Torson Products Ltd. Vs. Commissioner of Income-tax - Court Judgment

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direct taxation - assessment - sections 143 (1), 143 (3), 144b and263 of income tax act, 1961 - assessment made by income tax officer (ito) on basis of direction given under section 144b by inspecting assistant commissioner (iac) - whether commissioner empowered to set aside such assessment in exercise of power under section 263 - order made by ito as per direction issued by iac cannot be treated as order of iac - such direction only enables ito to make assessment - held, commissioner empowered under section 263 to set aside such assessment order made by ito. - - the correctness of this order was assailed by the assessee by filing an appeal before the tribunal but unsuccessfully.y.v. anjaneyulu, j.1. these two references relate to the same assessee and common questions of law arise for consideration. it will be convenient to answer the two references together. 2. in r. c. no. 160 of 1985 which relates to the assessment year 1976-77, two questions are referred for the consideration of this court. they are : '1. whether, on the facts and in the circumstances of the case, the tribunal is justified in law in holding that the commissioner of income-tax (ap) acted with jurisdiction in invoking section 263 of the income-tax act and in setting aside the order of the income-tax officer in which it was held that the assessee is a company in which the public are substantially interested 2. whether, on the facts and in the circumstances of the case, the tribunal is justified in law in holding that the order passed by the income-tax officer under section 143(1) dated november 18, 1977, in which the status of the assessee was determined as a company in which the public are substantially interested became non est by the later order passed under section 143(3) dated january 30, 1979 ?' 3. in r. c. no. 174 of 1985 which relates to the assessment year 1977-78, one question is referred for the consideration of this court. it is : 'whether, on the facts and in the circumstances of the case, the tribunal is justified in law in holding that the commissioner of income-tax (ap-i) acted with jurisdiction in invoking section 263 to revise the order of assessment dated august 2, 1980, passed on the directions of the inspecting assistant commissioner of income-tax under section 144b of the act for the assessment year 1977-78 ?' 4. the facts are not in dispute. in connection with the assessment years 1976-77 and 1977-78, the income-tax officer had submitted the draft assessment orders for the consideration of the inspecting assistantn commissioner of income-tax under section 144b of the income-tax act for short 'the act'). the inspecting assistant commissioner examined the record and gave appropriate directions to the income-tax officer to make the assessments for these two years. the income-tax officer completed these two assessments on the basis of the instructions given by the inspecting assistant commissioner acting under section 144b of the act. 5. after the assessments were made by the income-tax officer pursuant to the directions of the inspecting assistant commissioner under section 144b of act, the commissioner of income-tax exercised his revisional jurisdiction under section 263 of the act apparently on the ground that in the orders passed by the income-tax officer, there was an error prejudicial to the interests of the revenue. according to the commissioner, the status of the assessee had not been examined. it would appear that the assessee is a public company. whether that public company is one in which public are substantially interested or not is a relevant issue for the purpose of assessment. the commissioner of income-tax seems to have felt that there are grounds to think that the assessee is a public company in which public are not substantially interested. in that view, jurisdiction was exercised by the commissioner under section 263 of the act to revise the assessments made by the income-tax officer. apart from the objection on merits, the assessee took the preliminary plea that it is not open to the commissioner to exercise jurisdiction under section 263 inasmuch as the order passed by the income-tax officer is at the instance and under the directions of the inspecting assistant commissioner of income-tax under section 144b of the act. it is pointed out that section 263 does not confer power on the commissioner of income-tax to revise the order passed by the inspecting assistant commissioner of income-tax. it only confers power to revise an order passed by the income-tax officer specifically. according to the assessee, although the order is passed by the income-tax officer, it is nevertheless an order of the inspecting assistant commissioner, as the orders of assessments were passed to give effect to the directions given by the inspecting assistant commissioner. the commissioner did not accept the aforesaid contention of the assessee and set aside both the assessments with a direction to the income-tax officer to examine whether the assessee can be regarded as a company in which the public are substantially interested. the correctness of this order was assailed by the assessee by filing an appeal before the tribunal but unsuccessfully. that is how the present reference is brought before this court under section 256(1) of the act. 6. before us, learned counsel for the assessee, sri. m. j. swamy, reiterates the pleas urged earlier. according to him, the proceedings under section 144b of the act are proceedings of a quasi-judicial character and the statute requires that the directions given by the inspecting assistant commissioner acting under section 144b of the act should be given effect by the income-tax officer while making an assessment. learned counsel, therefore, urges that although ostensibly the order may appear to have been passed by the income-tax officer, in reality, it is an order of the inspecting assistant commissioner of income-tax since it accords with the directions of the inspecting assistant commissioner of income-tax. and then, contends the counsel, the provisions of section 263 of the act do not confer power on a commissioner to revise the order or directions given by an inspecting assistant commissioner. learned counsel, therefore, contends that there is total want of jurisdiction as far as the commissioner is concerned and the orders setting aside the assessments deserve to be quashed on that ground. 7. we are unable to agree. it may be that as a supervisory authority, certain directions are given by the inspecting assistant commissioner under section 144b of the act. it may also be true that these proceedings before the inspecting assistant commissioner are quasi-judicial in character. the fact, however, remains that the entire exercise is only to enable the income-tax officer to make a proper assessment in accordance with the directions of the inspecting assistant commissioner. that does not, in our opinion, have the effect of impressing the order ostensibly made by the income-tax officer as an order made by the inspecting assistant commissioner. the order continues to be one passed by an income-tax officer. appeal remedies are provided under the act treating the order as if it is an order passed by the income-tax officer. all other consequences under the act which are associated with an income-tax officer passing the order himself are also associated with the order passed by the income-tax officer, although under instructions and directions from the inspecting assistant commissioner of income-tax. in our opinion; it is difficult to accept the contention that the orders in question must be regarded as orders passed by the inspecting assistant commissioner so that there is an ouster of jurisdiction under section 263 of the act, 8. having regard to this view, we answer all the three questions referred in the affirmative, that is to say, in favour of the revenue and against the assessee. no costs.