Karnataka High Court
Commissioner Of Income-Tax, ... vs Hindustan Aeronautics Ltd. on 26 October, 1984
Equivalent citations: [1986]157ITR315(KAR), [1986]157ITR315(KARN)
JUDGMENT Venkatachaliah, J.
1. This appeal raises a short but interesting question as to the scope of the revisional jurisdiction of the Commissioner of Income-tax to entertain a revision petition under section 264 of the Income-tax Act, 1961, at the instance of the assessee against that part of the appellate order of the Appellate Assistant Commissioner against which he is aggrieved in a case where the Revenue itself has preferred a second appeal to the Income-tax Appellate Tribunal from another part of the same first appellate order in respect of which the Revenue is dissatisfied.
2. The question arises this way : - The assessee is M/s. Hindustan Aeronautics Limited, respondent in this appeal. The assessment year is 1970-71. Against the order of the Income-tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner on several grounds. The appeal was partly allowed and against that part of the appellate order which went against the assessee, the latter first preferred an appeal to the Tribunal, but later withdrew the appeal and involved the revisional jurisdiction of the Commissioner under section 264. In the meanwhile, the Department preferred an appeal to the Tribunal against that part of the Appellate Assistant Commissioner's order by which some relief was given to the assessee. The assessee, inter alia, relied upon a circular of the Central Board of Direct Taxes issued under section 119 of the Act, which according to him, enabled such a revision against the appellate order even where another part of the same order was subjected to an appeal before the Tribunal at the instance of the Department. The Commissioner did not accept this view and held that, in the circumstances, he had no jurisdiction. In the writ petition of the assessee, the learned single judge has held that the Commissioner had jurisdiction and has directed him to dispose of the revision petition on merits and in accordance with law. The Revenue has now come up in appeal.
3. Relying upon a decision of this court in Addl. CIT v. Vijayalakshmi Lorry Service (I.T.R.C. No. 37 of 1973 - see p. 327 infra) disposed of on September 17, 1975, it is contended that the Commissioner would cease to have jurisdiction, once the order of the Appellate Assistant Commissioner becomes the subject of an appeal, even if it be on one aspect alone, before the Income-tax Appellate Tribunal and in any event after the latter disposes of the appeal. The principle of merger of the original order in the appellate order is relied upon.
4. This appeal involves a question of some importance which requires to be settled by pronouncement by a Full Bench. The Bench decision of this court in Addl. CIT v. Vijayalakshmi Lorry Service (see p. 327 infra) on which the Revenue relies was, apparently, not cited before the learned single judge. That decision, in our opinion, might require reconsideration in the light of the pronouncements of the Supreme Court in CIT v. Amritlal Bhogilal & Co. and State of Madras v. Madurai Mills Co. Ltd. .
5. We, therefore, refer the following question of law for the opinion of the Full Bench :
"Can the Commissioner of Income-tax entertain the assessee's revision petition under section 264 of the Income-tax Act, 1961, preferred from a part of the appellate order of the Appellate Assistant Commissioner against which the assessee is aggrieved during the pendency or after the disposal, as the case may be, of the Department's second appeal before the Income-tax Appellate Tribunal preferred against another part of the same order where the subject matter of the appellate and revisional proceedings not the same but relates to distinct matters ?"
6. Place the records before the Hon'ble Chief Justice for appropriate directions as to posting.
JUDGMENT Hakeem, J.
7. A Division Bench doubting the correctness of the decision of this court in the Addl. CIT v. Vijayalakshmi Lorry Service Bangalore (see p. 327 infra) has referred the following question of law for the opinion of the Full Bench :
"Can the Commissioner of Income-tax entertain the assessee's revision petition under section 264 of the Income-tax Act, 1961, preferred part of the appellate order of the Appellate Assistant Commissioner which the assessee is aggrieved during the pendency or after the disposal, as the case may be, of the Department's second appeal before the tax Appellate Tribunal preferred against another part of the same order where the subject-matter of the appellate and revisional proceedings are not the same but relates to distinct matters ?"
