TMI Blog1984 (4) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is the expression of views by two different Benches in two references that has led to the reference of the question to the Full Bench. Chief justice Divan, speaking for the Bench in ITR No. 77 of 1975 answered the question similar to the one which arises here in the affirmative, that is in favour of the assessee. A similar question was raised later in ITR No. 55 of 1975 before a Division Bench in which P. D. Desai J., as he then was, spoke for the Bench. Later, when this reference came up before a Bench consisting of Divan C.J. and P. D. Desai J., noticing the two differing views expressed in these cases, the Bench referred the case to a larger Bench and that is how the matter is now before us. The question referred to us reads: " Whether, on the facts and in the circumstances of the case, the Tribunal had jurisdiction to allow the assessee to raise the additional ground for the first time before it when it was not raised before the Appellate Assistant Commissioner and to restore the appeal to the Appellate Assistant Commissioner for fresh adjudication ? " The facts leading to the reference may now be stated. The assessee is a public limited company, M/s. Cellulose Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the assessee wanted the question, " whether, while computing the capital employed for the purpose of the business as required under s. 80J of the Act, deduction for debts and liabilities should not be taken ", also to be referred, the Income-tax Appellate Tribunal noted that no finding has been entered on this question and the matter had only been remanded and that, therefore, that question did not arise. In these circumstances, the question to which we have adverted was referred to this court. The determination of the question depends upon a proper understanding of the appellate power of the Tribunal. The matter is not res integra. This question had received attention from the Supreme Court on earlier occasions and, therefore, it may not be necessary to examine these provisions over again. The real controversy concerns the purport of the decisions of the Supreme Court. Therefore, we would straightaway refer to these decisions. It was in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232, that the Supreme Court had occasion to consider this question in the form in which it is relevant to us for the first time. The question again came up for consideration in CIT v. Mahalakshmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s evidently to the Indian I.T. Act, 1922. Since the assessee was being assessed in British India under the Indian I.T. Act only on a part of the income determined as taxable in British India, the assessee's case was that depreciation was not allowed under the Indian I.T. Act and, therefore, the written down value should be taken as the original cost of the buildings, machinery, etc. The ITO rejected this contention and held that only that part of the depreciation which entered into the computation of the taxable income of the assessee under the Indian I.T. Act, when the assessee was taxed as a non-resident in British India, can be treated as depreciation " actually allowed " and not the total depreciation which went into computation in determining the total income of the assessee. Of course, even for the purpose of determining the taxable income in British India, it was necessary to compute the total income of the assessee and for the purpose of that computation it was necessary to take the whole depreciation into account. But when the taxable income in British India was determined only as a part of it, it was the depreciation corresponding to that part which alone was allowed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The High Court agreed with the view taken by the Tribunal. The only other question which the High Court had to answer concerned whether the Tribunal was competent to go into the question as to the application of paragraph 2 of the Taxation Laws Order in so far as this question was raised for the first time before the Tribunal. The decision of the High Court having been against the assessee on this question, the matter came before the Supreme Court in appeal at the assessee's instance. The power of the Tribunal in dealing with appeals was examined by the Supreme Court with reference to ss. 33(3) and 33(4) of the Act. Referring to s. 33(4) which envisages the Tribunal " passing such orders thereon as it thinks fit ", the court observed in the following passage, which has been quoted time and again by the courts, thus (p. 237 of 63 ITR): " 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al nature, but nevertheless could not be considered as a new plant and machinery in respect of which alone development rebate and extra depreciation could be allowed. In the appeal to the Appellate Tribunal, it was urged as an alternative ground that if the expenditure was not to be considered as capital expenditure, the appellants were entitled to the deduction of the whole amount of Rs. 93,000 as revenue expenditure. Thus, while before the ITO and the AAC, the claim was limited to a sum of Rs. 23,304 as development rebate and Rs. 1,544 as extra depreciation on the expenditure of Rs. 93,215, before the Tribunal the alternative claim was for the entire expenditure of Rs. 93,000 as amounting to revenue expenditure. The Tribunal inspected the mills and studied the working of the machinery in order to appreciate the part played by the replaced materials in the working of the mills. The Tribunal reached the conclusion that by fitting the new parts, the original asset was only maintained and no new asset was brought into existence. Consequently, it reached the conclusion that the entire expenditure on the Casablanca conversion materials amounting to Rs. 93,215 was revenue expenditure. