Gujarat High Court
Commissioner Of Income-Tax, Gujarat vs Gurjargravures Pvt. Ltd. on 14 September, 1971
Author: P.N. Bhagwati
Bench: P.N. Bhagwati
JUDGMENT Bhagwati, C.J.
1. The short question which arises for consideration in this reference concerns the scope and ambit of the jurisdiction of the Appellate Assistant Commissioner to entertain a new claim for exemption made before him for the first time. The assessee is a company carrying on business of copper engraving and manufacturing of labels. The assessee was admittedly entitled to exemption in respect of a portion of its profit for the assessment year 1963-64 under section 84 of the Income-tax Act, 1961, but due to some oversight the assessee omitted to make a claim for such exemption at the time of assessment by the Income-tax Officer, with the result that this profit was subjected to tax in the assessment order dated 12th February, 1965, made by the Income-tax Officer. The assessee realised that by reason of its omission to make a claim, profit exempt from payment of tax had been erroneously subjected to tax and it, therefore, included in the memorandum of appeal against the order of assessment, a ground that the Income-tax Officer had erred in not exempting such profit from tax under section 84. The assessee pointed out to the Appellate Assistant Commissioner at the hearing of the appeal that the benefit of section 84 had been allowed to the assessee in the subsequent assessment years and, if that was so, there was no reason why it should not be granted to the assessee also in the assessment year in question. The Appellate Assistant Commissioner, however, refused to entertain this contention on the ground that the claim for exemption under section 84 was not advanced before the Income-tax Officer, and it was, therefore, not possible to say that the Income-tax Officer had erred in not granting the benefit of section 84 to the assessee. The assessee thereupon preferred a further appeal to the Tribunal in which, apart from raising various grounds relating to other items in the assessment order, the assessee challenged the decision of the Appellate Assistant Commissioner that the assessee was not entitled to claim exemption under section 84 at the appellate stage because no such claim had been put forward by him before the Income-tax Officer. The Tribunal found that this challenge to the view taken by the Appellate Assistant Commissioner was well-founded and the Appellate Assistant Commissioner ought to have entertained the claim of the assessee for exemption under section 84. The Tribunal observed in a very brief order :
"The assessment did not become final on the issuance of the assessment order by the Income-tax Officer, but was kept alive by way of appeal to the Appellate Assistant Commissioner. Since the entire assessment was open before the Appellate Assistant Commissioner, we do not see any reason for not entertaining the claim of the assessee by the Appellate Assistant Commissioner."
2. The Tribunal accordingly directed the Income-tax Officer to allow appropriate relief under section 84. The Commissioner was aggrieved by this decision and he, therefore, applied for a reference and on the application the following question of law was referred for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, it was competent for the Tribunal to hold that the Appellate Assistant Commissioner should have entertained the question of relief under section 84 and to direct the Income-tax Officer to allow necessary relief ?"
3. The question is one of some importance as it arises frequently and if decided in favour of the revenue, it is likely to cause great hardship to the assessees, for if they have failed to make a claim before the Income-tax Officer through inadvertence or even through lack of awareness which may not be regarded as wholly unpardonable in view of the complexity of the income-tax legislation, they would be deprived altogether of a further opportunity of making such a claim at the appellate stage even if they have filed an appeal in time.
