Bombay High Court
Commissioner Of Income-Tax vs P. Muncherji And Company on 21 April, 1987
Equivalent citations: [1987]167ITR671(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT Sugla, J.
1. The Tribunal has referred as many as five questions of law in this case at the instance of the Revenue. However, the main question of law revolves round the powers of the Appellate Assistant Commissioner in appeal against the order of assessment and the powers of the Commissioner under section 263 of the Income-tax Act, 1961.
2. The assessee is a firm. It was not hitherto assessed to income-tax and was, therefore, required to file the estimate of the advance tax payable for the assessment years 1965-66, 1966-67 and 1967-68 during the financial years 1964-65, 1965-66 and 1966-67. However, it did not do so. It had also to file its returns of income for the above three years on or before June 30, 1965, June 30, 1966, and June 30, 1967, respectively. However, the returns of income were filed on April 29, 1966, November 16, 1967, and December 27, 1967. The assessments for all the three years were completed on September 30, 1968. But the Income-tax Officer did not charge interest under section 139(8) of the Act for delay in the submission of the returns and interest under section 217 of the Act for failure to file the estimate of advance tax. The assessee filed appeals against all the three assessment orders which were disposed of the Appellate Assistant Commissioner on May 14, 1969.
3. On September 19, 1970, the Additional Commissioner of Income-tax, served the assessee with a combined notice for all the three years under section 263 of the Income-tax Act, 1961, requiring the assessee to show cause why the orders passed by the Income-tax Officer without levying interest under section 139 and under section 217 of the Act be treated as erroneous and prejudicial to the interests of the Revenue and the interest which were rejected. The Additional Commissioner held that since the Income-tax Officer did not call upon the assessee to pay interest under section 139 and under section 217 of the Income-tax Act, 1961, he must be deemed to have waived interest under those sections. He next held that the order of deemed waiver of interest under those sections. He next held that the order of deemed waiver of interest under those two provisions was a separate order from the order of assessment under section 143 of the Act and, therefore, the order of deemed waiver of interest was not the subject-matter of appeal before the Appellate Assistant Commissioner and the question of its merger with the orders of the Appellate Assistant Commissioner would not arise. He also rejected the alternative contention of the assessee that interest was chargeable, if at all, at the uniform rate of 6% and held that interest was chargeable at the rate of 6% up to September 30, 1967, and was chargeable at the rate of 9% with effect from October 1, 1967, as the relevant provision was amended with effect from that date. Referring then to the provisions for waiver of interest, he further held that the necessary factors for the exercise of discretion for waiver did not exist and the matter was not considered by the Appellate Assistant Commissioner. Mainly for the aforesaid reasons, the Additional Commissioner held that the deemed order of waiver of interest passed by the Income-tax Officer was erroneous in law and prejudicial to the interest of the Revenue. Accordingly, he set aside the order and directed the Income-tax Officer to pass appropriate orders in accordance with law after allowing the assessee reasonable opportunity of being heard and, if necessary, after referring the matter to the Inspecting Assistant Commissioner.
4. Further appeals filed by the assessee were allowed by the Tribunal. The Tribunal, it may be stated, accepted the Department's contention that the Income-tax Officer had constructively passed an order waiving interest under section 139 and under section 217 of the Income-tax Act, 1961. However, according to the Tribunal, the orders of the Appellate Assistant Commissioner on all points, including the deemed order of waiver of interest under section 139 and under section 217 of the Act. Following this court's decision in Mathuradas B. Mohta v. CIT [1965] 56 ITR 269, the Tribunal further held that the orders charging interest under section 139 and under section 217 of the Act were appealable orders. Further, in the view of the Tribunal, the fact that the Additional Commissioner had merely set aside the orders of the Income-tax Officer with a direction to consider the question of waiver of interest afresh indicated that he was not himself convinced that the orders of waiver were erroneous or prejudicial to the interests of the Revenue. The assessee's submission that the interest was chargeable under section 217 at the uniform rate of 6% was also accepted by the Tribunal.
5. The Tribunal has referred to this court the following five questions of law arising out of its impugned order :
"(1) Whether the Income-tax Officer constructively waived interest under section 139 and section 217 of the Income-tax Act, 1961, by an order in writing ?
