Gauhati High Court
Assam Company (India) Ltd. vs Commissioner Of Income-Tax on 23 April, 2002
Equivalent citations: [2002]256ITR423(GAUHATI)
Author: Amitava Roy
Bench: D. Biswas, Amitava Roy
JUDGMENT Amitava Roy, J.
1. The present proceeding has been registered under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), consequent upon reference of a question of law arising out of the order dated August 25, 1998, passed by the Income-tax Appellate Tribunal, Guwahati Bench, Guwahati (hereinafter referred to as the "Tribunal"), passed in I. T. A. No. 401 (Gauhati) of 1991.
We have heard Mr. R. Goenka, learned counsel assisted by Mr. R. K. Agarwala, Mr. M. Talukdar, learned counsel for the applicant/assessee, and Mr. G. K. Joshi, learned senior counsel assisted by Mr. U. Bhuyan, learned counsel for the respondent/Revenue.
The facts in brief leading to the present reference can be summed up as hereunder. The applicant-company filed its return of income on July 30, 1982, declaring an income of Rs. 51,81,550. The assessment year herein is 1982-83. The company is engaged in the business of cultivation, manufacture and sale of tea and also derives income from rent, tea made out of the green leaves purchased during the year and substantial export of tea made. In the return, the applicant-company claimed deduction under Section 35B of the Act in respect of warehouse charges paid abroad. The original assessment for the year 1982-83 was completed by the Assessing Officer under Section 143(3) of the Act on March 31, 1985, and while making such assessment, the Assessing Officer allowed weighted deduction of warehouse charges under Section 35B(1)(b)(iv) of the Act read with Rule 6AA of the Income-tax Rules, 1962 (hereinafter referred to as "the Rules"). The Assessing Officer in the original assessment made the following observations :
"Regarding warehouse charges claimed it is found that the assessee is required to maintain warehouse for storing of its goods for effecting sales outside India and therefore the assessee is entitled to get weighted deduction on warehouse charges paid under Section 35B Clause (iv) read with Rule 6AA."
The Commissioner of Income-tax, North Eastern Region, Shillong, in exercise of his power under Section 263 of the Act, by order dated March 13, 1987, withdrew the said deduction allowed by the Assessing Officer with a direction to redo the assessment in accordance with law after affording an opportunity to the applicant-company.
The applicant-company thereafter preferred an appeal before the Tribunal against the said order of the Commissioner of Income-tax. The Tribunal however by its order dated January 28, 1989, dismissed the appeal and confirmed the order of the Commissioner of Income-tax observing, inter alia, as follows : "The Commissioner of Income-tax has not given his final directions to the Assessing Officer but has set aside the matter to the file of the Assessing Officer for fresh disposal in accordance with law and after giving the assessee an opportunity of being heard. We are of the opinion that the order of the Commissioner of Income-tax is quite in order. Thus, the claim of the assessee that in view of the above rule the Commissioner of Income-tax should have allowed the weighted deduction under Section 35B for the year under consideration, cannot be supported at this stage as the matter would have to be disposed of afresh by the Assessing Officer after considering the legal aspects as well as other factual aspects."
In the fresh assessment proceeding which followed, the applicant-company objected to the withdrawal of the weighted deduction in respect of the warehouse charges on the following grounds :
(i) Rule 6AA of the Income-tax Rules, 1962, was inserted with effect from August 1, 1981, and was therefore in operation as on the first day of the assessment year 1982-83.
(ii) It is well settled that the law in force on the first day of an assessment year covers the assessment for the said year.
(iii) Rule 6AA of the Rules authorises grant of weighted deduction under Section 35(1)(b)(ix) on expenditure incurred on maintenance outside India of a warehouse and it does not specify that such deduction can be allowed only on expenditure incurred after August 1, 1981."
The Assessing Officer, this time by his assessment dated March 3, 1989, rejected the contention of the applicant-company and refused the benefit of weighted deduction on warehouse charges as claimed by the applicant-company.
