Kerala High Court
Ooppootil Kurien & Co. (P) Ltd. vs Commissioner Of Income Tax on 5 December, 2002
Equivalent citations: (2003)182CTR(KER)310, [2004]266ITR409(KER)
Author: G. Sivarajan
Bench: G. Sivarajan, P.R. Raman
JUDGMENT G. Sivarajan, J.
1. The Tribunal, Cochin Bench, Cochin has referred the following two questions of law under Section 256(2) of the IT Act, 1961, at the instance of the assessee, as directed by this Court in judgment, dt. 18th Nov., 1998, in O.P. 13673 of 1998 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not entertaining the additional grounds as referred in the order of the Tribunal ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest paid on money borrowed by which the property constructed is not allowable deduction, since such interest was not payable to the partners of United Investment Corporation by the assessee-company in whose hands the income from the property is computed ?"
2. The brief facts are as follows : The assessee is a company in which the public are not substantially interested and it is deriving income from house property and also income from business. For the asst. yr. 1987-88 the assessee-company filed return showing a total income of Rs. 57,152 after adjusting the brought forward loss of the earlier years. Along with the said return, the assessee filed a statement showing details of the computation of the income. In the statement, the assessee included a sum of Rs. 40,097 as income from house property. However, it is seen that the assessee had returned rental income from the house property which included a sum of Rs. 2,40,617 as rent received by a partnership firm by name United Investment Corporation and then making a deduction of Rs. 75,000 as claimed by that concern as rent payment to the assessee. The assessing authority has treated the firm by name "United Investment Corporation" as a sham one and included the rent received by the said firm as the income of the assessee. Though the assessee had filed appeal against the assessment before the CIT(A), the dispute was in regard to another matter, i.e., regarding the claim of interest payable to the partners of the firm and the said appeal was dismissed.
In the second appeal filed before the Tribunal the assessee had raised a contention by way of additional grounds which was not taken either before the assessing authority or before the first appellate authority. The said additional grounds read as follows :
(a) The learned CIT(A) ought to have found that the AO was not entitled to take the income received by United Investment Corporation of Rs. 2,40,617 as income of the company by treating the same as sham transaction.
(b) The learned CIT(A) ought to have found that there was no question of sham transaction in the light of the decision of the jurisdictional High Court in the case of Padinjarekara Agencies (P) Ltd v. CIT (1988) 173 ITR 637 (Ker).
3. The Tribunal considered the entertainability of the said additional grounds in para 7 of its appellate order. Relying on the decision, inter alia, of the Special Bench of the Tribunal (Delhi Bench) in the case of National Thermal Power Corporation v. IAC (1985) 12 ITD 99 (Del)(SB), the Tribunal held that the assessee is not entitled to raise before the Tribunal for the first time a new ground of appeal on an issue which was not the subject-matter before the first appellate authority on which there was no dispute before the AO as also before the appellate authority. The Tribunal has thus declined to entertain the additional grounds. It is against this part of the order of the Tribunal, that the two questions are referred at the instance of the assessee. We note here that the decision relied on by the Tribunal has been reversed by the Supreme Court to which we will refer to later in this judgment.
4. Sri. M. Pathrose Mathai, the learned counsel appearing for the assessee-applicant, submitted that the Tribunal was not justified in not entertaining the additional grounds raised before it. He further submitted that though the assessee did not raise the contention now raised before the Tribunal either before the assessing authority or before the first appellate authority, such a contention was taken in view of the decision of this Court in Padinjarekara Agencies (P) Ltd v. CIT (supra) where according to the assessee this Court had dealt with the principles regarding the interpretation of a document as sham. The counsel also relied on the decision of the Supreme Court in National Thermal Power Co. Ltd v. CIT (1998) 229 ITR 383 (SC) where the Supreme Court had considered the scope of Section 254 of the IT Act and the power of the Tribunal to allow additional grounds.
