TMI Blog1995 (9) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act proposing to rectify certain mistakes apparent from the record relating to (a) expenditure under superannuation scheme; (b) brokerage on fixed deposits and members' deposits; (c) retainer fee; (d) entertainment expenses; (e) expenditure on young and immature plants; and (f) guest room maintenance, in regard to the orders of assessments for the said three years. After considering the objections filed by the petitioner, the respondent passed three rectification orders dated March 13, 1991, disallowing the said items of expenditure. The petitioner has challenged the said three rectification orders dated March 13, 1991 (annexures " E ", " E1 " and " E2 "), in W. P. Nos. 11430 to 11432 of 1991. The respondent issued yet another batch of notices dated November 26, 1990, proposing rectification of the orders of assessment relating to the said three years, on the ground that there was a mistake apparent on the record in regard to deduction granted in respect of interest paid by the assessee and proposing to disallow the same. After considering the objections filed by the petitioner, the assessing authority passed three orders of rectification dated May 3, 1991, disallowing the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1986, and not from July 29, 1985; and if so done, proceedings relating to rectification initiated by notices dated August 21, 1990, and November 26, 1990 (resulting in the orders of rectification dated March 13, 1991, and May 3, 1991), were in time as they were initiated within five years from January 9, 1986. He contended that there could be any number of rectifications in respect of an order of assessment so long as the proceeding for rectification was initiated within five years from the last of the orders of rectification, as on each rectification, the earlier order merges with the later order of rectification. In this behalf, he relied on the decision of the Supreme Court in International Cotton Corporation (P.) Ltd. v. CTO [1975] 35 STC 1 and the decision of this court in Ambika Industries v. State of Karnataka [1994] 92 STC 82. Thus, the following points arise for consideration : (a) Whether the proceedings for rectification will be governed by the law as it stood on the date of the order sought to be rectified or the law as it stands on the date of initiation of rectification proceedings; (b) Whether the period of limitation is for passing the order of rectificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 came into effect before the expiry of four years from the date of the order sought to be rectified (which was the period prescribed under old section 37), the period of limitation for the proceedings for rectification will have to be reckoned with reference to the period prescribed under the new section 37. Thus, the period of limitation for the rectification proceedings in these cases is five years from the date of the order proposed to be rectified. Re : Point (b) : Section 37 provides that the assessing authority, at any time within five years from the date of an order passed by it, amend such order to rectify any mistake apparent from the record. The language employed in the old and new section 37 are significantly different. Sub-section (7) of old section 37 provided that no amendment under section 37 shall be made after the expiry of four years from the date of the order sought to be amended. Considering the wording of section 35(2) of the Act similar to old section 37(7), a Division Bench of this court in K. G. Subramanya v. T. V. Reddy, Commr. of Agrl. I. T. [1969] 73 ITR 499; [1969] 1 Mys LJ 274) held that no order could be made after the expiry of four years perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the date of such order amend such order ", and held that the said words would mean that the Tribunal may within five years from the date of the order proceed to amend such order by issue of notice and once notice for rectification was issued within five years, the matter can be decided by the authority even after expiry of five years. The language employed in new section 37 is similar to the language employed in sections 25A and 22(6A) of the Karnataka Sales Tax Act and is different from the language employed in the old sections 35 and 37 of the Act. Hence, the period of limitation is not for passing the order of rectification, but only for initiating the proceedings for rectification under section 37. In other words, it is sufficient if a notice is issued by the assessing authority, appellate authority or revising authority, proposing rectification in respect of his order, or by the assessee seeking rectification, within the period of five years. Once a notice is issued, invoking the power of rectification within the prescribed period, the order of rectification can be passed, after expiry of the prescribed period of five years. Re : Point (c) : The respondent has con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive portion of the order. When there is a decree or order by the appellate or revisional court or authority, what merges with such decree or order, is the decree or the order of the lower court or authority, and not the reasons for the decision. The doctrine was further examined in Gojer Brothers (P.) Ltd. v. Ratan Lal Singh, AIR 1974 SC 1380. The Supreme Court held thus : " The juristic justification of the doctrine of merger may be sought in the principle that there cannot be, at one and the same time, more than one operative order governing the same subject-matter. Therefore, the judgment of an inferior court, if subjected to an examination by the superior court, ceases to have existence in the eye of law and is treated as being superseded by the judgment of the superior court. In other words, the judgment of the inferior court loses its identity by its merger with the judgment of the superior court ... The fundamental reason of the rule that where there has been an appeal, the decree to be executed is the decree of the appellate court is that in such cases, the decree of the trial court is merged in the decree of the appellate court. In the course of time, this concept whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of registration. The assessee challenged the composite order, in so far as the assessment was concerned. The order of registration was not the subject-matter of appeal before the appellate authority. The High Court held that the order of the Income-tax Officer granting registration to the assessee must be deemed to have merged in the appellate order and, therefore, the revisional power of the Commissioner of Income-tax cannot be exercised in respect of it. The Supreme Court reversed the said view holding that the order of the Income-tax Officer granting registration cannot be deemed to have merged in the order of the Appellate Assistant Commissioner in an appeal taken against the composite order of the Income-tax Officer, in regard to the assessment, as the question of registration was not before the appellate authority. In Madurai Mills' case [1969] 19 STC 144 (SC), the facts were : The assessing authority (Deputy Commercial Tax Officer) had passed an order of assessment for 1950-51, determining the net turnover at Rs. 15,44,09,109. The assessee filed an appeal aggrieved by the inclusion of two items in the turnover relating to