8. The material facts leading to the question are as follows :
Hindustan Aeronautics Ltd., the respondent herein, is the under the Income-tax Act, 1961 (hereinafter referred to as "the Act"). For the assessment year 1970-71 relating to the previous year ending March 31, 1969, the assessee filed an appeal before the Appellate Assistant Commissioner against the assessment order passed by the Income-tax Officer. The appeal came to be partly allowed by the Appellate Assistant Commissioner by his order dated October 27, 1976. The assessee filed a second appeal before the Income-tax Appellate Tribunal ("the Tribunal") against the said order of the Appellate Assistant Commissioner to the extent of its appeal having been disallowed. However, on May 9, 1977, the assessee withdrew the said appeal with the leave of the Tribunal. On May 17, 1977, the assessee filed a revision application under section 264 of the Act before the Commissioner of Income-tax against that part of the order of the Appellate Assistant Commissioner by which the assessee was dissatisfied and in respect of which it had earlier filed an appeal Tribunal which was withdrawn as aforesaid.
9. In the meanwhile, the Department preferred an appeal before the Tribunal against that part of the order of the Appellate Assistant Commissioner by which some relief was given to the assessee. The appeal of the Department was heard and dismissed by the Tribunal on March 28, 1978.
10. Before the Commissioner, the assessee, in support of the maintainability of the revision petition relied upon a circular of the Central Board of Direct Taxes issued under section 119 of the Act. That circular, according to the assessee, confers a right to maintain a revision against the appellate order even where another part of the same order was subject to an appeal before the Tribunal at the instance of the Department. The Commissioner, however, did not accept that contention and he held that, in the circumstances, he had no jurisdiction to entertain the revision petition. So, he dismissed the same as not maintainable by his order dated December 22, 1978.
11. The assessee filed a Writ Petition No. 4803 of 1979[Hindustan Aeronautics Ltd. v. CIT ] under article 226 of the Constitution for quashing the order of the Commissioner and for a direction to dispose of the revision petition on merits. The learned single judge allowed the writ petition relying upon the said circular of the Board. He held that the Board and the Law Ministry have understood the scope of section 264 of the Act in a manner different from the view taken by some of the High Courts. The learned judge observed (at page 465) :
"But having regard to the mandatory nature of the language of section 119 of the Act and the instant case not being covered by the exceptions in the proviso to sub-section (1) of section 119, the respondent-Commissioner was bound to entertain the revision application of the petitioner, notwithstanding the decision of the Kerala High Court on the subject as he was not bound by it. Thus, there is failure on the part of the respondent to exercise jurisdiction vested in him in passing the impugned order and, therefore, that order is liable to be set aside."
12. So stating, he directed the Commissioner to dispose of the matter on merits and in accordance with law.
13. Being aggrieved by the order of the learned single judge, the Commissioner has preferred the writ appeal in which the said question of law has been formulated and referred to the Full Bench.
14. It is now necessary to refer to the decision of this court in Vijayalakshmi Lorry Service's case (see p. 327 infra). It was a reference under section 256(1) of the Act raising the question as to the jurisdiction of the Commissioner under section 263 of the Act. There, the Commissioner interfered with an order of assessment made by the Income-tax Officer which was modified in an appeal by the Appellate Assistant Commissioner. The assessee challenged that order of the Commissioner before the Tribunal on the ground among others, that since the order of assessment passed by the Income-tax Officer was merged in the order of the Appellate Assistant Commissioner, the Commissioner was precluded from taking proceedings under section 263 of the Act. The Tribunal upheld that contention and set aside the order of the Commissioner. The Tribunal referred the following question under section 256(1) of the Act for the opinion of this court :
"Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the Additional Commissioner of Income-tax was precluded from directing the Income-tax Officer under section 263 of the Act to levy interest under section 139(1)(iii) ?"