5. Shri P.K.R. Menon, senior Central Government standing counsel appearing for the respondents, submit that so far as the assessee is concerned, in respect of the very same partnership firm, the IT authorities have taken the view that the said partnership is a sham one for the asst. yr. 1981-82 and that the assessee did not challenge the said finding before the higher authorities. The senior counsel further submitted that from the asst. yr. 1981-82 till the asst. yr. 1987-88, the assessee was furnishing the rental income received from the house properties directly and without the intervention of the partnership firm. The senior counsel further submitted that the decision in Padinjarekara Agencies' case mentioned above was based on a finding of fact in that case. The counsel also relied on the decision of the Supreme Court and highlighted certain observations made by the Supreme Court in that regard.
6. The first question referred to by the Tribunal is as to whether the Tribunal was justified in law in not entertaining the additional grounds as referred in the order of the Tribunal. This question in fact relates to the scope of the appellate power of the Tribunal under Section 254 of the Act.
7. The scope of the appellate powers of the Tribunal under Section 254 of the IT Act was considered by the Supreme Court in National Thermal Power Company's case (supra). In that case, the assessee had offered a sum of Rs. 22,84,994 representing the interest received on short-term deposit with banks for assessment and the assessment was completed on that basis. The assessee filed appeal against the assessment order in respect of other matters. The assessee thereafter filed a second appeal before the Tribunal on some other grounds. In other words, no contention was taken either before the assessing authority or before the first appellate authority regarding the assessibility of the sum of Rs. 22,84,994. No such grounds were also raised by the assessee in the appeal memorandum filed before the Tribunal. However, during the pendency of the said appeal, the assessee by a forwarding letter raised three additional grounds which reads as follows :
"1. The sum of Rs. 22,84,994 deducted from 'Statement of expenditure during construction' cannot be included in the total income.
2. It is contended that on admission (erroneous), no income (the sum of Rs. 22,84,994) can be included in the total income.
3. The authorities below have erred and failed in their duty in not adjudicating the facts and evidence on record and mechanically including Rs. 22,84,994 in the total income."
8. The Tribunal declined to entertain those additional grounds. The Tribunal framed certain questions of law and referred the matter to the Supreme Court. The Supreme Court refrained the question as follows :
"Whether, on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to .examine the same ?"
The Supreme Court in that context, considered the scope of the provisions of Section 254 in the following manner :
"Under Section 254 of the IT Act, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier."
The Supreme Court also referred to its earlier decision in Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC) and noted the observations in that case thus :
"In the case of Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC) this Court, while dealing with the powers of the AAC observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good, reasons. The AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also "
9. Thereafter, the Supreme Court observed that the view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal. It was further observed that, undoubtedly, the Tribunal will have the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings, the Supreme Court observed that the Tribunal was bound to allow such questions to be raised when it is necessary to consider the question in order to correctly assess the tax liability of an assessee. The Supreme Court had accordingly, remanded the matter to the Tribunal for consideration of the new grounds raised by the assessee in that case.
10. From the aforesaid decision, it is clear that the Tribunal was bound to consider additional grounds, if any, raised by an assessee before it. However, it is for the Tribunal either to allow the same or to reject it depending on the facts and circumstances of each case.
In this case, as already noted, the Tribunal has refused to entertain the ground of appeal, inter alia, relying on the Special Bench decision of the Tribunal (Delhi Bench) in the very same case considered by the Supreme Court. In view of the decision of the Supreme Court, which is discussed above, we are of the view that the Tribunal was not justified in rejecting the additional grounds raised simply on the ground that these questions were not raised either before the assessing authority or before the first appellant authority.
11. In order to bring out the correct position we reframe the first question as follows :
"Whether the Tribunal was justified in law in not entertaining the additional grounds raised by the assessee simply on the ground that such grounds have hot been raised either before the assessing authority or before the first appellate authority?"
12. We answer the said question in the negative i.e., in favour of the assessee and against the Revenue.
13. In view of the answer to the first question, we decline to consider the second question raised. The answer to the said question will depend upon how the Tribunal deals with the first question.
We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee in the light of our answer to the first question.