An appeal was preferred by the applicant-company against the said order before the Commissioner of Income-tax (Appeals) which was registered as Appeal No. 66 (Gauhati) of 1989-90. The Commissioner of Income-tax (Appeals), Dibrugarh, by order dated February 15, 1991, came to the conclusion that the Assessing Officer was not justified in not allowing the export markets development allowance as claimed by the applicant-company and directed that the claim of the applicant-company for such allowance be allowed in respect of all assessments made after August 1, 1981. The Commissioner of Income-tax took note of the three contentions raised before the Assessing Officer and also the submission in support thereof made before him. Referring to the provisions of Section 35B of the Act and Rule 6AA, the said authority observed that the provision of granting export markets development allowance as provided under Section 35B of the Act is to be read with Rule 6AA of the Rules which provided granting of such allowance in respect of warehouse charges. It was observed that Rule 6AA was introduced by the Income-tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981. The said authority noticed that the dispute between the assessee and the Revenue on the issue was as to whether the allowance was to be given only in respect of warehouse charges incurred after August 1, 1981, or whether such allowance is to be given in respect of assessments made after the said date irrespective of the date on which the warehouse charges were actually incurred. The Commissioner of Income-tax, relying on the decisions cited on behalf of the applicant-company held that it was entitled to such allowance to all assessments made after August 1, 1981, and accordingly passed the order dated February 15, 1991.
Being aggrieved by the said order of the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Tribunal. In the said appeal, the Revenue, in support of its contention arising out of the grounds in the appeal placed reliance on a decision of the Calcutta High Court in the case of CIT v. Bishnauth Tea Co. Ltd., [1992] 197 ITR 150, and another decision of this court in the case of CIT v. Assam Frontier Tea Ltd., [1997] 224 ITR 398 (Gauhati). As it transpires from the order of the Tribunal that was finally passed in the appeal, the only ground urged on behalf of the Revenue was as under :
"That the Commissioner of Income-tax (Appeals) was not justified in holding that the claim of the assessee under Section 35B(1)(b)(ix) should be given to all assessment proceedings on August 1, 1981, and thereby directing the Assessing Officer to allow the same."
It was explained on behalf of the Revenue that the dispute between the applicant-company and the Revenue was as to whether the grant of export markets development allowance was to be given only in respect of the warehouse charges incurred after August 1, 1981, or such allowance is to be made available in respect of the assessment made after August 1, 1981, irrespective of the date on which the warehouse charges were actually incurred. According to the Revenue, the benefit of such allowance can be extended only in respect of warehouse charges incurred after August 1, 1981, in view of the fact that Rule 6AA was introduced only with effect from August 1, 1981, and was prospective in operation. As mentioned above, the Revenue relied on the above two decisions of the Calcutta High Court and of this court in support of its contention.
On the other hand, it was urged on behalf of the applicant-company that in terms of the judgment of this court reported in CIT v. Assam Frontier Tea Ltd. [1997] 224 ITR 398 (Gauhati), it was entitled to the benefit of such allowance in respect of the warehouse charges under Section 35B(1)(b)(iv) of the Act.
The learned Tribunal after considering the rival submissions of the parties reversed the order of the Commissioner of Income-tax (Appeals) and uphold the order of the Assessing Officer holding that Rule 6AA of the Rules incorporated with effect from August 1, 1981, did not have any retrospective effect and therefore would not apply to expenses incurred on or before June 30, 1981. It further held that the said provision of the Rules would not be applicable in respect of assessments pending as on August 1, 1981. With regard to the contention of the applicant-company that the judgment of this court could also be relied upon for holding that the expenses involved in the case were covered by Section 35B(1)(b)(iv) of the Act, the learned Tribunal was of the opinion that such contention was not acceptable in the absence of any appeal or cross-objection by it. According to the learned Tribunal, the applicant-company not having contended before the learned Commissioner of Income-tax (Appeals) that the expenses in connection with the warehouse were eligible for weighted deduction under Section 35B(1)(b)(iv) of the Act, such a plea was beyond the subject-matter before it and therefore it was not permissible for the Tribunal to entertain the same in the absence of any appeal or cross-objection by the applicant-company. The learned Tribunal referred to a decision of the apex court in the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232. It further observed that such a plea on behalf of the applicant-company was not acceptable also on the ground that the benefit of deduction allowed earlier under Section 35B(1)(b)(iv) of the Act was withdrawn by invoking the power under Section 263 of the Act.
