# THE COMMISSIONER OF INCJME-TAX v. SHAPOORJI PALLONJI MISTRY

- **Citation:** [1962] Supp. 3 S.C.R. 171
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Bench:** S. K. Das, M. HmAYATULLAH, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-of-incjme-tax-v-shapoorji-pallonji-mistry-2367
- **Pages:** 9

## Headnote

Income Tax-Power of Appellate Assistant Commissioner
to enhance ass€ss1nent-ltems not mentioned in return or consi·
dered by the Income Tax Officer-Whether new source,s of income
could be taxed-Indian Income Tax Act, 1922, (11 of 1922),
ss. 31(3)(a), 33B, 34.
The assessee had received in July 1946, a sum of
Rs. 40,000/· which according to him represented a receipt of
a capital nature.
This fact was brought to the ·notice of the
Income Tax Officer during the proceedings for the assessn1ent
year l946-47 and the Income Tax Officer made a note that
the question would be considered again at the time of 1947-48
assessment.
In the return filed for the assessment year
1947-48 this amount was not shown by the assessee. and the
Income 'fax Officer also overlooked his previous note, with
the result that this item was omitted.
During the pendency
of the appeal by the assessee before the Appellate Assistant
Commissioner the Income Tax Officer wrote a letter to the
Appellate Assistant Comlnissioner inter alia requesting him
to assess the amount of Rs .. 40,000/-.
'fhe amount was
assessed and included in the original assessment.
On reference, the High Court answered that the Appellate Assistant Commissioner was not comp~tent to enhance
the assessment. The question is whether in an appeal filed
by an assessee, the Appellate Assistant Commissioner can
find a new source of income not considered by the Income-tax
Officer and assess it under his powers granted by s. 31 of the
Act and travel beyond the reco1-d in enhancing the assessment
for any year.
He/,d, that in view of the provisions of ss. 34 and 33B by
which escaped income can be brought to tax., the power of the
Appellate Assistant Commissioner is limited ; he has no power
to travel beyond the record to enhance the assessment of any
year by discovering new source of income not mentioned in
the return of the asses see or considered by the Income Tax
Officer in the order appealed from.
He.ld, further, that provisions of ss. 33B and 34 enable
escaped income from new sources to be brought to tax after
following special procedure. Enhancement of assessment by
the discovery of new sources of income is not contemplated
1961
1962
1·1it Cor;,n,iuior.er 1/
lncornc•lax
v.
Shaj,oQrji l'allonji
.\1 istr;•
Hidayati.llah- J.
172 SUPREME COURT REPORTS [1962) SOPP.
under s. 31, bcc,1u~e if frt:sh sources of incon1c arc
as~es~cd
undr.r tha.t ~ection 1 the assc~sce \vill lie deprived of a finding
Ly l\\'O tribunals, and one right to aμpccd.
'l'hc pu\vcrs of
rcn1aud should be cxcrcisr.U. in ~uch casr.s.
__ ;.\:arroJ.t 1/f.l.'/ Jlanorda .. ~s v.
Cu1nuii.~-si•Jncr_ of
lnc~11t'~·frt(,,
!l9:>1j 31 1.1'.ll. 909,.Jayarnalli Th~rani v. G'o1nniissioner of
lncl)11t•! 1'r1.r:, (1925j f.L.ll, 1t P..i.L JIJJ, (),1ja!a.}a,_i;hn1i Uinn,iny
}"'~ctory v. (]1 .. Hnrni.s<;i1Jnt:1 of I 11,-:oni•:-ta.i.:, [I 952J 22 I :I'.({. 502,
li1sh11:r11uzth l'ritsad JJ!uzyu-at J>r,i:;a<l v. Co11inn'ssio11,fr of /nOJllH:.-
fux, [l9:)5J 2!) I:I'.ll. 74B ;u1tl. 1'hc ()onani,;;sioner of l11,r:o1nt·lri.c
v. Mis. JfcJJil/an & Co. [l~"JBj S.C.R. 689, referred to.
CIVIL Al'l'ELLATE Jt:HISD!CTION: Civil Appeal
Xo. 420 of l!J6l.
