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Petitioner: HINDUSTAN ALUMINIUM CORPORATION Ltd. VS Respondent: COMMISSIONER OF INCOME- JUDGMENT
Court Name: Calcutta High Court Judge(s): K. C. Sen Title:HINDUSTAN ALUMINIUM CORPORATION Ltd. vs COMMISSIONER OF INCOME-
JUDGMENT
Reported As: 1990 PTD 90 Result: Petition dismissed Judgment JUDGMENT The petitioner, Hindustan Aluminium Corporation Ltd., has challenged a notice issued by the Commissioner of Income-tax (Central) dated December 1, 1977, under section 263 of the Income- tax Act, 1961, for the assessm ent year 1973-74. The reasons for the issuance of the notice have been stated in the affidavit-in-opposition filed on behalf of the respondents. In that affidavit, it has been stated that in the course of assessment proceedings for the assessment year 1974-75, the petitioner company claimed a sum of Rs. 13,59,794 as revenue expenditure. This liability arose on account of exchange rate difference in connection with the repayment of a foreign loan. The petitioner-company was requested to furnish details of break-up of the loan taken for payment on account of blocks, stores, spare parts together with break-up of exchange rate difference which led to the payment of the additional sum of Rs. 13,59,794 incurred by the petitioner-company for repayment of the foreign loan. It was stated by the petitioner-company that it was not possible for them to segregate this particular rate difference under the heads "Capital Equipment, Raw Material, Stores, Spar Parts. It is the case of the respondents that the additional amount of liability incurred by the petitioner in repayment of the foreign loan was not admissible as revenue expenditure to the extent the loan related to purchase of capital assets. It has been stated on affidavit on behalf of the respondents that "it is not a case where the petitioner purchased raw materials from the foreign party on credit and the petitioner had to pity more towards the cost of such purchase due to exchange fluctuations in respect of the outstanding balance of purchase price payable to the foreign party in foreign currency. It is a case of the petitioner obtaining a loan from the foreign party which was
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utilised fur purchasing various items. As far as the cost of those items is concerned, the payments were made in the year of purchase itself out of the borrowing and the cost of such acquisition became fixed once for all. Excess liabilities arising out of exchange fluctuations in respect of the loan instalments payable in the subsequent years is something different and cannot be treated as a trading loss of the year, irrespective of whether the loan amount was utilised for purchase of capital goods, or spare parts and stores, as such enhanced liability has nothing to do with the carrying on of the petitioner's business during the year. The petitioner-company was requested to furnish the details of the break-up of loan taken, i.e., which was utilised for blocks, spare parts, stores, etc., together with the break-up of exchange rate of difference of Rs. 19,27,347 incurred by them for the assessm ent year 1973-74 for repayment of the foreign loan. The petitioner-company did not furnish the same and it was again reminded but that also was not furnished. However, when the said details were called for, the petitioner-company, in their letter dated November 15/18, 1976, claimed that the exchange rate difference should be allowed as a revenue expenditure." The Income-tax Officer had allowed the claim of revenue loss on account of exchange rate difference of Rs.19,27,347 in the assessment year 1973-74. The Commissioner of Income-tax initiated proceedings under section 263 in view of the fact that he was of the opinion that the order passed by the Income-tax Officer tinder section 143(3) allowing the claim of the assessee of revenue loss on account of exchange fluctuation was erroneous and prejudicial to the interests of the Revenue. On behalf of the petitioner, it has been urged that the entire proceedings are void because the order of the Income-tax Officer has merged in the appellate orders passed in this case. There was an appeal to the Appellate Assistant Commissioner from the order of the Income-tax Officer which was disposed of by an order dated May 17, 1970. There was a further appeal to the Tribunal which was decided on merits by an order passed on April 30, 1977. The contention of the petitioner is that, under these circumstances, the power of the Commissioner to exercise jurisdiction under section 263 has ceased because the Commissioner can only revise an order passed by the Income-tax Officer. In a case where the Income-tax Officer's order has merged in an appellate order, the Commissioner of Income-tax ceases to have any jurisdiction to pass any order of revision. The points for