On receipt of the above order dated August 25, 1998, passed by the learned Tribunal in I. T. A. No. 401 (Gauhati) of 1991, the applicant-company filed a reference application under Section 256(1) of the Act before the Tribunal requiring it to refer the following questions of law arising out of the aforesaid order of the learned Tribunal :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in facts as well as in law in interpreting and holding that Rule 6AA inserted with effect from August 1, 1981, does not have retrospective effect, its operation is prospective with effect from September 1, 1981, and therefore it would not apply to expenses incurred on or before June 30, 1981, and it could not be applicable in respect of pending assessments as on August 1, 1981 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law is not considering the submission that the assessment year being 1982-83, Rule 6AA was applicable to the case ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is not entitled to weighted deduction under Section 35B(1)(b)(ix) ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in not accepting the said legal contention of the respondent-assessee in the absence of appeal or cross-objection by the assessee ?"
The learned Tribunal on receiving such application has drawn up a statement of the case and has referred only the following question to this court under Section 256(1) of the Act :
"Whether, on the facts and in the circumstances of the case, the Tribunal erred in not considering the contention of the assessee that the warehouse charges incurred prior to August 1, 1981, are covered by clause (iv) of Section 35B(1)(b) of the Act in the absence of appeal or cross-objection by the assessee?"
Mr. Goenka, learned counsel for the applicant-company has argued that the subject-matter of appeal before the learned Tribunal was as to whether the applicant-company was entitled to the benefit of weighted deduction under Section 35B of the Act. He submitted that the broad issue before the learned Tribunal was one with regard to allowability of the export markets development allowance under the aforesaid provision of law and therefore the subject-matter of the appeal cannot be confined or restricted to examine the claim of the applicant-company with regard thereto under any particular clause of Section 35B of the Act, namely, Clause (iv) or Clause (ix) as the case may be. He has argued that keeping in view the issue in question, it was permissible on the part of the learned Tribunal to examine the contention of the applicant-company with regard to its claim under Section 35B(1)(b)(iv) of the Act in view of the decision of this court reported in Assam Frontier Tea Ltd.'s case [1997] 224 ITR 398. Drawing the attention of this court to the fact that the assessee-company had initially claimed the benefit of such allowance under Section 35B(1)(b)(iv) of the Act and that the same was allowed by the Assessing Officer, learned counsel argued that the claim of the assessee under Clause (iv) as above was inextricably intertwined with its claim under Section 35B(1)(b)(ix) of the Act as well and therefore it could not be legitimately said that the applicant-company having raised the contentions in the reassessment proceedings only on the basis of Rule 6AA and Section 35B(1)(b)(ix) of the Act, it could be precluded in law from pursuing its plea with regard to the export markets development allowance under Section 35B(1)(b)(iv) of the Act. He therefore contended, that in this factual background the subject-matter of the appeal before the learned Tribunal had within its sweep the issue pertaining to the entitlement of the applicant-company for such allowance under Section 35B(1)(b)(iv) of the Act, as well. Learned counsel has further argued that it is the duty of the authorities under the Act to correctly assess and realise the tax payable in accordance with law and therefore assuming that as a result of some lapse, negligence or ignorance there is any omission on the part of the assessee, the same should not be exploited to the advantage of the Revenue by side-lining the relevant provisions of law. If technical considerations are pitted against substantial justice, the latter should prevail, learned counsel argued. According to him, the subject-matter of the appeal squarely covered the claim of the applicant-company under Section 35B(1)(b)(iv) of the Act as well and there were sufficient materials on record to enable the learned Tribunal to consider and decide the said issue on the merits. In support of his above contentions, learned counsel placed reliance on the following decisions of the apex court as well as of this court :
(1) CIT v. Assam Frontier Tea Ltd., [2002] 253 ITR 549 ;
(2) CIT v. Mahalakshmi Textile Mills Ltd., [1967] 66 ITR 710 ;
(3) Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 ;
(4) National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 ; and (5) CIT v. Assam Frontier Tea Ltd. [1997] 224 ITR 398 (Gauhati).