Appeal by ~pecial leavo from tho judgment
and order dated ilhrch 14, 1958, of the Bombay
High Court iu I.T.H. No. 54 of 195i.
I(: N. Rajagopal &i~tri and D. Gupta, for the
appellant.
R. J, Kolah, D. Ii. Dw1srkcw.U1S, S. N. Andlcy,
Rwne;;hunr Nath aud P.L. Vohra, for tho rcspondl•nt.
l!lui. :l!'eburary 14.
The Judgment of the
Court was delivered by
liIDAYATl:LLAll, J:-The asscssee, who is the
respondent here, had received on July 20, l!l·Hl a
a sum
of Rs. 40,000/·.
In tho proceedings for
assrlisment for the assessment ye.u, I 94tl . .i7, this
came to the notice of tho Income·t<1x Officer. Since
tho receipt fell within the accounting year rolative
to tho assessment year, 1947-48, tlio Income-tax
Officer <lid not assess the amount making a noto,
"The question will however bo oonsidered again at
tho time of 19i7--i8 assessment.

## Text

38.C.R.
SUPREME COURT REPORTS
171
THE COMMISSIONER OF INCJME-TAX
v.
SHAPOORJI PALLONJI MISTRY
(S. K. DAS, M. HmAYATULLAH and J.C. SHAH, JJ.)
Income Tax-Power of Appellate Assistant Commissioner
to enhance ass€ss1nent-ltems not mentioned in return or consi·
dered by the Income Tax Officer-Whether new source,s of income
could be taxed-Indian Income Tax Act, 1922, (11 of 1922),
ss. 31(3)(a), 33B, 34.
The assessee had received in July 1946, a sum of
Rs. 40,000/· which according to him represented a receipt of
a capital nature.
This fact was brought to the ·notice of the
Income Tax Officer during the proceedings for the assessn1ent
year l946-47 and the Income Tax Officer made a note that
the question would be considered again at the time of 1947-48
assessment.
In the return filed for the assessment year
1947-48 this amount was not shown by the assessee. and the
Income 'fax Officer also overlooked his previous note, with
the result that this item was omitted.
During the pendency
of the appeal by the assessee before the Appellate Assistant
Commissioner the Income Tax Officer wrote a letter to the
Appellate Assistant Comlnissioner inter alia requesting him
to assess the amount of Rs .. 40,000/-.
'fhe amount was
assessed and included in the original assessment.
On reference, the High Court answered that the Appellate Assistant Commissioner was not comp~tent to enhance
the assessment. The question is whether in an appeal filed
by an assessee, the Appellate Assistant Commissioner can
find a new source of income not considered by the Income-tax
Officer and assess it under his powers granted by s. 31 of the
Act and travel beyond the reco1-d in enhancing the assessment
for any year.
He/,d, that in view of the provisions of ss. 34 and 33B by
which escaped income can be brought to tax., the power of the
Appellate Assistant Commissioner is limited ; he has no power
to travel beyond the record to enhance the assessment of any
year by discovering new source of income not mentioned in
the return of the asses see or considered by the Income Tax
Officer in the order appealed from.
He.ld, further, that provisions of ss. 33B and 34 enable
escaped income from new sources to be brought to tax after
following special procedure. Enhancement of assessment by
the discovery of new sources of income is not contemplated
1961
1962
1·1it Cor;,n,iuior.er 1/
lncornc•lax
v.
Shaj,oQrji l'allonji
.\1 istr;•
Hidayati.llah- J.
172 SUPREME COURT REPORTS [1962) SOPP.
under s. 31, bcc,1u~e if frt:sh sources of incon1c arc
as~es~cd
undr.r tha.t ~ection 1 the assc~sce \vill lie deprived of a finding
Ly l\\'O tribunals, and one right to aμpccd.
'l'hc pu\vcrs of
rcn1aud should be cxcrcisr.U. in ~uch casr.s.
