Madras High Court
Commissioner Of Income-Tax vs Tube Investments Of India Ltd. on 23 November, 1998
Equivalent citations: [2000]243ITR846(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT N. V. Balasubramanian, J.
1. The Income-tax Appellate Tribunal has stated a case and referred the following question of law arising out of the assessment of the income of the assessee for the assessment year 1979-80 under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for our consideration :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that after an assessment is made duly obtaining the directions from the Inspecting Assistant Commissioner under Section 144B on the point of depreciation, which has been the subject-matter of appeal before the Commissioner (Appeals) wherein an order has been passed by him, there was merger of assessment order with the appellate order and the Commissioner of income-tax had no jurisdiction to revise the assessment under Section 263 of the Income-tax Act, 1961 ?"
2. Though the question referred to us is a single question, it consists of two parts both touching upon the jurisdiction of the Commissioner of Income-tax to invoke his powers under Section 263 of the Act. The facts leading to the reference are that the assessee is a company and the Income-tax Officer, for the assessment year 1973-80, completed the assessment on September 25, 1982, under Section 143(3) read with Section 144B of the Act on a total income of Rs. 2,03,50,430. As there were variations between the income returned and the income proposed to be assessed, the Income-tax Officer adopted the statutory formalities prescribed under Section 144B of the Act, i.e., he completed the assessment after getting the approval of the Inspecting Assistant Commissioner of his draft assessment order. The assessee during the course of the assessment proceedings claimed depreciation amounting to Rs. 58.52,924, and after making certain disallowance, the Income-tax Officer granted depreciation at 15 per cent, on the machineries employed in Cold Roll Mill.
3. There was an appeal by the assessee before the Commissioner of Income-tax (Appeals) challenging the order of assessment made by the Income-tax Officer, but the challenge against the assessment order was limited to the claim for depreciation on roads and extra-shift allowance claimed by the assessee in respect of automatic and semi-automatic machinery- The assessee did not challenge the allowance of depreciation granted by the Income-tax Officer at the rate of 15 per cent, in respect of plant and machinery installed in the units of T. I. Cycles of India, Tube Products of India and Cold Roll Mill as the Income-tax Officer had granted the depreciation on those machineries as claimed by the assessee, and the assessee was satisfied with the allowance granted by the Income-tax Officer. It is unnecessary to note the order of the Commissioner of Income-tax (Appeals) for the purpose of the present reference or the result of the appellate order.
4. The Commissioner of Income-tax exercising the powers of revision conferred upon him under Section 263 of the Act, on a perusal of the records of the assessment of the assessee, found that the allowance of depreciation at the rate of 15 per cent, in respect of the plant and machinery installed in the Cold Roll Mill, a unit of the assessee was erroneous and prejudicial to the interests of the Revenue as the assessee would be entitled to depreciation at the rate of 10 per cent, on the machinery and plant. After issuing show-cause notice to the assessee and after hearing the objections of the assessee, the Commissioner of Income-tax held that the assessee was eligible for the grant of depreciation at the rate of 15 per cent, in respect of three machineries and with reference to the fourth item of machinery, he held that the grant of depreciation at the rate of 15 per cent, on the machinery was erroneous. As regards the rest of the items, the Commissioner noticed the certificate prpduced by the assessee's chartered engi-
neer and registered valuer and held that that machinery could not be regarded as machine tools and i'n so far as certain old machineries were concerned, for which the assessee had furnished details before the Commissioner, he held that the assessee was entitled to the general rate of depreciation at the rate of 10 per cent, permitting the assessee to produce evidence before the Income-tax Officer within a reasonable time in support of its claim for depreciation at the rate of 15 per cent, on the machineries and machine tools. The Commissioner thus revised the order of the Income-tax Officer.
5. The assessee had challenged the order of the Commissioner before the Income-tax Appellate Tribunal. The Tribunal has cancelled the order of the Commissioner on two grounds, viz., (i) the Commissioner had no jurisdiction to revise the order of the Income-tax Officer when the Income-tax Officer had made an assessment after adopting the statutory procedure prescribed under Section 144B of the Act after obtaining directions of the Inspecting Assistant Commissioner, and (ii) the Commissioner had no jurisdiction to revise the order of the income-tax Officer which was the subject-matter of appeal before the Commissioner (Appeals), as the assessee's claim for depreciation allowance was the subject matter of consideration by the Commissioner of Income-tax (Appeals). The Tribunal held that the Commissioner lacked the jurisdiction to exercise his power of revision and cancelled the order of revision passed by the Commissioner and allowed the appeal preferred by the assessee. The order of the Appellate Tribunal is the subject-matter of reference before us.
6. The question of law referred to us is a comprehensive one as it challenges both the views expressed by the Appellate Tribunal on the jurisdiction of the Commissioner of Income-tax. The first part of the question refers to the jurisdiction of the Commissioner of Income-tax to revise an order of assessment passed by the Income-tax Officer after obtaining the directions from the Inspecting Assistant Commissioner and after adopting the formalities prescribed under Section 144B of the Act. In an unreported decision of this court in T. C. No. 1090 of 1980--since reported in CIT v. V. V, A. Shanmugam [1999] 236 ITR 878 dated January 11, 1987 (January 7, 1997 ?), this court has held that the Commissioner of Income-tax has the necessary jurisdiction under Section 263 of the Act to revise an order of the Income-tax Officer though the order was passed after obtaining the statutory formalities prescribed under Section 144B of the Act and after obtaining the directions of the Inspecting Assistant Commissioner on the issue of a draft assessment order, as the order passed by the Income-tax Officer was regarded as an order of assessment made by the Income-tax Officer and, therefore, it was subject to the jurisdiction of the Commissioner under Section 263 of the Act. We are in complete agreement with the views expressed by this court in T. C. No. 1090 of 1980--since reported in CIT v.