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. Though before the Supreme Court the correctness of the answer to both the questions which were before the High Court was urged, the answer to the second question, it was found, was based on primary findings of fact which findings had not been challenged by the Commissioner and, therefore, the answer to that question made by the High Court must be affirmed. Evidently that meant that the Supreme Court saw no reason to interfere with the finding made on the basis of materials that the expenditure was of a revenue nature. Now, we will carefully examine what the Supreme Court said in regard to the other question. Concerning that question, the Supreme Court noticed that the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities was being canvassed. Then it referred to s. 33(4) of the Indian I.T. Act and noticed that the Appellate Tribunal is called upon to pass such orders on the appeal " as it thinks fit ". It is further observed by the Supreme Court thus : " There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermissible under s. 10(2)(v) of the Act. It is significant to notice that the Supreme Court then went on to consider what was the subject-matter of the appeal in that case. The subject-matter was found to be the right of the assessee to claim allowance for Rs. 93,215. Having found so, the court proceeded to observe : " Whether the allowance was admissible under one head or the other of subsection (2) of section 10, the subject-matter of 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." (emphasis supplied) In an earlier passage, to which also reference may be made here, the Supreme Court said : " The Tribunal in the present case was of the opinion that in order to adjust the tax liability of the assessee, it was necessary to ascertain the true nature of the Casablanca conversion system. The assessee had, it is true, contended that the introduction of the Casablanca conversion system was of the nature of machinery or plant which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess profits tax. The AAC confirmed the order. The Tribunal declined to deal with the contention raised in the appeal finding that the final computation of the profits gave a reasonable average rate of profit for the operation of the vehicles run by the assessee. The matter went to the High Court and it was contended before the High Court that when addition was made to the returned income, if there are unexplained cash credits in the accounts of the assessee, further addition need not be made on that account, if to the extent of the addition the returned income was sufficient to cover the unexplained cash credits. Evidently, if the assessee brought in suppressed income by way of cash credits which could not be explained by him and if there is addition to his returned income sufficient to cover the unexplained cash credits, there would be no scope for both additions. The High Court did not express any opinion on this contention but merely observed that it will be open to the Tribunal to consider the contention in deciding what should be the ultimate estimate of additions to be made to the disclosed income of the assessee in the relevant years. The appeals were directed to be dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r addition. This was only a case of urging a ground within the subject-matter in existence before the first appellate authority, a clear instance of a person urging a new ground in support of an existing grievance, a grievance alive before the AAC and alive before the Tribunal. We understand these decisions to lay down certain principles which appear to us to be clear beyond doubt. When an assessee files an appeal against an assessment order, he may object to the amount of income assessed, he may object to the amount of tax determined, to the amount of loss computed, to the status under which he is assessed or he may object to his liability to be assessed. The range of appeal extends to the entire range of questions that could be raised at the stage of assessment. The assessee may not be aggrieved with certain of the decisions taken by the ITO and, hence, naturally the appeal would not relate to those decisions. Though the entire range of assessment is open to challenge in the appeal and all the decisions taken by the ITO are liable to be challenged in the appeal, the assessee may confine his objection to the assessment to certain only of the decisions taken by the ITO, expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief sought in respect of such subject-matter should be permitted. If it is made in the first instance in the appeal memorandum before the Tribunal, there is no question of exercising discretion at that stage. When such a plea is not before the Appellate Tribunal, when the appeal is filed, but is raised later, the question whether it should be allowed or not is a matter of discretion as mentioned. The fact that the assessee had failed to make the approach which he makes before the Tribunal before the first appellate authority should not in any way preclude him