Rajasthan High Court - Jaipur
Smt. Ganga Devi And Ors. vs Commissioner Of Wealth-Tax on 19 December, 1985
Equivalent citations: [1987]166ITR325(RAJ)
JUDGMENT S.K. Mal Lodha, J.
1. These thirteen references before us involve common questions and so, they were heard together and it will be convenient to dispose of them by a common judgment.
2. For proper appreciation, we may notice the facts leading to DBWT Reference No. 27 of 1977 (Smt. Ganga Devi v. CWT) in which the Tribunal has made a consolidated reference in respect of the assessment years 1970-71, 1971-72, 1972-73 and 1973-74.
3. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur ("the Tribunal" herein), has referred the following two questions for the opinion of this court :
" (1) Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the provisions of the Wealth-tax Act, 1957, read with the relevant rules, the Tribunal was right in holding that the agricultural lands belonged to the firm and that exemption under Section 5(1)(iva) ought to be given effect to while working out the net wealth of the firm in accordance with Rule 2 and that the agricultural lands could not be allocated directly amongst the partners to enable them to claim exemption under Section 5, in their individual assessment ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the entire order of the Wealth-tax Officer had not merged in the order of the Appellate Assistant Commissioner and that in respect of that part of the order, with reference to which there was no appeal before the Appellate Assistant Commissioner and which the Appellate Assistant Commissioner had not considered in his order, action under Section 25(2) by the Commissioner was justified ? "
3. Smt. Ganga Devi Taparia is the assessee. She is a partner in the firm, M/s. Bichadi Agricultural Farm, Badanayageon. The partners of the firm are: (1) Shri Bhagwati Prasad Taparia ; (2) Shri Laxminarayan Taparia ; (3) Smt. Ganga Devi Taparia ; (4) Shri Shriram Taparia ; (5) Smt. Rukmani Taparia ; and (6) Shri Jaiprakash Taparia. The firm owned the aforesaid farm. In respect of the wealth-tax assessment years 1970-71 and 1973-74, the question arose as to how the value of the interest of the partner in M/s. Bichadi Agricultural Farm should be computed. It was contended on behalf of the assessee before the Wealth-tax Officer that the value of the agricultural lands, which appeared in the balance-sheet of the firm on the (valuation) dates, should be allocated to the partners directly and exemption in terms of Section 5(1)(iva) of the Wealth-tax Act, 1957 (No. XXVII of 1957) (hereinafter referred to as " the Act"), with regard to the agricultural lands should be granted to the partners in their individual assessments. The Wealth-tax Officer accepted the contention of the assessee and accordingly he granted full exemption mentioned in Section 5(1)(iva) of the Act to the assessee on the footing that her net wealth included agricultural lands. It is apparent from the order of the Wealth-tax Officer that the share of the assessee in the non-agricultural assets in M/s. Bichadi Agricultural Farm only has been included in the wealth, and that no part of her share in agricultural assets of Bichadi Agricultural Farm has been included in the wealth on account of the same being less than the exemption limit prescribed under Section 5(1)(iva) of the Act. The Commissioner of Wealth-tax, Rajasthan, was of the opinion that the order of the Wealth-tax Officer was erroneous and prejudicial to the interests of the Revenue. He, therefore, issued a notice under Section 25 of the Act to the assessee requiring her to explain as to why the aforesaid mistake be not set right. The assessee filed a reply to the notice stating that the order of the Wealth-tax Officer was neither erroneous nor prejudicial to the interests of the Revenue and so the proposed action under Section 25(2) of the Act was illegal and without jurisdiction, and, as such, the same is not called for. It was prayed that the proceedings may be dropped and the notice may be withdrawn. The Commissioner of Wealth-tax did not accept the submission made by the assessee and he directed the Wealth-tax Officer to compute the net wealth of the firm according to the provisions of the Act and the Wealth-tax Rules, 1957 (" the Rules " herein), and then determine the value of interest of each partner in accordance with the Rules. The following may be excerpted from the order of the Commissioner of Wealth-tax :
" A plain reading of Section 4(1)(b) makes it clear that no such fiction as is alleged by Shri Lodha had been created and the said section merely enables the Wealth-tax Officer to include in the net wealth of the partner, his interest in the partnership firm which has to be determined as per Rule 2 of the Wealth-tax Rules. It is noteworthy that the words used are his interest in the firm and not his share in the assets of the firm. Thus, it is impossible to agree that Section 4(1)(b) envisages that each one of the partners should be regarded as the owner of a proportionate share of each one of the assets belonging to the firm and shown in its books. In fact, the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, had laid down that the property brought in by a partner for investment in a firm, ceases to be his exclusive property and during the subsistence of the partnership firm, no partner has got any exclusive claim or right over any particular asset of the firm."
