Vildirect: IncomeTax-caselaws-1982-VIL-486-DEL-DT

1982-VIL-486-DEL-DT

Equivalent Citation: [1982] 138 ITR 391, 33 CTR 1, 12 TAXMANN 34

DELHI HIGH COURT

Date: 26.03.1982

KANJI MAL AND SONS

COMMISSIONER OF INCOME-TAX, NEW DELHI

BENCH

Judge(s) : MS. LEILA SETH., S. RANGANATHAN

JUDGMENT

The judgment of the court was delivered by

RANGANATHAN J.-This reference raises a somewhat unusual problem. The Income-tax Appellate Tribunal has referred to this court as many as five questions of law as against seven proposed by the assessee. It is necessary to set out the facts at length to appreciate the contentions that arise in the case.

The assessee-applicant, M/s. Kanji Mal & Sons, was a firm consisting of three partners, Ram Ratan Dass, Parshotam Dass and Lachhman Dass. It is said that Ram Ratan Dass and Parshotam Dass have since died and the firm has been dissolved. We are concerned in this reference with its assessment for the assessment year 1948-49. It was originally assessed as a registered firm under the Indian I.T. Act, 1922, for this assessment year. The assessment was completed on 29th March 1951, by the Incometax Officer (ITO), 1st Contractors Circle, New Delhi. The address of the firm is given in the assessment order as M/s. Kanji Mal & Sons, jewellers, Chandni Chowk, Delhi. The firm was running a jewellery shop in Chandni Chowk, Delhi, with branches at New Delhi and Mussoorie. A consolidated profit and loss account was prepared and an income of Rs. 16,043 was returned. The assessment was completed on a total income of Rs. 40,050.

It appears that, after the above assessment was completed, the department received some information, regarding certain transactions entered into by the firm during the accounting year relevant to the assessment year 1948-49 (year ending on April 9, 1948), for the sale of jewellery to various parties involving, substantial amounts. In, order to assess this escaped income action appears to have been initiated simultaneously by two ITOs, viz., ITO, District VIII, Ward-E, and ITO, District III, Ward-D. We are concerned in this reference with a reassessment completed by the ITO, District III, Ward-D. We shall for purposes of convenience refer to these two officers as " Ward-D Officer and " Ward-E Officer", respectively.

The notice issued by the Ward-D Officer under s. 148-actually the notice under s. 148 for this reassessment was issued by the ITO, District III, Ward-B, but no point has been made of this and so this discrepancy is not very material at this stage and it can be treated as a case of initiation of proceedings' by the Ward-D Officer himself-was served on the assessee on March 29, 1965, and called upon it to file a return on or before April 28, 1965. On April 28, 1965, the assessee filed an application in Form No. 6 seeking extension of the date for the filing of the return. There were a number of reasons adduced for the inability to file the return before April 28, 1965, and one of them was this:

"That notice for the assessment year in question having also been received from another Income-tax Officer, i. e., the Income-tax Officer, I.T. Cum W.T. Circle VIII New Delhi, the notices under reply are ineffective in law for want of determination of the issue of jurisdiction by the Commissioner of Income-tax in terms of section 124. (This is without prejudice to the objections herein regarding the availability of jurisdiction, cause of action or liability of the assessee). "

This was signed by the former partners, Parshotam Dass and Lachhman Dass, and their addresses was given as c/o M/s. Kanji Mal & Sons, Scindia House, Janpath, New Delhi. This letter was addressed to the ITO, E-III District, New Delhi, but this appears to be a typographical mistake for D-III District, New Delhi. It is from this letter that one comes to know that action had already been initiated under s. 148 by the Ward-E Officer but there is very scanty information available on record as to when proceedings were initiated by that officer and what happened to them ultimately.

Nothing appears to have happened in pursuance of the notice under s. 148 for some time until a notice under s. 142(1) was issued by the ITO. To this the assessee replied through his counsel on 15th July, 1968. It was stated :

" Please refer to the assessee's explanation for extension of time filed on 28-4-1965. Till the decision of the issues raised therein the assessment may not be proceeded with and the assessee be not considered in default.

The assessment for the preceding year is only a precautionary assessment in the eventuality of the failure of the assessment in District VIII, Ward-E, New Delhi.

Regarding the issue of jurisdiction the assessee is in correspondence with the Commissioner. Till the copy of the order of the Commissioner is supplied and the assessee is afforded an opportunity to exercise his remedies thereafter in that matter ends of natural justice require that the present assessment be kept in abeyance. It is accordingly prayed "

This was followed up by another letter dated January 7, 1969, stating that the circumstances continued to be the same and requesting " that the present assessment be kept in abeyance till a copy of the order of the learned Commissioner is supplied and the assessee is afforded an opportunity to exercise his remedies thereafter".

There was no response to, or action taken upon, these representations made by the assessee. The ITO, D-Ward, continued with the reassessment proceedings and completed the reassessment on March 28, 1969. The assessment order describes the name of the assessee as M/s. Kanji Mal & Sons, Chandni Chowk, Delhi (Dissolved firm) through its partners and legal heirs : (1) Lala Parshotam Dass (Partner), (2) Lala Lachhman Dass (Partner), and (3) Lala Ram Dass and Lala Nand Lal, legal heirs of late Sh. Ram Rati Dass. The status of the assessee was taken as an unregistered firm. The assessment order opens with a reference to the original assessment in the case having been completed in District VIII Ward -E New Delhi, which admittedly is not correct. It refers to return having been filed on March 24, 1969, declaring the same total income that has been assessed originally, namely, Rs. 40,050. The assessment order then proceeds to say :

" It was agreed that (since) this is a protective assessment on account of the doubt about the ITO who would correctly hold jurisdiction over the assessment, (all) the evidence and contentions raised with the ITO, Distt. VIII, Ward-E, making the main assessment may be taken as applying to this protective asstt. also (and) the assessment completed on the same basis as in Dist. VIII, Ward-E. This protective assessment is being made in terms of the CITs order dated 4-2-1964. "

The ITO then proceeds to deal with the merits of the assessment and, following the action of the ITO, District VIII, Ward-E, New Delhi, he also estimated the assessee's sales during the year at Rs. 15 lakhs on which G.P. rate of 40% was applied. The total income was thus computed at Rs. 5,82,092 and penalty proceedings under ss. 271 and 271(1)(c) were also initiated.