__ ;.\:arroJ.t 1/f.l.'/ Jlanorda .. ~s v.
Cu1nuii.~-si•Jncr_ of
lnc~11t'~·frt(,,
!l9:>1j 31 1.1'.ll. 909,.Jayarnalli Th~rani v. G'o1nniissioner of
lncl)11t•! 1'r1.r:, (1925j f.L.ll, 1t P..i.L JIJJ, (),1ja!a.}a,_i;hn1i Uinn,iny
}"'~ctory v. (]1 .. Hnrni.s<;i1Jnt:1 of I 11,-:oni•:-ta.i.:, [I 952J 22 I :I'.({. 502,
li1sh11:r11uzth l'ritsad JJ!uzyu-at J>r,i:;a<l v. Co11inn'ssio11,fr of /nOJllH:.-
fux, [l9:)5J 2!) I:I'.ll. 74B ;u1tl. 1'hc ()onani,;;sioner of l11,r:o1nt·lri.c
v. Mis. JfcJJil/an & Co. [l~"JBj S.C.R. 689, referred to.
CIVIL Al'l'ELLATE Jt:HISD!CTION: Civil Appeal
Xo. 420 of l!J6l.
Appeal by ~pecial leavo from tho judgment
and order dated ilhrch 14, 1958, of the Bombay
High Court iu I.T.H. No. 54 of 195i.
I(: N. Rajagopal &i~tri and D. Gupta, for the
appellant.
R. J, Kolah, D. Ii. Dw1srkcw.U1S, S. N. Andlcy,
Rwne;;hunr Nath aud P.L. Vohra, for tho rcspondl•nt.
l!lui. :l!'eburary 14.
The Judgment of the
Court was delivered by
liIDAYATl:LLAll, J:-The asscssee, who is the
respondent here, had received on July 20, l!l·Hl a
a sum
of Rs. 40,000/·.
In tho proceedings for
assrlisment for the assessment ye.u, I 94tl . .i7, this
came to the notice of tho Income·t<1x Officer. Since
tho receipt fell within the accounting year rolative
to tho assessment year, 1947-48, tlio Income-tax
Officer <lid not assess the amount making a noto,
"The question will however bo oonsidered again at
tho time of 19i7--i8 assessment." In the return fil~d
for the 8.sseesment year, l!J.!7-48, this amount was
not shown by the a88essee. The Income-tax Oflicer
also overlooked tho note at tho end of bi" order in
the back yoar's 'lBsessrnent, with the result that
this it.cm was omitted, The assessee appealed to
Appellate Assistant
Commissioner
against his
. assessment for the year, 1947-48. While the appeal
3 S.C.R.
SUPREME COURT REPORTS .
173
was pending. the Income-tax Officer wrote a letter
1962
to the Appellate Assistant ComrniRsioner intimatThe Oommi<8foner of
ing him th11t he would likf1 to he present, 1tnd n.lso
1
""~.':'ax
requesting him to asRess the :tmount of R8. 40.000/-.
s1,apoo•ji Pallonji
The Appellate Assisf,ant Commissioner. after issuing
Mistry
notice, :tssessed the amount :md included it in the
llido;atu/laf,J.
original asses~ment.. The oontPntion of the ltSsessee was th:it the amount of Rs. 4.0,000/- represented 11, receipt of a capital nature, while it wits
he Id to he a receipt on the nwenue account. With
thi~ controversy,. we 11,re not concerned. The Tribunal agreed with the Anpelhte Assist.ant C')mmissioner, hut on the application of the assessee,
referred two questions to the High ·court under
s. (i6 (l}. These quesf.ions-were:
" ( 1) Whether on the facts and in the
circumstancPs of the
case,
the Appellate
Assistant CommissionN w1ts
compPtent to
enh:tncc the 1tssessment of the Appellant for
the assAssment year 1947-48 hy a sum of
Rs. 40,0(10/-?
(2) Whether on the facts and circnmstances of the case the said sum of Rs. 40,000/-
is a revenue rPceipt anr-J assessable to tnx in
the assessment year 1947-48 ?''
The High Court answered the first qnrstion against
the Department, 1tnd declined to nN<WAr the secon<l,
in a much as it become aca<lPmic. This apnral has
heen filed with special leave, against the judgment
of the High Court of Bombay.
