaning of-Hyderabad Income-tax Act, s. 40-Indian
Income-tax Act, r922 (XI of r922)-Finance Act, r950 (XXV of
I950), s, IJ.
The Income-tax Officer found that the respondents' books of
accounts were unreliable and after assessing income for Fasli
year 1357, corresponding to the year 1946-47, issued notice to the
respondents on December 22, 1949, under s. 40 of the Hyderabad
Income-tax Act to show cause why penalty should not be levied
in addition to the tax and by an order dated October 31, 1951,
directed payment of the said penalty. The State of Hyderabad
merged with the Indian Union during the pendency of the proceedings before the Income-tax Officer and by s. 13 ot the Finance
Act, 1950, the Hyderabad Income-tax Act ceased to have effect
from April I, 1950, but the operation of that Act in respect of
levy, assessment and collection of income-tax and super-tax in
,respect of periods prior thereto for which liability to income-tax
could not be imposed under the Indian Income-tax Act, was
saved. The question was whether (a) the Income-tax Officer had
power on October 31, 1951, to impose a penalty under s. 40(1) of
the Hyderabad Income-tax Act and (b) whether the assessee had
a right to appeal against the order of the Income-tax Officer
imposing penalty and whether the Appellate Assistant Commissioner had jurisdiction to hear appeals or whether his order was a
nullity.
Held, that the power of the Income-tax Officer to impose a
penalty under s. 40(1) of the Hyderabad Income-tax Act in
respect of the year preceding the date of the repeal of the
Hyderabad Income-tax Act was not lost because by s. 13 of the
Finance Act, 1950, for the operation by the Hyderabad Incometax Act in respect of levy, assessment and collection of income ... tax
and super-tax in respect of periods prior to April, r95r, for which
liability to income-tax could not be imposed under the Indian
Income~tax Act, was ~aved and so the proceedings for imposing
the penalty could be continued after the enactment of s. 13(1) of
the Indian Finance A~t. 1950.
Held, that the appeal against the order of the Income-tax
Officer on the ground that he was not competent to pass the order
did lie to the Appellate Assistant Commissioner, whose jurisdiction was not made conditional upon the competence of the
~ [~
Commissioner of
Inconie~ta:r,
A ndhra Pradesh
v·
M /s, Bhikaji
Dadabhai & Co.
Shah .f.
924
SUPREME COURT REPORTS
[1961]
Income-tax Officer to pass the orders made appealable; as a
court of appeal he had jurisdiction to determine the soundness of
the conclusions of the Income-tax Officer both on the question of
fact and law and even as to his jurisdiction to pass the order
appealed from, and his order was not a nullity.

## Text

...
3S.C.R.
SUPREME COURT REPORTS
COMMISSIONER OF INCOME-TAX,
ANDHRA PRADESH
v.
M/S. BHIKAJI DADABHAI & CO.
923
(J. L. KAPUR, M. HrnAYATULLAH and J. C. SHAH, JJ.)
Income-tax-Assessment
proceedings
pending-Hyderabad
Inc
1
odme-tax Act repealed-Penalty, whether. an additional tax-If
'· .. t
cou
be imposed-Appellate Assistant Commissioner-Jurisdiction--
l
Assessment, meaning of-Hyderabad Income-tax Act, s. 40-Indian
Income-tax Act, r922 (XI of r922)-Finance Act, r950 (XXV of
I950), s, IJ.
The Income-tax Officer found that the respondents' books of
accounts were unreliable and after assessing income for Fasli
year 1357, corresponding to the year 1946-47, issued notice to the
respondents on December 22, 1949, under s. 40 of the Hyderabad
Income-tax Act to show cause why penalty should not be levied
in addition to the tax and by an order dated October 31, 1951,
directed payment of the said penalty. The State of Hyderabad
merged with the Indian Union during the pendency of the proceedings before the Income-tax Officer and by s. 13 ot the Finance
Act, 1950, the Hyderabad Income-tax Act ceased to have effect
from April I, 1950, but the operation of that Act in respect of
levy, assessment and collection of income-tax and super-tax in
,respect of periods prior thereto for which liability to income-tax
could not be imposed under the Indian Income-tax Act, was
saved. The question was whether (a) the Income-tax Officer had
power on October 31, 1951, to impose a penalty under s. 40(1) of
the Hyderabad Income-tax Act and (b) whether the assessee had
a right to appeal against the order of the Income-tax Officer
imposing penalty and whether the Appellate Assistant Commissioner had jurisdiction to hear appeals or whether his order was a
nullity.