consideration before the Appellate Assistant Commissioner or the Tribunal taken by the assessee related to disallowance of development rebate by the Income-tax Officer and also to the claim for depreciation disallowed by the Income-tax Officer. Other grounds of appeal related to disallowance of payment of consultation fee and gratuity. The question of admissibility or otherwise of any loss relating to any exchange fluctuation was neither raised before nor considered by the Appellate Assistant Commissioner or the Tribunal. It has been contended by the assessee that the entire order of the Income-tax Officer has merged in the appellate order. It has been argued that this proposition is well-settled and reliance has been placed on a number of judgments particularly on the judgment delivered by the Bombay High Court in the case of C.I.T. v. P. Muncherji and Co. (1987) 167 ITR 671, 080 and also on a judgment of this Court in the case of General Beopar Co. (Pvt.) Ltd. v. C.I.T. (1987) 167 1TR 86. On behalf of the respondent, my attention was drawn to the judgment in the case of Jagadhri Electric is Supply and Industries Co. v. CIT (1987) 100 ITR 143 (P & H), and also to tire Full Bench judgment of the Madhya Pradesh high Court in the ease of C.I.T. v. R.S. Banwarilal (1983) 140 ITR 3. I was referred to a number of other decisions of various High Courts inducting this Court where a contrary view was taken. The dispute, however, appears to be settled by two judgments delivered by the Supreme Court. The Supreme Court further held (at p. 136): "There can be no doubt that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority
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modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law, the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement; but the question is whether this principle can apply to the Income-tax Officer's order granting registration to the respondent." The Supreme Court thereafter observed (at p. 137): "It is, therefore, necessary to inquire whether the order of registration passed by the Income-tax Officer can be challenged by the Department before the Appellate Assistant Commissioner where the assessee-firm has preferred an appeal against the order of assessment. The decision of this question would obviously depend upon the relevant provisions of the Act in respect of appeals to the Appellate Assistant Commissioner and the powers of the Appellate Assistant Commissioner. Section 30(1) gives the assesses the right to prefer appeals against tile orders specified in the said section. The assessee-firm can, for instance, object to tile amount of income assessed under section 23 or section 27. The assesses-firm can also object to the order passed by the Income-tax Officer refusing to register it under section 23(4) or section 2G-A. It can likewise object to the cancellation by the Income-tax Officer of its registration under section 23(1). It is significant that, whereas an appeal is provided against orders; passed by the Income-tax Officer under section 23(4) or section 26-A either refusing to register the firm or cancelling registration of the firm, no appeal can he filed by the Department against the order granting registration. Indeed, it is patent that the scheme of the Act in respect of' appeals to the Appellate Assistant Commissioner is that it is only the assesses: who is given a right to make ail appeal and not the Department. Thus, there can be no doubt that the Income-tax Officer's order granting registration to a firm cannot become the subject-matter of an appeal before the Appellate Assistant Commissioner." The question, however, is whether, in a case where the entire order is appeal-able but the grounds of appeal are confined to only some of tile points involved in the order and the appellate order is also confined only it those aspects which have been taken in the grounds of appeal, it can be said that the issues that were neither raised in the grounds of appeal nor considered by the Appellate Assistant Commissioner had merged in the order of the Appellate Assistant Commissioner. This question directly came up for consideration before the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd (1967) F) STC 144. In this case, in the sales tax assessment fur the year 1950-51, the Deputy Commercial Tax Officer, Madurai, determined the not turnover of the dealer at Rs. 15,44,09,109-3-11. In the appeal before the appellate authority, it was contended on behalf of the respondents that a sum of Rs.1,44,294-14-4 was wrongly included by the assessing authority in the purchase value of cotton as that amount only represented the commission paid by it to Comorin Investment Trading Company Limited. It wits also contended that another sum of Rs. 81,546-0-1, which represented sale proceeds realised by selling empty drums, was not a realisation in the