4. The assessee appealed to the Tribunal. The Tribunal, after examining the rival submissions made on behalf of the assessee and the Revenue by its order dated January 29, 1977, found that the agricultural land belonged to the firm and as such the exemption under Section 5(1)(iva) with respect to the land could not be available to the partners as they did not own any agricultural land in their individual capacity and that while computing the wealth of the firm, exemption in terms of Section 5(1)(iva) ought to be given effect to in the hands of the firm in accordance with the decision in CWT v. Vasantha [1973] 87 ITR 17 (Mad). Before the Tribunal, a contention was also raised in appeal on behalf of the assessee regarding the theory of merger of the order of the Wealth-tax Officer into that of the Appellate Assistant Commissioner. The Tribunal repelled that contention and held that that part of the order of the Wealth-tax Officer which was not made the subject matter of appeal before the Appellate Assistant Commissioner by the assessee and which he had not examined suo motu did not get merged in the order of the Appellate Assistant Commissioner and, therefore, the Commissioner of Wealth-tax was entitled to pass an order under Section 25(2) of the Act with reference to that part of the order of the Wealth-tax Officer which had not merged in the order of the Appellate Assistant Commissioner. On a reference application filed by the assessee, the Tribunal has referred the aforesaid question.
5. The following tabular statement will show the questions referred by the Tribunal in the other twelve references :
SI. No. No. of cases Names of the parties AssessmentYear/s Number of question/s referred by Tribunal
1.
D.B.W.T Ref.No. 28/77 Jaikishan v. C.W.T. 1973-74 Question No. 1
2. D.B.W.T. Ref. No. 29/77 Smt. Rukmani Devi v.
C.W.T. 1973-74 Question No. 1
3. D.B.W.T. Ref.No. 30/77 Madanlal v. C.W.T. 1972-73 & 1973-74 Questions Nos. 1 and 2
4. D.B.W.T. Ref.No. 31/77 Jai Kishan v. C.W.T. 1973-74 Question No. 1
5. D.B.W.T. Ref.No. 32/77 Shri Ram v. C.W.T. 1972-73 & 1973-74 Question No. 1
6. D.B.W.T. Ref.No. 33/77 Laxtninarayan v. C.W.T. 1972-73 & 1973-74 Question No. 1
7. D.B.W.T. Ref.No. 34/77 Harnarayan v. C.W.T. 1972-73 & 1973-74 Question No. 1
8. D.B.W.T. Ref. No. 35/77 Jagdish Prasad v. C.W.T. 1971-72 & 1973-74 Question No. 1
9. D.B.W.T. Ref. No. 36/77 Bhagwati Prasad v. C.W.T. 1972-73 & 1973-74 Question No. 1
10. D.B.W.T. Ref.No. 37/77 Shyam Sunder v. C.W.T. 1973-74 Question No. 1
11. D.B.W.T. Ref.No. 38/77 Jagdish Prasad v. C.W.T. 1972-73 Questions Nos. 1 and 2
12. D.B.W.T. Ref.No. 39/77 Bhagwati Prasadv.
C.W.T. 1974-75 Question No. 1
6. We heard Mr. K. C. Bhandari for the assessees and Mr. J. P. Joshi for the Revenue.
7. Question No. 1.--It was urged by learned counsel for the assesses that Section 5 of the Act was applicable for computing the net wealth of the assessee only. It was submitted that the view taken by the Tribunal' is erroneous when it held that the lands belonged to M/s. Bichadi Agriculture Farm, of which the assessee was a partner and as such the exemption under Section 5(1)(iva) of the Act in respect of that land could not be available to the partners, for, they did not own any agricultural land in their individual capacity and so, while computing the wealth of the firm, exemption in terms of Section 5(1)(iva) of the Act should be given effect to in the hands of the firm. In this connection, our attention was drawn to the definitions of " assessee " and " net wealth " as given in Sections 2(c) and 2 of the Act and reference was made to the provisions contained in Sections 4(1)(b), 5(1)(iva) of the Act and Rule 2 of the Rules. Learned counsel for the Revenue supported the order of the Tribunal for the reasons mentioned therein.