Mr. Joshi, learned senior counsel, in reply has argued that in the reassessment proceedings, the case of the applicant-company was wholly based on Rule 6AA and Section 35B(1)(b)(ix) of the Act and there was no reference to any claim under Section 35B(1)(b)(iv) of the Act. Learned counsel has drawn our attention to the assessment order, the order of the Commissioner of Income-tax (Appeals) and the order of the learned Tribunal in support of his above contention. Learned counsel further argued that as would be abundantly clear from the recital of facts and the discussion in the above mentioned orders, the contentions of the applicant-company were all related to Section 35B(1)(b)(ix) of the Act and Rule 6AA of the Rules. The case of the applicant-company was wholly based on Rule 6AA which is exclusively relatable to Section 35B(1)(b)(ix) of the Act and therefore it was not open for the applicant-company to raise any plea pertaining to the claim for such allowance under Section 35B(1)(b)(iv) of the Act. He therefore submitted that the subject matter of the appeal before the learned Tribunal was wholly confined to the examination of the claim of the assessee under Section 35B(1)(b)(ix) of the Act and it was not permissible under the law to enlarge the scope of the subject matter of the appeal and, therefore, according to him, the learned Tribunal was fully justified in refusing to consider the plea of the applicant-company with regard to its claim under Section 35B(1)(b)(iv) of the Act. Learned counsel has further argued that the applicant-company, in the reassessment proceeding also did not furnish any evidence in support of its claim under Section 35B(1)(b)(iv) of the Act and therefore it was too late for the applicant-company to take up such a plea in the appeal before the learned Tribunal more particularly when it had confined its claim to one under Section 35B(1)(b)(ix) of the Act right from the stage of the proceeding before the Assessing Officer. He has further argued that it was only after this court had pronounced the judgment reported in Assam Frontier Tea Ltd.'s case [1997] 224 ITR 398, that the applicant-company thought it fit to take a chance by raising a plea claiming benefit under Section 35B(1)(b)(ix) of the Act before the learned Tribunal. He contended that keeping in view the subject-matter of the appeal it was clearly not permissible in law. Drawing the attention of this court to Section 253(4) of the Act which provides for filing of objections by the respondent in an appeal before the Tribunal as well as Rules 11 and 27 of the Income-tax (Appellate Tribunal) Rules, 1963 (hereinafter referred to as the "Appellate Tribunal Rules"), learned counsel for the Revenue has emphatically urged that in the case in hand the applicant company had neither preferred any appeal against the order of the Commissioner of Income-tax (Appeals) nor had filed any cross-objection though it was open for it to do so. He has contended that in terms of Rule 11 of the Appellate Tribunal Rules, even the appellant cannot urge or be heard in support of any ground not set forth in the memorandum of appeal except with the leave of the Tribunal and therefore as in the instant case the applicant-company had neither preferred an appeal nor had filed a cross-objection, it cannot be allowed in law to plead a ground not included in the memorandum of appeal. According to him, if it so permitted it would amount to enlarging the scope and the subject-matter of the appeal which in the facts and circumstances of the case was clearly not countenanced by law. Learned counsel further argued that this court in answering the question referred to it under Section 256(1) of the Act would not travel beyond the question so referred and therefore keeping in view the materials on record the conclusion of the learned Tribunal refusing to entertain the contention of the applicant-company regarding its claim under Section 35B(1)(b)(iv) of the Act is unexceptionable. Learned counsel placed reliance on the following decisions in support of his submissions :
(1) Kanan Devan Hills Produce Co. Ltd. v. CWT [1968] 67 ITR 823 (Cal);
(2) L. K. Shaik Mohammed Brothers v. CIT [1978] 112 ITR 622 (Mad);
(3) New Jehangir Vakil Mills Ltd. v. CIT [1959] 37 ITR 11 (SC); and (4) Oriental Investment Co. P. Ltd. v. CIT [1969] 72 ITR 408 (SC).