from making that approach. It is evident, therefore, that the attempt of the Tribunal in every case, where it is called upon to consider the question whether the new approach should be permitted should be to determine whether the subject-matter would remain the same, even if the new ground is permitted to be raised. When, on the very finding of the departmental authorities, it would follow that the assessee would be entitled to relief, it may not be proper to deny him that relief, and, in fact, there is a duty on the Tribunal to grant such relief. Speaking of subject matter, it may happen that substantially a claim i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on land on which the building of the company stood and the disallowance of development rebate on machinery installed during the year. Independent decisions for the purpose of assessment would have been taken by the ITO in regard to those claims as well as the claim in regard to the expenses in connection with the issue of debentures. While the assessee felt aggrieved in regard to the disallowance of depreciation and development rebate, he did not evidently feel aggrieved by the disallowance of expenditure on the issue of debentures. Therefore, he did not challenge such disallowance in his appeal. That was a clear case where the subject-matter of the appeal did not relate to such disallowance. When he filed the appeal before the Appellate Tribunal, he only urged the grounds with regard to development rebate and depreciation and there was no question of challenge to the disallowance of the sum of Rs. 25,920. That he sought to be raised later by moving for permission to raise an additional ground while the appeal was pending before the Appellate Tribunal. Evidently, that was because of a situation which arose consequent upon the decision in India Cements Ltd. v. CIT [1966] 60 ITR 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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. ". The learned judge, Bhagwati C.J., in the same judgment, after examining the powers of the AAC, observed (p. 261 of 74 ITR): "The order of the Appellate Assistant Commissioner would thus consist of various decisions on matters which may be raised in appeal by the assessee or considered suo motu by the Appellate Assistant Commissioner and the effect of these decisions would be to confirm or reduce or enhance or annul or set aside the assessment as stated in sub-section (1), clause (a) of section 251. " " The order of the Appellate Assistant Commissioner, as pointed out above, would consist of various decisions on matters considered by him and out of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the appellant in the memorandum of appeal, he can urge them with leave of the Tribunal if he has omitted to take them in the memorandum of appeal. But if he was not entitled to take a ground of appeal even in the original memorandum of appeal, he cannot avail of this rule and improve his position by obtaining leave of the Tribunal The court proceeded to hold (p. 266 of 74 ITR) " Since we are of the view that there being no decision of the Appellate Assistant Commissioner on the point whether the disallowance of the third claim was proper, the assessee was not entitled to appeal against it to the Tribunal and the ground of appeal relating to such disallowance could not therefore have been taken even in the memorandum of appeal, we must hold that the Tribunal was not entitled to allow the assessee to agitate this question under the guise of granting leave under this rule. " It is true that the learned judges did not refer to the decision in Mahalakshmi Textile Mills' case [1967] 66 ITR 710 (SC), but we fail to see why reference should have been made to it as nothing turned on the scope of that decision and on the facts of the case before the learned judges, it was eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee under s. 80J, a claim which was not made either before the ITO or before the AAC. This court examined the scope of the power of the Tribunal with reference to the decisions of the Supreme Court to which we have already adverted to. Hukumchand's case [1967] 73 ITR 232 (SC) was understood as laying down the law that it is open to the Tribunal to exercise its jurisdiction restricted to the subject-matter of the appeal and while dealing with the subject-matter of the appeal in the exercise of its wide amplitude of 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 the new ground of appeal. The court noticed that three distinct phrases have been used by the Supreme Court: " jurisdiction of the Tribunal ", " power of the Tribunal " and " the grounds of appeal ". The court went on to observe ([1977] 107 ITR 683, 688-689): " 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 remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief.' So Mahalakshmi Textiles 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. " Elaborate reference was made to the earlier decision of this court in CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254, evidently because the correctness of that decision seems to have been called into controversy particularly because that decision did not specifically advert to the decision of the Supreme Court in Mahalakshmi Textile Mills' case [1967] 66 ITR 710 (SC). After discussing the decision, the court went on to observe (p. 695 of 107 ITR): " We have quoted in extenso from this judgment in Commissioner of Income-tax