V. V. A. Shanmugam [1999] 236 ITR 878 dated January 11, 1987 (January 7, 1997 ?), and we hold that the Commissioner has the jurisdiction under Section 263 of the Act to revise an order of assessment though made after following the statutory formalities prescribed under Section 144B of the Act as the order of Income-tax Officer does not cease to be an order of assessment made by him, and the contrary view expressed by the Appellate Tribunal is not legally sustainable in law.
7. The second part of the question refers to the question of merger. The Supreme Court in the case of CIT v. Shri Arbuda, Mills Ltd. [1998] 231 ITR 50, held that the Commissioner of Income-tax is empowered to exercise his power to revise that part of the order of the Income-tax Officer which was not the subject-matter of consideration in appeal before the higher authority by way of appeal. The Income-tax Officer in the instant case, at the time of original assessment, granted depreciation on the items in question at a particular rate and as claimed by the assessee. The assessee was not aggrieved either by the grant of depreciation or by the rate at which it was granted and there was no appeal before the Commissioner of Income-tax (Appeals) against that part of the order of the Income-tax Officer granting depreciation at the rate claimed by the assessee. The only question that was raised before the first appellate authority was its claim for extra-shift allowance. The decision of the appellate authority on the question of grant of extra-shift allowance would mostly depend upon the question whether the factory of the assessee had worked double shift or triple shift to claim extra-shift allowance and the claim was justifiable or not, but the question of grant of extra depreciation is independent from the rate of depreciation granted by the Income-tax Officer. It may be true that the extra-shift allowance to be granted may depend upon and it was on the basis of the rate of depreciation granted by the Income-tax Officer, but still in the appeal preferred by the assessee before the first appellate authority, there was no occasion or inquiry and there was no determination by the first appellate authority with reference to the rate of depreciation allowed by the Income-tax Officer. Though as a consequence of the order of the Income-tax Officer granting depreciation at a particular percentage of the cost of machinery, the assessee was claiming extra-shift allowance, yet it cannot be said that for deciding the issue as to grant of extra depreciation allowance, the Commissioner of Income-tax (Appeals) has to decide the question as to the rate of depreciation to be allowed on each of the machinery employed in the factory. Therefore, we are of the opinion that it cannot (can ?) be regarded that part of the order of the Income-tax Officer granting the depreciation remained undisturbed even after the order passed by the Commissioner of Income-tax in appeal and, hence, it could not be said that the order of the Income-tax Officer granting depreciation at the particular rate had merged with the order of the Commissioner of Income-tax (Appeals). Hence, we hold that the appellate order of the Commissioner of Income-tax (Appeals) does not in any way preclude the Commissioner from exercising his power of revision under Section 265 of the Act. It is relevant to notice that the pre-condition for merger of an order of the lower authority to get merged with the order of the higher authority is that the matter in question decided by the lower authority should have been considered and decided by the higher authority in the appeal preferred against the order of the lower authority, and in the instant case, it cannot be said that there was a merger of the order of the Income-tax Officer with the order of the Commissioner of Income-tax (Appeals) on the general theory that the Commissioner of Income-tax (Appeals) has wide powers over the order of the Income-tax Officer at the time of deciding the appeal preferred against the order of the Income-tax Officer including the power of enhancement. In the instant case, the Commissioner of Income-tax (Appeals) had no occasion to decide the question of rate of depreciation granted by the Income-tax Officer in his order and, hence, the order of the Income-tax Officer cannot be said to have merged with the order of the Commissioner of Income-tax (Appeals) on the question of rate of depreciation granted by the Income-tax Officer. The Appellate Tribunal, in our view, was not quite justified in holding that there was a merger of the order of the Income-tax Officer with the order of the first appellate authority.
8. The Supreme Court in the case of CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50, held that where that part of the order of the Income-tax Officer was not considered and decided by the first appellate authority, there is no question of merger of the order of the Income-tax Officer with the order of the higher authority. The Explanation introduced in Section 263 of the Act also makes the position abundantly clear, that there was no merger of the order of the Income-tax Officer with the order of the Commissioner of Income-tax (Appeals). Accordingly, we hold that the Tribunal was not correct in holding that there was a merger of the order of the Income-tax Officer, with the order of the Commissioner of Income-tax (Appeals) preventing the Commissioner from exercising his power under Section 263 of the Act.
9. Learned counsel for the assessee submitted that the Commissioner was not justified in ignoring the report of the chartered engineer and registered valuer of the assessee. Learned counsel submitted that the Commissioner relied upon the dictionary meanings given in certain dictionaries to come to the conclusion that the machineries may not be regarded as machine tools. Learned counsel in support of his submission placed reliance on the decision of the Calcutta High Court in the case of Russell Pro-. perties Pvt. Ltd, v. A. Chowdhury, Addl CIT [1977] 109 ITR 229 and the decision of the Allahabad High Court in CIT v. Goyal Private Family Specific Trust [1988] 171 ITR 698. In the instant case, we find that the Appellate Tribunal has not decided the question whether there were materials for the Commissioner of Income-tax to exercise the power of revision and also not decided the question on the merits of the case. Since the Appellate Tribunal has not expressed its view one way or the other on both aspects, we are of the opinion that the Tribunal should consider the question whether the Commissioner had necessary materials to invoke his revisional power under Section 263 of the Act and also on the merits of the case.
10. We, accordingly, answer the question of law referred to us in the negative and in favour of the Revenue. Though we have answered the question referred to us in the manner indicated above, the Tribunal is directed to consider the question whether there are materials for the Commissioner to invoke his power under Section 263 of the Act and also on the merits of the case. However, in the circumstances, there will be no order as to costs.