THE COMMISSIONER OF INCOME-TAX, LAHORE ZONE, LAHORE Versus M. IQBAL SAIGOL

MUHAMMAD AKRAM, J.‑This is a reference application directly made to the High Court under section 66 (1) of the Income‑tax Act, 1922 and has arisen under the following circumstances:

2. The respondent is a member of the Saigol family. On 10th of June 1968 the Income‑tax Officer, Company III, Lahore completed the original assessment against him for the assessment year 1963‑64 relevant to the account year ended 31st of September 1962. At the time his total taxable income was computed at Rs. 4,13,861. This included a sum of Rs. 312 declared as having been received by the assessee as his dividend income from Messrs Azam Agencies Ltd., Lahore. It appears that before it, on the 23rd of June 1967 the as3essment against Messrs Azam Agoncies

Ltd., Lahore was completed by the Income‑tax Officer, Investigation Circle, I Lahore, and in that connection he had also passed an order under section 23‑A (t) of the Act directing that the accumulated profits of the company to the extent of Rs. 15,01,443 be deemed to ‑have been distri buted among its shareholders as on 8th November 1962. Consequently this amount was deemed to have been distributed among the shareholders ,of that company, including the respondent as under:

Rs.

(1) Mr. M. Shafique Saigol. 1,87,680

(2) Mr. M. Rafique Saigol. 1,87,680

(3) Mr. M. Farooq Saigol. 1,87,680

(4) Mr. M. Usman Saigol. 1,87,686

(5) Mr. M. Yousaf Saigol. 1,87,680

(6) Mr. M. Iqbal Saigol. 1,87,680

(7) Mr. M. Khalid Saigol. 1,87,680

(8) Mr. M. Javaid Saigol. 1,87,680

3. In accordance with the scheme of section 23‑A of the Act the amount thus allocated to each of the shareholders had to be included in his total income for the relevant assessment year ani brought to tax. But in completing the original assessment against the respondent assessee for the .assessment year 1963‑64 the Income‑tax Officer had omitted to include Rs. 1,87,386 (Rs, 1,87,680 minus Rs. 312) as his share of dividend income from Messrs Azam Agencies Limited Lahore. This fact came to the notice of the Inspecting Assistant Commissioner, Companies Range, Lahore in the course of scrutiny of the assessment record of the assessee. In his opinion ‑the assessment thus completed by the Income‑tax Officer against the assessee was erroneous and prejudicial to the interest of the revenue. He, therefore, .served a notice under section 34‑A of the Income‑tax Act on the assessee calling upon him to state as to why the original assessment order should not be modified suitably. In reply, the assessee raised an objection at the hearing before the Inspecting Assistant Commissioner of Income‑tax to the effect that the members of the Saigol Family, including the respondent, bad filed their declaration of excess income under Martial Law Regulation No. 32 and the amount now sought to be included in his assessment for the year 1963‑64, should be deemed to be covered by it and the matter could not be reopened. But‑ the learned Inspecting Assistant Commissioner of Income‑tax repelled this objection. In his opinion the amount in question was not of such a nature as was covered by the declaration of excess income under Martial Law Regulation 32. He was satisfied that the original order of assessment of the respondent passed by the Income‑tax Officer was erroneous inasmuch as it was prejudicial to the interest of the revenue. He, therefore, set aside the assessment order made on 5th June 1972 and directed the Income‑tax Officer to make the reassessment by adding thus Rs. 1,87,368 to his total income.

4. Dissatisfied, the respondent‑assessee went up in appeal Income‑tax Appeal No. 246 of 1911‑72 against the order. On the 13th of June 1973 the Income‑tax Appellate Tribunal (Pakistan), Lahore accepted the appeal of the respondent. On facts the Tribunal agreed with the Inspecting Assistant Commissioner Income‑tax in holding that the amount in dispute was not included in and covered by the declaration of excess income filed by the members of the Saigol family under the Martial Law Regulation 32 and the assessee's contention in this behalf was repelled. But, the Tribunal accepted an objection, for the first time raised by the respondent‑assessee during the course of the hearing in ‑appeal, to the effect that the Inspecting Assistant Commissioner of Income‑tax bad no jurisdiction and lawful authority under section 34‑A of the Act to reopen the already completed assessment which had become final in the circumstances of this case. The Tribunal gave effect to this objection raised by the respondent and set aside the order passed by the Inspecting Assistant Commissioner of Income‑tax for that reason.

5. In these circumstances the Commissioner of Income‑tax, Lahore has. filed the above application referring the following two questions of law said to arise out of the appellate order dated the 13th of June 1973 passed by the Income‑tax Appellate Tribunal (Pakistan). Lahore

"(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the order under section 34‑A of the Income‑tax Act passed by the Inspecting Assistant Commissioner of Income‑tax Companies Range, Lahore was bad in law and without jurisdiction ?

(2) Whether on the facts and in the circumstances of the case the Tribunal was justified to decide the appeal on an issue neither raised before the Inspecting Assistant Commissioner of Income‑tax Companies Range, Lahore who passed the order under section 34‑A nor taken in the grounds of appeal before the Tribunal ?"