4. Now the questions as to what is the scope and ambit of the power of the Appellate Assistant Commissioner in dealing with an appeal against an order of assessment is no longer open to doubt or controversy. It must be regarded as settled by several decisions which are binding upon us. The leading decision on the subject is the decision of the Bombay High Court in Narrondas Manordass v. Commissioner of Income-tax. Any discussion of this topic is bound to commence with a reference to this decision. But, before we go to this decision, we may profitably look at the language of section 251 which sets out the powers which may be exercised by the Appellate Assistant Commissioner in disposing of an appeal before him. It may be pointed out that the powers exercised by the Appellate Assistant Commissioner under section 251 are conferred in almost identical terms as the powers under section 31 of the Indian Income-tax Act, 1922, and, therefore, decisions given on the interpretation of section 31 of the Indian Income-tax Act, 1922, would be equally applicable in determining the proper scope and ambit of the powers of the Appellate Assistant Commissioner under section 251. Section 251, in so far as it is material for the purpose of the present discussion, provides in clause (a) that in disposing of an appeal against an order of assessment, the Appellate Assistant Commissioner "may confirm, reduce, enhance or annul the assessment, or he may set aside the assessment and refer the case back to the Income-tax Officer." The Appellate Assistant Commissioner is given the power not only to confirm, reduce or annul the assessment but also to enhance it. This is rather a striking departure from the ordinary powers of a court of appeal because, under the scheme of appeal envisaged in the Act, an appeal against an order of assessment can be preferred only by an assessee and not by the revenue and, in the appeal by the assessee, the Appellate Assistant Commissioner is given the power to make an order prejudicial to the assessee. If the assessee accepts the assessment made by the Income-tax Officer and does not prefer an appeal against it, the assessment becomes final, however erroneous it may be, subject only to reopening by the Income-tax Officer under section 147 and revision by the Commissioner under section 263. There is nothing that the Appellate Assistant Commissioner can do about it. But, if the assessee prefers an appeal, the whole assessment is thrown open before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner can interfere with any part of the assessment, whether in favour of the assessee or against him. Once an appeal is preferred by the assessee and the assessment is brought before the Appellate Assistant Commissioner, the competence of the Appellate Assistant Commissioner 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 even that part of the assessment which is in favour of the assessee and in respect of which there is naturally no complaint by him. This is the only interpretation by which meaning can be given to the words "enhance.... the assessment". This was also the view taken by the Bombay High Court in Narrondas Manordass v. Commissioner of Income-tax. Chagla C.J., speaking on behalf of the Division Bench, observed in that case :
"Therefore, although the appellant may only complain of particular points in the assessment and he may be satisfied with regard to the rest of the assessment, the Appellant Assistant Commissioner's powers are not confined to consider only these points about which the assessee has a grievance but he may consider those points about which the assessee is satisfied and order the enhancement of the assessment......
It is clear that the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Income-tax Officer; a revising authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revising those matters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer but he can revise every process which led to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount which is liable to tax, but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer."
5. This last passage was quoted with approval by the Supreme Court in Commissioner of Income-tax v. McMillan and Co. It must, therefore, be taken as settled that section 251, clause (a), confers not only appellate power on the Appellate Assistant Commissioner to reduce or annul the "assessment" at the instance of an assessee but also revisional jurisdiction to revise the "assessment" and enhance it : vide judgment of Hidaytullah J. in Commissioner of Income-tax v. Shapoorji Pallonji Mistry. This power of interference is, by the language of section 251, clause (a), restricted to the "assessment" : the Appellate Assistant Commissioner may reduce or annul the "assessment" or enhance the "assessment". The question is what is the true meaning and connotation of the word "assessment". There were two rival contentions urged before us in regard to the interpretation of the word "assessment". The assessee contended that the word "assessment" here means the ultimate amount which the assessee is held liable to pay having regard to the charging section and his total income and, therefore, the assessee can ask the Appellate Assistant Commissioner to reduce or annul the computation of the total income or the determination of the amount of tax by putting forward a new claim even if such claim was not advanced before the Income-tax Officer. The assessee relied strongly on the observations of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate, where Subba Rao J., delivering the judgment of the court, said :
"The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do."
6. The contention of the assessee, based on these observations, was that if the Income-tax Officer could have entertained a claim made by the assessee in the course of the assessment, the Appellate Assistant Commissioner can equally entertain such claim, even if it be made for the first time at the stage of appeal. The assessee submitted that this view was not only supportable on principle but there was also authority in support of it and that authority was the decision of the Calcutta High Court in Union Coal Co. Ltd. v. Commissioner of Income-tax. The revenue disputed the validity of this construction contended for on behalf of the assessee and urged that the word "assessment" in the context of section 251, clause (a), means the resultant of the particular process of assessment consisting of "various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer". It is not open to the Appellate Assistant Commissioner, contended the revenue, to travel outside the subject-matter of the assessment and to entertain a new claim for exemption which was not considered and determined by the Income-tax Officer. Such a claim would not form the subject-matter of assessment and would, therefore, be outside the scope and ambit of the scrutiny of the Appellate Assistant Commissioner. The revenue thus pleaded for a narrow meaning to be placed on the word "assessment". The question is which of these two rival constructions must be accepted as the correct construction.