8. The question, therefore, that arises is whether the view taken by the Tribunal is correct or not.
9. We may first consider the relevant provisions of the Act having a bearing on the question.
10. Section 2(c) of the Act defines " assessee ", as under :
" (c) ' assessee' means a person by whom wealth-tax or any other sum of money is payable under this Act and includes-
(i) every person in respect of whom any proceeding under this Act has been taken for the determination of wealth-tax payable by him or by any other person or the amount of refund due to him or such other person ;
(ii) every person who is deemed to be an assessee under this Act ;
(iii) every person who is deemed to be an assessee in default under this Act."
11. " Net wealth " has been defined in Section 2(m) of the Act as under:
" ' net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-- "
12. Section 3 of the Act is the charging section. Section 4 deals with net wealth to include certain assets. The material part of Section 4 is as under :
"4. Net wealth to include certain assets,--(1) In computing the net wealth of an individual, there shall be included, as belonging to that individual--...
(b) where the assessee is a partner in a firm or a member of an association of persons (not being a co-operative housing society), the value of his interest in the firm or association determined in the prescribed manner."
(Note :-- substituted by the Finance (No. 2) Act, 1971, w.e.f. April 1, 1972)
13. Exemption in respect of certain assets has been provided in Section 5 of the Act. We are concerned with Section 5(1)(iva) of the Act, which is as under :
" 5. Exemptions in respect of certain assets.--(1) Subject to the provisions of Sub-Section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee--...
(iva) agricultural land comprised in any tea, coffee, rubber or cardamom plantation belonging to the assessee. "
14. The aforesaid provision was substituted by the Finance Act, 1974, with effect from April 1, 1975, for the following words :
" (iva) agricultural land belonging to the assessee subject to a maximum of one hundred and fifty thousand rupees in value :
Provided that where the assessee owns any house or part of a house situate in a place with a population exceeding ten thousand and to which the provisions of Clause (iv) apply and the value of such house or part of a house together with the value of the agricultural land exceeds one hundred and fifty thousand rupees, then the amount that shall not be included in the net wealth of the assessee under this clause shall be one hundred and fifty thousand rupees as reduced by so much of the value of such house or part of a house as is not to be included in the net wealth of the assessee under Clause (iv)."
15. Rule 2 of the Rules is as under :
" 2. Valuation of interest in partnership or association of persons.--(1) The value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is a member, shall be determined in the manner provided herein. The net wealth of the firm or the association on the valuation date shall first be determined. That portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which capital has been contributed by them. The residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits. The sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of that partner or member in the firm or association. "
16. A perusal of Sections 3, 4 and 5 of the Act shows that Section 3 is the charging section and wealth-tax is levied as per this section. Section 4 deals with assets which are includible in the net wealth of the assessee under the circumstances mentioned therein. Section 5 of the Act gives the list of various assets which are exempt from the levy of wealth-tax and the amount of exemption and conditions under which these assets are exempted from the levy of wealth-tax. The firm is not the assessee in this case. The question is how the net wealth of a firm in terms of Rule 2 should be computed. The Tribunal opined that the net wealth of the firm is to be computed after taking into account the various provisions of the Act including the provisions contained in Section 5(1)(iva) of the Act and that no partner can claim exemption in his individual assessment in respect of the agricultural land owned by the firm. It agreed with the findings of the Commissioner of Wealth-tax passed against the assessee.
17. We may first notice the authorities relied on by learned counsel for the assessee in support of the contention while challenging the finding of the Tribunal. '
18. In CWT v. Padampat Singhania [1911] 90 ITR 418 (All), the question arose whether the provisions of Section 2(m) of the Act are applicable for determination of the assessee's interest in the wealth of the firm, styled as M/s Juggilal Kamlapat Bankers, for the assessment years 1957-58 to 1963-64. The learned judges noticed Section 2(m) and Section 4 of the Act and Rule 2 of the Rules and came to the following conclusion (at pp. 421 and 422) :
" In computing his net wealth any income-tax liability outstanding against him may not be deducted under this provision but the income-tax liability of a firm, of which he is a partner, cannot be left out of consideration by virtue of this provision. While determining the net wealth of the firm not for the purpose of assessment but for the purpose of finding out an assessee's share in it, Sub-clauses (a) and (b) of Clause (iii) of Section 2(m) would not be applicable. The net wealth under Rule 2 is to be determined in accordance with the commercial principles and when so done, all the debts owed by a firm of whatever nature and of whatever duration have to deducted so long as the debts are legally enforceable against the firm."