6. We have heard the learned counsel for the parties in this and the other similar references made by the other members of the Saigol family at length. As already stated above the Income‑tax Tribunal accepted the respondent's appeal by setting aside the order passed by the Inspecting. Assistant Commissioner of Income‑tax on the sole ground that under sec tion 34‑A of the Income‑tax Act he was not justified in reopening the already completed original assessment against the assessee which had become final by efflux of time. In the opinion of the Tribunal under section 34‑A of the Act the jurisdiction of the Inspecting Assistant Commissioner was attracted only if the order passed by the Income‑tax Officer was (a) erroneous and (b) prejudicial to the interests of the revenue. It was contended before the Tribunal for the assessee that the original assessment order of the Income‑tax Officer was not per se erroneous either on facts or in law. At the time when he made that assessment on the 10th of June 1968 he had no infor mation on his record about this fictional income of Rs. 1,87,680 deemed to have been received by the assessee as dividend from Messrs Azam Agencies Ltd. As such his assesssment of the dividend income of Rs. 312 only was perfectiy tenable on the face of the record of this assessee before him. In the opinion of the Tribunal there being no error or omission on the face of the record, neither the provisions of section 35 nor section 34‑A of the Act could be invoked. The order of the Income‑tax Officer as passed was not suffering from any error apparent on the face of the record. In the opinion of the Tribunal in case any income had thus escaped assessment the proper course was to regularly initiate proceedings under section 34 of the Act within time and this action by the Inspecting Assistant Commissioner in resorting to the provisions contained in section 34‑A of the Act, amounted to an abuse and usurpation of the powers vested in the competent authorities under sections 34 and 35 of the Act. In summing up its conclusions in this behalf the Tribunal observed :‑

"There is no doubt that in theory it may be quite possible to conceive of cases which may simultaneously attract, the provisions of sections 34 and 34‑A and the revenue would in such cases, be entitled to dealt with them under either of the two provisions but looking to the scheme of the Income‑tax Act, the jurisdiction of the Inspecting Assistant Commis sioner under section 34‑A would in effect be only over cases of error causing prejudice to revenue due to wrong interpretations, by the Income‑tax Officer whether wilful or otherwise, must, however, attract jurisdiction under section 34. On the facts of this case, we, however, have found that the Assessing Officer, in absence of information about action under section 23‑A (1) in case of Messrs Azam Agencies Limited: had not committed any error of facts or law when he passed his orders, and, therefore, at worst this could be a case where either the specific defunct provisions of section 35(8) could be invoked or those of section 34, if the escaped income was discovered later on. If time was allowed to run out for actions under both these provisions the Revenue cannot be allowed to take recourse to an ingeneous device and' circumvent the limitations laid down in the relevant provisions and enlarge the same by recourse to section 34‑A. We must, therefore, strike out the order of the Inspecting Assistant Commissioner as bad in law without jurisdiction."

7. It may be observed that this precise objection against the jurisdiction of an authority vested in the Inspecting Assistant Commissioder under section 34‑A to pass his impugned order in the facts and circumstances of this case, was neither raised by the assessee at any stage before him nor even in the grounds of appeal before the Tribunal. Nonetheless, according to the Tribunal, this did not debar the assessee from thus raising the additional plea and argument in support of his case at the hearing. In our opinion this was a purely legal objection going to the root of the case and the Tribuna had allowed the same to be raised before it in the interest of justice. In doing so the Tribunal exercised the discretion vested in it as the appellate authority. In these proceedings before us the High Court cannot sit in appeal over the discretion thus lawfully exercised by the Tribunal. In our opinion, therefore, the Tribunal did not act illegally in allowing this additional plea to be raised at the hearing. Accordingly our answer to the second question reproduced above is returned in the affirmative.

8. But let us now examine the merits of the objection raised by the assessee to the effect that in the circumstances of this case the Inspecting Assistant Commissioner of Income‑tax had no lawful authority and jurisdiction under section 34‑A of the Act to sit in revision against the original assessment order passed by the Income‑tax Officer. Section 33‑A of ‑the Act empowers the Commissioner of Income‑tax to call for the record and revise an order passed by his subordinate under certain circumstances. The :Commissioner may in the exercise of his power of revision under section 33‑A ‑grant relief to the assessee. But this section in terms lays down that in no ,case can the Commissioner pass an order prejuicial to him. According to the Privy Council in C LT. v. The Tribunal Trust (1948 1 T R 214) old section 33 (corresponding ‑to the present section 33‑A of the Act) which conferred the power of revision ,on the Commissioner, was intended to provide for administrative machinery ~by which a higher executive officer could exercise his powers of review (more ;properly revision) over the acts of his subordinates. Under section 34 of the Act the Income‑tax Officer is empowered to frame a supplementary assessment under certain circumstances and. thus bring to tax income which has escaped assessment or was under‑assessed. Section 35 of the Act empowers the .Commissioner to rectify any mistake "apparent from the record" within the :time allowed by and subject to the conditions laid down therein. The scope of the section is limited and it is confined in its application to the rectification of mistakes apparent on the face of the record.