Tne question whirh arises in this appeal may
be formulated thus: whether in an appeal filed hy
assesee, the Appellate Assistance Commissioner
can find a new source of income not considered
by the Income-tax Officer and assess it under his
powers granted by s. 31 of the Income-tax Act ?
Section 31 reads as follows :
".11. ( l}
The Appellate Assistant Commissioner shall fi.x a day and place for the
1962
Tiu Ccmmissior." of
lncomt-Tox
v.
SMpoo1ji Pal/m:Ji
A1i1try
174 SUPREME COURT REPORTS (1962] SL'PP.
hearing of the appeal, and may from time to
time adjourn the hearing.
(2) The Appellate Assistant Commissioner
may, before disposing of anJ appeal, make
Ruch
further inquiry as he thinks fit, or
came further inquiry to he
made Ly tho
Jncorne·tnx Officer.
x
x
x
x
(3) in disposing of an appeal the Appellate A8sistant.Commissioner may, in the case
of nn ordC'r of as~<>~sment,-
(a) confirm, reducP, enhance
or annnl
the asseRSment,
(h) set aside the as.~essment and direct
the Income-tax Officer to make a
fresh assessment aftBr makinl! such
fm ther inquiry as the Income-tax
Officer thinks fit or the Appellate
Assi;tant Commissioner may direct,
and the
Income-tax Officf'r shall
thereupon proceed to mak<' surh fresh
assr.ssment and determine
whcro
necessary the amount of tax pay.
ah le on the hasis of such fresh asse~smcnt. ..
"
There is nn doubt that the Appellate
Assistant
Commissioner can "enh~nce the assessment." It
is admitted
al~o hy
the asRe8sre that.
within
the four cornerR of the sources proccssrcl hy the
Income· tax Officer, the Appellate Assistant Ccimmissioner can enhance the assessm('nt.
This power
must, at least, fall within the words "enhance the
asspssmcnt", if they are not to ho rend" red \I holly
nuga.f.ory.
The contro,·crsy in this case is about
hi;- di,;c.,vering new sources, not mentioned in the
rrt11rn
a!Hl
not considered by the Ineomr-tax
Officer. Tho High Court held, following its earlier
3 S.C.R.
SUPREME COURT REPORTS
175
view in N arron!las M anordass v. Commissioner of
Ineome-tax ('),that the Appellate Assistant CommiRsioner has revisional powers, but that they are
confined to what was before the Income·tax Officer and considered bv the latter. The correctness
of this view is challenged in this appeal by the
Commissioner of Income-tax, Born bay.
The earliest caso, which considered 'the meaning of s. 31(3), was Jagarnath ThPrani v. Commissioner of Income-tax (2) decided by the Patna High
Court.
In that case, the assessee had three businesses atPurnea, Jalpaiguri and Calcutta. Hi~ income
from Purnea only was assessed by the Income-tax
Officer.
On appeal by the assessee, the Appellate
Assist:i.nt Commissioner assessed him with regard
to the income from the other two ·businesses. The
head of income was the same with s. 6 of the
Income-tax Act, but the sources of income were
different.
The Patna High Court observed :
"Now this section relating to appeals is
enacted for the benefit of the subject and also
to the limited extent therein stated, for the
benefit of the Crown.
But the subject-mater
of the appeal is the assessment and the scope
of the appeal must in my opinion be limitcrl
by the "subject-matter". The appe!l1ttc authrity has no power to-travel beyond the subject-matter of the assessment and, for all the
reasons advanced by the appellant, is in my
opinion. not entitled to assess new sources of
income."
The view of the Patna High Court receives support
from a decision of the Madras High Court in
Gajalakshmi Ginninq Factory
v. Commissioner of
Income-tax(') where the Divisional Bench- observed
as follows:
"Of course, it would not be open to the
(!) [1957] 31 I. T. R. 909.
(21 [1925] I. I, R. 4 Pat. 385.
13) [ 1942] 22 J. T. R. 502, 5(0.
J96t
The Commissiorier .1f
lnco~·Tax
v.
