Messrs Mela Ram and Sons vs The Commissioner Of Income-Tax, Punjab

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 17 of 1954

Decision Date: 21 February, 1956

Coram: Natwarlal H. Bhagwati, Venkatarama Ayyar

Messrs Mela Ram & Sons filed a petition before the Supreme Court of India challenging an order dated 21 February 1956 issued by the Commissioner of Income-Tax, Punjab. The judgment was delivered on 21 February 1956 by a bench consisting of Justice Natwarlal H. Bhagwati, with additional members Justice Aiyyar, Justice T.L. Venkatarama, Justice Das, Justice Sudhi Ranjan Bhagwati and Justice Natwarlal H. Bhagwati. The case is reported in 1956 AIR 367 and 1956 SCR 166 and concerns the provisions of the Indian Income-Tax Act, 1922 (XI of 1922), specifically sections 23, 30(1), 30(2), 31 and 33. The appellant, Messrs Mela Ram & Sons, had been assessed to income-tax and super-tax for the financial years 1945-1946 and 1946-1947. The assessments were made under section 23, which authorises the issuance of a notice of demand. Exercising the right conferred by section 30(1), the appellant filed appeals against these assessments. However, the appeals were filed after the period prescribed by section 30(2), and consequently the appeals were numbered and notices for their hearing were issued under section 31.

During the hearing before the Appellate Assistant Commissioner, the Revenue Department objected that the appeals were barred by limitation. The appellant sought condonation of the delay, but the request was denied and the appeals were dismissed as time-barred. The appellant then contended that the dismissal orders themselves were appealable under section 33 of the Act and preferred appeals to the Tribunal. The Tribunal held that the dismissal orders were effectively made under section 30(2) rather than under section 31, and therefore no appeal could be entertained under section 33. The matter was referred to the High Court under section 66(1); the High Court affirmed that the Appellate Assistant Commissioner’s orders were made under section 30(2) and consequently were not appealable under section 33.

The central issue before the Supreme Court was whether an order that dismissed an appeal filed out of time should be characterised as an order passed under section 30(2) or as an order passed under section 31. If the order fell under section 30(2), the statute provides no right of appeal; if it fell under section 31, the order would be appealable under section 33. The Court held that the dismissal orders were within the ambit of section 31. It reasoned that the right of appeal is a substantive right created by the statute, and section 30(1) confers on the assessee a right to appeal against orders of assessment, such as those made under section 23. Consequently, an appeal presented out of time remains an appeal, and an order dismissing it as time-barred is an order passed in the course of an appeal. Since section 31 alone governs the hearing and disposal of appeals, any order dismissing an appeal—whether it addresses the merits of the assessment or merely rejects the appeal on a procedural ground—must be regarded as made under section 31 and therefore is subject to appeal under section 33.

In the case before the Court, the order that dismissed an appeal on the ground that it was barred by limitation was treated as an order passed in appeal. Consequently, the Court held that such an order fell within the scope of section 31. Because section 33 confers a right of appeal against every order made under section 31, the dismissal order was therefore also appealable. The Court explained that for an order to fall within section 31 it was not necessary for the order to expressly address the merits of the assessment; it was sufficient that the effect of the order was to confirm the assessment, as occurs when an appeal is dismissed on a preliminary point. Moreover, an order that rejected an appeal on the ground of limitation after the appeal had been admitted was also regarded as an order under section 31, even though no consideration of the merits of the assessment took place. The Court consequently held that the orders of the Appellate Assistant Commissioner, which held that there were no sufficient reasons for excusing the delay and therefore rejected the appeals as time-barred, were orders passed under section 31 and were open to appeal. The Court further observed that it made no difference whether the dismissal orders were made before or after the appeals had been admitted. The decision referred to the earlier authority Commissioner of Income-tax, Madras v. Mtt. `r. S. Ar. Arunachalam Chettiar, ([1953] S.C.R. 463), and noted that the case-law discussed supported the reasoning.