9. Section 34‑A also occurs in the same group of sections under Chapter 1V of the Act. Under it power is conferred on the Inspecting Assistant Commissioner of Income‑tax to call for the record of any proceedings under the Act and sit in revision on an order passed by the Income‑tax ~Dfficer. Subsection (1) of this section lays down that

"The Inspecting Assistant Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income‑tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment to be made."

Zut in this connection subsection (2) lays down that no order shall be made under subsection (1) after the expiry of four years from the date of the order sought to be revised.

10. The powers of revision (mss‑called as review) was vested in the .Commissioner under section 33 (1) of the Act prior to 1941. It was laid down that the Commissioner may call for the record of any proceedings taken under the Act by any authority subordinate to him. On receipt of the record he may make an enquiry and pass such order as he may think fit. However, in the year 1941 this power was withdrawn. But soon afterwards power of revision was restored in a modified form. In 1941 section 33‑A was inserted in the Act conferring the power of revision on the Commissioner ,for the benefit of the assessee. Afterwards in year 1959 section 34‑A was .added conferring the power on the Inspecting Assistant Commissioner of Income‑tax to revise any order passed by the Income‑tax Officer, if he considers it to be erroneous and prejudicial to the interest of the revenue. It may be seen that the Department has no right to go up in appeal against ,an assessment order passed by the Income‑tax Officer. Under section 33‑A the power of the Commissioner to revise on order passed by his subordinate is not of much avail to the Department, inasmuch as he has no jurisdiction to pass any order prejudicial to the assessee under that section. Section 34‑A was, therefore, enacted to arm the Inspecting Assistant Commissioner with the power to revise the assessment order passed by the Income‑tax Officer.

11. Subject to the limitations contained in section 34‑A of the Act, the power of revision conferred oa the Inspecting Assistant Commissioner is very' wide. He may revise orders both on points of law and facts. The revisional jurisdiction thus vested in him is one of superintendence and correction One of the main functions of the Inspecting Assistant Comm,ssioner for which he is appointed is to detect tax evasions. Under this section the Inspecting Assistant Commissioner may call for and examine the record of "any proceedings" under this Act and if he considers that "any order" passed therein by the Income‑tax Officer is "erroneous in so far as it is prejudicial to the interests of the revenue", he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. In doing so he may enhance or modify the assessment or cancel the assessment made by the Income‑tax Officer and direct him to make a fresh assessment. But under subsection (2) of this section he cannot interfere in revision after a period of four years from the date of the order under revision. To sum up the only restrictions imposed on his revisional jurisdiction under this section are that he cannot interfere (a) unless he considers that the order passed by the Income‑tax Officer is erroneous in so far as it ii prejudicial to the interest of the revenue ; (b) without affording the assessee a reasonable opportunity of being heard ; and (c) after the expiry of four years of the date of the order under revision.

12. On a plain reading of section 34‑A of the Act there is no express bar imposed on the powers of the Inspecting Assistant Commissioner that he cannot interfere unless the mistake in the order under revision is .apparent from the record. Indeed under this section he is vested with a very wide power to call for and examine the record of any proceeding under the Act. After examination of the record if he considers that any order passed therein by the Income‑tax Officer is erroneous in so far it is prejudicial to the interest of the revenue, he may take cognizance of the case in revision. At this initial stage of the case even before any notice is issued to the assessee he is required to make up his mind on an altogether subjective consideration: But there is nothing in this section to warrant the conclusion that at that stage of the case he must confine himself solely to the examination of the record of the Income tax Officer called by him or in other words in deciding to entertain the revision he is not permitted to rely on any other material or information not forming part of the record. Any such narrow interpretation on the opening part of subsection (1) of this section is bound to unnecessarily curtail the power of superintendence and control vested in the Inspecting Assistant Commissioner to sit in revision against the order passed by the Income‑tax Officer. This power is liable to be rendered almost nugatory and meaningless if indeed its exercise in confined only to the correction of errors on the face of the record. It is expressly laid down in this section that the Inspecting Commissioner may, after notice to the assessee, and after making, or causing to be made such enquiry as he may deem necessary, pass such order as the circumstances of the case may justify. This in itself implies that his enquiry in revision is not necessarily confined to the rectification of mistakes apparent on the face of the record. By all means in the course of his enquiry he can even go behind the record if Ile finds it necessary so to do,

13. In this connection the Tribunal in its appellate order under reference observed as under

"In our view, therefore, in order to attract the the jurisdiction of the Inspecting Assistant Commissioner the error should have been dis covered from the records of the appellant himself, whereas what happened in this case was that the error was detected, not from the records of the appellant, but from a scrutiny of the records of Messrs Azam Agencies Limited which was a completely different tax‑payer. There, thus, being no error in the order of the Income‑tax Officer even the question of prejudice to the interest of revenue at that stage could not give jurisdiction to the Inspecting Assistant Commissioner in view of our own decision in (1969) 20 Taxation 51 wherein the two primary requirements to give jurisdiction to the Inspecting Assistant Commis sioner under section 34‑A have been held to be the simultaneous exisistence of (i) an error in the order of the Income‑tax Officer and (ii) a prejudice to the interest of revenue as a result of this error. Here as we have held the order of the Income‑tax Officer as and when passed was not suffering from any error and one of the two conditions being absent, these provisions are not attracted."