In reply, Mr. Goenka, learned counsel for the applicant-company, referring to the decision of the apex court reported in National Thermal Power Co. Ltd.'s case [1998] 229 ITR 383, submitted that keeping in view the power conferred on the Tribunal under Section 254(1) of the Act, it is clearly permissible for the Tribunal to consider the plea of the applicant company pertaining to its claim under Section 35B(1)(b)(iv) of the Act, He argued that as the decision of this court reported in Assam Frontier Tea Ltd.'s case [1997] 224 ITR 398 had been pronounced during the pendency of the appeal before the Tribunal, it was incumbent on the learned Tribunal to take note of the same and apply it to the proceedings pending before it. Learned counsel reiterated that by raising the contention with regard to the claim of the applicant-company under Section 35B(1)(b)(iv), no new ground was sought to be urged and the same only gave rise to a pure question of law to be examined for the purpose of ascertaining the correct tax liability of the applicant-company in accordance with law. Learned counsel finally argued that the Tribunal in the above premises had grossly fallen in error in refusing to consider the contention of the appellant-company with regard to its claim for weighted deduction in respect of warehouse charges under Section 35B(1)(b)(iv) of the Act in terms of the judgment of this court in the case of Assam Frontier Tea Ltd. [1997] 224 ITR 398.
We have carefully considered the rival contentions of the parties. The facts as narrated in the order of the Commissioner of Income-tax (Appeals), the order of the learned Tribunal, the reference application and the statement of case are consistent. There appears to be no dispute with regard to the narration of facts and the sequence of events right from the original assessment order till the final order of the Tribunal in I. T. A. No. 401 (Gauhati) of 1991 as mentioned above. It is in this factual background that the question referred to this court has to be answered.
As noticed above, under Section 35B of the Act certain deductions were allowable in respect of some expenditure in the matter of assessing the tax liability of an assessee, incurring the said expenditures. The different heads of expenditure for which the said deductions were made allowable are set out under Clause (b) of Sub-section (1) of Section 35B. For ready reference, the expenditure contemplated under Sub-clauses (iv) and (ix), relevant for the present case are quoted hereinbelow :
"35B(1) (b) The expenditure referred to in Clause (a) is that incurred wholly and exclusively on ...
(iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities : . . .
(ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed."
For the purpose of explaining the activities contemplated under Sub-clause (ix) above, Rule 6AA was incorporated by the Income-tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981. Clause (b) of the said rule, which is relevant for the purpose of this case is quoted hereinbelow :
"6AA. For the purposes of Sub-clause (ix) of Clause (b) of Sub-section (1) of Section 35B, other activities for the promotion of the sale outside India of the goods, services or facilities which the assessee deals in or provides in the course of his business shall be as follows, namely :--. . .
(b) maintenance outside India of a warehouse for the promotion of the sale outside India of such goods."
On a reading of Sub-clauses (iv) and (ix) under Section 35B(1)(b) and Rule 6AA more particularly Clause (b) thereunder, it appears to us that it is quite possible in a given case that an assessee, depending on its activities contemplated under Section 35B and Rule 6AA may claim the benefit of weighted deduction under more than one of the heads of expenditure envisaged under the said provision of law. In other words, the activities contemplated in the different Sub-clauses of Section 35B(1)(b) and Rule 6AA are not necessarily mutually exclusive of each other. The relevant consideration in a given case would however be as to whether there are evidentiary facts in support of the claim for weighted deduction under different heads of expenditure as set out under Section 35B as well as Rule 6AA. As a corollary, therefore, if the assessee claims the benefit of weighted deduction under any of the heads of expenditure contemplated under Section 35B he is not debarred in a particular case to claim similar benefit under a different head of expenditure as well provided the facts and circumstances justify such a claim.
Before we proceed further, it is advisable to turn to the authorities cited by learned counsel for the parties.
This court in the decision reported in CIT v. Assam Frontier Tea Ltd. [1997] 224 ITR 398 was considering the issue as to whether the Tribunal was justified in holding that the assessee was entitled to weighted deduction under Section 35B(1)(b)(iv) as well as under Section 35B(1)(b)(ix) of the Act for incurring the expenditure for maintaining a warehouse in a foreign country. This court held in that case, that Rule 6AA was prospective in operation with effect from August 1, 1981, but further held in the facts of that case that the assessee was entitled to the benefit of Section 35B(1)(b)(iv) even if the expenditure of maintaining the warehouse was incurred by the agent of the assessee but reimbursed by the assessee.