The judgment in Civil Appeal No. 17 of 1954, filed by special leave against the judgment and order dated 11 June 1951 of the Punjab High Court in Civil Reference No. 2 of 1951, was delivered on 21 February 1956 by Justice Venkatarama Ayyar. The appellant was a firm engaged in business at Ludhiana in the Punjab. For the assessment year 1945-1946, the Income-Tax Officer assessed the firm’s income at Rs 71,186 and, on 17 September 1947, served a notice of demand for Rs 29,857-6-0 relating to income-tax and super-tax. The firm filed an appeal against this assessment, which was received by the Appellate Assistant Commissioner on 5 November 1947. Although the appeal was filed 19 days late, it was registered as Appeal No. 86, and a notice for hearing under section 31 was issued for 13 December 1947. After several adjournments, the appeal was finally heard on 1 October 1948. For the assessment year 1946-1947, the Income-Tax Officer assessed the firm’s income at Rs 1,09,883 and, on 29 September 1947, served a notice of demand for Rs 51,313-14-0. The firm again preferred an appeal, which was received on 5 November 1947, this time being 7 days out of time. The appeal was registered as Appeal No. 89, and a notice for hearing under section 31 was issued for 24 June 1948. Both Appeal No. 86 and Appeal No. 89 were heard together on 1 October 1948. At the hearing, the Department took the objection that the appeals were

In this case the Revenue Department objected that the two appeals were filed after the prescribed period and therefore should be dismissed as untimely. The appellant requested condonation of the delay, contending that the partition of the country had created unsettled conditions, a curfew order was in force, the post office was not accepting registered letters, and the Grand Trunk Road was closed, all of which constituted exceptional circumstances justifying the failure to present the appeals on time.

On 31-12-1948 the Appellate Assistant Commissioner issued orders in both matters, concluding that the appellant had not shown sufficient cause to condone the delay and consequently rejecting the appeals in limine. These orders were said to be made under section 31 read with section 30(2). The appellant then filed appeals under section 33 of the Act to the Appellate Tribunal. By its order dated 4-4-1950 the Tribunal dismissed the appeals, holding that the Assistant Commissioner’s orders were in substance made under section 30(2) and not under section 31, and therefore no appeal lay under section 33.

Under section 66(1) of the Income-Tax Act the Tribunal referred the following question to the High Court of Punjab: “Whether, in the circumstances of the case, appeals lie to the Tribunal against the orders of the Appellate Assistant Commissioner dismissing the appeals against the assessments for the years 1945-46 and 1946-47 in limine.” The reference was heard by Justices Khosla and Harnam Singh, who, relying on the earlier decision of that court in Dewan Chand v. Commissioner of Income-Tax, held that the Assistant Commissioner’s orders were made under section 30(2) and consequently were not appealable under section 33.

When the High Court refused a certificate to appeal to this Court, the appellant obtained leave to appeal under article 136 of the Constitution, and the matter now came before the Supreme Court. For completeness, the relevant statutory provisions were set out. Section 30(1) gives the assessee a right of appeal against orders made under the sections named therein. Section 30(2) provides that the appeal must ordinarily be filed within thirty days of the assessment order, but the Appellate Assistant Commissioner may admit a later appeal if he is satisfied that the appellant had sufficient cause for the delay. Section 30(3) requires that the appeal be in the prescribed form and verified as prescribed. Section 31(1) authorises the Appellate Assistant Commissioner to fix a date and place for hearing the appeal and to adjourn the hearing as necessary. Section 31(3) specifies the kinds of orders that may be made depending on whether the appeal is directed against an order passed under one of the sections listed in section 30(1).