But it s;ems to us that these observations by the Tribunal are not warranted on a plain reading of section 34‑A of the Act. The Tribunal appears to have read too much into this section by importing into it the provisions contained in section 35 of the Act meant for rectification of mistakes apparent on the record. In making these observations the Tribunal has even failed to refresh its memory by recapitulating what is contained in section 34‑A of the Act and based its order on irrelevant considerations. There is no anology in the provisions in section 35 of the Act for review with those contained in section 34‑A of the Act for revision.

14. The Tribunal in its impugned order has also relied on some of the reported cases in repelling the contention advanced on behalf of the assessee to the effect that the scope of sections 34 and 35 of the Act was mutually exclusive. In its opinion these two sections are co‑extensive in their scope. Tribunal has also relied on certain reported cases in support of its conclusion that the scope of section 35 (1) is confined to cases for the rectification of mistakes which are apparent on the record of the individual assessment. But from these it does not necessarily follow and the Tribunal was not justified in further holding that in order to attract the jurisdiction of the Inspecting Assistant Commissioner under section 34‑A of the Act the error in the order of the Income‑tax Officer should have been discovered from the record of the respondent‑assessee himself. There can be no quarrel with the view laid down in Assessee v. Department( (1969)20 Taxation 51) that the revisional jurisdiction of the Inspecting Assistant Commissioner invoked under section 34‑A is attracted only if the order under revision passed by the Income‑tax Officer is (i) erroneous and (ff) prejudicial to the interest of the revenue. These are the necessary ingredients for the exercise of the revisional jurisdiction vested in the Inspecting Assistant Commissioner.

15. It is not denied that the Income‑tax Officer, Investigation Circle‑1, Lahore by his order dated 23rd of June 1967 passed in the case of Messrs Azdm Agency Limited, Lahore, had directed that the undistributed portion of the Company's assessable income to the extent of Rs. 15,01,443 should be deomod to have been distributed as dividend among its share holders as on 8th of November 1962 in accordance with the pzovisions contained in section 23‑A of the Act. In this manner the respondent‑assessee's share of dividend income amounted to Rs. 1,87,680 against Rs. 312 declared for the assessn ent year 1963‑64 in question. Accordingly it was necessary to have made this addition of Rs. 1,87,368 to his assessable income. Obviously, therefore, the original assessment order dated 10th of June 1968 passed by the Income‑tax Officer, Ward III, Lahore against the respondent‑assessee was erroneous in so far as it was prejudicial to the interests of the revenue to this extent. As such the Inspecting Assistant Commissioner of Income‑tax was justified in revising that order on 5th June 1972 in the exercise of the jurisdiction vested in him under section 34‑A of the Act. Therefore in our C opinion the Income‑tax Tribunal was not justified in holding that the order in revision pa.,sed by the Inspecting Assistant Commissioner of Income‑tax under section 34‑A was bad in law and without jurisdiction on the facts and circumstances of this case. Consequently our answer to the first question referred to this Court must be returnea in the negative.

16. We have already returned our answer to the second question in the affirmative. These findings are sufficient to completely dispose of this reference. But at this stage the learned counsel for the respondent‑ assessee attempted to wriggle out of the situation in which he was thus placed. Before us he tried hard to contend that at any rate the Tribunal acted illegally in holding against him that the dividend income of Rs. 1,87,368 in dispute was not included in and covered by the joint declaration of excess income filed by the assessee and the other members of the Saigol family, processed under Martial Law Regulation 32 of 1969. In this connection he further submitted that both the Inspecting Assistant Commissioner of Income‑tax and the Tribunal have erred in law in directing the addition of this amount over again in the assessee's total income.

17. It may be seen that although there was this concurrent finding recorded against the respondent‑assessee yet he did not file any independent reference application of his own arising out of that part of the order made by the Tribunal. He was satisfied with the acceptance of his appeal by the Tribunal on the legal ground raised in the alternative to the effect that in the circumstances of this case the order passed by the Inspecting Assistant Commissiontr under section 34‑A of the Act was bad in law and without jurisdiction, to reopen the already completed original assessment. It was the Commissioner of Income‑tax who alone filed the above reference application against that part of the Tribunal's order decided against him.