The assessee preferred an appeal to the Appellate Assistant Commissioner (AAC) raising several objections to the validity of the reassessment as well as to the quantum of income assessed. Regarding validity of the assessment the assessee's main objection was that the ITO, District VIII, who issued the notice under s. 148 and the ITO, Distt. III, Ward-D, who made the assessment had no jurisdiction over the case. It was pointed out that, within one month from the service of the notice under s. 148, the assessee had taken up an objection regarding jurisdiction in terms of s. 124 in the application for an extension of time. It was urged that, under s. 124(6) of the Act, this objection should have been referred by the ITO to the Commissioner of Income-tax (CIT) for determination, and that this had not been done. This objection was upheld by the AAC. He perused the record and found that the CIT's order dated August 4, 1964, referred to by the ITO in the reassessment order did not pertain to the assessment year under consideration. He was of opinion that since, despite a specific objection having been taken to the jurisdiction of the ITO, the ITO completed the assessment without referring the matter to the CIT as statutorily required, " the assessment had to be set aside to be made de novo after following the legal procedure as per the Act ". The AAC then deals with objections raised by the assessee to the description of the assessee-firm as contained in the assessment order on the ground that both Ram Ratan Dass and Parshotam Dass having died and the firm having been dissolved the demand notices, addressed to the firm at Scindia House, had not been properly so addressed. The AAC was of opinion that the errors in not mentioning the names of the heirs of the partners correctly or mentioning the address of the firm as " now Scindia House " did not make the assessment illegal or invalid. Having thus held, the AAC concluded with the following directions :

" The result is, the assessment is set aside to be made afresh after referring the case for determination of jurisdiction by the Commissioner of Income-tax as mentioned above.

The assessee had preferred an appeal to the AAC raising several grounds against the assessment in regard to its validity as well as its correctness. But, as pointed out by the AAC, the main objection taken before him was that the assessment was void ab initio and liable to be annulled for want of the CIT's order under s. 124 on the issue of jurisdiction despite the representations made by the assessee on April 28, 1965, July 7, 1968, and January 7, 1969. It had been urged that the assessment and demand were liable to be vacated or annulled for non-compliance with the mandatory requirements of s. 124(6). The assessee was, therefore, aggrieved by the order of AAC because the AAC, instead of annualling and vacating the order of assessment passed by the ITO, merely set it aside to be made afresh after referring the case for the determination of jurisdiction by the CIT. The assessee apparently did not like that the assessment proceedings (which had been completed 20 years after the relevant assessment year had ended) should have again got a new lease of life by the order of the AAC. The assessee, therefore, preferred an appeal to the Appellate Tribunal. The contentions raised by the assessee may be set out in the words of the Tribunal:

" The learned counsel for the assessee has raised several objections to the assessment. Firstly, according to him, the Income-tax Officer could not possibly have completed a valid assessment without an appropriate order from the Commissioner of Income-tax under section 124(4) of the Income-tax Act. According to him no protective assessment was permissible where the jurisdiction of the Income-tax Officer was in challenge. He went on to contend that since the assessment was ab initio void, the Appellate Assistant Commissioner of Income-tax could not give it a new lease of life by setting it aside and directing the Income-tax Officer to remove the illegality which had rendered the assessment null and void. "

The departmental representative, on the other hand, contended:

"The question of jurisdiction of the Income-tax Officer was i not justiciable before the appellate authorities and he relied on the decision of the Supreme Court in Rai Bahadur Seth Teomal v. Commissioner of Incometax [1959] 36 ITR 9 (SC). He also contended that in view of the decision of the Supreme Court in Estate of Late Rangalal Jajodia v. Commissioner of Income-tax [1971] 79 ITR 505, there could be no objection to any appellate authority giving a direction to the Income-tax Officer to remove an illegality assuming that there was any illegality."

The Tribunal apparently accepted the main contention raised on behalf of the assessee, namely, that where there is any question about the jurisdiction of the ITO the same has necessarily to be referred to the CIT and that if the ITO proceeded to make an assessment without referring the matter to the CIT, such an assessment would be null and void. Such a contention, it found, was supported by the decision in the case of Dina Nath Hemraj [1927] 2 ITC 304 (All). The Tribunal, however, proceeded to consider whether the question of jurisdiction could be gone into by them and observed as follows:

" But on a careful reading of that decision and the provisions of section 124(4) and 124(7), we are inclined to the view that section 124(4) if read harmoniously with section 124(7) does not result in an assessment being illegal just because the Income-tax Officer fails to get the jurisdiction determined by the Commissioner of Income-tax. As we see it, there are two alternatives before the authorities. The first alternative is that the issue of jurisdiction is raised before the assessment is completed, it is decided by the Commissioner and the decision of the Commissioner is final. It is to this case that the decision of the Supreme Court in 36 ITR 9 relied on by the departmental representative would apply. The second alternative is that the Income-tax Officer or the two Income-tax Officers frame the assessment or assessments notwithstanding the objection of the assessee. In that case the assessment loses the immunity from attack to the jurisdiction which is granted by sections 124(4) and 124(5) and would be open to review by the appellate authorities in the light of the relevant Provisions of the law. The relevant provision of law is in section 124(7) according to which notwithstanding anything contained in section 124 (which would include sections 124(4), 124(5) and 124(6) the Income-tax Officer has all the powers conferred under the Act in respect of any income accruing or arising or received within the area for which he is appointed. ". (Emphasis added).

In the light of this conclusion the Tribunal proceeded to examine the other provisions contained in s. 124 and, referring to sub-s. (7)-which was applicable notwithstanding anything contained in sub-ss. (4) to (6)observed

" This clearly means that if the income assessed accrues or arises or is received within the area for which the Income-tax Officer concerned is appointed, the assessment cannot be impugned on the ground that his jurisdiction was challenged by the assessee and the Income-tax Officer failed to refer the question of jurisdiction to the Commissioner. If the Income-tax Officer who had assumed jurisdiction notwithstanding the challenge by the assessee or if one of the two Income-tax Officers who had assumed jurisdiction does in fact have jurisdiction in terms of section 124(7) the assessment made by him will not be invalidated merely by reason of the, fact that he did not get jurisdiction endorsed by the Commissioner. If on the other hand, it is found that the Income-tax Officer had no jurisdiction in terms of section 124(7) the assessment was clearly without proper foundation and was liable to be annulled. It, is significant that even in the Calcutta decision reference is made to a similar provision in the old Act, i.e., section 64(4). But since the, question in that case turned on the determination of the principal place of business, their Lordships did not attach any importance to that provision. But, with respect, section 124(7) was an integral part of the whole of the section and it is significant that it begins with the words 'notwithstanding anything contained in this section'. These words indicate an overriding significance. We are, therefore, of the view that the failure of the Income-tax Officer in the present case to refer the question of jurisdiction to the Commissioner did not by itself render the assessment illegal if on examination it was found that the Income-tax Officer in question, i.e., the Income-tax Officer, Distt. III,. Ward-D, had jurisdiction to assess the income in the light of the provisions of section 124(7).

Turning then to the question of the order to be passed in this case, the Tribunal observed:

We agree with the learned counsel for the assessee that the Appellate Assistant Commissioner of Income-tax could not have rendered an assessment which was illegal into a legal assessment by putting the clock back so to speak and enabling the Commissioner of Income-tax to decide the question of jurisdiction. In our view for the exercise of the Commissioner's jurisdiction the sands had clearly run out and the decision of the Supreme Court in [1971] 79 ITR 505 (Estate of Late Rangalal Jajodia v. CIT) did not apply to the facts of the present case. The question, however, still remined whether the Income-tax Officer in question had the jurisdiction in terms of section 124(7). We would, therefore, set aside the order of the Appellate Assistant Commissioner , restore the appeal to his file and direct him to dispose of the contention of the assesses de novo on merits and in accordance with law with particular reference to the provisions of section 124(7). We understand that the other assessment in respect of the same assessee and the income computed by the Income-tax Officer, District VIII, Ward-E, was sub judice before the Appellate Assistant Commissioner. It would be convenient if both the appeals were decided together. We would, however, like to make it clear that the decision regarding the jurisdiction had to be arrived at, strictly in accordance with the terms of section 124(7) and if none of these officers had jurisdiction in terms of that section the assessment would clearly fail.