(2) Whether the orders of the Income-tax Officer merge with the order of the Appellate Assistant Commissioner on all points in respect of which an appeal have been filed before him or in respect of which the Appellate Assistant Commissioner could have modified the order ?
(3) Whether an order charging interest under section 139 and an order charging interest under section 217 of the Income-tax Act, 1961, are appealable orders ?
(4) Whether, on the facts and in the circumstances of the case, the order of the Additional Commissioner of Income-tax relating to the waiver of interest under section 139 and the one relating to the waiver of interest under section 217 of the Income-tax Act, 1961, for the assessment year 1967-68 were invalid and liable to be cancelled on the ground that he was not himself convinced that they were prejudicial to the interests of the Revenue ?
(5) Whether interest under section 139 for the assessment year 1965-66 and interest under section 217 of the Income-tax Act, 1961, for the assessment year 1967-68 was chargeable at the rate of 6% for the entire period of default ?"
6. It is evident from the statement of case that though the Tribunal passed a consolidated appellate order for the three assessment years and the statement of case was also drawn up apparently for all the three years, the questions of law in fact pertain to the assessment years 1965-66 and 1967-68 only and there again while the question of levy of interest under section 139 of the Act in the case of the assessment order is involved for the assessment year 1965-66, the question of levy of interest under section 217 of the Act is involved for the assessment year 1967-68.
7. The first question referred to us cannot be answered in this reference, in view of the Supreme Court decision in CIT v. V. Damodaran [1980] 121 ITR 572. The Tribunal had admittedly decided this issue in favour of the Revenue. The Revenue naturally cannot be aggrieved by this decision and the assessee, having hot filed a reference application, cannot raise such a question in a reference filed by the Revenue.
8. As regards the second question of law, Shri Jetly, learned counsel for the Revenue, submitted that the Tribunal fell into an error in holding that the orders of assessment merged in the orders of the Appellate Assistant Commissioner in its entirety. For this purpose, he placed strong reliance on the Supreme Court decision in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144. The same view, he stated, was taken by the Supreme Court in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130. As regards the powers of the Appellate Assistant Commissioner, Shri Jetly invited our attention to this court's decision in Narrondas Manordas v. CIT [1957] 31 ITR 909. Lastly, he referred to this court's decision in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570, for the purpose of showing that irrespective of the powers of the Appellate Assistant Commissioner, what merges in the order of the superior tribunal is what is actually considered by the superior tribunal. Shri Toprani, learned counsel for the assessee, on the other hand, stated that the issue was squarely covered by this court's decision in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412, and that the said decision, having not been overruled by the Full Bench of this court or the Supreme Court or even adversely commented upon, was binding on this Bench.
9. We have considered the rival contentions carefully. In our opinion, this court's decision in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412, still holds the field and is binding on us. Chief Justice Chagla in that case has categorically held that the principle underlying section 33B of the 1922 Act, corresponding to section 263 of 1961 Act, is that it is only the order of the Income-tax Officer which can be revised by the Commissioner. Once the order of assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment and the only right the Department has is the right of 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. As regards the powers of the Appellate Assistant Commissioner, the learned Chief Justice has gone on to say that once an appeal was preferred by the assessee, it was 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 was confined only to those questions which had been raised before him by the assessee. He has widest jurisdiction. The Commissioner has no right of appeal from an order of assessment passed by the Income-tax Officer. The right of appeal is confined to the assessee only and until section 33B of the 1922 Act was enacted, the position in law was that if the assessee did not appeal against the order of assessment, that order became final and conclusive. If the assessee appealed against the order of the Income-tax Officer, the widest jurisdiction was given to the Appellate Assistant Commissioner in appeal. He had the power to confirm, reduce, enhance or annul the assessment; he had the power to direct the Income-tax Officer to make a fresh assessment and the only limitation on the exercise of jurisdiction was that if he wanted to enhance the assessment, he must give the assessee reasonable opportunity of being heard against enhancement.