In this appeal the Court observed that the provisions of the Act specify that when an appeal is filed against an assessment order made under section 23, the powers of the Appellate Assistant Commissioner are governed by section 31(3), clauses (a) and (b). Clause (a) authorises the Commissioner to confirm, reduce, enhance or annul the assessment, while clause (b) permits the Commissioner to set aside the assessment and direct the Income-tax Officer to make a fresh assessment after carrying out any further enquiry that the Officer considers appropriate. Section 33(1) provides that any assessee who is dissatisfied with an order passed by an Appellate Assistant Commissioner under section 28 or section 31 may appeal to the Appellate Tribunal within sixty days of the communication of that order. Summarising, section 30 confers a right of appeal on the assessee; section 31 lays down the procedure for hearing and disposing of the appeal; and section 33 creates a right of further appeal against orders made under section 31. The question before the Court was whether an order that dismisses an appeal filed under section 30 because it is out of time is made under section 30(2) or under section 31 of the Act. If the order falls under the former provision, there is no statutory right of appeal against it; if it falls under the latter, the order would be appealable under section 33. The Court noted that this issue has generated a sharp conflict of opinion among various High Courts and even among different benches of the same High Court. The Bombay High Court has held that when an appeal is presented after the prescribed period and no order of condonation of delay is granted under section 30(2), there is, in law, no appeal before the Appellate Assistant Commissioner, and an order by the Commissioner rejecting the appeal does not fall within section 31 and is therefore not appealable, as indicated in Commissioner of Income-tax v. Mysore Iron and Steel Works [1949] 17 I.T.R. 478 and K. K. Porbunderwalla v. Commissioner of Income-tax [1952] 21 I.T.R. 63. However, the Bombay High Court also held that if the appeal is admitted after an order of condonation is made under section 30(2), an order subsequently dismissing the appeal on the ground of limitation is made under section 31, is appealable under section 33, and the result would be the same even when the appeal is admitted without any order of condonation, as reflected in Champalal Asharam v. Commissioner of Income-tax. The Allahabad High Court adopted the same view, holding that an order refusing to condone delay and rejecting an appeal before it is admitted is not made under section 31 and is not appealable, as seen in Shivnath Prasad v. Commissioner of Income-tax, Central and U.P. and Municipal Board, Agra v. Commissioner of Income-tax, U.P. Conversely, the Allahabad High Court held that any order dismissing the appeal as time-barred after it has been admitted is made under section 31 and is appealable.

The Punjab High Court, following Shivnath Prasad v. Commissioner of Income-tax, Central and U.P.(2) and Commissioner of Income-tax v. Mysore Iron and Steel Works(5), held that when the Appellate Assistant Commissioner refuses to condone delay and rejects the appeal, the order is made under section 30(2) and is not appealable. The Court further observed that even if an appeal had been admitted without a condonation order and subsequently dismissed at the hearing on the ground of limitation, such dismissal would not fall within section 31, because the statutory scheme requires an order under that section to relate to the merits of the assessment. The judgment under appeal is based on this decision of the Punjab High Court. It may be noted that the decision in Dewan Chand v. Commissioner of Income-tax(6) was dissented from in a recent Punjab High Court judgment in General Agencies v. Income-tax Commissioner(7). In Commissioner of Income-tax v. Shahzadi Begum, the Madras High Court held that an order declining to excuse delay and rejecting the appeal is an order under section 31, whether it is made before or after the appeal is admitted, and that an appeal filed out of time is nonetheless an appeal for purposes of section 31, making a dismissal of it appealable under section 33. Mullick v. Commissioner of Agricultural Income-tax(1), decided by the Calcutta High Court after a full discussion, concluded that a dismissal on the ground of limitation at any stage falls within section 31. It is unnecessary to refer to the views expressed in decisions of other High Courts, because the point presently under discussion did not directly arise for decision in those courts. The question to be resolved is which of these conflicting views is correct. Section 33 makes only orders under section 31 appealable, so the inquiry narrows to whether an order that declines to condone delay and dismisses the appeal as time-barred is an order under section 31. Such an order would be section 31 if it is passed in appeal against an assessment and affirms that assessment. The conflicting High Court views centre on two issues: first, when an appeal is presented out of time and there has been a refusal to condone delay under section 30(2), whether the order rejecting it as time-barred is an order passed in appeal; second, if it is such an order, whether it constitutes a confirmation of the assessment within section 31(3)(a). The discussion will first address the initial point.