After rejecting an alternative contention regarding the title of the assessment as a mere instance of misdescription, the Tribunal also made it clear that the assessee would be free to raise all the other contentions against the assessment which it had raised before the AAC previously but which had not been considered while disposing of the appeal.

It is from the order of the Appellate Tribunal that the present reference has come to us and the questions that have been referred to its for our decision are as follows:

" (i) Whether, on the facts and in the circumstances of the case, especially in the context of the finding of the Tribunal that the Appellate Assistant Commissioner at the particular point of time could not give directions to enable the Commissioner of Income-tax to decide the question of jurisdiction, the Income-tax Appellate Tribunal had the jurisdiction or powers to set aside the entire order of the Appellate Assistant Commissioner and direct disposal of appeal afresh although the appeal before the Tribunal was against and limited to the direction by the Appellate Assistant Commissioner to the Income-tax Officer to complete the assessment afresh after referring the case for determination of the jurisdiction by the Commissioner of Income-tax?

(ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal's finding that harmonious reading of sections 124(4) and 124(7) of the Income-tax Act does not render the assessment illegal and vitiated in law just because the Income-tax Officer failed to make reference and get the jurisdiction determined by the Commissioner of Income-tax in spite of the challenge by the assessee to the jurisdiction before the Income-tax Officers concerned is correct and sustainable in law ?

(iii) Whether, on the facts and in the circumstances of the case, the provisions of section 124(7) of the Income-tax Act, as found by the Tribunal afford power to the Income-tax Officer to exercise jurisdiction and complete the assessment without reference of the issue of jurisdiction to and decision of reference by the Commissioner of Income-tax in spite of the challenge to jurisdiction in the prescribed manner by the assessee ?

(iv) Whether, in view of the specific provision of section 124(4) of the Income-tax Act, conferring power solely on the Commissioner of Incometax for determination of the jurisdiction of an Income-tax Officer, the Income-tax Appellate Tribunal on the facts and the circumstances of the case validly conferred power on the Appellate Assistant Commissioner in the form of a direction to determine the issue of jurisdiction not only qua the Income-tax Officer completing the assessment in appeal but also between the two Income-tax Officers subordinate to two different Commissioners ?

(v) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal could validly set aside the order of the Appellate Assistant Commissioner and direct disposal of the appeal by reference to the provision of section 124(7), (especially when the assessment was not made in that contention and there was no appeal or cross-objection by the department against the order of the Appellate Assistant Commissioner setting aside the assessment) ?"

At this stage, it may be useful to set out the statutory provision pertaining to the jurisdiction of ITOs. Chapter XIII of the Act deals with incometax authorities. Part A of this chapter deals with the appointment and control of the various income-tax authorities including ITOs. Part deals with the jurisdiction of the various authorities. Section 124 in this Part outlines the jurisdiction of ITOs and runs as follows:

"124. (1) Income-tax Officers shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income as the Commissioner may direct.

(2) Where any directions issued under sub-section (1) have assigned to two or more Income-tax Officers, the same area or the same persons or classes of persons or the same incomes or classes of income, they shall perform their functions in accordance with any orders which the Commissioner may make for the distribution and allocation of the work to be performed.

(3) Within the limits of the area assigned to him, the Income-tax Officer shall have jurisdiction

(a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and

(b) in respect of any other person residing within the area.

(4) Where a question arises under this section as to whether an Income-tax Officer has jurisdiction to assess any person, the question shall be determined by the Commissioner; or where the question is one relating to areas within the jurisdiction of different Commissioners, by the Commissioners concerned or if they are not in agreement, by the Board,

(5) No person shall be entitled to call in question the jurisdiction of an Income-tax Officer

(a) after the expiry of one month from the date on which he has made a return under sub-section (1) of section 139 or after the completion of the assessment, whichever is earlier;

(b) where he has made no such return, after the expiry of the time allowed by the notice under sub-section (2) of section 139 or under section 148 for the making of the return".

(6) Subject to the provisions of sub-section (5), where an assessee calls in question the jurisdiction of an Income-tax Officer, then, the Income-tax Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under sub-section (4) before assessment is made.

(7) Notwithstanding anything contained in this section, or in section 130A, every Income-tax Officer shall have all the powers conferred by or under this Act on an Income-tax Officer in respect of any income accruing or arising or received within the area for which he is appointed."

Before proceeding to deal with the questions referred and the contentions raised, we would like to make two general observations as to the manner in which the case has proceeded so far. It will be apparent from the above provision that the ITOs are assigned cases on the basis of area " person " or " income ". In the present case there has been no specific assignment as far as we can gather from the record of the petitioner's case on the basis of any classification of persons or income or classes of them. If that had been so, the ITO could have said so either in the assessment order or at either stage of appeal. We are referring to this aspect because it has been mentioned earlier that the original assessment was completed by the ITO, I St Contractor's Circle, New Delhi. Though the assessee is not contractor, it may perhaps raise an inference that perhaps cases of jewellers were also assigned to him. But this classification, assuming there was any such classification, did not last subsequently. The present controversy regarding jurisdiction appears to be only on the basis of what may be termed as " territorial " jurisdiction and not because of any special jurisdiction conferred by the Commissioner on the basis of income or class of assessees. Both the officers of Ward-D and Ward-E claimed the jurisdiction to assess the present assessee by way of reassessment. The ITO in the assessment order based himself on an order of the Commissioner dated February 4, 1964, but this has been found to be irrelevant for the purposes of the case and this finding has not been agitated before the Appellate Tribunal and has become final. Therefore, though the order dated February 4, 1964, is not a part of the record before us, nothing turns on that order for the purposes of this case. There being no specific order passed by the CIT on the basis of any classification, the only question that arises is whether it is Ward-D Officer or Ward-E Officer or neither of them that had territorial, jurisdiction over the present case. This is a simple factual matter as to which necessary information could have been placed by the department and if this had been done it might have enabled the whole matter to be settled finally and once for all. One really wishes that, at least having regard to the fact that the assessment was being completed in 1959 in relation to the assessment year 1948-49, the department had placed all the material relevant for a decision of the question of jurisdiction before the Tribunal so that the Tribunal could have ascertained for itself whether the Ward-D Officer or Ward-E Officer or neither of them had jurisdiction over the assessee's case and decided the matters once and for all without remanding the matter to the AAC. However, this crucial information was not available and the Tribunal was compelled to remit the matter back to the AAC, even though, on the view taken by it, only a very limited issue survived, viz., whether the assessment could be supported by reference to s. 124(7). The second aspect we would like to refer to is this: The terms of s. 124 are very clear and mandatory. A case may perhaps arise where an assessee may ostensibly question the jurisdiction of an ITO but the issue of jurisdiction may be so plain and clear that the ITO does not consider that there is any real question for determination. But this is not such a case. In this case the ITO himself in the assessment order refers to doubts having been raised regarding his jurisdiction. This is a case where two ITOs are seeking to proceed against the assessee. The assessee had raised an objection to the jurisdiction soon after the receipt of the notice under s. 148 and there was ample time for the ITO to refer the matter for decision by the CIT. No explanation appears to have been attempted at any stage why this mandatory procedure outlined in the section has not been followed. It is really unfortunate that a technical but vital issue which could have been resolved at the earlier stage by following the mandate of the statute has been allowed to become a matter of prolonged controversy at the risk, in case the assessee eventually succeeds, of the entire reassessment becoming vitiated altogether and, being annulled on the ground of lack of jurisdiction. This conduct on the part of the authorities has frustrated the very purpose of a special procedure which the Legislature had devised to ensure that the process of assessment is not defeated or unduly delayed by belated pleas of lack of jurisdiction. With these preliminary observations we shall proceed to deal with the questions which have been referred to us for decision.