18. Nevertheless the learned counsel for the assessee vehemently contended before us that the scope of the above reference application made by the Commissioner of Income‑tax was sufficiently wide so as to embrace within it, the question now sought to be raised before us on behalf of the assessee. In this connection he attempted to place a much wider interpretation on the first question referred to this Court by the petitioner. In support of his contention he relied on a number of reported cases and also filed their synopsis in writing before us. But it is not necessary to discuss all of them here. Inter alia he strongly relied on the following observations in the reported case of the Commissioner of Income‑tax, Bombay City v. Breach Candy Swimming Bath Trust, Bombay (1) t

"But Mr. Joshi says that it is not oper to us to consider this aspect of the matter because the only question that is submitted to us by the Tribunal is whether the income of the three relevant years is exempt under section 4(3) (ia) of the Indian Income‑tax Act or on the ground raised by the assessee, and Mr. Joshi says that if the case of the assessee does not fall under section 4(3) (ia) then he must fail in the reference and he must pay tax on the income. Now, in our opinion the real object of making a reference, stating a case, and raising questions is to bring out the real controversy between the department and the assessee, so that the High Court under its advisory jurisdiction can give an opinion on which the Tribunal can act ; and there can be no dispute that the High Couit has ample jurisdiction to alter and reformulate questions submitted by the Tribunal in order to bring out the real controversy between the parties. Now, what is the real controversy between the parties in this case 7 The contention of the assessee is that it is not liable to pay tax on the income derived from certain activities carried on by the trust because the trust is a charitable institution, and the contention of the department is that this income is not exempt from tax. Therefore, what we have to consider is, looking to the provisions of the Income‑tax Act, whether this income is or is not exempt from tax. It is rot necessary for the assessee to suggest under what particular section of the Act the income is exempt. This is a matter of a legal argument which can always be advanced in this Court. Therefore, the proper question which the Tribunal should have framed and submitted to us was whether this particular income is exempt from taxation. It would be open to the Tribunal in the statement of the case to point out under which section in its opinion it is exempted. But we would not be bound necessarily to take the same view as the Tribunal. In order to uphold the exemption it would be open to us if that question was raised to say that although we do not agree with the Tribunal that the income is exempt under the particular provision of the law on which the Tribunal has relied it is still exempt from taxation under some other provision. We cannot accept Mr. Josbi's contention that our jurisdiction is confined within such narrow bounds as to permit us only to decide whether the exemption falls under section 4(3) (id) or not and if our view is that it does not fall under section 4(3) (ia), even though the assessee may be entitled to exemption under some other provision of law, it is not open to us to express that opinion."

It is always open to the assesses to present a different aspect a new and another argument in answering substantially the same question of law referred to the High Court.

19. In the case of the Commissioner of Income‑tax Bombay v. Scindia Steam Navigation Co. Ltd. ( 1962 P T D 419 ) on a comprehensive review of the case‑law, Venkatarama Aiyar, J. in his majority judgment delivered by the Supreme Court of India observed that all the High Courts were agreed that section 66 of the Act creates a special jurisdiction and the power of the Tribunal to make a reference and the right of the litigant to requA're it to make a reference, is circumscribed within the four corners of subsection (1) of section 66. The jurisdiction of the High Court to bear the reference is limited to the questions which are properly referred to it, under this subsection. It is a purely advisory jurisdiction and extends only to the questions referred to the High Court. It is of the essence of such a jurisdiction that the Court can decide only questions which are referred to it and not any other question. In one of the more recent cases in Messrs Hunza Asian Textile and Woollen Mills Ltd. v. Commissioner of Sales Tax, Rawalpindi (1973 P T D 544), on a discussion of this subject under section 17 of the Sales Tax Act, 1951 (similar to section 66 of the Income‑tax Act), this Court has summed up its conclusions as under :

"To sum up, the jurisdiction vested in the High Court is a controlled one. It must act upon a reference by the assessee or the Commissioner and not without it. It is not a Court of facts but will decide questions of law only. In this connection under the amended law the processing of the reference application through the Appellate Tribunal was dispensed with. The idea behind this amendment was to liberalize this procedure and to free it from the old process, shackles and hurdles. The dialogue now is between the assessee or the Commissioner and the Court directly. On principle we cannot but hold that the Court is competent to entertain a pure question of law floating on the surface, patent on the face of the record, and going to the root of the case, merely because it had escaped the notice of the party and was not raised before the Tribunal in appeal in the first instance. The progress in the law has been to march forward from procedure to sub stance and to break down the rigours and formalities of the past in the larger interest of justice. On the plain language of the amended section 17 of the Sales Tax Act a question of law apparent from the order must be held to arise out of it although it was not specifical!‑, raised and discussed by t be Tribunal."

These observations were made in a different context in reply to the contention that on a reference the High Court has no jurisdiction to entertain a new question of law not raised before and dealt with by the Tribunal in its appellate order.

20. In the instant case, the respondent‑assessee succeeded in his appeal which was accepted by the Tribunal and the revisional order passed by the Inspecting Assistant Commissioner of Income‑tax was set aside. As already discussed above in appeal before the Tribunal two independent issues came up for consideration. The Tribunal accepted the contention of the assessee in holding that the Inspecting Assistant Commissioner had no inherent jurisdic tion under section 34‑A of the Act to reviFe the already completed assessment in the circumstances of this case and therefore on this ground alone quashed his order. But on the other issue, on the merits the Tribunal found against the assessee by holding with the Inspecting Assistant Commissioner that in completing the assessment against him by the Income‑tax Officer the sum of Rs. 1,87,368 in dispute had escaped assessment and was not covered by the declaration processed under Martial Law Regulation 32. The assessee having obtained the relief in appeal from the Tribunal for its finding.on the first issue did not file any independent reference application before the High Court questioning the finding recorded against him on the second issue. The Commissioner of Income‑tax alone filed this reference application against the assessee arising out of the part of tire finding recorded by the Tribunal on the first issue only involving the interpretation of section 34‑A of the Act. He was fully satisfied with the finding recorded by the Tribunal on the second issue in his favour. Therefore he could not have referred to the High Court any question arising out of that part of the order of the Tribunal which was wholly in his favour and against which he was not at all aggrieved. As it is, in our considered opinion, it is illogical oAt& part of the assessee to contend that the form of the questions already referred to the High Court at the instance of the petitioner was sufficiently wide and comprehensive enough to include within its scope the objections entertained by the respondent against the independent finding recorded by the Tribunal on the second issue as well. Bye are therefore clear in our mind that under section 66(1) of the Act the proceedings before us are strictly confined to the precise questions raised in the above application made by the‑petitioner. It is not permissible for the respondent to raise any independent and s.parate question of law in the course of these proceedings before us. He could do so by a separate reference application of his own similarly made under section 66(1) of the Act.