10. It was concluded that the Commissioner completely went out of the picture once the Appellate Assistant Commissioner passed orders in appeal from the decision of the Income-tax Officer. It may not be out of place to mention that this court had delivered two judgments on the same day on the question of the powers of the Commissioner to revise the orders of the Income-tax Officer under section 33B. Both these judgments are reported in the same volume of ITR, i.e., CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412 (Bom) and CIT v. Amritlal Bhogilal and Co. [1953] 23 ITR 420 (Bom). The Department accepted the judgment in [1953] 23 ITR 412 and went to the Supreme Court against the other judgment reported in (1953) 23 ITR 420 (Bom). No doubt, the other judgement was reversed by the Supreme Court in CIT v. Amritlal Bhogilal and Co. . It is, however, seen that the Supreme Court has referred to this court's judgment in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412 at page 134 of its judgment without adversely commenting upon it. On the contrary, from the statement of law at page 136 reading as :
"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; but the question is whether this principle can apply to the Income-tax Officer's order granting registration to the respondent."
11. it appears clear that this court's decision in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412 has been approved. It was only because the order granting registration was, according to the Supreme Court, distinct and separate from the order of assessment that it was held that the order of registration did not, rather could not, merge in the order of the Appellate Assistant Commissioner in an appeal filed against the order of assessment. It was for this reason that the Commissioner was held to have jurisdiction to revise the order granting registration in that case. In this context, it is desirable to refer to the manner in which the Supreme Court approached the question. It addressed itself to the question whether the order of registration passed by the Income-tax Officer could be challenged by the Department before the Appellate Assistant Commissioner in an appeal filed by the assessee against the order of assessment. It was in turn laid down in CIT v. Amritlal Bhogilal and Co. [1958] 34 ITR 130 at page 139 :
"Even after the appeal is decided and in consequence the appellate order is the only order which is valid and enforceable in law, what merges in the appellate order is the Income-tax Officer's order under appeal and not his order of registration which was not and could never become the subject-matter of an appeal before the appellate authority. The theory that the order of the Tribunal merges in the order of the appellate authority cannot therefore apply to the order of registration passed by the Income-tax Officer in the present case. .... When an appeal is taken before the Appellate Assistant Commissioner, undoubtedly he is bound to examine the case afresh, but that cannot bring within the purview of his appellate jurisdiction matters which are deliberately left out by the Act. If section 30(1) does not provide for an appeal against a particular order, the Legislature obviously intends that the correctness of the said order cannot be impeached before the appellate authority. The jurisdiction and powers of the appellate authority must inevitably be determined by the specific and relevant provisions of the Act."
12. Chief Justice Chagla has reiterated the same legal position as regards the powers of the Appellate Assistant Commissioner in appeal in Narrondas Manordass v. CIT [1957] 31 ITR 909. The relevant observations are at pages 919-920 as under :
"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."
13. It thus appears clear to us that the order of the Income-tax Officer under appeal merges completely in the order of the Appellate Assistant Commissioner.
14. As stated earlier, Shri Jetly has strongly relied on the decision of the Supreme Court in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 and this court's decision in CIT v.Sakseria Cotton Mills Ltd. [1980] 124 ITR 570. In particular, our attention was invited to the following observations of their Lordships in the Supreme Court case [1967] 19 STC 144 "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."
15. Superficially looked at, it might appear that this decision supports the Department's stand. It is, however, to be noted that the question involved in that case was whether the Board of Revenue was revising the order dated August 21, 1954, passed by the Deputy Commissioner in revision proceedings taken at the instance of the assessee or that of the Deputy Commercial Tax Officer dated November 28, 1958. To put it differently, the question was whether the order of the Deputy Commercial Tax Officer merged in its entirety with that of the Deputy Commissioner passed in revision proceedings taken at the instance of the assessee. Section 12(2) of the Madras General Sales Tax Act, 1939, is reproduced in the decision. It has two clauses. While clause (1) contemplates revision suo motu, clause (2) provides for revision at the instance of the assessee. The powers under clause (1) are exercised when the order of the Deputy Commercial Tax Officer is found to be erroneous and prejudicial to the interests of the Revenue. The powers under clause (2) are exercised with a view to give relief to the assessee, if possible. In that case, the Deputy Commissioner had exercised powers of revision under clause. (2). It was in that context that the Supreme Court made the above observations regarding merger. We find it difficult to accept that the Supreme Court in Madurai Mills Co.'s case [1967] 19 STC 144, has expressed a view different from its decision in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130.