The first question which has been referred to us at the instance of the assessee really comprises of two parts. The first of these proceeds on misconception regarding the findings of the AAC and the Tribunal. It seems to suggest that there is some inherent inconsistency in the order of the Tribunal itself. It is, therefore, necessary to consider what the AAC decided and what the Tribunal has held. The assessee's plea before the AAC was that the ITO, Ward-D, could not exercise I jurisdiction over the assessee's case in the face of the assessee's challenge thereto until and unless the matter of jurisdiction was referred by him to the CIT and his decision obtained. It was further urged that the assessment made by him without making such a reference is totally invalid and should have been annulled by the AAC. When we look at the order of the AAC, we find that he did not really accept this plea in the form in which it was presented before him. Though he observed that there was force in the arguments of the appellant, he clearly took the view that the failure of the ITO to refer the question of jurisdiction to the CIT only rendered the assessment irregular and that this was a defect which could be cured by remanding the matter to the ITO. That is why he decided that the proper course to be followed was to set aside the assessment and direct the ITO to make a fresh assessment after following the procedure prescribed in s. 124(6). The Tribunal took a somewhat different view to which we shall refer a little later but we may first examine the correctness of the point of view of the AAC.

The Act no doubt envisages that where an objection regarding the jurisdiction of the ITO is desired to be taken, it should be raised within the period specified by the section and should be decided by the CIT (or the Board) as envisaged by the section. It is settled law that this is matter on which the final decision rests with the administrative and not the appellate-authorities under the Act: vide Rai Bahadur Seth Teomal v ITO [1959] 36 ITR 9 (SC) and Wallace Brothers & Co. Ltd. v. CIT [1945] 13 ITR 39 (FC) endorsed therein. If an assessee fails to raise the objection before the ITO and within the time specified, he will be shut out from raising the question altogether. Where he raised the question and it is got decided by the CIT, that decision would be final and cannot be questioned in the appellate forum. But where he raises the issue but the ITO does not refer the question to the CIT as in the present case (or the CIT or the Board does not decide the question before the assessment is completed) what will be the result of such failure ? Clearly, one answer to the question would be that this failure should not be held to vitiate the assessment altogether and that it should be open to the appellate authority to set aside the assessment for being redone in accordance with law after having the matter referred to the CIT and obtaining his decision. There is nothing wrong in adopting this course and it will not prejudice anyone. By adopting this course, the appellate authority will not be deciding the question of Jurisdiction itself but will only be getting it done by the appropriate authority. The appellate order will not also help the department in any way if eventually the CIT (or the Board) comes to the conclusion that the ITO, who completed the assessment, had no jurisdiction in the matter and it will not confer any right on any other ITO having jurisdiction to proceed against the assessee, if he is otherwise not competent to do so. It will only help the department in the event of the CIT (or the Board) coming to the conclusion that the ITO who completed the assessment had the jurisdiction so to do.

The above approach to the issue derives support from the recent decision of the Supreme Court in the case of Kapurchand Shrimal v. CIT [1981] 131 ITR 451. In that case (under the 1922 Act) the ITO completed the assessments of an HUF without disposing of the claim for partition that had been made by the members of the family. Before the Tribunal, the assessee contended that the assessments should be cancelled but the department contended that even if there had been a violation of s. 25A of the Act the proper order to be passed was either to direct the ITO to give effect to s. 25A or to set aside the assessments with a direction to the ITO to pass fresh orders of assessment. The Tribunal came to the conclusion that the assessments were in clear violation of the procedure prescribed for that purpose in s. 25A and cancelled the same. The Tribunal added : " We do not consider it necessary to direct fresh assessments. It would be open to the ITO to do so if the law otherwise so permits." The Supreme Court held that this was not the right procedure to be adopted. It observed as follows (p. 460):

" The Tribunal was, therefore, right in holding that the assessments in question were liable to be set aside as there was no compliance with s. 25A(1) of the Act. It is, however, difficult to agree with the submission made on behalf of the assessee that the duty of the Tribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any further direction. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. The statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature. In interpreting s. 25A(1), we cannot also be obivious to cases where there is a possibility of claims of partition being made almost at the end of the period within which assessments can be completed making it impossible for the ITO to hold an inquiry as required by s. 25A(1) of the Act by following the procedure prescribed therefor. We, however, do not propose to express any opinion on the consequence that may ensue in a case where the claim of partition is made at a very late stage where it may not be reasonably possible at all to complete the inquiry before the last date before which the assessment must be completed. In the instant case, however, since it is not established that the claim was a belated one, the proper order to be passed is to set aside the assessments and to direct the ITO to make fresh assessments in accordance with the procedure prescribed by law. The Tribunal, therefore, erred in merely cancelling the assessment orders and in not issuing further directions as stated above."

The order of the AAC can, therefore, be supported in the light of the above observations of the Supreme Court. It will also, be appreciated that this is only fair, for, if really the ITO had jurisdiction in the matter, there is no reason why the assessment should fail merely for the reason that the decision was not given earlier and if he did not, then the assessee will not be prejudiced as the assessment cannot stand and will have to be attempted afresh by some officer only if otherwise permissible in law.

It is, however, possible to look at the matter from another point of view. It can be said that the issue involved is one of jurisdiction and when an assessee puts it in challenge immediately he receives a notice or files a return, it must be resolved one way or the other in the manner provided for in the statute before the ITO can assume jurisdiction to proceed further and complete an assessment. The statute requires this to be done before the assessment is made. A failure to do so will render the assessment null and void and without jurisdiction as held in Dina Nath Hemraj v. CIT [1927] 2 ITC 304 (All) which has been referred to and in no way disapproved in Teomal's case [1959] 36 ITR 9 (SC). Once the ITO fails to follow the statutory course prescribed before assessment, it can be said, he misses the bus and cannot be given a second chance to rectify matters. It appears that the Tribunal was inclined to accept this line of argument and to hold " that the AAC could not have rendered an assessment which was illegal into a legal assessment by putting the clock back, so to speak, and enabling the Commissioner to decide the question of jurisdiction." In the view of the Tribunal, " for the exercise of the Commissioner's jurisdiction, the sands had clearly run out". It is for this reason that the Tribunal also said that the department could not rely upon Jajodia's case [1971] 79 ITR 505 (SC) to uphold the validity of a direction of the redoing of the assessment.