21. In the Commissioner of Income‑tax, Bihar and Orissa v. Mahara jadhiraja Kameshwar Singh of Darbhanga ((1933) 1 T R 94 ) their Lordships of the Privy Council observed that the duty of the High Court under section 66(5) of the Act is to "decide the question of law raised" by the case referred to them by the Commissioner and that it was for the Commissioner to state formally the questions which arise. They deprecated the practice of the High Court itself in formulating the question.

22. A somewhat similar situation arose in the reported case of the Commissioner of Income‑tax Madras v.D. Arokiaswami Chetti and Co.( (1948)16 1 T R 404) before the Madras High Court in India. In that case the Court particularly observed

"Nevertheless, the Tribunal did give its decision on both the questions. In so far as the answer to one of the questions was against the depart ment, the department has made an application for reference but the assessee has not chosen to apply for a reference as regards the question decided against him. The terms of the reference may i o doubt appear to be wide. The routine clause "on the facts and in the circumstances of this case" may be stretched to take in anything. But we consider that in con, truing this clause with reference to particular case, due regard must be had to any findings of fact by ‑the Tribunal and to findings of law which have not been sought to be questioned by either the assessee or the Commissioner by an application for reference. One of the facts in this case is that the Tribunal held that the deed of partnership was not operative after the 29th May 1942, and there was no application for a reference on the question as to the correctness of that finding. We do not therefore think that there is anything in the frame of the question which compels this Court to deal with the question of law with reference to which there has been no application to refer to this Court. We therefore hold that the assessee is not entitled to be heard on the question whether the finding of the Tribunal that the deed of partnership ceased to be in force after the expiry of the period of three years is right or wrong."

23. But a contrary view was adopted in the case of Girdhardas & Co. Ltd. v. Commissioner of Income‑tax, Ahmedabad ((1957)31 I T R 82). In that case in addition to the question referred by‑the Appellate Tribunal on the application made by the assessee under section 66(1) it had also referred another question arising out of another part of the appellate order to the High Court at the instance of the Commissioner without any formal application moved by him. In that connection the Court observed as under :

"Another question has been submitted to us by the Tribunal which was raised by the Commissioner and Mr. Palkhivala has a preliminary objection to take, to the raising of the question. His contention is that the application for a reference was made by the assesses and it was on that application that a qudWn of law was submitted to us. As the Commissioner had made no application for reference it was not open to the Commissioner on his application to ask for a reference of a question of law which according to him arose from the order of the Tribunal. Now, this point was considered by us in Commissioner of Income‑tax, Bombay South v. Ranthia Bank Ltd. and we said there :

`Whoever may be the party who asks for a reference, once a reference is determined upon, all questions of law which arise out of the order of the Tribunal can be referred to the High Court'.

It is obvious that there may be cases where a winning party would be seriously prejudiced if it was precluded from raising a question of law merely because it had not made an application for a reference and the reference was asked for at the instance of the losing party. The winning party can never apply for a reference. But it may happen that if the Court takes a particular view on the reference asked for by the losing party, certain other questions of law may have to be decided in the interest of the winning party. Therefore, it would not be proper to shut out a party before the Tribunal from raising a question of law which clearly arises from the order of the Tribunal merely because it so happens that it has not made an application for a reference. In this particular case, undoubtedly, the Commissioner could have made an application for a reference, but there may be cases, as we have just pointed out, where the Commissioner could not have made an application for a reference because he had won before the Tribunal. We therefore overrule the preliminary objection taken by Mr. Palkhivala. "

24. With due reference, perhaps the ratio in the foregoing case from the Bombay High Court could be explained on the hypothesis that the Appellate Tribunal had referred the second question allowed to be raised at the instance of the Commissioner of Income‑tax on his verbal application, though not strictly in conformity with the provisions contained in sub section (i) of section 66 of the Indian Income‑tax Act.