The matter was taken up in appeal by the Revenue before the apex court and their Lordships of the Supreme Court in the decision reported in CIT v. Assam Frontier Tea Ltd. [2002] 253 ITR 549 held that as the warehouse was run by the agent of the assessee but the expenditure incurred therein was reimbursed by the assessee, it was the assessee which was maintaining the warehouse for the promotion of the sale of its tea outside India and therefore the requirements of Section 35B(1)(b)(iv) of the Act were duly complied with. The appeal of the Revenue was thus dismissed. It may be relevant to mention here that the facts of the case clearly disclosed that the claim of the assessee in that case was both under Sub-clauses (iv) and (ix) of Section 35B(1)(b) of the Act.
In the decision reported in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232, the apex court was seized of the question whether the Tribunal was competent to go into the question if the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, were applicable to the facts of that case and whether the respondent therein should have been allowed to raise the contention for the first time before the Tribunal. The matter related to the claim of the assessee for calculating the depreciation allowance under Section 10(2)(vi) of the Act. The plea of the assessee being rejected by the Income-tax Officer and the Appellate Assistant Commissioner, the assessee was in appeal before the Tribunal. It was in that appeal, that the Department/Revenue raised the plea that the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, were applicable in the facts of that case and certain amount of depreciation allowable under the Industrial Tax Rules were required to be deducted in arriving at the written down value of the assets of the assessee. The Tribunal permitted this contention to be raised by the Department. On an objection being raised by the assessee that such contention could not be entertained unless it was found as a fact that the depreciation was actually allowable under the Industrial Tax Rules to the assessee and unless the Industrial Tax Rules were rules which related to income-tax or super-tax, or any law relating to tax on profits of business, the learned Tribunal on hearing the parties remanded the matter back to the Income-tax Officer to ascertain whether any depreciation was allowable under the Industrial Tax Rules and further for considering the question whether the said rules related to income-tax or super-tax or any law relating to tax on profits of business with a further direction that if he decided the question in favour of the Department he should take into consideration such depreciation actually allowed under the said rules for the purpose of computing the written down value. Referring to Section 33(4) of the Act and observing that the power of the Tribunal in dealing with the appeals are in the widest possible terms, the apex court observed that the Tribunal had the jurisdiction to permit the question to be raised for the first time in appeal. Interpreting the expression "such order as the Tribunal thinks fit" contained in Section 33(4) of the Act, the apex court observed that the same includes all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by Section 31 of the Act, and held that the Tribunal had the authority under that Section to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry. It further observed that the subject-matter of the appeal before the Tribunal being as to what should be the proper written down value of the buildings, machinery, etc., of the assessee for calculating the depreciation allowance under Section 10(2)(vi) of the Act, it was open to the Department in the appeal filed by the assessee before the Tribunal to support the findings of the Appellate Assistant Commissioner with regard to the written down value on any of the grounds decided against it. Referring to Rules 12 and 27 of the Appellate Tribunal Rules with regard to the scope available to the appellant as well as the respondent to urge grounds in the appeal before the Tribunal, the apex court observed that the rules were merely procedural in character and did not in any way circumscribe or control the power of the Tribunal under Section 33(4) of the Act.
In the case covered by the decision reported in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), the question regarding the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the Departmental authorities was canvassed. Interpreting Section 33(4) of the Indian Income-tax Act, 1922, the apex court observed that there was nothing in the Act which restricted the Tribunal to the determination of questions raised before the Departmental authorities. It further observed that all questions whether of law or of fact which related to the assessment of the assessee may be raised before the Tribunal. The apex court further observed that if for reasons recorded by the Departmental authorities in rejecting the contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the Departmental authorities and the Tribunal and indeed it would be their duty to grant that relief and that the right of the assessee to relief could not be restricted to the plea raised by him. The apex court held that the subject-matter of the appeal in that case was the right of the assessee to claim allowances for Rs. 93,215 and that whether the allowance was admissible under one head or the other of Sub-section (2) of Section 10, the subject-matter of the appeal remained the same and that therefore the Tribunal having held that the expenditure incurred fell within Section 10(2)(v) though not under Section 10(2)(vib), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee. In the said case, the assessee in its appeal before the Appellate Tribunal contended that the above amount besides being allowable as development rebate, in any case, was an expenditure allowable under Section 10(2)(v) of the Act.
