Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: COMMISSIONER OF INCOME-TAX, GUJARAT-III VS Respondent: STEEL CAST CORPORATION
Court Name: Gujarat High Court Judge(s): B. J. Divan, T. U. Mehta Title: COMMISSIONER OF INCOME-TAX, GUJARAT-III vs STEEL CAST CORPORATION Case No.: Income Tax Reference No,72 of 1974 Date of Judgment:1975-12-17 Reported As: 1989 PTD 938 Result: Order accordingly
JUDGMENT
JUDGMENT ' B.J. DIVAN, CJ.-- In this case, at the instance of the revenue, the following question has been referred to us for our opinion: "Whether, on the facts and in the circumstances of the case the Tribunal was right in law in directing the Appellate Assistant Commissioner to consider the claim of the assessee under section 80J which was not made before the Income-tax Officer?" ' In our opinion, in order to bring out the real controversy in the matter and in order to see that the question is correctly related to the facts of the case, the question should be refrained and when refrained, the question will read as follows: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Appellate Assistant Commissioner to consider the claim of the assessee under section 80J which was not made either before the Income-tax Officer or before the Appellate Assistant Commissioner?" ' We are concerned in this case with the assessment year 1967-68. The assessee came before the Tribunal with a grievance that though at the time of the arguments before the Appellate Assistant Commissioner the assessee had orally contended that relief under section 80J of the Income-tax Act, 1961, should have been granted, the Appellate Assistant Commissioner had not considered this submission made on behalf of the assessee. At the rime of the hearing before the Appellate Assistant Commissioner the assessee had orally prayed for relief under section 80J(3) and the Appellate Assistant Commissioner had orally agreed to admit the said further ground but actually when he came to pass the order, the Appellate Assistant Commissioner had not given any relief under section 80J(3). When we turn to the grounds of appeal before the Tribunal, we find that the
---
## Page 2
grounds of appeal are in substance only two: (1) The Appellate Assistant Commissioner had erred in not considering and deciding the appellant's oral contention that it should have been allowed relief due to it under section 80J: (2) the appellant had no taxable income in the year under assessm ent and hence it could not claim carrying forward relief under section 84 of the Act. However, a new section 80J [including subsection (3)] was introduced and enacted later on retrospectively, so that relief under section 80J could be carried forward. Therefore, at the time of the hearing of the appeal before the Appellate Assistant Commissioner, the assessee orally prayed for relief under section 80J(3). The Appellate Assistant Commissioner had orally agreed to admit the said further ground but had erred in not granting relief. He ought to have ordered it to be carried forward under section 80J(3). In its order the Tribunal points out that when the appeal was heard before the Tribunal, the learned departmental representative urged that the point did not arise out of the order of the Appellate Assistant Commissioner and that the Tribunal should not deal with the point. The Tribunal observed: " in our view, this is purely a legal matter and we are entitled to entertain this point even if it was raised for the first time before us....We also do not propose to enter into the controversy whether the point was raised before the Appellate Assistant Commissioner orally or not. We allow the assessee to raise this point as this is a legal point and direct the Appellate Assistant Commissioner to consider this aspect and pass his orders after giving an opportunity to the Income-tax Officer and the assessee to put up their cases. In view of this direction, the assessee's appeal will be treated as allowed". ' The Tribunal has proceeded upon the footing that the assessee had not raised the point regarding section 80J before the Appellate Assistant Commissioner and it has not tried to find out whether in fact the assessee had orally argued the question of relief under section 80J at the time of hearing of the appeal before the Appellate Assistant Commissioner. The Tribunal was content to proceed upon the footing that the assessee had not in fact urged this point before the Appellate Assistant Commissioner and that it was for the first time that the question relating to relief under section 80J was being raised at the stage of the appeal before the Tribunal. The question of the extent of the jurisdiction of the Tribunal in allowing the parties before it to raise points which were not raised before the departmental authorities or which are alleged not to have been raised before those authorities have been discussed in a series of decisions and we find that there are two decisions of the Supreme Court which deal directly with this point. In Hukumchand Mills Ltd. v. Commissioner of Income-tax.[1967] 63 ITR 232 (SC), the question has been considered. The Supreme Court in that case was concerned with the provisions of section 33(4) of the Indian Income-tax Act, 1922. Ramaswa mi, J., delivering the judgment of the Supreme Court, has observed at page 236: "The powers of the Tribunal in dealing with appeals are expressed in section 33(4) of the Act in the widest possible terms. Section 33(3) of the Act states that 'an appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner...Section 33(4) reads as follows: 33. (4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner. ' The word 'thereon' of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words 'pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act. Consequently, the Tribunal has authority under this section to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry
---
## Page 3
and dispose of the case on the basis of such enquiry. Rule 12 of the Appellate Tribunal Rules, 1946, made under section 5A(8) of the Act provides as follows: ' The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule: ' Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground. ' Rule 27 states: ' The respondent, though he may not have appealed, may support the order of the Appellate Assistant Commissioner on any of the grounds decided against him. ' Rule 28 is to the following effect: ' Where the Tribunal is of opinion that the case should be remanded, it may remand it to the Appellate Assistant Commissioner or the Income-tax Officer, with such directions as the Tribunal may think fit.' ' In the case before the Supreme Court in Hukumchand Mills Ltd v. Commissioner of Income-tax [1967 63 ITR 232 (SC) the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, etc., of the assessee for calculating the depreciation allowance under section 10(2) (vi) of the Act of 1922. It was certainly open to the department, in the appeal filed by the assessee before the Tribunal, to support the finding of the Appellate Assistant Commissioner with regard to the written down value on any of the grounds decided against it. Thus, in this decision of the Supreme Court, three distinct phrases, namely, "jurisdiction of the Tribunal", "power of the Tribunal" and "the grounds of appeal" have been used. The jurisdiction of the Tribunal, as observed by the Supreme Court, is restricted to the subject-matter of the appeal. In the exercise of that jurisdiction, the Tribunal can pass such orders as the Tribunal thinks fit and hence the Tribunal has all the powers except possibly the power of enhancement which are conferred upon the Appellate Assistant Commissioner under section 31 of the Act. All these powers can be exercised by the Tribunal only within the four corners of the jurisdiction which is restricted to the subject-matter of the appeal. While dealing with the subject- matter of the appeal in the exercise of the wide amplitude of its powers, the Tribunal may allow the party to take up a new ground of appeal provided ample opportunity is given to the other side to meet this new ground of appeal. But even the new ground of appeal must relate to the same subject-matter of appeal because the jurisdiction of the Tribunal is restricted to the subject-matter of the appeal. It must also be pointed out that so long as the subject-matter of the appeal remains the same and the relief which is sought before the Tribunal is on the same ground as before, a new section of the Act can be relied upon which was not relied upon before either the Income-tax Officer or the Appellate Assistant Commissioner. But that is a new ground of appeal which is a distinct thing from the subject-matter of the appeal or from the powers which the Tribunal is entitled to exercise while hearing the appeal before it. In our opinion, unless a clear distinction between these three concepts, namely, jurisdiction of the Tribunal which is restricted to the subject-matter of the appeal, the powers of the Tribunal which are very wide but which can only be exercised within the four corners of the jurisdiction enjoyed by the Tribunal and the grounds of appeal is borne in mind, a lot of unnecessary confusion is likely to arise. ' In Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC) the question before the Supreme Court was in connection with development rebate. The assessee, which carried on business of manufacture and sale of cotton yarn, spent Rs,93,215 for introduction of the "Casablanca conversion system" in its spinning plant. The assessee claimed development rebate on the ground that introduction of "Casablanca conversion system" involved installation of new
---
## Page 4
machinery, and for the first time before the Appellate Tribunal claimed in the alternative that the amount laid out was in any event expenditure for current repairs allowable under section 10(2)(v) of the Indian Income-tax Act, 1922. The Tribunal inspected the factory, studied the working of the machinery and considered the literature of the manufacturers and held that though development rebate was not admissible the amount spent was admissible under section 10(2)(v) since as a result of the stress and strain of production over a long period there was need for change in the plant, and that the assessee had replaced old parts. One of the questions before the Supreme Court was whether the Tribunal had the jurisdiction to allow this plea about the sum of Rs,93,215 having been earlier claimed in respect of development rebate, being claimed now as business expenditure to be raised for the first time before the Tribunal and Shah, J., as he then was, delivering the judgment of the Supreme Court, observed (pages 712, 713): "By the first question the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities is canvassed. Under subsection (4) of section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal 'as it thinks fit '.There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessm ent of the assessee may be raised before the Tribunal: If for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him ' The subject-matter of the appeal in the present case was the right of the assessee to claim allowance for Rs,93,215. Whether the allowance was admissible under one head or the other of subsection (2) of