In this case the Bombay High Court held that an order dismissing an appeal as time-barred after the appeal had been admitted falls under section 31, whereas a similar order made before admission falls under section 30(2). The Court explained that, as a matter of law, an appeal does not exist unless it is presented within the prescribed time or, if presented late, the delay is excused; consequently, a late appeal that is not condoned cannot be said to be an appeal within the meaning of section 31. The Court relied on the decision in Commissioner of Income-Tax v. Mysore Iron and Steel Works (2), where Chief Justice Chagla observed that an assessee has a statutory right to file an appeal within thirty days without any order from the Appellate Assistant Commissioner. He further explained that once the thirty-day period expires, the right to present an appeal disappears, and an appeal can be entertained only after the Appellate Assistant Commissioner admits it by condoning the delay. The Court quoted Chagla’s passage: “An assess­see has a statutory right to present an appeal within thirty days without any order being required from the Appellate Assistant Commissioner for admission of that appeal. But if the time prescribed expires, then that statutory right to present an appeal goes; and an appeal can only be entertained provided it is admitted by the Appellate Assistant Commissioner after condoning the delay.” (1) [1952] 22 I.T.R. 131. (2) [1949] 17 I.T.R. 478. The Court therefore concluded that before an appeal could be admitted in the present case, a condonation order from the Appellate Assistant Commissioner was a prerequisite, and only after such an order could the appeal be heard under the procedure laid down in section 31. Section 31, the Court said, applies only to appeals presented within the prescribed period or admitted after condonation, and its hearing procedure does not apply to a situation where the Appellate Assistant Commissioner refuses to condone delay. Consequently, the Court held that when the Appellate Assistant Commissioner refused condonation, no appeal existed for him to hear under section 31. Section 33, according to the judgment, gives the assessee a right of appeal against an order made by the Appellate Assistant Commissioner under section 28 or section 31, but the legislature did not intend to provide a right of appeal against an order made by the Appellate Assistant Commissioner under section 30. Counsel for the appellant challenged the view that a refusal to condone delay is an order under section 30(2), arguing that section 30(2) only authorises an order that actually excuses the delay and that a refusal should be classified under section 31. The Court found this contention unconvincing. It observed that where a statute confers discretionary power on an authority, the discretion includes both granting and refusing the relief, and therefore the Appellate Assistant Commissioner’s power to excuse delay necessarily includes the power to decline to do so. Accordingly, the Court was of the opinion that the refusal to excuse delay constitutes an order under section 30(2).

The Court observed that the refusal to excuse the delay was, in fact, an order made under section 30(2). Yet, the Court noted that a substantial question remained concerning the correctness of the view expressed in Commissioner of Income-tax v. Mysore Iron and Steel Works(1) and K. K. Porbunderwalla v. Commissioner of Income-tax(2). Those decisions held that an appeal filed after the prescribed limitation period was, in the eyes of law, no appeal at all unless the delay was first condoned, and consequently any order made on such an appeal could not be regarded as an appeal order falling within section 31. The Court set out to examine whether that approach was legally sound.

In addressing the issue, the Court first explained that a right of appeal is a substantive right created by statute. Section 30(1) expressly grants the assessee a right to appeal against certain orders, including an assessment order made under section 23. Accordingly, the appellant possessed a substantive right under section 30(1) to prefer an appeal against an assessment order issued by the Income-tax Officer. Section 30(2) then prescribes a limitation period within which that substantive right must be exercised. The Court asked whether an appeal presented after the limitation period ceased to be an appeal under section 30(1). It observed that well-established legal principles hold that rules of limitation belong to procedural, or adjectival, law and serve only to bar a remedy without extinguishing the underlying right. Therefore, an appeal brought in accordance with section 30(1) remains an appeal in law, even though it may be dismissed at the threshold for being out of time under section 30(2). The Court noted that a statute might contain a provision, such as section 28 of the Limitation Act, whereby the right itself would be extinguished after the limitation period, but no such provision exists in the present statute. By granting a substantive right in section 30(1) and separately imposing a procedural limitation in section 30(2), the legislature intended to preserve the distinction recognized in general law between substantive rights and procedural requirements. The Court then referred to Nagendranath Dey v. Suresh Chandra Dey(3), where Sir Dinshaw Mulla explained that, although the Civil Procedure Code contains no definition of “appeal,” any application to a higher court seeking to set aside or revise a subordinate court’s decision is an appeal within the ordinary meaning of the term, even if the application is irregular or incompetent. Those observations were approved and adopted by this Court in Raja Kulkarni and others v. The State of Bombay(1). The Court also cited Promotho Nath Roy v. W. A. Lee(2), wherein an order dismissing an appeal on the ground of limitation was treated as an order passed “on appeal,” reinforcing the principle that an out-of-time appeal is still an appeal, and an order dismissing it as barred by limitation is consequently an appeal order.