course of its business. The appellate authority upheld tile first contention in respect of the payment of commission and rejected the second contention with regal d to sale of empty drums. A revision petition was thereafter presented before the Deputy Commissioner of Commercial Taxes by the dealer and the only objection raised was that it should not have assessed to tax on the amounts collected by it by way of tax amounting to Rs.6,57,971-4-9. By his order dated August 21, 1954, tile Deputy Commissioner of Commercial Taxes dismissed the revision petition holding that the respondent was not entitled to raise the contention for the first time. It was further held that even otherwise, the statute permitted the inclusion of tax in the taxable turnover of the dealer. Thereafter, on August 4, 1958, the Board of Revenue issued a notice to the dealer stating that it proposed to revise the assessm ent made by the Deputy Commercial Tax Officer, Madurai, by
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including in the not turnover a sum of Rs. 7,74,62,706-1-6 its the amount had been wrongly executed by the assessing authority. The dealer objected to the proposed revision on the ground that the proceeding was barred by limitation. Moreover, there was no wrong exclusion by the Deputy Commercial Tax Officer as alleged. The Board of Revenue, however, overruled both the objections and revised the taxable turnover by including tile said amount of Rs. 7,74,02,706-l-6. Thereafter, the case went to the Madras High Court which held that the revision proceedings were barred by limitation. The State of Madras thereafter appealed to the Supreme Court. The question of law that fell for determination in that case was: Whether the order of Board of Revenue dated August 25, 1958, vas illegal because there was it contravention of the rule elf limitation laid down In section 12(3)(i) of the Madras General Sale; Tax Act inasmuch as the order of the Board of Revenue was made after a period of 4 years from the date on which the order of the Deputy Commercial Tax Officer was communicated to the assessee. On the basis of the principles laid down by the Supreme Court in tile case of CIT v. Amrital Bhogilal and Co. (1958)34 ITR 130 it was contended on behalf of the State of Madras that the order passed by the Deputy Commercial Tax Officer had merged in the appellate order of the Deputy Commissioner of Commercial Taxes passed on August 21, 1954, which was tile operative order. The Board of Revenue was competent to revise that order within the period of four years of passing of that order. The Supreme Court rejected this contention in the following words (at p. 149 of 19 STC): "But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there arc two orders, one by the inferior tribunal and the other by a superior tribunal, passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appellate or revisional order and the; scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. For example, in Amritlal Bhoszilal and Co.'s case (1958) 34 ITR 130 (SC), it was observed by this Court that the order of registration made by the income-tax Officer did not merge in the appellate order of the Appellate Commissioner, because the order of registration was not the subject-matter of appeal before the appellate authority. It should he noticed that the order of assessment made by the Income-tax Officer in that case was a composite order, viz., an order granting registration of the firm and making an assessm ent on the basis of the registration. The appeal was taken by the assessee to the Appellate Commissioner against the composite order of the income-tax Officer. It was held by the high Court that the order of the Income-tax Officer granting registration to the respondent must he deemed to he merged in the appellate order and that the revisional power of the Commissioner of Income-tax cannot, therefore, he exercised in respect of it. The vice taken by the high Court was overruled by this Court for the reason that the order of the Income-tax Officer granting registration cannot be deemed to have merged in the order of the Appellate Commissioner in an appeal taken against the composite order of assessm ent... In the circumstances of the present case, it cannot he said that there was merger of the order of assessment made by the Deputy Commercial Tax Officer dated November 28, 1952, with the order of the Deputy Commissioner of Commercial Taxes dated the 24th August, 1954, because the question of exemption of the value of yarn purchased from outside the State of Madras was not the subject --mater of revision before the Deputy Commissioner of Commercial Taxes. The only point that wits urged before the Deputy Commissioner was that the sum of Rs.6,5771-4-9 collected by the respondent by way of tax should not be included in the taxable turnover. This wits the apply point raised before the Deputy Commissioner and was rejected by him in the revision proceedings. On the contrary, the question before the Board of Revenue was whether the Deputy Commercial Tax Officer, Madurai was right in excluding from the not taxable turnover of the respondent the sum of Rs.7,74,62,706-1-0 which was