It is not necessary for us to express a final conclusion on the above question (though prima facie we are inclined to the former view), since the Tribunal's order on this point has become final and there is no reference to us against it at the instance of the CIT. The Tribunal had decided this issue in favour of the assessee and the assessee was only too happy to accept this decision. Its grievance is that, on this finding, the Tribunal should have annulled or cancelled the assessment but, instead of doing so, it committed the same mistake that the AAC had done and it proceeded to remit the matter to the AAC for determining the; question of jurisdiction which he had no power to decide.

We do not, however, think that Shri Chopra is right in saying that the Tribunal has committed the same mistake which it had said, the AAC had done. Though there is a sentence in the order of the Tribunal (in the portion earlier extracted and underlined by us) suggesting that once an assessment is completed without deciding the assessee's objection it loses immunity from attack to jurisdiction under ss. 124(4) and 124(5) and would be open to review by the appellate authorities, they make it clear towards the end of their order that the assessment cannot be got validated by putting the clock back and enabling the CIT to decide the question of jurisdiction. In other words, it is clear from a reading of the order of the Tribunal that if the question of jurisdiction had to be decided only under s. 124(4) to (6) the Tribunal would have agreed with the assessee and annulled the assessment. It set aside and remanded the matter to the AAC only because of its interpretation of the scope of s. 124(7) of the Act. According to the Tribunal, the applicability of this sub-section operated to exclude the applicability of s. 124(4) to (6) to the cases covered by it and its field of operation in a particular case was a matter capable of determination by the appellate authorities. We shall discuss later the correctness of this view. But it is sufficient to point out here that the order of the Tribunal does not suffer from the same defect which the Tribunal had pointed out in the order of the AAC as alleged by Sri Chopra. , The error pointed out by the Tribunal in the order of the AAC was that the AAC, having found that the matter was covered by s. 124(4) to (6) and that the procedure set out in these sub-sections had not been followed, ought to have held the assessment to be illegal and could not have attempted to convert such an illegal assessment into a legal assessment. But on looking into the matter carefully, the Tribunal found that this decision had been arrived at without considering the provisions of s. 124(7)., It concluded that, if the provisions of that sub-section were applicable to the facts, the operation of ss. 124(4) to (6) was excluded and it could not be said that the assessment was illegal. The Tribunal (which did not have the material to decide the applicability of this sub section before it), therefore, decided to send the matter back to the AAC for determination only on this short point. If the sub-section applied, the assessment was valid and would be upheld; if not, the assessment would fail and would have to be annulled. This was the clearly logical line of reasoning adopted by the Tribunal and we see nothing wrong therein, subject only to the correctness of its interpretation of s. 124(7). We have, therefore, come to the conclusion that there is no inconsistency in the findings, of the Tribunal as alleged by the assessee.

The second contention of Sri Chopra, urged with some vehemence, was that the Tribunal has exceeded its jurisdiction in setting aside the order of the AAC and directing him to dispose of the appeal afresh. This contention forms the subject-matter of the second part of the first question referred to us. Sri Chopra invites our attention to the arguments raised by the assessee before the Tribunal. He says that the scope of the appeal before the Tribunal was very much restricted. Before the AAC the assessee had contended, not that the ITO had or had no jurisdiction to assess but only that the assessment completed without having a determination made by the Commissioner under s. 124(6) was invalid. His only grievance before the Tribunal was that the AAC while accepting this contention nevertheless set aside the assessment to be re-done after a reference to the Commissioner was made. The Tribunal, he submits, was not at all called upon to consider the question whether the ITO had or had no jurisdiction over the assessee's case whether under s. 124(7) or any other provision. Indeed, even the department had contended before the Tribunal that the question of jurisdiction of the ITO was not justiciable before the appellate authorities. The short point which the Tribunal had to decide, therefore, was whether the direction given by the AAC setting aside the assessment was or was not in accordance with law. He, therefore, submits that the Tribunal exceeded its jurisdiction and travelled outside the scope of the appeal in disposing of it in the manner in which it has done.

We are of opinion that this contention of Sri Chopra only reflects another aspect of the first contention which we have already dealt with. In order to arrive at a conclusion on the question raised by the assessee before it the Tribunal had to address itself to the nature of the assessment in the present case. If it was completely null and void then the direction of the AAC would not be correct. But if its validity did not depend on ss. 124(4) to (6) or, even if it did, if it could be described as a merely irregular assessment in completing which there was only a procedural defect, the AAC's direction would have been completely in order. The Tribunal was thus called upon to determine whether this was a case in which an order of the CIT was a condition precedent for the validity of the assessment-vide the first of the arguments raised by the assessee before the Tribunal. We have tried to point out earlier that even the AAC did not agree with the assessee's contention that the assessment was wholly invalid. He only treated it as a case of an irregular assessment in which the proper direction was to set aside the assessment and direct a fresh assessment in accordance with law. The Appellate Tribunal has also kept alive the distinction between the two types of cases. They agree that where an assessment is wholly illegal it cannot be rendered into a legal assessment by putting the clock back. But the question was, is this such a case ? They gave a direction similar To that of the AAC because they came to the conclusion that it was not, since far from being invalid or even irregular, it would perhaps be a valid assessment in all respects if the provisions of s. 124(7) were taken into account. In short, the crux of the issue before the Tribunal was whether the assessment as completed by the ITO was null and void because the procedure outlined in ss. 124(4) to (6) was not followed. The Tribunal answered the question by saying that, unless the terms of s. 124(7) could be excluded from application to the present case, it could not be said that the failure to get the CIT's decision vitiated the assessment. That is why, while sending the case back to the AAC, the Tribunal has not left the matter at large but has directed the AAC to confine himself to a very narrow and limited question as to whether the assessment could be supported strictly on the terms of s. 124(7). The Tribunal has not given a free scope to the assessing or appellate authority to render valid that which was invalid. All that they directed was that if the assessment was sustainable on the terms of s. 124(7), there was no reason why it should not be so sustained. In construing the scope of the assessee's appeal before the Tribunal, we should look not merely at the relief sought for by the assessee but also at the substance of his grounds of grievance. The AAC had held that though the CIT's decision was not taken, the assessment was not void and illegal but could be regularised by the decision being obtained and the assessment being completed afresh. The assessee told the Tribunal that the assessment was not valid because the CIT's consent was not taken, so the AAC should have simply annulled it. The Tribunal answers: the assessment would not be bad for the reason given if s. 124(7) applied. If so, there was nothing wrong in what the AAC did, but let this matter he examined. In other words, the Tribunal only squarely disposed of the issue raised before it and did not travel outside it in any way. We are, therefore, unable to see any ground for holding that, in proceeding to dispose of the appeal in the manner it did, the Tribunal in any way exceeded the jurisdiction vested in it under s. 254 of the Act.