15. This court answered the question in the affirmative after reaching the following conclusion (page 329) :
"In the instant case, as stated earlier, the Appellate Assistant Commissioner reduced the assessable income by Rs. 12,000. If any interest had to be levied, then the same could be only on the amount of tax as determined by the Appellate Assistant Commissioner. The order of assessment that has become final is the order of the Appellate Assistant Commissioner. That being the case, the Additional Commissioner had no jurisdiction to take proceedings under section 263 of the Act. The Tribunal, therefore, was right in the view it has taken."
16. The Division Bench while referring the question in this case for the opinion of the Full Bench has observed that the view taken in Vijayalakshmi Lorry Service's case (see p. 327 infra) may require reconsideration in the light of the pronouncement of the Supreme Court in CIT v. Amritlal Bhogilal & Co. and State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144.
17. We shall, therefore, straightaway consider whether the decision of this court in Vijayalakshmi Lorry Service's case (see p. 327 infra) requires reconsideration in the light of the abovesaid decisions of the Supreme Court.
18. In ClT v. Amritlal Bhogilal & Co. , the question which arose for decision was whether the order passed by the Income-tax Officer allowing the registration of a firm merged in the order passed by the Appellate Assistant Commissioner in the appeal filed by the firm against the order of assessment. If it did, the Commissioner of Income-tax could not, in the exercise of his revisional powers under section 33B(1) of the Indian Income-tax Act, 1922, set aside the order of registration passed by the Income-tax Officer. The Supreme Court held on the merits of the matter that though the appellate order of the Appellate Assistant Commissioner was the only order which was valid and enforceable in law, what merged in the appellate order was the Income-tax Officer's order under appeal and not his order of registration which was not and could not become the subject-matter of an appeal before the appellate authority. The position in regard to the doctrine of merger was stated thus by the Supreme Court (at page 136) :
"There can be no doubt that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law, the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement."
19. In Madurai Mills' case , the Supreme Court held that the order of assessment had not merged in the revisional order passed by the Deputy Commissioner of Commercial Taxes "because, the question of exemption on the value of yarn purchased from outside the State of Madras was not the subject-matter of revision." After referring to the observations in Amritlal Bhogilal's case , the Supreme Court held (19 STC pp. 149 & 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 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."
20. In Amritlal Bhogilal's case [1958] 34 ITR I30, the question of registration of the assessee firm was not, and could not also be, before the appellate authority and, therefore, it was held that there could be no merger of the order of the Income-tax Officer in the appellate order. In Madurai Mills' case [1967] 19 STC 144, the reason was slightly different. It was held that there could be no merger of the assessment order in the revisional order as the question regarding exclusion of the value of yarn purchased from outside Madras State was not the subject-matter of revision before the Deputy Commissioner of Commercial Taxes.
21. The above two decisions have been considered by the Supreme in Gojer Brothers (P) Ltd. v. Shri Ratan Lal Singh, , with some more reasons assigned to the doctrine of merger. It was held that the doctrine was based on the principle that there cannot be, at one and the same time, more than one operative order governing the same subject-matter. If the subject-matter of the suit and the subject-matter of the appeal are identical and the entire decree of the trial court was taken in appeal to the first appellate court and to the High Court, then the decree of the trial court gets merged in the decree of the High Court.
22. From these decisions, it will be clear, that when an appellate authority has in fact dealt with an issue in its order, such matters are covered by the doctrine of merger. Similarly, if an appellate authority does not have the jurisdiction under the law to deal with an issue, the doctrine of merger does not operate in respect of that issue. These are now undisputed propositions. The controversy, however, is in relation to the application doctrine in each case depending upon the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The controversy is in relation to such issues which could have been dealt with by the appellate authority within its jurisdiction but in fact have not been dealt the said authority. It is also in relation to such issues which were in fact raised before the appellate or revisional authority but not dealt with by the said authority.
