COMMISSIONER OF INCOME-TAX, WEST BENGAL-I, CALCUTTA versus SIMON CARVES LMITED

Citation: [1977] 1 S.C.R. 207 · Decided: 17-08-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Dismissed

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Judgment (excerpt)

' 
207 
COMMISSIONER OF INCOME-TAX, WEST BENGAL-I, 
A 
CALCUTTA 
. 
v. 
SIMON CARVES LMITED 
August 17. 1976 
[H. R. KHANNA, R. S. SARKARIA AND JASWANT SINGH, JJ.] 
B 
Income-tax (11 of 1922) ss. 34 and 42, Income-tax Act (43 of 1961) 
s. 147 and Income-tax Rules, 1922, r. 33 corresponding to r. 10 of 1962 Rules--
One of the methods mentioned in r. 33 applied for asse.\Slncnt-Higher tax 
liability if another method in rule adopted-If a case of income escaping 
assess1nent. 
Section 42, Income-tax Act, 1922, provides for assessing the income, profits 
gains deemed to accrue or arise in the taxable territories to a person not resident 
C 
in the ta•xable territories. 
Rule 33 of the 1922-Rules is made for computing 
the profits and gains of business deemed to accrue or arise in India in cases 
where the income tax officer finds that the provisions of s. 42 do not provide 
sufljcient criteria. 
The rule mentions three methods and it would be. open to 
the income-tax officer to select and apply one of the three methods mentioned 
in the rule. 
· 
The assessee-respondent in the present case, is a non-resident company carry-
ing on business as construction engineers both in India and in other parts of 
D 
the world. 
The Income-tax Officer found that s. 42 of the 1922-Act did not 
provide sufficient criteria for computing- the profits and gains of the assessee 
deemed to accrue or arise in India and, therefore, assesseed the income applying 
one of the three methods mentioned in r. 33. 
As it resulted in lower tax 
liability, his successor initiated proceedings und•<ir s. l47(b), Income.tax Act, 
1961, adopted another method contemplated by r. 33. and assessed the income 
nt a higher figure. 
The_ Appellate Assistant Commissioner, the Tribunal and 
High Conrt held that in making the reassessment the Income-tax Officer could 
not depart from the method of computation followed in the original assess-
E 
ment, and adopt an alternative method· of computation though permitted by the 
rule. 
In appeal to this Conrt, it was contended that the lower tax liability in the 
original assessment showed that it was a case of escaped assessment and as 
such s. 147 of the 1961-Act was attracted. 
Dismissing the appeal, 
F 
HELD : It is open to the Income-tax Officer at the time of making the 
original assessment to adopt one of the three methods mentioned in r. 33 
for computing the taxable income of the assessee. 
From the mere fact that 
the method selected by him resulted in lower . tax liability compared to the 
liability which would have resulted from the adoption of another method 
under the rule, it would not follow that the discretion was not exercised by 
the Income-tax Officer in a proper and judicious manner, and that it would be 
a case of income escaping assessment. 
[212 E-F] 
-
G 
(1) 'The discretion to choose one of the methods in r. 33 onght to be 
exercised by the Income-tax Officer in a proper and judicious manner. In the 
present case, there is nothing to show that the discretion was not so exercised 
by the Income-tax Officer, nor was it suggested that he was actuated by any 
oblique motive. 
The Income-tax Officer ordering reassessment does not sit as 
a Conrt of appeal over the officer making the original assessment, nor is it 
open to him to substitute his own opinion regarding the method of computation 
of the income especially when the method of computation adopted at the time 
of original assessment was permissible in law. 
The taxing authorities exercise 
H 
quasi-judicial powers, and in doing so, they must act in a 
fair and 
not a 
partisan manner. 
Although it is part of their duty to ensure that no tax, 
which is legitimately due from an assessee, should remain unrecovcrcd, they 
A 
B 
c 
208 
SUPREME COURT REPORTS 
[1977] 1 S.C.R. 
must a,Jso at the same· time not act in a manner which indicates that the 
scales are weighted against the assessee. 
It is not correct to say that unless 
the authorities exercise the power in a manner most beneficial to the revenue 
and consequently most adverse to the assessee, they should be deemed not to 
have exercised their discretion in a proper and judicious manner. [213C, 212G] 
(2) The original order of the first Income-tax Officer was a legally correct 
order and was not vitiated by any error. The a·bsence of an error would justify 
the inference that it is not a case of income escaping assessment. There is 
necessarily an element of error which becomes in cases of i

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