7. Now the earliest decision on this point is that of the Patna High Court in Jagarnath Therani v. Commissioner of Income-tax. That was a case where the Appellate Assistant Commissioner sought to enhance the assessment by including the income from two businesses which had not been assessed to tax by the Income-tax Officer. The Patna High Court took the view that this was not permissible to the Appellate Assistant Commissioner since the sources of income which he sought to assess had not been subjected to the process of assessment by the Income-tax Officer. It was observed by the Patna High Court :
"But the subject-matter of the appeal is the assessment and the scope of the appeal must in my opinion be limited by the subject-matter. The appellate authority has no power to travel beyond the subject-matter of the assessment and, for all the reasons advanced by the appellant, is in my opinion not entitled to assess new sources of income."
8. The same view was also taken by the Madras High Court in Sri Gajalakshmi Ginning Factory v. Commissioner of Income-tax, where at page 510 the Division Bench observed as follows :
"Of course, it would not be open to the Appellate Assistant Commissioner to introduce into the assessment new sources, as his power of enhancement should be restricted only to the income which was the subject-matter of consideration for purposes of assessment by the Income-tax Officer."
9. The Bombay High Court also expressed the same view in Narrondas Manordass v. Commissioner of Income-tax and quoted with approval the decision of the Patna High Court in Jagarnath Therani v. Commissioner of Income-tax as also the above observations from the judgment of the Madras High Court in Sri Gajalakshmi Ginning Factory v. Commissioner of Income-tax. Chagla C.J., speaking on behalf of the Division Bench, pointed out that there was a distinction between the subject-matter of the appeal and the subject-matter of the assessment and the power of the Appellate Assistant Commissioner was not confined to the subject-matter of the appeal but extended to the subject-matter of the assessment. The same question also arise before the Supreme Court in Commissioner of Income-tax v. Shapoorji Pallonji Mistry. There the revenue adopted a different stand from that taken in the present case and canvasses for a wider interpretation of the word "assessment" for it was a case of enhancement and the action of the Appellate Assistant Commissioner in enhancing assessment by assessing new sources of income which had not been brought to tax by the Income-tax Officer could be justified only if the wider interpretation of the word "assessment" was accepted. The Supreme Court, however, negatived the wider interpretation contended for on behalf of the revenue and preferred to accept the narrower one which had consistently held the field since the decision in Jagarnath Therani v. Commissioner of Income-tax. Hidaytullah J., speaking on behalf of the Supreme Court, said :
"The only question is whether in enhancing the assessment for any year he can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a viewing to finding out new sources of income, not disclosed in either. It is contended by the Commissioner of Income-tax that the word 'assessment' here means the ultimate amount which an assessee must pay, regard being had to the charging section and his total income. In this view, it is said that the words "enhance the assessment" are not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. There is no doubt that this view is also possible....
The question is whether we should accept the interpretations suggested by the Commissioner in preference to the one which has held the field for nearly 37 years. In view of the provisions of sections 34 and 33B by which escaped income can be brought to tax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commissioner to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended section 31 and specified the other intention in express words...... In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible."