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the value of cotton purchased by the respondent from outside the State of Madras. We arc, therefore, of opinion that the doctrine of merger cannot be invoked in the circumstances of the present case." If this principle is applied to the instant case, it will be seen that the subject --matter of appeal before the Appellate Assistant Commissioner or the Tribunal was not concerned in any way with the question of exchange fluctuation. Whether the loss occasioned by exchange fluctuation was a capital loss or revenue loss was a question that was not raised, gone into or decided by the Appellate Assistant Commissioner or the Tribunal. Therefore, if the principle laid down by the Supreme Court in the case of State of Madrs v. Madurai Mills Co. Ltd. (1967) 19 STC 144 is applied, it will clearly appear that the entire order of the Income- tax Officer had not merged with the appellate order. It has also to be borne in mind that under the Income-tax Act, it is only the assessee who can prefer an appeal. The Department has no right of appeal. If an error is committed by the Income- tax Officer, it can be rectified under section 154 by the Income-tax Officer himself only, if the error is apparent from the record. If the Income-tax Officer has made any erroneous mistake in the assessm ent order, then that mistake can only be corrected by exercise of revisional powers by the Commissioner of Income-tax. If the Commissioner of Income-tax did not have jurisdiction to revise an order of the Income-tax Officer, there would be no scope for correcting mistakes committed by the Income-tax Officer, which were prejudicial to the Department. It cannot be readily assumed that merely because the assessee has preferred an appeal and sought correction of errors committed by the Income-tax Officer on some of the points, the Commissioner of Income-tax is robbed of his jurisdiction to correct errors, which do not form the subject-matter of the appeal. This controversy directly came up for consideration before the Bombay High Court in the case of CIT v. Sakseria Cotton Mills Ltd. (1980) 124 ITR 570. A Division Bench of the Bombay High Court applied the doctrine laid down by the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. (1967) 19 STC 144 and held that the doctrine of merger was not a doctrine which applied universally in all cases where the orders of a subordinate authority were subjected to an appellate or revisional jurisdiction of higher authorities or Tribunals. Whether an order of a subordinate authority had merged partially or wholly with the orders of the superior appellate authority or revisional authority will have to be decided with reference to the provisions dealing with the appellate jurisdiction or revisional jurisdiction of the superior authority under the relevant enactment. It was further held by the Bombay High Court that if the Appellate Assistant Commissioner had not been called upon or had not actually dealt with any part of the assessment order made by the Income-tax Officer, there was no question of that part of the order merging or being superseded by the Appellate Assistant Commissioner. The effect of section 31(3) of the Indian Income-tax Act, 1922, was that only that part of the order of the Income-tax Officer merged or stood superseded by the order of the Appellate Assistant Commissioner in respect of which the Appellate Assistant Commissioner had exercised his appellate jurisdiction. The remaining part of the order of assessm ent continued to be unaffected by the decision of the Appellate Assistant Commissioner and had independent existence unaffected by the appellate order. It was concluded that the doctrine of merger was not wholly applicable in the case of such orders made under the Income-tax Act. Similar view was taken by the Gujarat High Court in the case of Karsandas Bhagwandas Patel v. G.V. Shah, ITO (1975) 98 ITR 255 and also in the case of Poonjabhai Vanmalidas v. WTO (1978) 114 ITR 38. Strong reliance has been placed on behalf of the petitioner on a Division Bench judgment of this Court in the case of General Beopar Company (Pvt.) Limited v. CIT (1987) 167 ITR 86. In that case, the