16. This court in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 at page 577 has observed :
"The effect of s. 31(3), therefore, appears to us, having regard to the provisions of the I.T. Act, to be that only that part of the order of the ITO merges or stands superseded by the order of the AAC in respect of which the AAC has exercised his appellate jurisdiction. So far as the remaining part of the order of assessment is concerned, that continues to be unaffected by the decision of the AAC and it continues to have its independent existence unaffected by any decision of the AAC. The doctrine of merger, therefore, is not wholly applicable in the case of such orders made under the I.T. Act."
17. It was stated on behalf of the Department that there is a conflict of view amongst the High Courts on the issue. The above decision was rendered in the context of section 35 of the 1922 Act. The earlier decision of this court in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412 was, it appears, not brought to the notice of the court. The earlier decision holds good so far as the question of the Commissioner's powers under section 263 is concerned. We are inclined to take this view particularly because the Supreme Court has in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130, as pointed out by us in an earlier paragraph, affirmed this court's decision. This decision is on all fours and we must follow it.
18. The other aspect that requires consideration is that even if the order of assessment, which is the subject-matter of appeal, completely merges in the order of the Appellate Assistant Commissioner, whether it automatically follows that the deemed order of waiver of interest by the Income-tax Officer under section 139 and section 217 is or can be said to have merged in the order of the Appellate Assistant Commissioner. For this purpose, Shri Jetly, besides relying on the Supreme Court decision in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130, placed reliance on this court's decision in CIT v. Daimler Benz A. G. [1977] 108 ITR 961 [FB], and the Supreme Court decision in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. He stated that the orders levying interest under section 139 and section 217 of the Income-tax Act, 1961, were separate and independent orders and were not even appealable. Here again we find ourselves against the Revenue. The pertinent question, to our mind, is whether in an appeal filed by the assessee against the order of assessment, the Appellate Assistant Commissioner could have modified the order of the Income-tax Officer in that behalf. As regards the first limb of the question, the Supreme Court in Central Provinces Manganese Ore Co. Ltd. [1386] 160 ITR 961 at page 966 held :
"Interest is levied under sub-section (8) of section 139 and under section 215 because, by reason of the omission or default mentioned in the relevant provision, the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The very period for which interest is levied under the relevant provision points to the nature of the levy. If that is borne in mind, it will be apparent that the levy of interest is part of the process of assessment. Although section 143 and section 144 do not specially provide for the levy of interest and the levy is, in fact, attributable to sub-section (8) of section 139 or section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee. Where the Income-tax Officer considers that there is a case for levying interest under sub-section (8) of section 139 or under section 215, what he does in practice, is to make an order levying such interest after completing the assessment of the assessee's total income and the tax payable by him."
19. This being so, it has to be held that the deemed order of waiver of interest under section 139 and section 217 was part and parcel of the process of assessment and, therefore, merged with the order of the Appellate Assistant Commissioner on the same logic. Moreover, the Explanation to section 251 of the Act makes the position quite clear. The Explanation reads as under :
"Section 251. Explanation. - In disposing of an appeal, the Appellate Assistant Commissioner (or, as the case may be, the Commissioner (Appeals)) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) by the appellant."
20. It cannot, therefore, be accepted that the Appellate Assistant Commissioner could not have interfered with this part of the order, having regard to his powers under section 251(1) read with the Explanation thereto, which have been held to be plenary and co-terminus with those of the Income-tax Officer by the Supreme Court in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, and this court in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412 and Narrondas Manordass v. CIT [1957] 31 ITR 909.
21. Accordingly, it has got to be held that the orders of assessment for the assessment years 1965-66 and 1967-68, including the deemed orders of waiver of interest under section 139 for assessment for the assessment year 1965-66 and under section 217 for the assessment year 1967-68, had merged in the orders of the Appellate Assistant Commissioner. Since at the time the Additional Commissioner was seeking to exercise powers of revision under section 263 of the Income-tax Act, 1961, the requisite orders had stood merged in those of the Appellate Assistant Commissioner could not have exercised jurisdiction under section 263 of the Act.
22. In the result, the second question of law is answered in the affirmative and in favour of the assessee. In the above view of the matter, the other questions of law do not need an answer and are returned unanswered.
23. No order as to costs.