10. It must, therefore, now be taken as well-settled that the word "assessment" in section 251, clause (a), does not mean the ultimate amount which the assessee is held liable to pay but the various items of income or deductions which have been subjected to the process of assessment and which constitute the subject-matter of assessment. The assessee could not dispute this meaning of the word "assessment" in view of the decision of the Supreme Court in Commissioner of Income-tax v. Shapoorji Pallonji Mistry but it sought to limit the applicability of this meaning to a case of enhancement. The assessee contended that the word "assessment" has this restricted meaning only in the context of the expression "enhance the assessment"; it is a restriction placed by judicial decisions on the power of the Appellate Assistant Commissioner to enhance the assessment and such restriction should not be imported while construing the expression "reduce..... or annul the assessment" : The word "assessment" in the context of this latter expression must mean the ultimate amount which the assessee is held liable to pay so that if the Appellate Assistant Commissioner finds in an appeal preferred by the assessee that the total income or the amount of tax should be computed at a lesser figure or should be annulled, the Appellate Assistant Commissioner can do so in exercise of his power to reduce or annul the assessment. This argument is plainly and manifestly unsustainable. It seeks to give different meanings to the same word "assessment", one meaning when it is read with the words "reduce.... or annul" and another, when it is read with the word "enhance". That is impermissible by any recognised canon of construction. If the word "assessment" has a limited meaning given to it by the Supreme Court, though in the context of a case of enhancement, it must carry the same meaning in a case of reduction or annulment. It may be that the Supreme Court gave a limited meaning to the word "assessment" on account of considerations which were peculiar to a case of enhancement but that does not mean that the word "assessment" should have that meaning only in a case of enhancement and it should bear a different meaning in case of reduction or annulment. It must, therefore, be accepted as an incontrovertible proposition that the power of the Appellate Assistant Commissioner in dealing with an appeal against an order of assessment is restricted to the subject-matter of the assessment and the Appellate Assistant Commissioner cannot travel beyond the subject-matter of the assessment, whether it be for enhancement or for reduction or annulment of the assessment. The Appellate Assistant Commissioner, to quote the words of Chagla C.J., in Narrondass Manordass v. Commissioner of Income-tax can revise only "the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer". If there is any item of income or claim for deduction which has not come in for consideration by the Income-tax Officer - which is not processed by the Income-tax Officer - it would not form the subject-matter of assessment and the Appellate Assistant Commissioner would not have power to consider and process it in an appeal preferred by an assessee.
11. It is true that there are certain observations in Commissioner of Income-tax v. Kanpur Coal Syndicate, which, divorced from the context, might seem to suggest that the power of the Appellate Assistant Commissioner in dealing with an appeal preferred by an assessee is very wide and he can consider and process any item of income or claim which the Income-tax Officer could have done in the course of assessment, even if such item of income or claim was not before the Income-tax Officer. But, these observations must be read in the context of the facts of the case in which they were made and if they are so read, it would be clear that they do not support the broad proposition for which the assessee contends. The Income-tax Officer had in this case assessed an association of persons instead of the members individually and in an appeal preferred by the association of persons, a contention was raised that the assessment should not have been made on the association of persons but instead, the proportionate income in the hands of each of the members of the association should have been assesses to tax. The question arise whether the Appellate Assistant Commissioner had power to set aside the assessment and direct the Income-tax Officer to assess the members individually. The Supreme Court pointed out that section 3 of the Indian Income-tax Act, 1922, impliedly gave an option to an appropriate authority to assess the total income of either the association of persons or the members of such association individually and since the Income-tax Officer had by assessing the association of persons exercised the option, the decision of the Income-tax Officer exercising the option was liable to be called in question before the Appellate Assistant Commissioner, and the Appellate Assistant Commissioner had power to set aside the decision of the Income-tax Officer and to direct the Income-tax Officer to assess the individual members instead of the association of persons. It was in this context that the Supreme Court made the observations which we have quoted above in an earlier part of the judgment. When the Supreme Court said :
"The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do."
12. Then the Supreme Court was obviously referring to the power exercisable by the Appellate Assistant Commissioner in relation to a decision taken by the Income-tax Officer. What the Supreme Court meant to point out was that the Appellate Assistant Commissioner is entitled to question every decision taken by the Income-tax Officer and substitute his own decision. The power of the Appellate Assistant Commissioner is co-extensive with that of the Income-tax Officer in relation to the subject-matter of the assessment. The Supreme Court could not have intended as if by the back door to get rid of the limitation placed on the power of the Appellate Assistant Commissioner by its own decision in Commissioner of Income-tax v. Shapoorji Pallonji Mistry. If the observations of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate are read to mean that the Appellate Assistant Commissioner can also consider and process for the first time any item of income or claim on the ground that he can do what the Income-tax Officer could have done, the effect would be that the Appellate Assistant Commissioner would also be entitled to consider and process new sources of income which have not been considered by the Income-tax Officer and the limitation placed upon the power of the Appellate Assistant Commissioner by the decision in Commissioner of Income-tax v. Shapoorji Pallonji Mistry would be set at naught. We do not, therefore, think it would be right to read the observations of the Supreme Court divorced from their context, as if they lay down any broad proposition.