Sri Chopra, in support of the above contention, cited a large number of decisions regarding the scope of the powers of the Tribunal while disposing of the appeal. He also referred to a large number of decisions regarding the scope of a finding or direction that could be given by an appellate authority under the Act. He also cited authorities to show that an appellate authority cannot, by a direction, confer jurisdiction on the ITO which he does not possess. The cases relied upon by him were: M.R.M. Periannan Chettiar v. CIT [1960] 39 ITR 159 (Mad), CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC), ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC), N. Naganatha Iyer v. CIT [1966] 60 ITR 647 (Mad), Pathikonda Balasubba Setty v. CIT [1967] 65 ITR 252 (Mys), P. V. Doshi v. CIT [1978] 113 ITR 22 (Guj), ITO v. R. L. Rajghoria [1979] 119 ITR 872 (Cal), Rajinder Nath v. CIT [1979] 120 ITR 14 (SC), Goombira Tea Co. P. Ltd. v. ITO [1980] 125 ITR 260 (Cal) and Hukumchand & Mannalal Co. v. CIT [1980] 126 ITR 251 (MP). We are not, however, discussing these authorities as there is and can be no disagreement on the principles outlined in these cases which are, indeed, well settled. These decisions turn largely on the nature of the issues raised, the construction of the scope of the appeal in each case and the circumstances in which the matter was dealt with and decided. That is why we have concentrated on the facts here and tried to show the manner in which the matter arose before and was dealt with by the Tribunal.

By the second question referred to us the correctness of the conclusion of the Tribunal that the legality of the assessment made by the ITO has to be decided on the basis of a harmonious reading of s. 124(4) and 124(7) is challenged as erroneous. Sri Chopra points out that the marginal title to s. 124 talks of " jurisdiction " and sub-ss. (2) to (6) also refer to the jurisdiction of the ITO. Sub-s. (7), on the other hand, only talks of an ITO exercising powers conferred by or under the Act in respect of income accruing, arising or received within the area in which he is appointed. His contention was that sub-s. (7) has nothing to do with the question of jurisdiction of the ITO and does not and cannot override the provisions of subs s (1) to (6). At best, sub-s. (7) can only be said to confer some kind of residual territorial jurisdiction and that should again be subject to the CIT's determination under sub-ss. (4) to (6). In other words, his argument is that s. 124(7) can be resorted to only in cases where no objection is raised under sub-s. (4) or (6). He points out that an assessee may be deriving income which may accrue, arise or be received in areas falling within the territorial jurisdictions of a large number of officers and s. 124(7) cannot be construed in such a manner as to envisage multiple assessments by large number of officers controlled by different CITs and be a justification of the assessment completed by each of them under s. 124(7). Such an interpretation, he submits, will render sub-ss. (1) to (6) otiose and redundant. These arguments addressed by Sri Chopra are common to a consideration of questions Nos. (ii) to (iv) referred to us but we shall discuss them all at this stage itself so as to completely touch upon all the aspects involved therein.

We are unable to accept the contention that s. 124(7) can come into operation only in cases where no: objection is raised under sub-s. (4). , It is true that sub-s. (7) does not refer to the " jurisdiction " of the ITO but only talks of his exercising powers in respect of income. In our opinion, this difference in language is not very significant, The whole section deals with the powers of a particular ITO in relation to a particular assessment. In one case, the jurisdiction is defined by reference to " area ", in the second, with reference to a case, income and person or classes of them and, in the third, by reference to the place of accrual of income. But, as pointed out by the Gujarat High Court in one of the decisions referred to by Sri Chopra, viz., Dhrangadhra Trading Co. P. Ltd. v. CIT [1966] 60 ITR 674(Guj) nothing much really turns on the phraseology employed and whether the reference is to the " place of assessment " (as was the marginal note to the corresponding s. 64 of the 1922 Act) or to the functions or the power or the jurisdiction of the officer. However, it may be described, the sum and substance of this section is that a particular officer is conferred by the Act with jurisdiction to assess a particular assessee. There is no power that an ITO can exercise in respect of income arising, etc., in his area except to assess it in the hands of the persons earning it. It is, therefore, not correct to read s. 124(7) as unrelated to the question of the ITO having jurisdiction to complete a particular assessment. Further, the opening words of sub-s. (7) make it abundantly clear that this sub-section also deals with the very same topic of jurisdiction which has been referred to in the earlier sub-sections; otherwise the non obstante clause will have no meaning. The reference to s. 130A also further clarifies that whether the powers of the ITO be described as performance of certain functions or exercise of certain powers or exercise of jurisdiction the subject-matter is the same, involving the question as to the officer who has jurisdiction to deal with a particular case.

A study of the scheme of s. 124 would clearly reveal the relative importance of ss. 124(4) to (6) on the one hand and s. 124(7) on the other. Sub-section (1) empowers the CITs to determine the jurisdiction of the ITOs on the basis of

(a) area,

(b) income or classes of income,

(d) cases or classes of cases.

The first of these can be called the territorial jurisdiction for purposes of convenience and embodies the principle that, generally speaking, an ITO will have jurisdiction over persons residing or having their principal plate of business within the specified area. But complexities of modern economic life render this too simple a classification to be of practical utility jurisdiction is, therefore, assigned by the CITs on the basis of the other three criteria, which have what may be loosely described as " extra territorial " impact. Sub-section (2) outlines the possibilities of these classifications overlapping and its later amendments envisage a concurrent exercise of jurisdiction by more than one designated officer, subject to general or special orders of higher authorities. Section 126 contemplates an allocation of jurisdiction among the ITOs by the Board. Section 127 confers powers of transfer on the CIT and the Board. These delineations of jurisdiction are done by innumerable orders issued from time to time at various levels and genuine difficulties may arise in many cases in sorting out which officer has jurisdiction over a particular assessee or class of assessees at a particular point of time. The instant case, where there is not even the complication caused by different ITOs being under the jurisdictions of different CITs, is the best example, for, no one has been able to sort out so far which ITO was the one having jurisdiction. These difficulties highlight the necessity of having such problems sorted out at the earliest possible stage. Though the statute has recently safeguarded the position of the Revenue by reference to concurrent jurisdiction in more than one officer, the Act does not really contemplate a multipronged drive against the same assessee by several officers. That is why the procedure in sub-ss. (4) to (6) has been devised which gives the assessee a right to ensure that they are assessed by the proper officer, safeguards the Revenue at the same time by insisting that objections are raised at the earliest point of time practicable and leaves the decision in the hands of the CIT who is the person best equipped to decide the issue.