19. In CWT v. Purushotham Pai [1978] 114 ITR 270 (Kar), the assessee had a share as tenant-in-common with two others and his interest was 1/3. The Tribunal directed the Wealth-tax Officer to arrive at the value of the one-third share of the assessee and then to allow the exemption allowable under Section 5(1)(iva) of the Act in the hands of the assessee. A reference was made to the High Court. The method of computation followed by the Tribunal was upheld. In that connection, E. S. Venkataramiah J., as he then was, held as under (at pp. 271 and 272) :
"The Wealth-tax Officer was in error, in deducting first the exemption allowable under Section 5(1)(iva) of the Act, from the total value of the coffee estate, including the shares of the other tenants-in-common and in determining the value of the interest of the assessee, thereafter, by dividing the net wealth by three, because the exemption allowable under Section 5(1)(iva) of the Act has to be given in its entirety to the assessee. In a case of this type we have to bear in mind that the wealth-tax is leviable on the basis of the ownership of the assets of the assessee concerned. Any assessment made on the basis of the total wealth of the assessee and his tenants-in-common whose titles are distinct and separate from the title of the assessee and the calculation of the exemption allowable under the proviso to Section 5 as if all of them are being assessed jointly is clearly not warranted by law. The method adopted by the Wealth-tax Officer which virtually denies the full exemption allowable under law is erroneous. The method of computation followed by the Tribunal has, therefore, to be upheld."
20. In CWT v. Nand Lal Jalan [1980] 122 ITR 781 (Pat), it was held that in determining, for the purpose of net wealth of the assessee, the net wealth of the firm by reference to Rule 2, the exemption under Section 5 was admissible.
21. Sections 2(e), (m), 4(1)(b), 5(1)(xxiii), 5(1A) of the Act and Rule 2 of the Rules were examined by the Division Bench of the Bombay High Court in CWT v. Vasudeva V. Dempo [1981] 131 ITR 291. It was held that the stage at which exemption is to considered and allowed is the stage after the share of wealth from the computation is brought to the individual's assessment. The learned judge in Vasudeva's case [1981] 131 ITR 291, followed Purushotham's case [1978] 114 ITR 270 (Kar) and CWT v. I. Butchi Krishna [1979] 119 ITR 8 (Orissa).
22. In [1984] 147 ITR (Statutes) 2, it is stated as under:
" 5-3-1984 : Their Lordships O. CHINNAPPA REDDY AND M.P. THAKKAR JJ. dismissed a special leave petition by the Department against the order dated 9-6-1978 of the Karnataka High Court in TRC Nos. 45 and 46 and 57 to 66 of 1975, whereby the High Court following [1978] 114 ITR 270. answered against the Department the question whether, where property was held jointly by the assessee and his four sons, the deduction of Rs. 1,50,000 was allowable in full in respect of each of the owners or whether the WTO was entitled to assess the joint properties as a whole and deduct Rs. 1,50,000 under Section 5(l)(iva) of the Wealth-tax Act and then divide the balance by five to arrive at the net wealth of each owner CWT v. Kenneth Pinto: S.L.P. (Civil) Nos. 3574-3575 of 1981. "
23. Learned counsel for the Revenue has placed reliance on Vasantha's case [1973] 87 ITR 17 (Mad), National Roadways v. CIT [1975] 99 ITR 97 (Mad), Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608 (Mad) and CWT v. Narendra Ranjalker [1981] 129 ITR 203 (AP).
24. Before the Tribunal, Vasantha's case [1973] 87 ITR 17 (Mad) was cited. It may be stated that this decision was rendered prior to the amendment in Section 2 of the Act.
25. Learned counsel has laid considerable emphasis on the following observations made in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, 1304:
" The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership."