In the case being considered, the Court observed that an order which dismissed an appeal on the ground that it was barred by limitation, after having rejected an application under section 5 of the Limitation Act that sought to excuse the delay, was described as an order “passed on appeal” within the meaning of section 109 of the Civil Procedure Code. Relying on the principles articulated in earlier decisions, the Court held that an appeal filed out of time still qualified as an appeal, and consequently an order that refused the appeal because of the limitation defect was likewise an order passed in appeal. The Court then turned to the next issue, namely whether such an order fell within the ambit of section 31 of the Income-Tax Act. Section 31 is the sole provision that governs the hearing and disposal of appeals; therefore, if an order dismissing an appeal as time-barred is an order passed in appeal, it must be deemed to be made under section 31. Moreover, because section 33 provides a right of appeal against every order made under section 31, the order in question would also be appealable under that provision. Nevertheless, the Court noted that a contention was raised that, in an appeal against an assessment, only an order that actually confirms, reduces, enhances, or annuls the assessment—an order that must be based on consideration of the merits of the appeal—could be made under section 31(3)(a). According to that view, an order dismissing the appeal solely on a limitation ground would not fall within section 31, a position that had been adopted in Dewan Chand v. Commissioner of Income-Tax. The Court, however, pointed out that an overwhelming majority of other High Courts have held that it is not necessary for the order to expressly address the merits of the assessment; it is sufficient that the effect of the order is to confirm the assessment, even when the appeal is dismissed on a preliminary point. The Court cited several authorities, including Commissioner of Income-Tax v. Shahzadi Begum, where Justice Satyanarayana Rao explained that dismissing an appeal as incompetent or as filed out of time, without establishing sufficient cause, inevitably affirms the order that was appealed against. Further, the Court referred to Gour Mohan Mullick v. Commissioner of Agricultural Income-Tax, where Justice Chakravarti, while interpreting sections 34, 35 and 36 of the Bengal Agricultural Income-Tax Act (which correspond to sections 30, 31 and 33 of the Indian Income-Tax Act), observed that an order which, in effect, confirms the assessment or at the very least disposes of the appeal, constitutes an order under the relevant section. He emphasized that the statutory language contemplates any disposal or conclusion of the appeal, and the specific forms of orders listed are not exhaustive; therefore, an appellate order may dispense with a direct finding on the merits yet still be considered an order under the statute, regardless of whether the ground for dismissal is a limitation finding or any other preliminary issue.

The Court observed that an appeal may be dismissed on the ground that it is barred by limitation, or on the ground that the case does not merit an extension of time, or on both grounds together. This line of reasoning has also been adopted by decisions of the Bombay and Allahabad High Courts, which hold that an order rejecting an appeal on the ground of limitation after the appeal has already been admitted falls under section 31, even though the order does not examine the merits of the assessment. In the case of K. K. Porbunderwalla v. Commissioner of Income-tax, the learned Chief Justice Chagla stated that although the Appellate Assistant Commissioner did not consider the merits of the appeal and found the appeal to be barred by limitation, his order was made under section 31 and the practical effect of that order was to confirm the assessment that had been made by the Income-tax Officer.

