A) ABSTRACT / HEADNOTE

The landmark judgment in Rai Bahadur Seth Teomal v. Commissioner of Income Tax and Commissioner of Excess Profits Tax ([1959] Supp. 2 SCR 301) revolves around the intricate question of jurisdiction under the Indian Income-tax Act, 1922. The Supreme Court dealt extensively with whether the Central Board of Revenue (CBR) exercised valid powers under Section 5(2) as opposed to Section 5(7A) of the Act when transferring the appellant’s income tax case. The appellant, originally assessed in Rangpur, objected to the transfer of his case to Calcutta, arguing lack of jurisdiction. The Court, however, firmly upheld the CBR’s powers under Section 5(2), distinguishing it from Section 5(7A), clarifying the administrative mechanisms under tax law concerning jurisdiction. This judgment not only clarified statutory interpretation but also reinforced administrative efficacy in tax assessments while limiting appellate forums from entertaining jurisdictional objections relating to the place of assessment. The Court further examined and distinguished several precedents like Pannalal Binjraj v. Union of India ([1957] SCR 233) and Wallace Brothers & Co. Ltd. v. Commissioner of Income Tax ([1945] FCR 65), thereby building an important precedent for subsequent tax jurisprudence in India.

Keywords: Income Tax Act 1922, Section 5(2), Section 5(7A), jurisdiction, place of assessment, administrative powers, transfer of case, appellate jurisdiction.

B) CASE DETAILS

i) Judgement Cause Title:
Rai Bahadur Seth Teomal v. The Commissioner of Income Tax and The Commissioner of Excess Profits Tax

ii) Case Number:
Civil Appeals Nos. 384 and 385 of 1957

iii) Judgement Date:
March 2, 1959

iv) Court:
Supreme Court of India

v) Quorum:
Justice B.P. Sinha, Justice J.L. Kapur, Justice M. Hidayatullah

vi) Author:
Justice J.L. Kapur

vii) Citation:
[1959] Supp. 2 SCR 301

viii) Legal Provisions Involved:
Indian Income-tax Act, 1922 – Sections 5(2), 5(7A), 22(2), 22(4), 23(2), 23(3), 30, 33, 64(1), 64(2), 64(3), 64(5a), 66(1), 66(2)

ix) Judgments overruled by the Case (if any):
None.

x) Case is Related to which Law Subjects:
Taxation Law, Administrative Law, Income Tax Law, Constitutional Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The judgment arose from two appeals filed by the assessee, who objected to being assessed by an Income Tax Officer in Calcutta after his case was transferred from Rangpur under the Indian Income-tax Act, 1922. The dispute centered on whether such a transfer required compliance with Section 5(2) or Section 5(7A) of the Act. The appellant contested the jurisdictional validity of this transfer, asserting that only the Income Tax Officer at Rangpur had jurisdiction based on his business operations’ location.

D) FACTS OF THE CASE

Rai Bahadur Seth Teomal, a Hindu Undivided Family (HUF) manager, was engaged in railway contracting in Rangpur (now in Pakistan). He was served a notice under Section 22(2) of the Income-tax Act, 1922 by the Rangpur Income Tax Officer and filed his returns accordingly. However, before assessment finalization, the Central Board of Revenue transferred the case to the Commissioner of Income-tax (Central), Calcutta under Section 5(2). The Calcutta Income Tax Officer reassessed the appellant after issuing fresh notices under Sections 22(4) and 23(2).

Post-assessment, the appellant raised objections on jurisdictional grounds before the Appellate Assistant Commissioner and subsequently before the Appellate Tribunal, but both dismissed his contentions. The Tribunal concluded it lacked competence to adjudicate objections concerning the place of assessment as per Wallace Brothers & Co. Ltd. v. Commissioner of Income Tax, [1945] FCR 65.

The appellant’s further applications under Section 66(1) and 66(2) to the High Court also failed. Finally, he approached the Supreme Court, challenging the jurisdictional legality of the Calcutta Income Tax Officer’s assessment.

E) LEGAL ISSUES RAISED

i) Whether the Income Tax Officer, Calcutta, had jurisdiction to assess the appellant.

ii) Whether the transfer of assessment proceedings under Section 5(2) was valid.

iii) Whether objections to the place of assessment were appealable before the Appellate Authorities and Tribunal.

iv) Whether the High Court erred in dismissing the reference application under Section 66(2).

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that:

The Income Tax Officer at Calcutta had no jurisdiction since the appellant’s business was located at Rangpur. The proper officer was the Income Tax Officer for that area as per Section 64(1) and (2). The appellant never consented to the change of jurisdiction, and no valid transfer order existed.

They argued that Section 5(7A) exclusively governed inter-officer transfers and the CBR could not resort to Section 5(2) for such purposes. They cited Taylor v. Taylor (1875) 1 Ch D 426 and Nazir Ahmad v. King Emperor, (1936) 63 IA 372 to argue that statutory power must be exercised in the manner prescribed by law.

The counsel emphasized that since Section 64(3) provided a forum for resolving jurisdictional conflicts, failure to follow this process rendered the assessment illegal.