25. Even otherwise, there is no force in the contention of the respondent on the merits and we find that the Tribunal was justified in holding on the facts of this case that the sum of Rs. 1,87,368 in question was not already covered by and included in the excess income declaration filed by the assessee and the other members of the said family, which was finally processed under Matrial Law Regulation No. 32. In order to fully appreciate this controversy it is necessary here to briefly recapitulate the relevant provisions of Martial Law Regulation No. 32 and the circulars issued by the Central Board of Revenue in that connection. The Martial Law Regulation No. 32 was issued on 15th April 1969. Under it every person, who had filed the returns of his income under the Income‑tax Act, 1922 for the assessment years from 1960‑61 to 1968‑69 (both inclusive), and who had reason to believe that the returns so filed were not correct, was required to file revised return of his true income by 16th June 1969. Para 20) and (2) of the Regulation lays down that "any person, who has filed the return of his income under the Income‑tax Act, 1922, for the assessment year 1960‑61 or any assessment year thereafter up to and including the assessment year 1968‑69 and who has reason to believe that the return so filed is not correct, may file a revised return of his true income by 16th June, 1969. It was expressly laid down that no action of any kind whatsoever shall betaken for having submitted an incorrect return originally or in respect of nature of the transaction from which the income respresented by the difference between the revised return and the original return (called the excess income) was derived, nor will the effect of his having filed a revised return be taken as a ground for the reopening of any assessment under subsection (2) of section 34 of the income‑tax Act. 1t was further classified that in case it was not possible for him to compile the revised return separately for each year, a consolidated statement showing his true income for the entire period commencing with the assessment year 1950‑6t and ending with the assessment year 1968‑b9 may be filed by 16th June 1969. Para 3(I) and (II) of the Regqlation further provided that where the returns or revised returns of income have been filed for each assessment year separately the assessment for the relevant year shall be made on the basis of such returns. But where a consolidated statement of income was filed, such consolidated income shall be divided by the number of years to which it pertained subject to a maximum of nine years and the assessment or reassessment, as the case may be, shall be made for the relevant assessment years on the average annual income so determined, which shall be treated as `taxable income'.

26. In connection with the Martial Law Regulation 32, the Central Board of Revenue also issued detailed instructions contained in Circular No. M L R/1 of 1969 amended by Circular No. M L R/3 of 1969. In para 3(i) (b) of this Circular (as amended) it was laid down that if it was not possible for an assessee to file a separate return for each year, a consolidated statement may be filed for the years for which the income is sought to be revised, stating the period to which it related, but in no case the `excess income' could be treated as relating to any year prior to the assessment year 1960‑61. The assessee was required to provide some reasonable basis for the computation of the income so declared. It was further provided that where, however, the assessee claimed that the consolidated statement pertained to a period of more than 5 years and he was not in a position to supply any reasonable basis for such claim, then in that case consolidated statement would be taken as for the latest five assessment years and assessed accordingly. In para. 5 (a) of the Circular it was also laid down that where a tax‑payer has filed a return/revised return or a consolidated statement showing his income correctly, it would be taken to include all the income earned by him from all sources including suppression of income as also taxes and duties evaded if any, such as Cuitoms and Central Excise Duty, Sales‑tex, Estate Duty etc, It was expressly stipulated that proceedings for the recovery of Customs, Central Excise Duty, Sales‑tax etc. evaded would not be started or re‑opened as the case may be against such persons for the relevant period except that revaluation proceedings pending with the Customs authorities or any proceedings pending with the Central Excise sutorities on 16th April, 1969 would not be affected. Assessment under the Sales Tax, the Estate Duty, Wealth Tax and Gift Tax Acts which had already been finalized would not be re‑opened but pending assessments would be finalized under those Acts on the basis of the returns and other information already supplied by the assessee. No action whatsoever shall be taken against the assessee for having submitted earlier incorrect returns under those Acts. This was of course on the premises that all income or gains from such suppression or evasion of of taxes and duties were correctly included in the revised returns or the consolidated statements of the tax‑payers. It is also laid down m para. 6(bb) that where the consolidated statement of income has been filed in the case of an existing assessee, the excess income, being the difference of the consolidated statement and incomes already assessed or originally returned where no assessments have been shall be divided by the number of years to which it pertained. The average excess income so arrived at was to be added to the assessed or returned income of each year and brought to tax without allowing any deduction or exemption in respect of this excess income.

27. In the instant case before us the respondent did not file a revised return separately for each assessment year under Martial Law Regulation No. 32. Instead of that he alongwith the other members of the Saigol family filed a consolidated statement declaring excess income of Rs. 1,17,00,000 in accordance with the provisions of the Regulation. The committee con stituted under M. L. R. No. 32, Lahore in agreement with the members of the Saigol family, decided to compute the total excess income of the group at Rs. 1,90,00,000 as against Rs. 1,17,00,000 declared. It was further agreed that Rs. 1,17,00,000 shall be taxed in the hands of the individual family member, as indicated therein, by adopting the excess income for the latest five assessment years from 1964‑65 to 1968‑69. But the sum of Rs. 1,87,368 in dispute (being the dividend income of the assessee from Messrs Azam Agencies Ltd.) related to the assessment 1963‑64. As such it was not possible to hold that this dividend income in dispute was covered by and included in the excess income declaration already filed by the assessee and processed under the Matrial Law Regulation No. 32.