One can, however, easily appreciate that all these safeguards are not really necessary and the objection as to jurisdiction would only be purely hypertechnical objection in a case where, when all is said and done, an assessee has been assessed by an ITO, who is in charge of the area, where he resides or principally carries on business and the assessee has been put to no inconvenience or harassment. After all, no assessee can claim a basic right of being assessed by one officer rather than another; the earmarking of the jurisdiction to officers vis-a-vis assessee has two principal objects: one, that of causing least inconvenience and harassment to the assessee, and two, maximum organisational advantage and convenience to the officers of the Revenue to effectively discharge their statutory functions. So, in case where an assessee has suffered no real hardship, an objection as to jurisdiction should not be allowed to prevail on the basis of some lacuna, error or omission in the passing of appropriate orders of allotment of jurisdiction. That is how sub-s. (7) comes into the picture as an overriding clause, which brushes away all the technicalities of the earlier sub-sections in the eventuality contemplated by it. The non obstante clause at the beginning of sub-s. (7) is very wide and makes it clear that it is intended as a saving provision against the technical objections and disputes that may be raised in view of the other sub-sections. Having set out elaborately in sub-ss. (1) to (6) the basis of the determination of jurisdiction of the officer and also having outlined a procedure whereby any disputes regarding jurisdiction can be sorted out, if raised in sufficient time, the, Act nevertheless provides a safety valve whereby the validity of assessments are protected notwithstanding an error in the exercise of jurisdiction in accordance with the earlier sub-sections if there has been no injustice to the assessee, and he has been assessed only by an officer who is having jurisdiction over the area in which the assessee resides or carries on the business and that too only in respect of income falling within the area covered by that jurisdiction. It will be appreciated that this is a very limited saving clause. We may briefly illustrate the situation that would be governed by that sub-section. Let us take a case where an assessee is carrying on a jewellery business within a particular area in Delhi and his entire income from that business accrues, arises or is received within that area. Suppose cases of all jewellers in Delhi are assigned by the CIT to an ITO heading a special circle but overlooking that special order of assignment, the ITO exercising territorial jurisdiction over the place where the assessee's shop is situated completes an assessment. The validity of such an assessment is completely protected by the provisions of sub-s. (7). The sub-section has no wider scope. It will not cover the case of the assessees who are having business in several places and whose income accrues, arises or is received in several areas. We shall deal a little later with the precise scope of sub-s. (7). But here we are concerned with the question as to whether Sri Chopra is right in his contention that sub-s. (7) should also be read subject to the limitations of sub-ss. (1) to (4). For the reasons we have discussed above we are unable to agree with the submission of Sri Chopra. We are entirely in agreement with the Tribunal that, if in a particular case, the assessment can fall within the scope of s. 124(7), then that assessment would be valid assessment notwithstanding that it might have been completed by an officer who otherwise may have had no jurisdiction in the case and also in spite of the fact that the assessment may have been made by the said officer without following the procedure outlined in sub-section (4) in the face of a specific objection put forward by the assessee. The very clear mandate of the opening words of s. 124(7) cannot be ignored and the operation of this provision cannot be subjugated to the procedural determination of the jurisdictional question which would otherwise be obligatory under sub-ss. (1) to (6). We are, therefore, of opinion that the Tribunal was correct in holding that the legality of the assessment should be determined on a harmonious reading of s. 124(4) and s. 124(7) and that unless the assessment can be said to be outside the purview of even s. 124(7) it cannot be said to be invalid merely because the ITO failed to make a reference and get the jurisdiction determined by the CIT even where the assessee has challenged the jurisdiction within the time outlined in sub-s. (4). Question No. (ii), referred to us, is answered accordingly. For the same reasons we have to answer question No. (iii) which seems to be substantially the same as question No. (ii), by saying that the Tribunal was right in holding that the provisions of s. 124(7) enable the ITO to exercise jurisdiction over a case and complete the assessment on an assessee without pursuing the procedure outlined in sub-s. (4) despite the challenge to the jurisdiction in the prescribed manner made by the assessee.

On this part of the case Sri Chopra placed considerable reliance on decision of the Allahabad High Court in the case of Dina Nath Hemraj v. CIT [1927] 2 ITC 304. In our opinion, this decision has relevance to the discussion that will be necessary while answering question No. (v). We shall, therefore, reserve discussion of this case to a later stage of this judgment. Sri Chopra also relied on the decision of the Supreme Court in Raza Textiles Ltd. v. ITO [1973] 87 ITR 539 (SC), for the proposition that no authority can confer jurisdiction on itself by deciding a jurisdictional fact wrongly. We do not see how the principle of this decision has any application to the present case. The Tribunal has only directed the AAC to consider whether the jurisdiction of the ITO can be sustained on the basis of s. 124(7) of the Act.

Turning next to question No. (iv), it is also sufficiently answered by the above discussion as to the proper interpretation to be placed on the various sub-sections of s. 124. We entirely agree with the assessee that if a case falls under s. 124(4) then the question of jurisdiction can be resolved only in the manner outlined in that section and it cannot be challenged before or decided by the appellate authorities. In fact this position cannot be challenged in view of the Supreme Court's decision in Seth Teomal [1959] 36 ITR 9. Since the statute itself provides for a remedy in cases which fall under sub-s. (4), the assessee cannot bypass that remedy and seek to agitate the matter in appeals before the appellate authorities in case where sub-s. (4) applies either where he has raised an objection within the time outlined by the Act and that objection had been determined one way or the other or again where he has failed to raise an objection within the time outlined in the Act. The Tribunal has expressed a view that the principle laid down in Teomal [1959] 36 ITR 9, will not apply in case where one ITO or more has framed one, or more than one, assessment notwithstanding the objection of the assessee. In that case, they say, the assessment will lose the immunity from attack and will be open to review by the appellate authorities in the light of the relevant provisions of law. We need not, however, consider whether that would be a correct view to take as it does not arise in the present case. As already pointed out, the Tribunal's actual decision is very limited and is confined to examining the validity of the assessment with reference to s. 124(7). For, so far as the present case is concerned, it is quite clear that if the assessment can be supported under s. 124(7), the provisions of s. 124(4) will not apply and there is nothing to bar the jurisdiction of the appellate authorities to uphold the assessment on that ground. In such a case, there is no conflict between the procedure outlined in sub-ss. (4) and (6) and the appellate powers of the AAC and the Tribunal. The Tribunal was within its jurisdiction in either deciding itself or in directing the AAC to decide whether the present case would fall within s. 124(7). We answer this question accordingly. But in doing so we may observe that the last part of this question appears to have no relevance to the present case. In the present case there is no suggestion that the ITOs, 'D' and 'E', were subordinate to two different Commissioners but, in our opinion, even if such were the position that would not stand in the way of the competence of the direction given by the Appellate Tribunal in the present case. The Tribunal has nothing to do with the question of the jurisdiction of Commissioners over ITOs. All that it is concerned with is whether the procedure outlined in s. 124(4) has been followed or not and, if not, whether s. 124 (7) saves the assessment.

Now, turning to question No. (v) it consists of two parts, the later part being in parenthesis. There is also a typographical error in the portion in parenthesis, the words " in that contention " apparently being a mistake for " on that basis ". This part of the question has already been dealt with by us when discussing the answer to the first question and we have held that the Tribunal has not exceeded its jurisdiction or travelled beyond the scope of the appeal in dealing with the matter as it did. This part of the question, therefore, needs no further discussion.