26. Their Lordships further observed as under (p. 1303) : " No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. "
27. Lindley on Partnership, 12th Edition, page 28, states as under :
" The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm ; but speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it ; any change amongst them destroys the identity of the firm ; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer. "
28. This was quoted with approval in CIT v. Chidambaram Pillai [1977] 106 ITR 292 (SC), wherein the question for consideration was whether the assessee, a partner in a firm, who in addition to a share in the profits was entitled to salary for service under the firm, was entitled to apportionment of the salary as part being attributable to agricultural income and whether the salary had to be apportioned in the same proportion as income in the tea estate was to be apportioned.
29. The view taken in Purushotham Pai's case [1978] 114 ITR 271 (Kar), was upheld by the Supreme Court ([1984] 147 ITR (St.) 2) inasmuch as Special Leave Petitions (Civil) Nos. 3574-3575 of 1981 were dismissed on March 5, 1954, filed by the Department against the order dated June 9, 1978, of the Karnataka High Court.
30. The net wealth of a firm is to be computed in accordance with Rule 2 of the Rules. Clause (m) of Rule 1A of the rules is as under :
31. " (m) all other words and expressions used but not defined in these rules and defined in the Act, shall have the meanings respectively assigned to them in the Act. "
32. The term " net wealth " has not been defined in Rule 1A and, therefore, in accordance with Clause (m) of Rule 1A, it should be assigned the meaning which has been given under the Act by Section 2(m). A reading of the definition of " net wealth " given in the aforesaid clause, in the context of Rule 2, makes it clear that the net wealth of the firm would mean the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the firm on the valuation date...is in excess of the aggregate value of all the debts owed by the assessee. According to Section 2(e) of the Act, the agricultural lands are part of the " assets " and, therefore, the value of this land would be includible while computing the net wealth of the firm, but its value would none the less be computed in accordance with the provisions of the Act. The decision in Addanki Narayanappa's case, AIR 1966 SC 1300, makes it clear that the property brought in by a partner for investment in a firm, ceases to be his exclusive property and during the subsistence of the partnership firm, no partner has got any exclusive claim or right over any particular asset of the firm.
33. Having regard to the provisions of Section 2(e) and (m), Section 4(1)(b), Rule 1A(m) and Rule 2 of the Rules and respectfully following CWT v.
Padampat Singhania [1973] 90 ITR 418 (All); CWT v. Purushotham Pai [1978] 114 ITR 270 (Kar); CWT v. I. Butchi Krishna [1979] 119 ITR 8 (Orissa); CWT v. Nand Lal Jalan [1980] 122 ITR 781 (Pat) and CWT v. Vasudeva V. Dempo [1981] 131 ITR 291 and particularly as is clear from [1984] 147 ITR (Statutes) 2, that the view taken in CWT v. Purushotham Pai [1978] 114 ITR 270 (Kar) has been upheld, we are of the opinion that the partners of Bichadi Agricultural Farm cannot claim exemption under Section 5(1)(iva) in respect of the agricultural lands of the firm, for, those lands do not belong to them and the benefit under Section 5(1)(iva) of the Act can only be given to the firm and not to the individual partners. Question No. 1 referred to us is answered in the negative, i.e., against the assessee and in favour of the Revenue.
34. Question No. 2. Before the Tribunal, on behalf of the assessee, it was submitted that originally the order of the Wealth-tax Officer relating to the assessment years 1970-71 to 1972-73 was assailed and the assessee had preferred an appeal to the Appellate Assistant Commissioner, who passed the orders thereon. After passing of the orders in appeal by the Appellate Assistant Commissioner, the orders of the Wealth-tax Officer no more existed, for, the same had got merged in the order of the Appellate Assistant Commissioner and so, the Commissioner of Wealth-tax could not modify the order of the Wealth-tax Officer after it had merged in the order of the Appellate Assistant Commissioner under Section 25 of the Act. In other words, on behalf of the assessee, the contention of merger of the order of the Wealth-tax Officer into that of the Appellate Assistant Commissioner was pressed. The Tribunal repelled the aforesaid contention and held that the entire order of the Wealth-tax Officer had not merged in the order of the Appellate Assistant Commissioner and so, in respect of that part of the order regarding which there was no appeal before the Appellate Assistant Commissioner and which the Appellate Assistant Commissioner had not considered, it was open to the Commissioner of Wealth-tax to take action under Section 25(2) of the Act. We may read the relevant part of Section 25 of the Act, which is as follows :
"25. Powers of Commissioner to revise orders of subordinate authorities.--......