In Special Manager of Court of Wards v. Commissioner of Income-tax, reported in [1952] 21 I.T.R. 1, the Allahabad High Court expressed the view that it is possible for the limitation period prescribed in section 30 and the power to grant an extension, also contained in that section, to be exercised in effect under section 31. The Court explained that when the Appellate Assistant Commissioner decides not to extend the limitation period, that decision can be described as, in a sense, confirming the assessment. The respondent later relied on a subsequent decision of the Allahabad High Court in Mahabir Prasad Niranjanlal v. Commissioner of Income-tax, reported in [1952] 22 I.T.R. 131. In that decision, the learned judges, departing from the earlier line of authority of that court, held that an order of the Appellate Assistant Commissioner dismissing an appeal as time-barred was an order made under section 30(2) and not under section 31; consequently, such an order was not appealable. The judges said they felt bound by certain observations of this Court in Commissioner of Income-tax, Madras v. M. Ar. S. Ar. Arunachalam Chettiar, reported in [1953] S.C.R. 463. However, when the facts of that case are considered, the Court found that those observations did not support the conclusion reached by the Allahabad High Court. In that earlier case, the assessee had filed an appeal under section 30(1) against an order of the Income-tax Officer, and the Appellate Assistant Commissioner dismissed the appeal on 19-November-1945 on the ground that it was incompetent. No further appeal was filed, so the order became final. Nevertheless, relying on a suggestion made in the 19-November-1945 order, the assessee later filed an original miscellaneous application before the Appellate Tribunal seeking relief. By its order dated 20-February-1946, the Tribunal set aside the findings of the Income-tax Officer and directed the Officer to recompute the tax liability. Subsequently, the Commissioner of Income-tax applied to the Tribunal, which referred a question to the High Court under section 66(1) of the Income-tax Act, asking whether, in the facts and circumstances of the case, the order of the Tribunal dated 20th February was appropriate and legally valid.

The Court noted that the High Court had refused to answer the reference because the order issued by the Tribunal did not arise out of an appeal under section 33(1); consequently, the reference made under section 66(1) was itself incompetent. The correctness of the High Court’s decision was challenged before this Court, and the Court affirmed that decision. In its judgment the Court observed that on 19 November 1945 the Appellate Assistant Commissioner had declined to admit the appeal. The assessee therefore did not file any appeal but only lodged a miscellaneous application before the Appellate Tribunal. The Court pointed out that the Income-Tax Act contained no provision authorising such a miscellaneous application. The Tribunal, however, in its statement of the case declared that it had entertained the application and corrected the error of the Income-Tax Officer by exercising what it regarded as its inherent powers. Because there was no appeal under section 33(1) and the order had been made in the exercise of that alleged inherent jurisdiction, the Court held that the order could not be characterised as one made under section 33(4). In the absence of any order falling within section 33(4), there could be no reference by the appellate court under section 66(1) or section 66(2); consequently, the appellate court had rightly refused to entertain the reference. The Court further observed that the decision of the High Court itself did not address the matter presently before the Court. Nevertheless, certain observations on pages 474 and 475 of the earlier judgment were cited by the learned judges as suggesting that an order dismissing an appeal on the ground of limitation might fall within section 30(2). Those observations had been made in response to a new contention raised by the Attorney-General in support of the appeal. The Attorney-General argued that the miscellaneous application presented to the Tribunal could be treated as an appeal against the order dated 19-11-1945, and that the order dated 20-2-1946 would then fall under section 33(4), rendering the reference competent. In rejecting that contention, this Court held that the appeal to the Appellate Assistant Commissioner was incompetent under section 30(1); even assuming competence, the order of 19-11-1945 was not one contemplated by section 31, and therefore no appeal could be brought against it under section 33(1). The Court emphasized that the question actually referred to under section 66(1) concerned the correctness and legality of the order passed in the miscellaneous application, not any order made in an appeal under section 33(1). Accordingly, the point sought to be raised by the Attorney-General did not arise for decision, and the observations made in answer to that contention could not be read as a pronouncement on the maintainability of the appeal, much less as a decision that an order dismissing an appeal