Shapoo~ji Pal/onji
Mistry
1962
Tl.e Commfrsione1 of
Jn,ome-T ax
v.
Sh(lpoorji Po Jlon;'i
,\Jistry
llida;•atullah J.
176 SUPREME COURT REPORT8 [1962] SUPP.
Appellate Assistant Commissioner to introduce into thA assessml'nt new sources, as his
P"''"~r of enhancement should be restrirtcj
nn 1,v to the income whirh was the rnbjectmaftl'f of eonsidl•ration for
purposes of
asseffment b~· the Income-tax Officer."
In R,"s1111.·wna.th Pmsn.rl Bhaq11mt Prasad v.
Commi~
sionPr of T111:omP.-f1J.r (1), the
ApncllatA AsRistant
CommiR•ionpr had act.uitll~· rcmandPd the case, bnt
whill' con•irforing the powers of the Appl'llate
Assistant Commissioner, the Divisional
Bench
anpP'Lr• to h'lvA apnrovP<l of thn, above-rp1oted
na••n.go from Madras casA.
The observations in
1hilt ""R" mav ht> t.rpated as oln'ter.
In Nr1rro11das
Mm1orrl~ .... V,. enmmis.'!'i011er of Tncome-tax (') is to
h" fmmrl t.h" "nlicr casP of t.hri Bomlnv High Court
which w:iA followP<l in the judgment under appe11.l.
'Tn thnt en•<', th<> :i••PRACll wa• carrving on husinAss
in TI om hav :in<l also in 'Rajkot..
Tho profits from
th!' R:i.ilrnt bminPSS w"rf' a11.~esscrl hy the Tncomet11.x Officer at. Rs- 1, l 7.fl4:l/-.
TbP
Income-tax
OfficPr also fonnrl rcmittancPs t.o
the
ex!Rnt of
Rs. 4 lnkhq from 'R•,jk01 t.o Tiomhay, but did not
inclncll'
t.hnt amount
in
the
aSBl'Asment
in
Yil'w of t.hr> concession a llo,.-cd hy the Part 13
Stntl'S 'l'nxat.ion ConccRsion OrdP.r.
Th" assPssee
anpPnlNl with rr>snnct to th<' sum of Rs. 1,17,643/,
c.ontenrlin[! that the Tbjkot lmsincRs h td no profits
hut nnh- ]Oi<S.
Th<' Appnllatc Assistant Commissionc•r ~cceptc-<l thi" conf Pnf.ion, but sr't aAide the
R ssc••ment nnrl rnmanrlP<l the P<~sc to tho Incometn.x Officer for n•assPssmcnt with n. virlw to :\SSPSBincr tl1P snm of Rs. 4 lakhs. Tn rlealin!! with tho
cn;c. th<> High Court helrl that tho
powers of
rl'm,rnrl wNl' ext.rcmel~· wi<lP,. hut it. quokd with
anprnval the dPrision of the Patna. Hi!!h Court in
.ln.'frtmrt.f.11, Thr.rani v. Comm,"s«irmrr of lncnm•-t,n: (')
and also t.h" ahm·e obs,,rv:ttion of tho :lfadras High
C•mrt. The leuned Chief ,Justice on the occasion
( 11 [I Q5'] 31 I. T. R. !JOQ,
(2) [ 192;] I. L. R. 4 Pat. I Ii.
(I) [ 1952] 22 I. T. R. 502, 510.
•
,
3 S.C.R.
SUPREME COURT REPORTS
177
added that there was a distinction
between
the subject.matter of the appeal and the subjectmatter of the assessment, and that the Appellant
Assistant Commissioner's powers nnder s. 31 were
not confined to the subject.matter of the appeal
but extended to the subject-matter of the assessment. Those powers included a power of remand
to include in the assessment something which
ought to have been so included by the Income-tax
Officer, and a remand in that case was, therefore,
proper.