v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj) to point out that this High Court was very much conscious of the distinction between the powers and jurisdiction of the Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee before the AAC, there was no scope for grievance for him and the matter could have ended up there. But, evidently, the AAC did not allow the claim and so the matter was brought before the Tribunal. Before the Tribunal, a different approach was made alternatively to compute the capital. As a different aspect of the same question, the Tribunal could have very well permitted the assessee to urge that question, if the assessee did not succeed on the first question. We say so because the assessee's case or claim was confined to what is indicated by the first question and if that had been granted, he would have had no grievance. When the matter came up in reference before a Division Bench of this court, it was pointed out to this court that question No. 1 had to be answered in favour of the assessee in view of the decision in CIT v. Elecon Engineering Co. Ltd. [1976] 104 ITR 510 and this court, therefore, answered the question in favour of the assessee and against the Revenue. We feel that in that view there was no need to refer to the second question as it was only pleaded to support the relief which was sought for by the assessee before the AAC and pursued in the appeal an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment, the learned judges say : " An implied decision can be inferred when a point might have been raised before the Appellate Assistant Commissioner, but in his order the Appellate Assistant Commissioner might not have dealt with the same and thereby impliedly rejected it. A question falling in either of these two classes of cases alone can form the subject-matter of the appeal before the Tribunal. " Again reference may be made to the following passage If We are of the view that having regard to the decision in Steel Cast Corporation's case [1977] 107 ITR 683 (Guj), it is not open to us to entertain this submission. In the said decision, this court has made it amply clear that by implied decision what is meant is that though a point might have been raised before the Appellate Assistant Commissioner, in his final order, the Appellate Assistant Commissioner might not have dealt with that point and thereby impliedly rejected it. " case : " In fact, as earlier pointed out, the very postulate of the question referred to this court is that this ground, which is now sought to be raised is an additional ground, was never raised before the Income-tax Officer or the Appellate Assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mchand Mannalal Co. v. CIT [1980] 126 ITR 251, by the Bombay High Court in Ugar Sugar Works Ltd. v. CIT [1983] 141 ITR 326 and the Delhi High Court in CIT v. Anand Prasad [1981] 128 ITR 388. In the case before the Delhi Court in CIT v. Anand Prasad [1981] 128 ITR 388, certain income of the assessee arising out of dealing with land was sought to be taxed as income from business. The assessee disputed that he carried on such business and obtained any profits taxable as business gains. The ITO negatived this case. The AAC held that the sale of lands did not constitute business and set aside the assessments in respect of the profits from the sale of the land. In the appeal before the Tribunal by the Revenue, it was contended that if the profits were not taxable as business gains, they were taxable under the head " Capital gains ". This plea did not succeed and the matter was taken by the Revenue to the High Court in reference. The facts necessary for determining whether capital gains accrued would be entirely different from the facts available on record. Profits from business could be determined on the basis of facts relating to sale price, purchase price, investment after purchase a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance for Rs. 93,215. Whether the allowance was admissible under one head or the other of sub-section (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 '. " The same view as that taken by this court has been taken by a Division Bench of the Calcutta High Court in Steel Containers Ltd. v. CIT [1978] 112 ITR 995 though no reference has been made to the decision in Karamchand's case [1969] 74 ITR 254 and Steel Cast Corporation's case [1977] 107 ITR 683 of this court in that judgment. There, the question concerned disallowance of a portion of remuneration paid to Balmer Lawrie Co. Ltd. under s. 37 of the I.T. Act. The assessee's grievance before the Tribunal was that the AAC erred in upholding the disallowance of Rs. 84,000 out of Rs. 1,20,000. Referring to this, the court said in that case (P. 1005): "...so the grievance that was before the Tribunal was the disallowance of the sum of Rs. 84,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision. The Punjab and Haryana High Court in the decision in Atlas Cycle Industries Ltd. v. CIT [1982] 133 ITR 231 was considering the question of the power of the Tribunal in an appeal to allow additional plea and, consequently, additional evidence being taken. The assessee, following the mercantile system of accounting, had instituted a scheme for giving awards and prizes to its dealers by way of a special " monsoon gift scheme ". This was to push up its sales. During the accounting year 1968-69 relevant to the assessment year 1969-70, it incurred an expenditure of Rs. 47,539 on that account. The expenditure was not