(2) Without prejudice to the provisions contained in Sub-section (1), the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by a Wealth-tax Officer is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify.
including an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment. "
35. Section 25 of the Act deals with the powers of the Commissioner to revise the order passed by authorities subordinate to him. One type of revisional power conferred on the Commissioner is that of revision in favour of the Revenue where he finds the orders passed by the Wealth-tax Officer prejudicial to the Revenue under Sub-section (2). Section 35 of the Act deals with rectification of mistakes. We may read Section 35(8) of the Act :
" (8) Where any matter has been considered and decided in a proceeding by way of an appeal or revision relating to an order referred to in Sub-section (1), the authority passing such order may, notwithstanding anything contained in any other law for the time being in force, amend the order under this section in relation to any matter other than the matter which has been so considered and decided. "
36. In State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 (SC), while considering Section 12(4) of the Madras General Sales Tax Act, 1939 (No. IX of 1939), and dealing with the doctrine of merger, it was observed (at pp. 149 and 150):
"But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are 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."
37. In Karsandas Bhagwandas Patel v. G. V. Shah [1975] 98 ITR 255 (Guj), while considering Section 35(1) and (5) of the Indian Income-tax Act, 1922 (for short " the old Act "), the question arose whether the Income-tax Officer's order merges in the appellate order of the Appellate Assistant Commissioner. It was observed as under (at p. 260) :
"The question is whether this doctrine applies in income-tax proceedings and, if so, to what extent. The first part of the question is not susceptible of a straight answer,' yes ' or ' no'. Having regard to principle as well as authority, it is not possible to say that the doctrine of merger does not apply at all in income-tax proceedings. Take for example, a case like Mather & Co. (P.) Ltd. v. Income-tax Officer [1969] 71 ITR 247 (Ker), where an order was made by the Income-tax Officer under Section 23A and it was appealed against by the company and the Appellate Assistant Commissioner affirmed it. The order under Section 23 A made by the Income-tax Officer would in such a case be replaced wholly by the order of the Appellate Assistant Commissioner : there would be complete merger or fusion of the order of the Income-tax Officer with the order of the Appellate Assistant Commissioner. "
38. After referring to State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 (SC) and following Karsandas Bhagwandas Patel v. G. V. Shah [1975] 98 ITR 255 (Guj), it was held by the Division Bench of the Bombay High Court in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570, that if the Appellate Assistant Commissioner has not been called upon or has not actually dealt with any part of the assessment order by the Income-tax Officer, there is no question of that part of the order merging or being superseded by the order of the Appellate Assistant Commissioner and that the effect of Section 31(3) of the old Act is that only that part of the order of the Income-tax Officer merges or stands superseded by the order of the Appellate Assistant Commissioner in respect of which the Appellate Assistant Commissioner has exercised his appellate jurisdiction, and so far as the remaining part of the order of assessment is concerned, that continues to be unaffected by the decision of the Appellate Assistant Commissioner and thus the doctrine of merger, is not wholly applicable, in the case of such orders made under the Act.
39. The Madhya Pradesh High Court, in Jaora Sugar Mills Ltd. v. Union of India [1982] 134 ITR 385 (MP), held that if a particular point is not the subject-matter of appeal before the Appellate Assistant Commissioner and not considered by him, the order of the Income-tax Officer on the point does not merge in the order of the Appellate Assistant Commissioner.
40. In Singho Mica Mining Co. Ltd. v. CIT [1978] 111 ITR 231 (Cal), the Income-tax Officer failed to charge interest while passing the order. The question arose whether it can be a bar to revision by the Commissioner. It was held that where there has been an appeal from the order of the assessment only and as the question of levy of interest could not have been the subject-matter of the appeal, it cannot be said to have merged with the appellate order and the Commissioner would be competent to revise the order under Section 263 notwithstanding that there is an order of the Appellate Assistant Commissioner on another point.