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assessee, a private limited company, was assessed to income-tax for the assessment year 1973- 74. Thereafter, the assessee preferred an appeal against the assessment order to the Appellate Assistant Commissioner on the point of disallowance of deduction under section 80M of the Income-tax Act. The Appellate Assistant Commissioner accepted the contention of the assessee and by his order dated May 26, 1975, directed the Income-tax Officer to allow deduction under section 80M as claimed. The Appellate Assistant Commissioner also directed the Income-tax Officer to rectify certain typographical mistakes in the assessment order. There was rectification proceeding after the order was passed by the Appellate Assistant Commissioner, which culminated in an order passed by the Income-tax Officer dated October 1, 1975. On November 11, 1976, the Income-tax Officer issued a notice under section 148 for the reopening of the assessm ent for the assessm ent year 1973-74. While the reopening proceeding was pending, the Commissioner of Income-tax issued a notice dated December 13, 1976, under section 203 of the Income-tax Act, 1901, seeking to revise the original order of assessment dated November 13, 1975, and also the order under section 154 of the Income-tax Act dated October 1, 1975, on the ground that the orders appeared to be erroneous and prejudicial to the interests of the Revenue inasmuch as business losses of the earlier years had been set off against income from other sources in the said assessm ents. The jurisdiction of the Commissioner Income-tax to revise the assessments under section 203 was challenged by the assessee in appeal against the revisional orders before the Tribunal. The contention of the assessee before the Tribunal, as recorded in the judgment, was (at p. 90): "It was contended before the Tribunal on behalf of the assessee that during the pendency of the reassessm ent proceedings under section 1-I8 of the Act, the Commissioner had no jurisdiction to revise the assessm ent under section 263." The Tribunal dismissed the appeal preferred by the assessee. The question referred to the High Court was (at p. 91): "Whether, on the facts and in the circumstances of the case, the order of the Commissioner under section 263 of the Income-tax Act, 1961, is valid in law ?" After referring to a large number of cases, it was held (at p. 100 of 167 ITR): "In view of the observations of the Supreme Court on the effect of initiation of reassessment proceedings, we are unable to agree with the view taken by the Delhi and Gujarat High Courts that during the pendency of reassessm ent proceedings, it would be open to the Commissioner to exercise his revisional jurisdiction. We do not know on what grounds the assessment was sought to be reopened in the instant case, but there may be cases where, by the exercise of his revisional jurisdiction by the Commissioner under section 263 of the Act, only a part of the assessment order may be modified or revised without setting aside the entire assessment order but the same may also have the effect of nullifying the pending reassessment proceedings which might have been initiated on entirely different grounds. It remained open to the Commissioner to revise the order passed in reassessm ent but by revising the order of assessment itself, the proceedings for reassessm ent may be made abortive. Keeping the object of the proceedings of reassessment in view and the implications thereof, we prefer to take the view that once proceedings of reassessment arc initiated, the original order of assessm ent loses its finality and at this stage, it is no longer open for revision by the Commissioner." The issue before the Court in the above case was whether, after the Income-tax Officer had reopened an assessm ent proceeding, the Commissioner could exercise his revisional power during the pendency of the reopening proceeding? The effect of issue of a notice under section 148 is to reopen the entire assessm ent proceeding. The previous assessment is set aside and the whole assessm ent proceedings start afresh. The passage extracted above appears to be the ratio of the
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decision in the case of General Beopar Co. (Pvt.) Ltd. This principle of law was also enunciated by the Supreme Court in the case of V. Jaganmohan Rao v. CIT and EPT (1970) 75 ITR 373. It was really not necessary for the Court to examine the scope of the doctrine of merger in the context of the observations made which have been set out hereinabove. In fact, the attention of this Court was not drawn to the judgment of the Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. (1967) 19 STC 144. The principles laid down in that case set at rest the controversy about the doctrine of merger. The principles laid down in the case of State of Madras v. Madurai Mills Co. Ltd. (1967) 19 STC 144 have been applied by the Gujarat, Madhya Pradesh and Bombay High Courts in the cases of Karsandas Bhagwandas Petel v. G.V. Shah, ITO (1975) 98 ITR 255 (Guj); Taora Sugar Mills Ltd. v. Union of India (1982) 134 ITR 385 (MP); Alok Paper Industries v.…
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