23. With these principles in mind, we shall now examine the scope of the appellate powers of the Appellate Assistant Commissioner. The Supreme Court in CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 and CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443, has explained the content and scope of the appellate powers under section 31 of the Indian Income-tax Act, 1922. In the former case, it was held that the Appellate Assistant Commissioner's power is restricted to the subject-matter of the assessment or the sources of income which are considered expressly by the Income-tax Officer and he cannot go outside the record and so he cannot assess new sources of income which are not disclosed either in the return of the assessee or in the assessment order. Barring this limitation, the appellate powers are as wide as and co-extensive with the assessing officer. In the latter case, the Supreme Court held (at page 449 of 66 ITR) :
"It would be wholly erroneous to compare the powers of the Appellate Assistant Commissioner with the powers possessed by a court of appeal, under the Civil Procedure Code. The Appellate Assistant Commissioner is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and in view of this peculiar position, the has conferred very wide powers upon the Appellate Assistant Commissioner once an appeal is preferred to him by the assessee. It is necessary also to emphasise that 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."
24. It is thus apparent that the Appellate Assistant Commissioner can look into and adjudicate upon findings recorded by the Income-tax Officer not only against the assessee which may expressly be the subject-matter of the appeal but also a matter which has been considered and determined by the Income-tax Officer in the course of the assessment. In other words, the entire subject-matter of the assessment would be within the jurisdiction of the Appellate Assistant Commissioner.
25. Since the entire subject-matter of the assessment is within the jurisdiction of the Appellate Assistant Commissioner, some High Courts, in the light of the observations made by the Supreme Court in Madurai Mills' case , have held that the entire assessment order will merge in the appellate order irrespective of the points urged by the parties or decided by the Appellate Assistant Commissioner. This view was taken by the Allahabad High Court in J. K Synthetics Ltd. v. Addl. CIT , the Patna High Court in CCT v. Rameshwar Das Panna Lal [1974] 34 STC 296, the Calcutta High Court in Jeewanlal (1929) Ltd. v. Addl. CIT and the Madhya Pradesh High Court in ClT v. Narpat Singh Malkhan Singh [1981] 128 ITR 77 and CIT v. Mandsaur Electric Supply Company Ltd. [FB].
26. The contrary view taken by the other High Courts depends upon the subject-matter of the appellate order. It has been held that that part of the order of assessment which relates to items not forming the subject-matter of the appellate order, or which is left untouched, does not merge in the order of the Appellate Assistant Commissioner. This view has been shared by the Gujarat High Court in Karsandas Bhagwandas Patel v. Shah (G.V.) ITO , the Bombay High Court in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570, the Calcutta High Court in Singho Mica Mining Co. Ltd. v. CIT , the Madras High Court in Puthuthotam Estates Ltd. v. State of Tamil Nadu and the Punjab and Haryana Court in New Diwan Oil Mills v. CIT .
27. Amid this diversity of opinions, this High Court in Vijayalakshmi Lorry Service's case (see p. 327 infra) without much fuss over the matter has held that the entire order merges when the order was taken in appeal and was modified by the Appellate Assistant Commissioner. Such an order becomes final and the Commissioner was precluded from taking proceedings under section 263 of the Act to revise the order of the Income-tax Officer on another ground. That decision was rendered on September 17, 1975, and is being followed by the authorities in this State. The view taken in that decision is neither unreasonable nor erroneous. Similar view has been taken, as earlier noticed, by the High Courts of Allahabad Calcutta, Madhya Pradesh, etc. There is, therefore, no compelling reason to review that decision. It is not proper for us to reverse that decision merely because another view is also possible. Consistency in law should be the hallmark in the administration of justice.