section 10, the subject-matter for the appeal remained the same, and the Tribunal having held that the expenditure incurred fell within the terms of section 10(2)(v), though not under section 10(2)(vib), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee". ' If the first part of the passage which we have quoted above is read divorced from the second part, it might appear that the Supreme Court has interpreted the jurisdiction of the Tribunal to be unlimited. But, that is not so. Though the decision of the Hukumchand Mills Ltd.'s case [1967] 63 ITR 232 (SC) was not cited before the Supreme Court in Mahalakshmi Textile Mills Ltd.'s case [1967] 66 ITR 710 (SC) it is obvious from the second part of the passage quoted above that the Supreme Court was very much conscious of the restriction as to jurisdiction while dealing with the same case and it must not be forgotten that out of the three Judges who heard Mahalakshmi Textile Mills Ltd.'s case [1967] 66 ITR 710 (SC), Shah and Ramaswami, JJ. Were also members of the Bench which heard Hukumchand Mills Ltd.'s case [1967] 63 ITR 232 (SC). Under these circumstances, it is but obvious that being conscious of what had been observed in Hukumchand Mills Ltd.'s case [1967] 63 ITR 232 (SC) and in Mahalakshmi Textile Mills Ltd.'s case [1967] 66 ITR 710 (SC), the Supreme Court in the second part of the passage quoted above emphasized that the subject-matter had remained the same and the Tribunal had the jurisdiction to admit the expenditure as a permissible allowance which was in connection with the same subject-matter of the appeal. Therefore, the first part of the passage which is in very wide terms must be read in the context of the powers which the Tribunal could exercise within the four corners of the jurisdiction which is restricted to the subject-matter of the appeal. All that Shah, J. Is emphasizing in the first part of the passage quoted above is that within the four corners of the jurisdiction which is restricted to the subject-matter of the appeal, the Tribunal has very wide powers and even though a particular ground of relief relating to the same subject-matter might not have been raised at any earlier stage either before the Income-tax Officer or before the Appellate Assistant Commissioner, it can be raised for the first
---
## Page 5
time at the stage of appeal before the Tribunal but it must be in connection with the subject- matter of the appeal, and that is why Shah, J. Emphasised at page 713: "If for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief." ' So, Mahalakshmi Textile Mills Ltd.'s case [1967] 66 ITR 710 (SC) cannot be read as holding that the Tribunal has unlimited jurisdiction to cover all possible points that may be urged before it. The power to deal with all questions of law or fact must be exercised within the four corners of the jurisdiction which is restricted to the subject-matter of the appeal. ' It is in the light of this clear distinction between the subject-matter of the appeal, the powers which the Tribunal can exercise while exercising that jurisdiction and the grounds of appeal, that we must now read the different authorities of the different High Courts. In Commissioner of Income-tax v Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj), the facts were rather peculiar and it was in the light of the facts of that case that the questions relating to the scope and ambit of the jurisdiction of the Tribunal were considered by this High Court. At the stage of the proceedings before the Income-tax Officer in that particular case, the assessee made, inter alia, three claims from deduction: one was for depreciation in respect of the land on which stood the building of the assessee; the other was for development rebate in respect of certain machinery installed during the relevant accounting year and the third was for a sum of Rs, 25,920, being the aggregate amount of stamp duty, registration charges, lawyer's fees and other miscellaneous expenses incurred by the assessee in connection with the issue of debentures secured on the fixed assets of the assessee and issued to the Bank of India Ltd. To secure a loan borrowed for the purpose of the business of the assessee. Out of the three claims the first was rejected by the Income-tax Officer and the second was partially disallowed and so far as the third was concerned, it was wholly disallowed on the ground that it represented capital expenditure. The assessee being aggrieved by the order of assessm ent preferred an appeal to the Appellate Assistant Commissioner and in the memorandum of appeal, amongst other, two grounds were taken, one relating to the disallowance of the whole of the first claim and the other relating to the partial disallowance of the second claim and relief was sought that these two claims should be fully allowed as permissible deductions. The disallowance of the third claim was not challenged by the assessee in the memorandum of appeal nor did it form the subject-matter of any ground of appeal. No leave of the Appellate Assistant Commissioner was also sought to urge it as an additional ground of appeal. The result was that the Appellate Assistant Commissioner was not called upon to consider and decide whether the disallowance of the third claim was properly made by the Income-tax Officer and there was no decision of the Appellate Assistant Commissioner on the point. The Appellate Assistant Commissioner considered the other two grounds urged on behalf of the assessee and decided that the first claim was rightly rejected by the Income-tax Officer but the disallowance of the second was improper and it should be allowed as a