TMI Blog1985 (1) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs. 22,84,960 was neither challenged nor was considered by the Commissioner (Appeals), who considered and decided all the grounds taken by the assessee vide his appellate order, dated 14-1-1982. 2. Aggrieved by the aforesaid order of the Commissioner (Appeals the assessee filed appeal in the Tribunal's office on 6-3-1982, in which as many as 10 grounds of appeal have been taken. The inclusion of Rs. 22,84,960, being the interest from short-term deposits with banks, has not been objected to in the grounds originally taken. However, by means of a forwarding letter dated 16-7-1983, which seems to have been received in the Tribunal's office on 18-7-1983, the following additional grounds were raised : 1. The sum of Rs. 22,84,994 deducted from 'Statement of expenditure during construction' cannot be included in the total income. 2. It is contended that on admission (erroneous), no income (the sum of Rs. 22,84,994) can be included in the total income. 3. The authorities below have erred and failed in their duty in not adjudicating the facts and evidence on record and mechanically including Rs. 22,84,994 in the total income. 3. The appeal was heard on 1-9-1983, 10-1-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose has been strongly placed on the Special Bench orders of the Tribunal in the cases of Dwarkadas Co. (P.) Ltd. v. ITO [1982] 1 ITD 303 (Bom.) and Shree Arbuda Mills Ltd. v. ITO [1983] 3 SOT 311 (Ahd.), where it stated to have been held that the order of assessment merges in that of the AAC not only with regard to issues the AAC has actually considered and dealt with in his order, but also regarding the issues he had jurisdiction to interfere but has not interfered in his discretion. In this manner, it is contended that the AAC should be deemed to have confirmed the inclusion of the above interest income. Once that submission is accepted, he contended that the assessee could have taken a ground against the above inclusion before the Tribunal originally. It could also take such a ground in appropriate cases by seeking permission to take additional grounds. 5. It is stated that the assessee's business has, admittedly, not yet been set up. The interest on short-term deposits was taken to be taxable in the absence of any decision on the issue. That is why the assessee itself included the above interest as income in its return and did not challenge it before the ITO or before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 29 of the assessee's printed balance sheet. 7. Shri Kapila, the senior departmental representative, has, on the other hand, strongly relied on the Delhi High Court's decision in the case of CIT v. Anand Prasad [1981] 128 ITR 388, which according to him squarely covers the issue against the admission of a new ground for the first time before the Tribunal. Further, a Full Bench of the Gujarat High Court, it is stated, has in the case of CIT v. Cellulose Products of India Ltd. [1984] 19 Taxman 278 after considering the Madras and Punjab and Haryana High Court decisions relied upon by the assessee, held that an altogether new ground cannot be taken before the Tribunal for the first time. A similar view is stated to have been taken by the Bombay High Court in the case of Ugar Sugar Works Ltd. v. CIT [1983] 141 ITR 326. In this context, Shri Kapila urged that the Madras High Court decisions are full of fallacies. The Court, according to him, failed to appreciate the difference between such expressions as 'subject-matter of assessment', 'subject-matter of appeal before the first appellate authority' and 'subject-matter of ground', which expressions have well defined and distinct mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding to consider the rival contentions, it is desirable to mention that Shri Ganesan, the learned counsel for the assessee, objected to the hearing of this appeal by the Special Bench as constituted. He stated that on merits, the learned Accountant Member has quite recently, i.e., on 28-2-1984, taken a view contrary to the two Special Bench orders of the Tribunal in the cases of Arasan Aluminium Industries (P.) Ltd. and Nagarjuna Steels Ltd. in the assessee's own case for the assessment years 1979-80 and 1980-81, for which the appeals somehow came up first. Assuming that the Special Bench holds that the assessee is entitled to challenge the inclusion of Rs. 22,84,994 being interest on short-term deposits with the banks in its income, the learned member may find it difficult to take a contrary view. The preliminary objection is stated merely to be rejected. Firstly, when a member sits on a Special Bench, he is supposed to sit with an open mind. No embarrassment is caused to him in taking one view or the other. The learned counsel is, perhaps, not aware and at least one of the other two members of the Special Bench has followed the view taken by the two Special Benches. That apart, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delay in raising the additional grounds on as late as July 1983 and proceed to consider the legal issue, viz., whether the assessee is entitled to raise such a ground for the first time before the Tribunal. 11. Answer to the controversy will depend upon one's understanding of the Supreme Court decisions in the cases of Hukumchand Mills Ltd., Mahalakshmi Textile Mills Ltd. and S. Nelliappan and in particular the observations quoted hereunder : " ...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 (exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de out a new case inconsistent with the assessee's own plea. In any event, the Tribunal is not precluded from adjusting the tax liability of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessees. " [S. Nelliappan's case] These observations have been understood by the Madras High Court in its decisions in Indian Express (Madurai) (P.) Ltd.'s case and Sri Rajagopal Transports (P.) Ltd.'s case to mean that an altogether new ground can be urged for the first time before the Tribunal. 