13. The question then arises whether it can be said, on the view taken by us as to the scope and ambit of the power of the Appellate Assistant Commissioner, that it was within the power of the Appellate Assistant Commissioner in the present case to entertain the claim for exemption in respect of a certain portion of its profit made by the assessee under section 84. The argument of the revenue was that no such claim for exemption having been put forward by the assessee before the Income-tax Officer, it was not considered or processed by the Income-tax Officer and it could not, therefore, be said to form the subject-matter of assessment and the Appellate Assistant Commissioner had accordingly no power to interfere with the assessment by considering and allowing such claim for exemption. The assessee's answer to this contention was that a certain portion of the profit which was exempt from tax under section 84 was processed and subjected to tax by the Income-tax Officer and since this part of the profit was processed by the Income-tax Officer and came in for consideration by him, it formed the subject-matter of assessment by the Income-tax Officer and the power of the Appellate Assistant Commissioner extended to a consideration of the question whether this part of the profit was rightly subjected to tax. The revenue rejoined to this contention by saying that merely because the Income-tax Officer had brought this part of the profit to tax it did not involve impliedly consideration and decision by the Income-tax Officer of the question as to whether it was exempt from tax under section 84. There is no obligation on the Income-tax Officer to consider, said the revenue, whether a particular item of income is exempt from tax or not, unless the claim for such exemption is made merely because it is taxed, it does not carry with it a decision that it is not exempt from tax. The revenue urged that the attention of the Income-tax Officer was not focused on the taxability or non-taxability of this part of the profit and it could not, therefore, be said that there was any consideration or decision by him in regard to the question whether it was exempt from tax. This contention of the revenue, plausible though it may seem, is in our opinion, not well founded. The power of the Appellate Assistant Commissioner, as we have already pointed out above, extends over the entire subject-matter of the assessment made by the Income-tax Officer and if there is any item of income which has come in for consideration by the Income-tax Officer and has been processed by him, it would form the subject-matter of the assessment and the Appellate Assistant Commissioner would be entitled to consider whether the assessment made by the Income-tax Officer in respect of it is right or wrong. Here, in the present case, the Income-tax Officer subjected to tax a certain portion of the profit which was exempt from tax under section 84. It may be that he brought it to tax because no claim for exemption was made before him by the assessee, but the fact remains that it was subjected to the process of assessment and it clearly and indubitably formed the subject-matter of assessment. It is true that no claim for exemption having been made by the assessee before the Income-tax Officer, there was no decision of the Income-tax Officer, express or implied, holding that a certain portion of profit of the assessee was not exempt from tax under section 84. But, in order that the Appellate Assistant Commissioner should be entitled to interfere in appeal on a particular point, it is not necessary that there should be a decision on the point given by the Income-tax Officer. It is enough if the particular item of income in relation to which the point is sought to be raised has come in for consideration by the Income-tax Officer and has been subjected by him to the process of assessment. If we may refer once again to the observations from the judgment of Chagla C.J. in Narrondas Manordass v. Commissioner of Income-tax, which observations were quoted with approval by the Supreme Court in Commissioner of Income-tax v. McMillan and Co., it is clear that the Appellate Assistant Commissioner can revise not only "the various decisions given by the Income-tax Officer in the course of assessment" but also "the various incomes or deductions which came in for consideration of the Income-tax Officer". The portion of profit exempt from tax under section 84 was clearly subjected to the process of assessment by the Income-tax Officer and it was, therefore, open to the Appellate Assistant Commissioner, in the appeal preferred by the assessee, to examine whether the assessment of this portion of the profit to tax was right or wrong, whether it was rightly brought to tax, and that would bring in consideration of the question whether it was exempt from tax under section 84. It is, therefore, not possible to say that the Appellate Assistant Commissioner had no power to consider whether a portion of the profit of the assessee was exempt from tax under section 84 on the ground that no such claim had been put forward by the assessee before the Income-tax Officer at the time of the assessment. It is true that the Calcutta High Court has taken a different view in Union Coal Co. Ltd. v. Commissioner of Income-tax but we find ourselves unable to agree with it. That view is based on a wider interpretation of the word "assessment" which has been rejected by the Supreme Court in Commissioner of Income-tax v. Shapoorji Pallonji Mistry. We cannot, therefore, allow ourselves to be persuaded to take that view in preference to the one we are inclined to take.
14. Our answer to the question referred to us will, therefore, be in the affirmative. The Commissioner will pay the costs of the reference to the assessee.
15. Question answered in the affirmative.