The matter also came before this Court in
The Oomn-tissioner of Income·tax v. M/s. McMillan
& Oo. ( 1); but the question, with which we are concerned, was left open. There is, however, a passage in the judgment, approving of the observations
of Chagla, C. J., in Narrondas Manordas.s v. Oommi88ioner of Income-tax ( ') to the following effect:
"It is clear that the Appellate Assistant
Commissioner has been constituted a revising
authority against the decisions of the Incometax Officer; a revising authority not in the
narrow sense of revising what is the subjectmatter of the appeal, not in the sense of
revising those
matters
about which the
assessee makes a grievance, but a revising
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 led to the ultimate computation or assessment. In other words, what he can
revise is not merely the ultimate a.mount
which is liable to tax, but he is entitled to
revise the various decisions given by the
Income-tax Officer in the cvurse of the ass·
essment and also the various incomes or
(I) [1958] S. C.R. 689, 701.
(2) [1925] I. L. R. 4 Pat. 380.
1962
Thi Commissioner of
Income-Ta
v.
Shapoorji Pallonji
Mistry
Hii•1stullah J.
1962
The CornmWi4ner of
Income-Tax
v.
Shapoorji ·Paiknji
Mistry
HiJJJy•tullah J.
I 6
I
.
I
'
~
•
•
,
•
,
,
1 ,
,
178 SUPREME COURT REPORTS [1962] SUPP.
deductions which came in .for consideration of
the Income-tax Officer."
The learned Chief Justice in the judgment under
appeal considers that this Court has thus given
approval to his view and also the view of the Patna
High Court in the earlier ca.se.
·
In our opinion, this Court must be hold not
to have expressed its final opinion on the point
arising here, in view of what was stated at pp. 709
,.
and 710 of the Report. This Court, however, gave
approval to the opinion of the learned Chief Justice of the Bombay High Court thats. 31 of the
Income-tax Act confers not only appellate powers
upon the Appellate Assistant Commissioner in so
far ae he is moved by an assessee but also a revieional jurisdiction to revise the assessment with
power to enhance the assessment. So much, of
course, follows from the language of the section
itself. The only question is whether in enhancing
the assessment for any year he can travel outside
the record, that is to say, the return made by the
assessee and the aesessment order passed by the
Income.tax Officer with a view to finding out new
sources of income, not disclosed in either. It is
contended by the Commissioner of Income-tax
that the word "assessment" here means the ultimate amount which an asseseee must pay, regard
being had to the charging section and his total
income. In this view, it is said that the words
"enhance the assessment" are not confined to the
assessment reached through a particular process
but the amount which ought to have been computed
if the true total income had been found.
There is
no doubt that this view is also possible. On the other
hand, it must not be overlooked that there are
other provisions like s. 34 and 33B which enable
escaped income from new sources to be bronght to
tax after following a special procedure. The as&
.eSBee contends that the powers of the Appellate
...
3 s.c.R. SUPREME couRT REPORTS
i 79
Assistant Commissioner extend to matters considered by the Income-tax Officer, and if a· new so11rce
is to be considered, then the power of remand
should be exercised. By the exercise of the power
to assess fresh sources of income, the assessee is
deprived of a finding by two tribunals and one
right of appeal.
The question is whether we should accept
the interpretation suggested by the Commissioner
in preference to the one, which has held the field.
for nearly 37 years. In view of the provisions
of ss. 34 and 33B by which escaped income can be
brought to tax, there is reason to think that the
view expressed uniformly about the limits of the
powers of the Appellate Assistant Commissioner to
enhance the assessment has been accepted by the
legislature as the true exposition of the words of
the section. If it were not, one would expect that
the legislature would have amended s. 31 and specified the other intention in express words. The
Income-tax Act was amended several times in the
last 37 years, but no amendment of s. 31(3) was
undertaken to nullify the rulings, to whioh we have
· referred. In view of this, we do not think that we
·should interpret s. 31 differently from what has
been accepted in India as its true import, particularly as that view is also reasonably possible.
The appeal is, therefore, dismissed; but in
the circumstances of the case, we make no order
about costH.
1962
The Commissionet oj
lncome .. Tox
v.
Shapoorii Paltonji
Mistry
Hidapatul !ah J.
Appeal dismissed. , .