Further, they relied on Dayaldas Kushiram v. Commissioner of Income-tax (Central), [1939] 8 ITR 139 and Dina Nath Hem Raj v. Commissioner of Income-tax, (1927) ILR 49 All 616, contending that any deviation from statutory procedures concerning jurisdiction vitiated the entire assessment.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that:

The Central Board of Revenue validly exercised its administrative powers under Section 5(2) while allocating cases among Commissioners. This provision empowered the Board to designate Commissioners without reference to geographical limits.

The counsel distinguished between administrative allocation of cases under Section 5(2) and inter-officer transfers governed by Section 5(7A). They emphasized that both sections operated in distinct spheres.

They also asserted that Section 64(5a) expressly excluded the application of Sections 64(1) and (2) when assessments involved Commissioners appointed under Section 5(2). Hence, any objection to the place of assessment was irrelevant.

Citing Wallace Brothers & Co. Ltd. v. Commissioner of Income Tax, [1945] FCR 65 and Seth Kanhaiyalal v. Commissioner of Income Tax, [1936] 5 ITR 739, they argued that objections regarding the place of assessment could not be raised in appeal but only through statutory administrative forums.

H) RELATED LEGAL PROVISIONS

i) Legal Provisions Discussed:

• Section 5(2), Indian Income-tax Act, 1922

• Section 5(7A), Indian Income-tax Act, 1922

• Section 22(2), 22(4), 23(2), 23(3), Indian Income-tax Act, 1922

• Section 64(1), (2), (3), (5a), Indian Income-tax Act, 1922

• Section 66(1), (2), Indian Income-tax Act, 1922

• Section 30, Indian Income-tax Act, 1922

• Section 33, Indian Income-tax Act, 1922

I) JUDGEMENT

a. RATIO DECIDENDI

The Supreme Court ruled that Section 5(2) and Section 5(7A) operate in independent spheres. The Central Board of Revenue legally exercised its authority under Section 5(2) in assigning the appellant’s case to the Commissioner (Central), Calcutta.

The Court emphasized that Section 64(5a) bars assessees from challenging assessments based on place of assessment once their case falls under Commissioners appointed via Section 5(2).

Jurisdictional objections regarding the place of assessment cannot be raised before appellate authorities, as held in Wallace Brothers & Co. Ltd. v. Commissioner of Income Tax ([1945] FCR 65).

The Court rejected the appellant’s reliance on Dayaldas Kushiram and Dina Nath Hem Raj by clarifying that the post-Ordinance law (introducing Section 64(5a)) adequately addressed those earlier legal concerns.

b. OBITER DICTA

The Court opined that the scheme under Section 64(3) allows administrative resolution of jurisdictional disputes. The Act intentionally excludes appellate authorities from entertaining such objections after the assessment stage.

c. GUIDELINES 

• Administrative allocation of jurisdiction under Section 5(2) remains distinct from inter-officer transfers under Section 5(7A).

• Appellate bodies lack authority to entertain jurisdictional disputes about the place of assessment.

• Once the Central Board exercises Section 5(2) powers, Sections 64(1) and (2) stand excluded by Section 64(5a).

• Objections must be timely raised before the Income Tax Officer under Section 64(3), failing which they stand barred.

J) CONCLUSION & COMMENTS

The judgment solidifies administrative autonomy in tax jurisdictional matters under the Indian Income-tax Act, 1922. The Supreme Court’s analytical distinction between Section 5(2) and Section 5(7A) resolves ambiguities regarding the scope of the CBR’s transfer powers. The verdict enhances administrative efficiency while limiting dilatory jurisdictional objections at appellate stages. This case stands as a seminal precedent, frequently relied upon in tax jurisdiction disputes, striking a careful balance between statutory compliance and pragmatic tax administration.

K) REFERENCES

a. Important Cases Referred

1. Wallace Brothers & Co. Ltd. v. Commissioner of Income-tax, Bombay, Sind and Baluchistan, [1945] F.C.R. 65; 13 I.T.R. 39.

2. Pannalal Binjraj v. Union of India, [1957] S.C.R. 233.

3. Bidi Supply Co. v. Union of India, [1956] S.C.R. 267.

4. Seth Kanhaiyalal v. Commissioner of Income-tax, [1936] 5 I.T.R. 739.

5. Dayaldas Kushiram v. Commissioner of Income-tax (Central), [1939] 8 I.T.R. 139.

6. Dina Nath Hem Raj v. Commissioner of Income-tax, (1927) I.L.R. 49 All. 616.

7. Taylor v. Taylor, (1875) 1 Ch. D. 426.

8. Nazir Ahmad v. King Emperor, (1936) L.R. 63 I.A. 372.

9. Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal, [1955] 1 S.C.R. 941.

10. Govinda Rajulu Mudaliar v. Commissioner of Income-tax, [1958] 34 I.T.R. 807.

b. Important Statutes Referred

• Indian Income-tax Act, 1922, Sections 5(2), 5(7A), 22(2), 22(4), 23(2), 23(3), 30, 33, 64(1), 64(2), 64(3), 64(5a), 66(1), 66(2).

• Indian Specific Relief Act (for historical reference in Dayaldas Kushiram).