28. But in this connection the learned counsel laid stress before us to contend that in accordance with para. 2(ii) of the Martial Law Regulation No. 32 the assessee alongwith other members of the Saigol family had jointly filed the consolidated statement showing their true income for the entire period of eight years for the assessment years from 1960.61 to 1968‑69 `and the excess income thus disclosed by the assessee was inclusive of his share of dividend income in dispute from Messrs Azam Agencies Ltd. for the assessment year 1963‑64 as well. But while processing the said consolidated statement, in agreement with the assessee and the Committee constituted under the Regulation, it was decided to treat it for the last five assessment years from 1964‑65 to 1968‑69 only in accordance with the provisions contained in para. 3(i) (b) of Circular No. M. L. R. No. 1 as amended by Circular No. M. L. R. 3 of 1969. Therefore in spite of the declaration the consolidated statement was not taken for the assessment year 1963‑64. There is no force in the contention advanced by the learned counsel for the assessee that the exces3 income thus declared must be deemed to be for the entire period for the assessment years from 1950‑61 to 1968‑69. There is no warrant for importing this fiction into the two circular letters. It is, there fore, difficult to hold that the assessee's share of dividend income of Rs 1,87,368 in dispute from Messrs Azam Agencies Ltd. was included in and covered by the excess income declaration processed under the Martial Law Regulation No. 32. Nor for the same reasons it can be held that the original assessment order dated 10th of June 1968 passed by the Income‑tax officer had merged into order of Committee processing the declaration filed under the Regulation and that the Inspecting Assistant Commissioner had no jurisdiction to sit in revision against it under section 34‑A of the Act. In this connection we have no hesitation in further endorsing the following observations made by the Income‑tax Tribunal in its order under reference

"At the time of hearing the appellant's counsel, therefore, proceeded to argue that no action under section 34‑A (1) in the first instance was called for because the Martial Law declaration processed for the assessment years 1964‑65 to 1968‑69 on 31‑10‑69 clearly directed that except for the income processed no other action should be taken against the appellant. In the schedule to the processing order it was specifically mentioned that all penalty actions initiated even for earlier years were to be dropped.‑ It was argued that, therefore, the original order of the Income‑tax Officer relating to the assessment, year 1963‑64 should be treated as merged in the orders passed under the Martial Law declarations, Therefore, no order of the Income‑tax Officer now exists as the final available assessment orders are from the Martial Law processing authorities. For this proposition reliance was placed on two decided cases, reported as (1953) 23 ITR 412 and (1958) 34 I T R 130 S C to contend that the orders sought to be vacated were no more the orders of the Income‑tax Officer and, therefore, the Inspecting Assistant Commissioner had no jurisdiction to interfere with these orders aq the power under section 34‑A were confined to the orders passed by the Income‑tax Officer. We, however, cannot agree with this proposition as we find in the first instance that the order under appeal relates to the assessment for the year 1963‑64, whereas the Martial Law Regulation orders are confined to the years 1964‑65 to 1968‑69. It is, however, true that the appendix to these Martial Law Regulation orders permits dropping of penal actions for all the earlier years including the assessment year 1963‑64, but so far as the penal proceedings are concerned we do not find them to be part and parcel of the assessment order now under consideration. What the Martial Law processing committee decided was that the subsequent proceedings initiated under section 28 should be dropped even for the year 1963‑64. This should not, therefore, lead to the conclusion that the present orders were merged in the Martial Law Regulation orders. Therefore, the appellant's reliance on paragraph 5(a) of the Central Board of Revenue's circular No. M. L. R.‑1/69 as amended by Circular No. M. L. R.‑3/68 is of no avail."

29. However in this connection we are unable to subscribe to the finding recorded by the Tribunal in para. 4 of its order .to the effect that the scope of the Martial Law Regulation No. 32 was confined to concealed or kept concealed income outside the books of account and that it was not applicable to divided income in question which was neither concealed income nor kept outside the books. In this connection para. 2(1) of the Regulation lays down that any person, who has filed the return of his income under the Income‑tax Act for the period from assessment years 1960‑61 to 1968‑69 and who has reasons to believe that the return so filed is "not correct", may file a revised return of his true income. This is sufficient to show that the provisions of the Regulation are equally applicable to the incorrect returns filed under the Income‑tax Act whether by concealment or otherwise. But this fallacy in the reasoning of the Tribunal does not in the long run alter its ultimate conclusion recorded on this part of the case.

30. As a result of our above discussion and in conclusion we find that on the facts and in the circumstances of this case the Tribunal was not justified in holding that the order passed by the Inspecting Assistant Commissioner of Income‑tax Companies Range. Lahore under section 34‑A of the Income‑tax Act was bad in law and without jurisdiction. As such our answer to the first question reproduced above is returned in the negative We are further of the opinion that on the facts and in the circumstances of the case the Tribunal was not debarred in the exercise of the discretion vested in it in law, in basing its appellate order on an issue which was neither raised before the Inspecting Assistant Commissioner nor taken in the grounds o appeal before it. We, therefore, return our answer to the second question) reproduced above in the affirmative. The respondent shall bear the costs of this reference application before us.

8.9, Reference answered accordingly.