41. In Alok Paper Industries v. CIT [1983] 139 ITR 1064 (MP), it was held that there cannot be a merger of the Income-tax Officer's assessment order in the Appellate Assistant Commissioner's order in appeal on a point not taken up in appeal or not considered by the Appellate Assistant Commissioner and in such a case, the Commissioner is competent to revise the decision of the Income-tax Officer on a point not taken up on appeal. Karsandas Bhagwandas' case [1975] 98 ITR 255 (Guj) and Jaora Sugar Mills Ltd.'s case [1982] 134 ITR 385 (MP) were followed and State of Madras's case [3967] 19 STC 144 (SC) and CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130 (SC), were referred to ; J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 (All), Central Indian Insurance Co. v. ITO [1963] 47 ITR 895 (MP) and Kalooram Tirasilal v. ITO [1966] 59 ITR 308 (MP) were distinguished.
42. We respectfully follow Karsandas Bhagwandas' case [1975] 98 ITR 255 (Guj) which has been followed in the later decisions by the other High Courts. Before the Tribunal as well as before us, a decision of the Bombay High Court in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412, was referred, wherein it was observed (pp. 418 to 420) :
" In our opinion that contention is entirely untenable. It is a well-established principle of law that when an appeal is provided from a decision of a tribunal and the appeal court after hearing the appeal passes an order, the order of the original court ceases to exist and is merged in the order of the appeal court, and although the appeal court may merely confirm the order of the trial court, the order that stands and is operative is not the order of the trial court but the order of the appeal court. In this case, although the Appellate Assistant Commissioner may not have disagreed with the Income-tax Officer and may have confirmed the order, the ultimate order of assessment which was in operation was the order of the Appellate Assistant Commissioner confirming the decision of the Income-tax Officer. ... ...... ...Now, we find it difficult on principle to distinguish a case where an appeal is heard by the Appellate Assistant Commissioner and the particular matter in respect of which the Commissioner makes an order under Section 33B is not dealt with in that appeal by the Appellate Assistant Commissioner and a case where that matter is dealt with by him. The Tribunal seems to have overlooked, with respect, the very wide jurisdiction conferred upon the Appellate Assistant Commissioner to which reference has already been made. It is not disputed by Sir Nusserwanji that once an appeal is preferred by the assessee, it is open to the Commissioner to raise before the Appellate Assistant Commissioner any matter dealing with the assessment of the assessee. It is not as if the power of the Appellate Assistant Commissioner is confined only to those questions which have been raised by the assessee. Once this is conceded, it is difficult to understand why the Commissioner would not be precluded from making an order under Section 33B once an order has been passed by the Appellate Assistant Commissioner even though the Appellate Assistant Commissioner does not deal with the matter with which the Commissioner has dealt.
The principle underlying Section 33B is that it is only the order of the Income-tax Officer that can be revised by the Commissioner. Once the assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment has been made by the Appellate Assistant Commissioner, that becomes a final order of assessment, and the only right that the Department has is the right to appeal to the Appellate Tribunal. The right of the Commissioner continues so long as the order of the Income-tax Officer is not merged in the order of the Appellate Assistant Commissioner, but once the order is merged, the Commissioner cannot deal with the assessment of the assessee at all. "
43. It is clear from the aforesaid decision that the assessment order was the subject-matter of appeal and the said appeal having been disposed of, the order was merged in the appellate order. The observations still hold good. With respect to this theory, they will have to be viewed in the light of the theory of merger developed by the Supreme Court in Stale of Madras' case [1967] 19 STC 144 (SC) and Amritlal Bhogilal & Co.'s case [1958] 34 ITR 130. We, therefore, hold that in the facts and circumstances of the case, the Commissioner of Wealth-tax had jurisdiction to act under Section 25(2) of the Act in view of the fact that part of the assessment order was only the subject-matter of consideration before the Appellate Assistant Commissioner. In other words, only that part of the order of the Wealth-tax Officer which was not made the subject-matter of appeal before the Appellate Assistant Commissioner by the assessee, and which he had not examined suo motu did not get merged in the order of the Appellate Assistant Commissioner and, therefore, the Commissioner of Wealth-tax was entitled to pass an order under Section 25(2) of the Act. In this connection, the decision arrived at by the Tribunal in favour of the Revenue and against the assessee, is correct. We answer this question in the affirmative, i.e., in favour of the Revenue and against the assessee.
44. The questions referred in the reference are accordingly answered. We leave the parties to bear their own costs of these references.