Held, that the power of the Income-tax Officer to impose a
penalty under s. 40(1) of the Hyderabad Income-tax Act in
respect of the year preceding the date of the repeal of the
Hyderabad Income-tax Act was not lost because by s. 13 of the
Finance Act, 1950, for the operation by the Hyderabad Incometax Act in respect of levy, assessment and collection of income ... tax
and super-tax in respect of periods prior to April, r95r, for which
liability to income-tax could not be imposed under the Indian
Income~tax Act, was ~aved and so the proceedings for imposing
the penalty could be continued after the enactment of s. 13(1) of
the Indian Finance A~t. 1950.
Held, that the appeal against the order of the Income-tax
Officer on the ground that he was not competent to pass the order
did lie to the Appellate Assistant Commissioner, whose jurisdiction was not made conditional upon the competence of the
~ [~
Commissioner of
Inconie~ta:r,
A ndhra Pradesh
v·
M /s, Bhikaji
Dadabhai & Co.
Shah .f.
924
SUPREME COURT REPORTS
[1961]
Income-tax Officer to pass the orders made appealable; as a
court of appeal he had jurisdiction to determine the soundness of
the conclusions of the Income-tax Officer both on the question of
fact and law and even as to his jurisdiction to pass the order
appealed from, and his order was not a nullity.
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
434 of 1960.
Appeal by special leave from the judgment and
order dated October 4, 1956, of the Hyderabad High
Court in I.T.R. No. 116/5 of 1954-55.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
A. V. Viswa11atha 8astri, S. N. Andley, J.B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondents.
1961. February 22. The Judgment of the Coul't
was delivered by
SHAH, J.-M/s. Bhikaji Dadabhai & Co.-hereinafter called the assessees-owned an oil mill at Khammamath in the area of the former State of Hyderabad.
For the year of assessment Fasli 1357 (October l,
1946, to September 30, 1947), the assessees returned
an income. of Rs. 50,384/-. The Income-tax Officer
found that the books of account maintained by the
assessees were unreliable and by his order dated
· February IO, 1950, he assessed their total iricoine at
Rs. 1,63,131/-. The Income-tax Officer had, before
finalising the assessment, issued on December 22, 1949,
a notice to the assessees under s. 40 of the Hyderabad
Income-tax Act requiring them to show cause why
penalty should not be imposed upon them and by
order dated October 31, 1951, directed the assessees to
pay by way of penalty Rs. 42,000/- in addition to the
tax. This order was confirmed in appeal by the
Appellate Assistant Commissioner. In appeal, the
Income-tax Appellate Tribunal observed that by virtue
of the provisions of s. 13 (I) of the Indian Finance Act,
1950, the Hyderabad Income-tax Act had ceased to
have effect and as the power to impose penalty under
s. 40 of the Hyderabad Income-tax Act was not saved,
the order imposing penalty was without jurisdiction,
The Tribunal observed ;
'
~·
3 S.Q.R.
SUPREME COURT ttEPORTS
!)25
"The Income-tax Officer may have been in error
in imposing the penalty, but there was no appeal
against the order of the Incorne-t.ax Officer to the
Appellate Assistant Commissioner. Section 42(1) of
the Hyderabad Income-tax Act gives a right to an
assessee to appeal if he objects to an order under
s. 40 made by an Income-l>ix Officer.
Section 40
ceased to have effect.
There can therefore be
neither an order under s. 40 nor an appeal against
the order if an order has been wrongly made. The
remedy of the assessee lies elsewhere, and not by
way of an appeal to the Appellate Assistant Commissioner,''
and on that view dismissed the appeal.
At the instance of the assessees, the following questions were
refen e<l by the Tribunal to the High Court of Judicature at Hyderabad :
1.
Whether
on
31-10-1951, the
lncorne,tax
Officer, Warrangal Circle, had the power to impose a
penalty under s. 40(1) of the Hyderabad Income-tax
Act in respect of the ass.essment for the year 1357 F. ?
2.
Whether the assessee had a right to appeal
against the order of the Income-tax Officer imposing
the penalty ?
·
3. If the Appellate Assistant Commissioner did
not have jurisdiction to hear the appeal, whether the
order of the Appellate Assistant Commissioner is a
nullity and therefore the order of the Income-tax
Officer erroneous, though it may stand until it is set
aside by a competent authority ?
The High Court answered the first- and the third
questions in the negative and the second question in
the affirmative. Tho High Court observed that the
Appellate Assistant Commissioner had power to
entertain the appeal in which the question of the
power of the Income-tax Officer to impose a penalty
was challenged, and the decision of the Appellate
Assistant Commissioner was not without jurisdiction.