claimed at the time of the assessment, though it was claimed in the subsequent assessment year. The claim was disallowed by the AAC on the ground that the amount should have been claimed in the assessment year 1969-70. In the second appeal filed by the assessee pertaining to the year 1969-70, this claim was raised for the first time by way of an additional ground of appeal. The Tribunal did not permit the assessee to raise this ground as it did not arise out of the AAC's order for the relevant year and the Tribunal was of the view that the AAC's order for another yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We do not propose, for the purpose of this case, to observe on this aspect of the question as it does not arise before us, but we are unable to agree with the statement of the law as made by the court as following from the decision in Mahalakshmi Textile Mills' case [1967] 66 ITR 710 (SC). Referring to that decision, the court said (p. 780): " The Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710, dealing with the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities opined that there is nothing in the I.T. Act which restricts the Tribunal to the determination of questions raised before the departmental authorities and that all questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. Of course, if the statement of the law is limited as we have attempted to do here, there can be no dispute on the scope of the decision. We are only indicating that, stated in such broad terms as has been done by the learned judges, that may not reflect the real purport of the decision of the Supreme Court. Now, we come to the decisions of the Madras Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im on the introduction of the conversion system, the fraction representing the development rebate which is a part of the asset, admissible under the law. However, when the matter came before the Tribunal, the assessee put forward different ground and took the plea that the entire amount of Rs. 93,215 was allowable as deduction. The result of the Tribunal's order accepting this alternative plea was to reduce the total income by Rs. 93,215, as against a fraction thereof originally considered by the ITO and the AAC. This decision envisaged a duty on the part of the departmental authorities to grant relief on any ground, if that relief was admissible under the law. The assessee is not restricted only to the plea raised by him before the departmental authorities. " (Emphasis supplied.) Referring to the decision rendered the same day and reported in Nelliappan's case [1967] 66 ITR 722 (SC), the court expressed the view (p. 461): " This case establishes that even a new case not taken in the memorandum of appeal could be permitted to be urged by the Tribunal. " Since we have already adverted to the scope of these three decisions, we do not think it is necessary to restate the princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion elsewhere in this judgment we, with respect, express our disagreement with the statement of the law by the learned judges. Same was the view reiterated by that court in a later case in CIT v. Sri Rajagopal Transports (P.) Ltd. [1983] 144 ITR 573 (Mad), and the approach being the same as in the earlier decisions, we do not think we should refer to that decision in any further detail. Our attention has been drawn to the decision in Beharilal Ramcharan Cotton Mills Ltd. v. CIT [1966] 62 ITR 212, rendered by the Bombay High Court prior to the decision in Hukumchand's case [1967] 63 ITR 232 (SC). That was a case where the assessee based his claim for depreciation before the ITO and the AAC on clauses (vi) and (via) of sub-s. (2) of s. 10, but in the grounds of appeal to the Appellate Tribunal raised an alternative claim that on the materials on record, the assessee was entitled to depreciation under s. 12(3). The Tribunal declined to consider this point on the ground that a new case was being set up. The Bombay High Court held that really the case was not new and was covered by the matter taken up before the authorities earlier. The court noticed that the position that eme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting capital not on the basis of the actual capital employed by the new unit vis-a-vis that employed by the older unit, but on the basis of the proportionate value of fixed assets of the two units. Perhaps the assessee would get the relief in respect of the computation of capital even on another approach to such computation such as on the premise that debts and liabilities should not be deducted. The relief which the assessee may get in regard to the computation of capital, he may get to some extent even if a different approach is made to the computation of capital, viz., by permitting the plea that debts and liabilities ought not to be deducted. Therefore, the subject-matter would remain the same notwithstanding allowing such a ground to be raised. No doubt it is not easy always to delineate the contours of the subject-matter. Facts of each case will have to be taken into account for that purpose. In the case before us, we have to hold that the question referred to us has to be answered in the affirmative, that is, in favour of the assessee and against the Revenue. We do so. A copy of this judgment shall be sent under the seal of this court and the signature of the Registrar to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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