commission and sale proceeds of empty d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent by way of tax should not be included in the taxable turnover. This was the only 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 net taxable turnover of the respondent, the sum of Rs. 7,74,62,706-1-6 which was the value of cotton purchased by the respondent from outside the State of Madras. We are, therefore, of the opinion that the doctrine of merger cannot be invoked in the circumstances of the present case. " There is, however, a well-recognised exception to the principle that when an appeal is restricted to a part of the order of the lower authority, the merger will only be to that extent and the remaining portion of the order of the lower authority will not merge in the appellate order. Where the statute confers plenary jurisdiction on the appellate authority, that is, power to examine the entire subject-matter of the order of the lower authority, even where the appellant restricts the appeal to a part of the order of the lower authority, the entire order of the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject-matter of the order of the assessing authority. See Addl. CIT v. Vijayalakshmi Lorry Service [1986] 157 ITR 327 (Kar) (Appex) and CIT v. Hindustan Aeronautics Ltd. [1986] 157 ITR 315 (Kar) [FB]. The High Courts of Allahabad, Patna and Madhya Pradesh have also subscribed to the said view in J. K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344; CCT v. Rameshwar Dos Patna Lal [1974] 34 STC 296 and CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 140 ITR 677 (MP) [FB]. However, the High Courts of Bombay, Calcutta, Madras, Gujarat and Punjab and Haryana have subscribed to the view that the merger will be only in regard to such matters dealt with by the appellate authority and parts of the assessment order which were left untouched by the appellate authority, will not merge in the appellate order ---in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570; Singho Mica Mining Co. Ltd. v. CIT [1978] 111 ITR 231; Puthuthotam Estates (1943) Ltd. v. State of Tamil Nadu [1980] 125 ITR 41; Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255 and New Diwan Oil Mills v. CIT [1981] 129 ITR 224. The next question is where the authority who passed the order, has occasion to recons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The following principles thus emerge in regard to the doctrine of merger : (i) Where any order or decree of a court, authority or Tribunal is subjected to an appeal or revision and the appellate or revisional authority passes an order modifying, reversing or affirming the original order, the original order merges with the order of the superior authority on the principle that there cannot be more than one order operating at the same time. (ii) If the appeal or revision is restricted to a delinkable part or portion of the original order or one of the several matters or issues dealt with by the original order, then, only that part of the original order which is the subject-matter of the appeal or revision will merge in the order of the superior authority and the remaining portion of the original order which is not subjected to appeal or revision will remain undisturbed. (iii) Where the appellate authority has been given plenary jurisdiction over the entire matter dealt with by the original order, irrespective of the fact whether the appeal is filed in regard to the entire matter or part of the matter, the entire original order will merge in the order of the appellate authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order dated July 22, 1981, there was no change in the total turnover and only the taxable turnover was modified and, therefore, the limitation for revision had to be reckoned from the date of the original assessment order (January 30, 1979) and not from August 18 , 1981. The court held that proceedings for rectification are proceedings for assessment and consequently the effect of the rectification was to rectify the taxable turnover which was part of the total turnover, and the process of rectification involved the consideration of the question as to what was the turnover of the petitioner and, therefore, the order of rectification replaced the original order of assessment and initiation of proceedings by the Deputy Commissioner to revise the order was within the period of limitation. This decision does not help the State. In that case, the assessing authority passed a fresh order of assessment after remand by the appellate authority in the appeal against the order of rectification. The court, on the peculiar circumstances, held that the fresh order dated August 18, 1981, replaced the original order dated January 30, 1979. The court proceeded on the basis that the fresh order wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court held that an order rectifying an earlier order of rectification cannot be treated as an order rectifying the original order. The detailed reasoning of the Division Bench of this court in International Cotton Corporation [1975] 35 STC 12 is relevant : " The argument of Sri Srinivasan is that every order of rectification made under rule 38 gets merged or relates back to the earlier order of assessment. In that view, any subsequent rectification under rule 38 would also be a rectification of the assessment order which stood rectified once earlier ... Rule 38 clearly refers to rectification of mistake apparent on the record in any order passed by an assessing, appellate or revising authority or the Appellate Tribunal. The words 'any order' occurring in the rule are wide enough to take within their ambit any order made in the course of the assessment proceedings, and their effect need not be confined to an assessment order as contended for by Sri Srinivasan. Further, the rule enjoins a rectification of a mistake apparent on the record. In our view, this provision enables rectification of an earlier mistake which is apparent from the record. Since the earlier rectification mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd set of rectification orders dated March 13, 1991, in pursuance of notices dated August 21, 1990, in regard to six matters, which had nothing to do with the subject-matter of the first order of rectification dated January 9, 1986, which related to depreciation. He again passed a third set of rectification orders dated May 3, 1991, in pursuance of notices dated November 26, 1990, in regard to disallowance of interest, which was also a matter which had nothing to do with the subject-matter of the first rectification dated January 9, 1986. Therefore, to find out whether the second and third rectifications were in time, the period of five years has to be calculated from the date of the original orders (July 29, 1985) and not from the date of the first order of rectification (January 9, 1986). The contention that the original order of assessment dated July 29, 1985, merged with the first order of rectification dated January 9, 1986, and, therefore, the period of five years should be calculated from January 9, 1986, and not from July 29, 1985, is not tenable as there is no " merger " in regard to orders of rectification. Even on applying the decision of the Supreme Court in Internation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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