12. It was submitted before the Madras High Court by the standing counsel for the revenue that the observations of the Supreme Court in Mahalakshmi Textile Mills Ltd.'s case, S. Nelliappan's case and Hukumchand Mills Ltd.'s case should not be read in isolation. If read in the context of the facts, the real ratio decidendi in all the three decisions will be found to be that new grounds can be taken before the Tribunal pertaining to the subject-matter of appeal before the Tribunal only. In particular, Shri Rangaswamy laid emphasis on the latter part of the passage as containing the real ratio of the decision in Mahalakshmi Textile Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or defect on any point which is not urged, and, hence, normally a new point is not to be permitted to be raised. " The facts in the above case, it may be stated, were better for the revenue. The issue involved was whether the sale of plots by the assessee constituted a business or the surplus was liable to be assessed as capital gains. Since the ITO had held that it constituted business and assessed the profits therefrom as business income and since it had not taken alternative plea before the AAC that in the alternative capital gains arose from the sale of the plot of land, the Tribunal refused to permit the department to raise alternative contention before it for the first time. This order has been confirmed by the High Court. It is evident that the issue involved in the case was not altogether independent. Yet their Lordships held that the alternative contention involved some other amount chargeable to income-tax as capital gains and was a completely different point. The Tribunal's order holding that such a point could not and should not be permitted to be raised before it was upheld. Similar view has been indirectly taken by the Delhi High Court in the case of Edward Kevente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the range of attack made on the assessment order in the grounds of appeal. The contours of the challenge, as so reflected, would determine the scope of the subject-matter of the appeal. In regard to such subject-matter, if he chooses to make challenge on grounds other than raised by him, it could be open to him to seek to urge such grounds. Indeed, it may be possible that he seeks and obtains relief sought by him in the appeal by a different approach, an approach not reflected in his appeal memorandum. Whether he should be allowed to make that approach, is not a matter of jurisdiction. It is a matter of discretion which should be understood as distinct from jurisdiction. It is open, in the exercise of discretion, to an appellate authority, invested with the powers of accepting or rejecting fresh grounds, to entertain the fresh ground or not,--and of course, it has to act judicially--but this discretion is distinct from jurisdiction with which alone this case is concerned. It might happen that before the assessee came to the Tribunal, he had not viewed the question urged by him from the proper perspective in which he could have succeeded. In all these situations, in an appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h could have been raised, whether dealt with or not. Merely because a ground has not been raised, though could be raised in support of the relief sought in the appeal, it cannot be said that it cannot be raised before the Tribunal. The conclusion reached merely on the basis that the question, though could have been raised was not raised, cannot be permitted to be raised, is not a proper conclusion reached in law. In sum, it must be taken to be well settled that the scope of the appeal before the Tribunal extends to the subject-matter of the appeal before the AAC, and if the question sought to be raised for the first time before the Tribunal is a question which concerns the subject-matter of the appeal which was before the AAC, then such question would be permissible. " The Full Bench had also the benefit of the Delhi High Court decision in Anand Prasad's case. 15. The Gujarat High Court's above decision is a Full Bench decision. It also had the benefit of the Punjab and Haryana High Court, the Andhra Pradesh High Court and the Madras High Court decisions heavily relied upon by the assessee's counsel. The benefit of Full Bench decision of the Gujarat High Court was not available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the first appellate authority. It may not be out of place to mention that the Bombay High Court has in its decision in N.A. Narielwalla's case made a distinction as regards the initial jurisdiction in making a assessment order. According to the High Court, questions relating to initial jurisdiction to make orders would stand on a different footing as such questions are always present as a part of the subject-matter of appeal at all stages of appeal either before the AAC or the Tribunal. However, the additional grounds raised herein do not, admittedly, refer to the question of initial jurisdiction. In the circumstances, we are inclined to hold that the grounds raised herein by way of an additional ground cannot be entertained. 16. Before concluding, we would like to mention that the Supreme Court in its decision in the case of Gurjargravures (P.) Ltd. held that the Tribunal was not correct in holding that the AAC should have entertained the question of relief under section 84 of the Act or to direct the ITO to allow the relief as neither was any claim made before the ITO regarding that relief nor was there any material on record in support thereof. The following observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire expenditure to the capital assets can be done was also mooted before the Income-tax Officer. Therefore, all the necessary details for allowing a claim under section 80J(1) were practically there before the Income-tax Officer. " It is evident from the above finding that the claim for deduction under section 80J(1) of the Act as such was not made for the first time. It was mooted before the ITO. What was mooted before the Tribunal for the first time is only one more aspect of the claim, viz., that the expenditure incurred by the assessee before it went into commercial production was an admissible deduction for the purpose of section 80J(1). The Tribunal found that all the necessary details for allowing the claim were practically there before the ITO. In fact, the Full Bench of the Gujarat High Court has also in its decision in Cellulose Products of India Ltd.'s case taken the same view. On merits, the Full Bench has held that the new ground raised only a new approach to the question of computation of capital and was, therefore, to be entertained. We have gone through other decisions, relied upon by the parties, before us. In our view, these decisions do not take their respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main idle, there can be no allowance for depreciation. The expression 'use for the purpose of business' would mean that the assets must be used by the owner for the purposes of carrying on the business and earning profit therefrom. In the instant case, the assessee-company had not used its entire block of equipment for the purpose of its business and the hire charges from letting out three items of plant and machinery have been offered for taxation under the head 'Income from other sources'. It cannot, therefore, be said that the assessee-company had used its entire block of construction equipment for the purpose of its business. I, accordingly, hold that the IAC was justified in restricting the allowance of depreciation on those items of plant and machinery which were actually used by the assessee for earning hiring charges, which are the subject-matter of taxation in this case. " 19. Referring to page 112 of the assessee's paper book, it is fairly admitted by Shri Ganesan that depreciation is being allowed to the assessee on the basis of actual use for hiring purposes in the past also. It is, however, stated that hiring charges are taxed as income from other sources under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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