The Court observed that an appeal dismissed on the ground that it was barred by limitation falls within the purview of section 30(2) of the Act. Consequently, the issue of whether such a dismissal should be treated as an order made under section 30(2) or under section 31 is not altered by the observations in Commissioner of Income-Tax, Madras v. Mtt. Ar. S. Ar. Ar. Arunachalam Chettiar[1]. The Court further noted that limitation is not the sole preliminary ground on which an appeal may be disposed of without a consideration of the merits. Section 30(3) requires that an appeal be filed in the prescribed form and verified in the prescribed manner. If the Appellate Assistant Commissioner determines that the appeal does not satisfy these statutory requirements and rejects it on that basis, the resulting order must be classified as one made under section 31, because section 30(3) itself provides no mechanism for such an order, just as section 30(2) provides no mechanism for orders based on limitation. All orders issued under section 31 are appealable under section 33; therefore, a dismissal order issued for non-compliance with section 30(3) is likewise appealable. This principle was affirmed in Maharani Gyan Manjari Kuari v. Commissioner of Income-Tax[2]. The Court considered how this view reconciles with the contention that section 31 is limited to orders on the merits of the assessment and not on preliminary issues. It referred to the decision in Kunwarji Ananda v. Commissioner of Income-Tax[1], which was followed in Maharani Gyan Manjari Kuari v. Commissioner of Income-Tax[2] and in Ramnarayana Das Mandal v. Commissioner of Income-Tax[3]. The Court found abundant authority supporting a liberal construction of section 31 so that it includes not only orders passed after a merits-based consideration of the assessment but also orders disposing of an appeal on preliminary grounds such as limitation.

The learned Solicitor-General attempted to overturn these decisions by arguing that section 31(3)(a), when read in its literal and ordinary sense, confers jurisdiction on the Appellate Assistant Commissioner solely to pass orders on the merits of the assessment. He contended that the Commissioner is therefore not authorized to entertain any question that does not directly relate to such merits, and consequently cannot hear or decide any preliminary issue such as limitation, nor dispose of the appeal on the basis of a finding on that issue. Although he acknowledged that this position conflicted with numerous authorities, he maintained that those authorities were erroneous. After giving due consideration to this contention, the Court held that the argument was not well-founded. The Court explained that when a plea of limitation arises—meaning that there exists a judgment or order against which the statute provides a right of appeal but the appeal is not filed within the prescribed time—the respondent acquires a valuable right that cannot be taken away by an order that condones the delay and permits the appeal to proceed despite the lapse of time.

In this case, the Court noted that when an ex parte order is issued, the party affected by that order has the right to challenge its correctness during the hearing of the appeal. The Court explained that this principle follows the general law as set out in Krishnasami Panikondar v. Ramasami Chettiar, and that there is nothing in the provisions of the Income Tax Act that establishes a different rule. The Court referred to the authorities I L.R. 11 Patna 187; A.I.R. 1931 Patna 306; 5 I.T.C. 417; [1944] 12 I.T.R. 59; (1950) 18 I.T.R. 660; [1918] I.L.R. 41 Mad. 412; 45 I.A. 25. Accordingly, the Court held that if an appeal is admitted without the fact of delay in presentation having been noticed, the Department may raise the objection at the time of the hearing of the appeal. The Court observed that this practice is consistent with the procedure before the Income-Tax Tribunal, as reflected in the cited decisions, and that, in its view, this approach is correct. The Court further indicated that similar considerations apply to other preliminary objections, such as those based on section 30, sub-section (3). The Court warned that a construction that deprives parties of valuable rights should be avoided. Consequently, the Court concluded that contentions relating to preliminary issues are open to consideration at the hearing of the appeal, and that the jurisdiction of the Appellate Assistant Commissioner is not limited to deciding the merits of the assessment alone. In this view, orders of the Appellate Assistant Commissioner holding that there were no sufficient reasons for excusing delay and rejecting the appeals as time-barred are orders passed under section 31 and are therefore appealable, and it makes no difference whether the order of dismissal is made before or after the appeal is admitted. The Court answered the question referred in the affirmative, allowed the appeal, set aside the order of the lower court, and awarded costs to the appellant in both the present proceeding and the lower court.