permissible deduction. The assessee thereupon carried the matter in further appeal to the Tribunal. Only one ground of appeal was originally taken in the memorandum of appeal and that related to the disallowance of the first claim. But, before the appeal came on for hearing, a decision was given by the Supreme Court in India Cements Ltd. v. Commissioner of Income-tax [19661 60 1TR 52 (SC) to the effect that expenditure such as the one claimed by the assessee as forming the subject-matter of the third claim must be held to be expenditure incurred wholly and exclusively for the purpose of the assessee's business and as such allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, corresponding to section 37 of the Income-tax Act, 1961. The assessee thereupon made an application to the Tribunal for raising an additional ground of appeal challenging the disallowance of the third claim and this application was filed before the actual
---
## Page 6
date of hearing of appeal. When the appeal reached the stage of hearing, the first claim was not pressed by the assessee since it was already covered by a decision given in the meantime by the Supreme Court in Commissioner of Income-tax v. Alps Theatre [19671 65 ITR 377 (SC). The main and the only controversy between the parties, therefore, at the stage of the appeal before the Tribunal, centered round the third claim sought to be agitated by means of the additional ground and the question before the High Court was ultimately, whether the Tribunal had jurisdiction to allow this contention about the third claim to be raised, and the question which was referred to the High Court in Karamchand Premchand P.Ltd.'s case [19691 74 ITR 254 (Cluj) was: "Whether, on the facts and in the circumstances of the case, the Tribunal had jurisdiction to allow the assessee to raise the additional ground and to decide whether the assessee was entitled to a deduction of Rs,25,920 ? ' Bhagwati, C.J., delivering the judgment of the High Court, observed at page 259: "What is the order which the Appellate Assistant Commissioner makes when he disposes of an appeal against an order of assessme nt ? Section 24( which provides for an appeal to the Appellate Assistant Commissioner against an order of assessment confers the right of appeal only on the assessee and not on the revenue and says that the assessee may appeal if he is aggrieved by the order of assessm ent and objects to the amount of income assessed or to the amount of tax determined under the order of assessment. Now, the process of assessment of the amount of income and determination of the amount of tax would ordinarily involve consideration of diverse items or sources of income and reaching of several decisions by the Income-tax Officer and the assessee who is aggrieved by an order of assessment may object to the amount of income assessed or to the amount of tax determined on one or more grounds directed against the decisions reached by the Income-tax Officer in the course of the assessment. The assessee may be satisfied with some decisions given by the Income-tax Officer and may be dissatisfied with others and to the extent to which he is dissatisfied, he may challenge such decisions by raising specific grounds of appeal and urge that the amount of income assessed or the amount of tax determined as a result of such decisions be either set aside or reduced. Where such an appeal is preferred, section 250, subsection (2), says that both the assessee and the Income-tax Officer shall have a right to be heard at the hearing of the appeal. Section 251 lays down the powers of the Appellate Assistant Commissioner in disposing of the appeal and subsection (1), clause (a), says that on an appeal against an order of assessment, the Appellate Assistant Commissioner may confirm, reduce, enhance or annul the assessment or he may set aside the assessment and refer the case back to the Income-tax Officer. The Explanation at the end of section 251 makes it clear that, in disposing of the appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner by the assessee. The Explanation was not there in the old Act but even without The Explanation, the interpretation consistently placed by the High Courts on the corresponding provisions of the old Act was--Vide Narrondas Manordass v.Commissioner of Income-tax [1957] 31 ITR 909, 918 (Born) and this interpretation was confirmed by the Supreme Court in Commissioner of Income-tax v. McMillan and Co. [1958] 33 TTR 182 (SC) and Commissioner of Income-tax v Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC) that once an appeal is preferred by an assessee, the powers of the Appellate Assistant Commissioner are not confined to a consideration of only those matters which are raised by the assessee in appeal but he may also consider and decide matters not raised in appeal but considered by the Income-tax Officer and determined in the course of the assessment. The Explanation gives statutory recognition to this interpretation and accords legislative approval to it. The result is that if an assessee does not choose to appeal, the order of assessment becomes final
---
## Page 7
subject to any power of revision which the Commissioner may have under section 263, but if, as observed by Chagla, C. J. In Narrondas' case [1967] 31 ITR 909: ...The assessm ent is opened up by the action of the assessee himself, then the powers conferred upon the Appellate Assistant Commissioner are much wider than the powers of an ordinary Court of appeal. The statute provides that once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment'. '…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.