THE COMMISSIONER OF INCOME-TAX versus M/S. MCMILLAN & CO.

Citation: [1958] 1 S.C.R. 689 · Decided: 16-10-1957 · Supreme Court of India · Bench: NATWARLAL HARILAL BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

... 
S.C.R. 
SUPREME COURT REPORTS 
THE COMMISSIONER OF INCOME-TAX 
v. 
M/s. McMILLAN & CO. 
(BHAGWATI, S. K. DAs and J. L. KAPUR, JJ.) 
689 
Income-Tax-Assessment-Acceptance by Income-tax Officer <f 
he assessee's method of accounting-Power of Appellate Assistant 
Commissioner in appeal-If can reject such method and adopt 
a11otlzer-India11 Income-tax Act (XI of 1922), ss. 31, 13 proviso--
Indian Income-tax Rules, R. 33. 
The respondent assessee, a non-resident company, sold and 
published books and magazines in various parts of the world. lt 
submitted for the assessment year in question a return in which a 
:fixed percentage of the marked price. of all publications sold in 
India, printed in India or elsewhere, was adopted as the cost of 
production and this method of accounting was followed in the 
return. The Income-tax Officer accepting this method, assessed 
the income at Rs. 82,623. The assessee preferred an appeal on 
other grounds to the Appellate Assistant Commissioner. The 
Appellate Assistant Commissioner was of opinion that the true 
income of the assessee could not be deduced from the method of 
accounting followed by him and accepted 
by the Income-tax 
Officer and issued a notice under s. 31(3) of the Indian Income· 
tax Act and after hearing the assessee fixed his assessable income 
at Rs. 1,11,616 by applying the provisions of Rule 33 of the Indian 
Income-tax 
Rules. The 
assessee appealed to the 
Appellate 
Tribunal and the Tribunal, relying on a recent decision of the 
Bombay High Court, held that the Appellate Assistant Commis-
sioner had no jurisdiction to enhance the income in the way he did 
and referred the matter to the High Court at the instance of the 
appellant. The High Court held against the appellant and he 
appealed. The questions for decision were whether it was open to 
the Appellate Assistant Commissioner in exercise of his powers 
under s. 31(3} of the Act to reject the .method of accounting, 
followed by the assessee and accepted by the Income-tax Officer, 
under the proviso to s. 13 of the Act, and compute the income, 
profits or gains of the assessee under Rule 33 of the Rules. 
Held, (per S. K. Das and Kapur. JJ., Bhagwati, J., dissenting) 
that the questions must be answered in the affirmative and the 
appeal must succeed. 
There is nothing ins. 31, read with the proviso to s. 13, of the 
Indian Income-tax Act which prevents the Appellate Assistant 
Commissioner, in an appeal 
preferred by the asscssee, 
from 
exercising the powers which the Income-tax Officer can exercise 
under the proviso to s. 13 of the Act. Although it is for the 
Jncome-tax Officer, in the first instance, to decide what would be 
the correct method of accounting under the proviso in a parti-
cular case, he has, in doing so, to act reasonably and judicially and 
L2SC/61 P. V-7 
1957 
Oc1ober, 16. 
1590 
SUPREME COURT REPORTS 
[1958) 
1957 
not subjectively or arbitrarily and any decision he may arrive at 
--
cannot be treati:d as final. Neither s. \J nor the proviso imposes 
The Commissioner any limitation on the wide powers conferred on the Appellate 
of Income-Tax 
Assistant Commissioner bys. 31(3) of the Act once he is in proper 
v. 
seizin of the matter. 
M/s. McMi/1011 
& Co. 
Narrondas Manordass, Bombay v. Commissioner of Income-tax 
(1957) 31 J.T.R. 909, approved. 
K. F. Vakeel v. The Commissioner of Income-tax, l.T. Refer-
ence No. 21 of 1950, Bombay High Court, dissented from. 
Case-law discussed. 
The Appellate Assistant Commissioner has also the power in 
an appeal to apply the provisions of Ruic 33 of the Indian Income-
tax Rules for the purpose of a correct computation of the assessee's 
income although the Income-tax Officer has not done so. 
Per Bhagwati,.J.-The difference in the language of the tw<> 
conditions, on the fulfilment of which the meth<>d of accounting 
regularly employed by the assessee can be rejected under the 
proviso to s. 13 of the Indian ·Income-tax Act clearly indicates 
that the Legislature intended that any determination as to the 
second condition, namely, that the income, profits and gains of the 
assessee cannot be property deduced from the method regularly 
employed by him, must be of the Income-tax Officer atone and no 
other authority described in the hierarchy of Income-tax authori-
ties and defined by the Act. 
K. F. Vakeel v. The Commissioner of Income-tax, J.T. Refer-
ence No. 21 of 1950, Bombay High Court, approved. 
Nor are the powers of the Appellate A

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