The High Court also proceeded in a petition separately filed by the assessees to direct the· Income-tax
Appellate Tribunal to set a.~ide the order of the
Income-tax Officer imposing a penalty as a logical
Cowniissioner of
Income-tax.
Andltra Pradcsl~
v •
. Hfs. Bltikaji
Dadabhai & Cu.
Co1n11tissioncr of
Jnconie-tax,
Audkra Pradesh
v •
.11 /s. Bhikaji
Dadabltai G Co.
Shah J.
926
::lUPRl£illE COUHT ltEPOHTS
[ 11161]
consequence of the view the Tribunal had taken
regarding the absence of power in the Incom~-tax
Officer to levy a penalty. Against the order passed
by the High Court, this appeal with special leave is
preferred.
We are in agreement with the High Court that the
appeal to the Appellate Assistant Commissioner was
competent. Even if tlbe Income-tax Officer committed an error in passing the order imposing penalty
because the couditions necessary for invoking tL;;,t
jurisdiction were absent, an appeal against his order
on the ground that he was not competent to pass the
order did lie to the Appellate Assistant Commissioner.
The Appellate Assistant Commissioner is under the
Act constituted an appellate authority against certain
orders of the Income-tax Officer, and exercise of that
jurisdiction is not made conditional upon the competence of the Income-tax Officer to pass the orders made
appealable. The Appellate Assistant Commissioner
had as a court of appeal jurisdiction to determine the
soundness of the conclusions of the Income-tax Officer
both on questions of fact and law and even as to his
jurisdiction to pass the order appealed from.
\Ve are, however, unable to agrte with the High
Court that because of the repeal of the Hyderabad
Income-tax Act by the Finance Act, 1950, the power
to impose a penalty in respect of the years preceding
the date of repeal was lost. The State of Hyderabad
merged with the Indian Union during the pendency of
the proceedings before the Income-tax Officer. There-
;;,fter the Indian Legislnture enacted the Finance Act,
l \);10, which by sub-section (I) of s. 13 in so far as it is
material provided :
"lf immediately Lefore the 1st, day of April, 1950,
Lherc is in foree in any part B Stace .... any Jaw
relating to iucome-tax or super-tax .... that Jaw
slmll cease to have effect except for the purposes
of the kv y, assessment and collection of income-tax
and super-tax in respect of any period not included
in the previous year for the purposes of assessment
under the Indian Income-tax Act, 1922 ... "
,
" , _
38.C.R.
SUPREME COURT REPORTS
927
Manifestly, bys. 13, the Hyderabad Income-tax Act
ceased to have effect as from April 1, 1950. But the
operation of that Act in respect of levy, assessment
and collection of income-tax and super-tax in respect
of periods prior thereto for which liability to incometax could not be imposed under the Indian Income-tax
Act, 1922, was saved. The J udicia.l Committee of the
Privy Council in Commissioner of lncome-wx, Bombay
Presidency and Aden v. Messrs. Khemchand Ramdas(')
observed:
" One of the peculia.ri ties of most Income-tax
Acts is that the word ' assessment' is used as
meaning sometimes the computation of income,
sometimes the determination of the a.mount of tax
paya. hie and sometimes the whole procedure laid
down in the Act for imposing liability upon the tax
payer."
':l'heHydera.ba.d Income-tax Act also used the expression "assessment" in different senses. In certain sections, for instance ss. 31 and 39 the expression is used
as in the sense of mere computation of income; iu
other sections it is used in the sense of determination
of liability and in certain other sections in the sense
of machinery for imposing liability and procedure in
that behalf. By the Fina.nee Act, 1950, the Hyderabad
Income-tax Act was expressly kept alive in respect of
periods which include the assessment year in question
for purposes of levy, assessment and collection of
income-tax. The High Court expressed the view that
the word "assessment" in s. 13 (1) included the whole
procedure for imposing liability upon the taxpayer
but not to the procedure for imposing a. penalty. They
thought that the Hyderabad Income-tax Act dealt
with liability to pay income-tax and penalty in distinct
provisions, both relating to imposition and recovery
and that if the Legislature had intended to keep alive
the Hyderabad Income-tax Act for a.11 purposes including the levy of penalty with respect to any particular
year or yea.rs of assessment, it could have said so in
terms clear and unambiguous instead of limiting the
operation only to "levy, assessment and. collection."
In the view of the High Court, imposition of penalty
(r) (r938) L.R. 65 I.A. 236; [1938] 6 I.T.R. 4t4.
r961
Com111issio11er of
1J1come-tax,
.A JJdlira Pradesh
v.