28. In the view that we have taken, the question referred to the Full Bench must be answered in the negative.
29. There is yet another hurdle for the Commissioner to entertain the revision petition under section 264 of the Act. It may be recalled that the order of the Appellate Assistant Commissioner has been the subject-matter of the appeal before the Tribunal at the instance of the Department. Section 264(4) is an express bar for the Commissioner to entertain the revision petition. The relevant portion of section 264(4) reads :
"264. (4) The Commissioner shall not revise any order under this section in the following cases -
(a) where an appeal against the order lies to the Appellate Assistant Commissioner or to the Commissioner (Appeals) or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or, in the case of an appeal to the Commissioner (Appeals) or to the Appellate Tribunal, the assessee has not waived his right of appeal; or
(b) where the order is pending on appeal before the Appellate Assistant Commissioner; or
(c) where the order has been made the subject of an appeal to the Commissioner (Appeals) or to the appellate Tribunal."
30. Section 264(4) provides that the Commissioner shall not revise any order referred to under clauses (a), (b) and (c) thereof. Clause (c) of section 264(4) provides that the Commissioner shall not revise any order which has been made the subject of an appeal to the Tribunal. It is in the nature of an injunction against the Commissioner. The bar imposed by this provision is express and absolute irrespective of the relief claimed in such an appeal or irrespective of the party who has preferred the appeal before the Tribunal. The order referred to is an order of the lower authority against which an appeal has been preferred no matter whether by the assessee or by the Revenue. That clause does not envisage that the appellant before the Tribunal and the petitioner before the Commissioner should be the same. The Commissioner's jurisdiction to revise an order is barred if that order has been appealed to the Tribunal. This is also the view taken by Sreenivasa Iyengar J. of this court in Mysore Tobacco Company Ltd. v. CIT [1981] 128 ITR 655 :
Our view finds support from the decision of the Madras High Court in Gnana Sundara Nayagar v. CIT [1961] 41 ITR 375. There, the assessee filed an appeal before the Appellate Tribunal under the Indian Income-tax Act, 1922, but shortly before filing the said appeal, the assessee filed a revision before the Commissioner claiming a deduction in respect of rents received by him from two houses. That was a claim which he did not make either before the Income-tax Officer or before the appellate authority. The Commissioner dismissed the revision on the ground that the deduction claimed was inadmissible. The assessee moved the High Court in writ petition under article 227 of the Constitution. The High Court dismissed the writ petition on the ground that section 33A(2) (c) of the Indian Income-tax Act, 1922, was a bar for the Commissioner to exercise the revisional jurisdiction, since the order was the subject-matter of an appeal before the Appellate Tribunal. The High Court at page 379 observed :
"That the relief claimed in the application preferred under section 33A(2) was not the subject-matter of the appeal to the Tribunal does not alter the position that the order of assessment was the subject of the appeal. To put it differently, the fact that the jurisdiction of the Tribunal was limited to the disposal of the claims preferred in the appeal did not alter the position that the order of assessment was the subject of the appeal. Even if only a portion of an order of assessment is the subject of the appeal to the Tribunal, still the position is that the subject of the appeal to the Tribunal is the order of assessment."
31. The same view was expressed by the Kerala High Court in H. A. Mohammed Haneef v. ITO. [1973] TLR 645, wherein at page 646, it was observed;
"On a careful reading of the section in the light of the object underlying it, it is difficult for me to accept the above argument. If what sub section (4) enacts is a bar against a remedy, the argument is good. But in my view, it is not so. It contains a prohibition against the exercise of the revisional jurisdiction of the Commissioner in the cases mentioned therein. It is, therefore, irrelevant whether the jurisdiction is sought to be invoked by the assessee or the Revenue. Clause (c) of sub-section (4) is attracted if the order sought to be revised has been made the subject of an appeal to the Appellate Tribunal, whether it may be by the assessee or by the Revenue."
32. In the circumstances of the case, since the Revenue has taken the order of the Appellate Assistant Commissioner in appeal before the Tribunal, the question referred must be answered in the negative. The Commissioner has no jurisdiction to entertain the revision petition of the assessee under section 264 of the Act, since that order sought to be revised was already the subject-matter of an appeal to the Tribunal.
33. We, however, express no opinion on the Commissioner's power to entertain the revision petition under the circular issued by the Central Board of Direct Taxes under section 119 of the Act.