The part of question that survives for consideration is, therefore, whether the Tribunal could validly set aside the order of, the AAC and direct the disposal of the appeal by reference to the provisions of s. 124(7). If this part of the question only seeks to raise the aspect regarding the powers of the Tribunal, it needs no further discussion as we have already dealt with this aspect earlier. This part of the question, however, particularly when read with question No. (iii), is wide enough to raise for consideration the question regarding the applicability of the provisions of s. 124(7) of the I.T. Act to the facts and circumstances of the present case. On a careful consideration of the terms of s. 124(7) we are of opinion that the scope of that sub-section is very limited and in any view of the matter will not be wide enough to support the assessment in the present case. We have pointed out that the sub-section is intended to be an exception to the earlier provisions regarding jurisdiction., It comes into operation even when the plea of lack of jurisdiction is otherwise upheld. In the present case the AAC was of opinion that the presence or absence of the jurisdiction could not be decided until the matter was referred to the CIT and that is why he remanded the matter to the ITO. However, the Tribunal has taken the view that once the assessment was completed the question of making any reference to the CIT did not arise. But no plea having been put forward by the department before the Tribunal to satisfy it that the ITO, "D"-Ward, had jurisdiction to complete the assessment, the Tribunal has apparently come to the conclusion that the validity of the assessment could not be saved except by resort to the provisions of s. 124(7) and directed the AAC to examine whether the assessment could be supported by reference to that sub-section. In our opinion, however, there is no possibility of sustaining the validity of the assessment in the present case by reference to s. 124(7). As we have said earlier that subsection is very limited in its operation. All that it saves is an assessment made by an ITO (whether he has or not jurisdiction otherwise) provided that the assessment does not bring to tax anything other than income accruing, arising or received within the area over which he exercises territorial jurisdiction. In order to appreciate the true scope of the section it has to be remembered that under s. 143 of the Act as well as the other provisions of the Act the business of the ITO is not to determine the income accruing, arising or received within any particular area but to determine the total income of an assessee, an expression which has been defined as the total of the income, profits and gains derived by the assessee computed and calculated in the manner provided by the Act. There is no provision in the Act which would enable the ITO to assess an assessee in regard to a part of his total income. We have earlier referred to an argument of Sri Chopra that the interpretation placed by the Tribunal on s. 124(7) might lead to a negation of earlier sub-sections and might cause good deal of confusion by permitting multiple assessments being made on the same assessee by more than one ITO. In our opinion, such a situation is totally inconceivable under the provisions of the Act. The duty of the ITO is to assess the total income of the assessee. Section 124(7) cannot be construed as authorising in the case of an assessee having businesses in a large number of places, each of the ITOs having territorial jurisdiction over such of the several places to proceed and assess only that portion of the income which accrues or arises or is received within their jurisdiction by exercising the powers under s. 124(7). The declaration that an ITO shall have power, in any case, to assess the income earned within his jurisdiction does not enlarge the scope of s. 143(3) so as to enable every ITO to make a partial or piecemeal assessment of such income only. Moreover, what can such an officer do after determining the income arising within his jurisdiction ? He can hardly collect tax on that amount because the tax under the Act is payable not on a portion of the income of the assessee but on his total income. To take an illustration it is quite possible that the assessee may have income within the territorial jurisdiction of ITO-A, but he may, be having a loss in the business within the territory of ITO-B. Section 124(7) does not and cannot permit ITO-A to assess the income arising within his area ignoring the loss which "arises in the other territory. Nor can ITO-B compute the loss and allow the assessee to carry it forward without taking into account the income arising within the jurisdiction of ITO-A. There are thus a number of practical difficulties in construing s. 124(7) in this manner. Section 124(7) does not, therefore, in our opinion, contemplate or permit multiple assessments on an assessee by different IT0s. This is what has been emphasised by the Allahabad High Court in Dina Nath & case [1927] 21 TC 304, relied upon by the learned counsel. In our opinion, s. 124(7) can be utilised by the department to sustain the validity of an assessment only in a very limited class of cases, and that is where an assessee has income accruing or arising or received by him only within a particular area and he has no other income anywhere else. In other words it is limited to cases where both the ITO and the assessee are completely localised in a particular area and the income is also earned there. In such a case, the section provides, notwithstanding any technical mistakes in the exercise of jurisdiction within the meaning of sub-ss. (1) to (5), the assessment should not be invalidated.

In the present case we have pointed out, at the outset, that the assessee was running a jewellery shop in Chandni Chowk, Delhi, with branches at New Delhi and Mussoorie. The original assessment as well as the reassessment bring to tax not merely the income in Delhi/New Delhi (which, we may assume, pending determination by the AAC, to be within the territorial jurisdiction of the ITO, Ward-'D' or Ward-'E') but also the income in the Mussoorie and certainly the income arising in New Delhi/Delhi & Mussoorie cannot all be within the jurisdiction of the said officer. Indeed, in neither of the assessments has the ITO purported to exercise jurisdiction only over income which arises within the area over which he holds territorial jurisdiction. In our opinion, therefore, the provisions of sub-s. (7) of s. 124 cannot be availed of to support the assessment. It seems to us, therefore, that once it is held that the assessment is invalid for being made without following the procedure outlined under sub-ss. (1) to (6) the provisions of sub-s. (7) will be of no avail to sustain the validity of an assessment which includes income from beyond the territorial jurisdiction of the ITO who made it. We answer this question accordingly.

Though we have discussed the problem raised by each of the questions referred to us and indicated our answers to those questions, the impact of these answers on the assessment in the present case might need some clarification. We shall, therefore, summarise the effect of our decision in the present case. Our conclusions are: (1) The assessee having raised an objection to the jurisdiction of the ITO which was not flimsy or baseless but of substance, it was the duty of the ITO to have referred the matter to the CIT. He could have proceeded to complete the assessment only after the Commissioner's decision had been received and in the light thereof. (2) The failure of the ITO to follow the above procedure may not render the assessment invalid. A view is possible that, in appeal, it is open to the AAC or the Tribunal to set aside the assessment and direct fresh assessment after following the procedure mentioned in s. 124(4) & (6) provided such a direction does not prejudice or affect the right of the assessee to challenge the reassessment as not being in accordance with any other provision of the Act. It is, however, not necessary to decide this question as the view of the Tribunal seems to be that such an assessment would be invalid and this matter is not in issue before us. (3) The Tribunal was justified in pointing out that the validity of the assessment could not be decided without its being examined in the light of s. 124 (7) and directing that this should be done. (4) The Tribunal acted within its jurisdiction in examining the question of the validity of the assessment in the light of the whole of s. 124 including sub-s. (7) and giving a direction as above. (5) On the facts of the present case, however, there was no necessity, justification or scope for giving any such direction. An examination of the question whether Ward-D or Ward-E Officer had any territorial jurisdiction over the assessee, even if answered in the affirmative, will not be sufficient to uphold the assessment under consideration as, admittedly, the income of the assessee accrued or arose or was received in various territorial jurisdictions. The Act does not contemplate a piecemeal or partial assessment of income nor has any such assessment been made or purportedly made in this case. (6) In this view of the matter, the Tribunal should have annulled the assessment as being without jurisdiction and should not have remanded the matter to the AAC for disposal. The reference is disposed of accordingly. But having regard to the circumstances of the case, we make no order as to costs.

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