M /s. Bkikaji
Dadabhai 6- Co.
Sliahj.
Commissioner of
lncolne-ta.v,
AHdhra Pradesh
v.
M /s. Bhikaji
Dadabhai & Co.
Shah j.
928
SUPREME {jQUR'.1.' REPORTS
[ l961J
was not a necessary concomitant or incident of the
process of assessment, levy and collection of tax.
The High Court proceeded upon the view that by
saving the Hyderabad Income-tax Act for the purposes
of levy, assessment and collection of income-ta.x, the
entire procedure for imposing liability to pay tax and
for collection of tax w:~s saved, but penalty not being
ta.x, provisions relating to imposition of aud collection
of penalty did not survive the repenl of the Hyderabad
Income-tax Act.
This Court considered in C. A. Abraham v. The
Income-tax Officer, Kottayam (') the question whether
the expression "assessment" ns used in s. 44 of the
Indian Income-tax Act included the procedure for
imposition of penalty in respect of a dissolved firm and
it was observed:
" The expression ' assessment ' used in these section~ (pro,·isions of Ch. IV of the Indian Income-tax
Act) is not used merely in the sense of computation
of income and there is in our judg1111rnt no ground
for holding that when by s. 44, it is declared that
the partners or membPrR of the <1Ssociation shall be
jointly and severally liable to aHsc.,Hment, it is only
intended 'to. dedarn the liability to computation of
income nuder s. 23 and not to the itpplication of the
procedure for declaration and im posit.ion of tax
liabilitv and the machinerv for enforcement thereof
...... By s. 28, the liability to pay additional tax
which is designated penalty is imposed in view of
the dishonest or contumitcious conduct of the
assessee.')
This coUl't regarded penalty as an <>dditio1rnl tax
imposed upou it pernon in ,·icw of his dishonest <~r
contumacious conduct.
fL is true that unde1·
the
Hyderabad Income-tax Act, distinct provisious arc
made for recovery of tax due and pena.Jty, butt.hat iu
our judgment <foes not alter the true character of
pena!tyimposed under the t.wo Acts. !\or are we able to
agree that because in respect of the Sea Customs Act,
1878, the Indian Tariff ..\ct, 1934, the Land Customs
Act, l!J24, the Central .Excise nnd t:lalt Act, 1944, and
the Indian Post Offices Act, 1898, which were extended
(r) [1961] 2 s.c.R. 765.
"
..
3 S.C.R.
SUPREME COURT REPORTS
929
to the whole of India by s. 11 of the Finance Act,
1950, and the provision~ corresponding thereto were
repealed by the proviso, and it was expressly provided
that the previous operation of the corresponding law
or any penalty, forfeiture or punishment ordered in
respect of an offence committed against any such law
or any investigation, legal proceeding or remedy in
respect of Rta:h penalty, forfeiture or punishment or
any such investigation, legal proceeding or remedy
mav be instituted, continued or enforced and any such
penalty, forfeiture or punishment may be imposed as
if the Act had not been passed, that under sub-s. (1) of
s. 13 it was intended to prohibit the authorities otherwise competent in that behalf from commencing or
continuing the proceeding for levying penalty even
if the circumstances justi(y such a course.
The
scheme of the statutes specified in s. 11 and which
are repealed by sub-s. (2) of s. 13 are somewhat
different from the scheme of the Indian Income-tax
Act.
Because by sub-s. (I) of s. 13 of the Finance
Act, 1950, the Hyderabad Income-tax Act was to cease
to operate as on April I, 1950, except for the purposes
of levy, assessment and collection of income-tax and
super-tax, whereas in respect of other Acts specified in
s. 11 substantially provisions similar to those contained
in s. 6 of the General Clauses Act were enacted, an
intention that proceedings for penalty may be commenced and continued under the Acts specified ins. 11,
whereas no snch proceedings may be commenced or
continued under the Hyderabad Income-tax Act is not
indicated. We are of the view that the High Court
erred in holding that the proceedings for imposing .the
penalty could not be continued after the enactment of
s. 13 (1) of the Finance Act, 1950.
The appeal will therefore be allowed and the answer
to the first question will be recorded. in the affirmative.
On the view taken by us, it is unnecessary to pass any
orders on the petition under Art. 226 of the Constitution which was presented to the High Court. The
appellant will be entitled to his costs of the appeal in.
this Court and in the High Court.
Appeal allowed,
Con1mission1r of
Incon1e-1ax,
A ndhra Pradesh
v.
i\1 js. Bhikaji
Dadabhai & Co.
Shah].