In the decision reported in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC), the assessee had offered the sum of Rs. 22,84,994 received as interest on some deposits made by it for tax assessment and the assessment was completed on that basis. In the appeal before the Commissioner of Income-tax (Appeals) a number of grounds were taken by the assessee challenging the assessment. However, the inclusion of the aforesaid amount was neither challenged nor considered by the Commissioner of Income-tax (Appeals). From the order of the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Tribunal. In the appeal before the Tribunal as well, the assessee did not object to the inclusion of the aforesaid amount. Subsequently, by a letter, additional grounds were sought to be raised by the assessee objecting to the inclusion of the aforesaid amount in the total income. The Tribunal declined to entertain the additional grounds. The apex court while interpreting the scope and ambit of the power of the Tribunal under Section 254 of the Act held that where the Tribunal was only required to consider a question of law arising from the facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. It observed that the power of the Tribunal in dealing with the appeals is expressed in widest possible terms and 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. It further observed that the purpose of the assessment proceeding before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law and so long as the relevant facts are on record in respect of that item, and if as a result of a judicial decision given when the appeal is pending before the Tribunal, a non-taxable item is taxed or a permissible deduction is denied, there is no reason why an assessee should be prevented from raising that question before the Tribunal for the first time. In that case, the apex court remanded the proceeding to the Tribunal for consideration of the new grounds raised by the assessee on the merits.
We have already culled out the contentions raised on behalf of the Revenue. The main ground urged by Mr. Joshi, learned counsel for the Revenue, is that the applicant-company in the reassessment proceedings had wholly confined its claim for weighted deduction under Sub-clause (ix) of Section 35B(1)(b) of the Act and at no point of time in any of the proceedings before the Assessing Officer or the Commissioner of Income-tax (Appeals) was it contended by it that it was entitled to the weighted deduction on account of export markets development allowance under Sub-clause (iv) of the said Section of the Act. Therefore, according to learned counsel for the Revenue, the applicant-company not having filed any appeal or cross-objection before the learned Tribunal against the order of the Commissioner of Income-tax (Appeals), it was not open for the company to raise the contentions in support of its claim for weighted deduction under Section 35B(1)(b)(iv) of the Act.
The Calcutta High Court, in the decision reported in Kanan Devan Hills Produce Co. Ltd. v. CWT [1968] 67 ITR 823, relied upon by Mr. Joshi, while dealing with Section 24(5) of the Wealth-tax Act, 1957 (which is almost similarly worded as the present Section 254(1) of the Act), declined to permit the Commissioner of Wealth-tax to urge the grounds beyond those taken up by the assessee in the appeal. It was of the view that when the Commissioner of Wealth-tax had neither preferred an appeal nor had filed a cross-objection to the appeal preferred by the assessee, only by filing an application urging grounds not taken by the assessee in the appeal it cannot be allowed to enlarge the scope of the appeal filed by the assessee. In coming to the said conclusion, the Calcutta High Court relied on a decision of the Bombay High Court reported in New India Life Assurance Company Ltd. v. CIT [1957] 31 ITR 844, where their Lordships of the Bombay High Court, inter alia, observed that the subject-matter of an appeal is constituted by the grounds of appeal and it could not be expanded even by the appellant without the leave of the Appellate Tribunal and that further the subject-matter could not be expanded by the respondent if he had not either appealed or cross-objected.
In the next decision of the Madras High Court reported in L. K. Shaik Mohammed Bros. v. CIT [1978] 112 ITR 622, the Revenue not having preferred any cross-objection to the appeal filed by the assessee, was not permitted to raise a plea that a sum over and above Rs. 56,258 up to a limit of Rs. 1,25,000 should be added to the total income. The Madras High Court observed that though the appellate powers of the Tribunal are expressed to be very wide, yet there are inbuilt restrictions regarding exercise of the jurisdiction of the Tribunal under the very same Section of law which creates such a power. It observed that Section 254 bound the Tribunal to limit the scope of the appeal to the subject-matter before it and therefore it could not traverse beyond the scope of the appeal. It was further observed that though the statutory appeal under the Act before the Tribunal springs from the prescribed procedure under the Act or the Rules, it could not be availed of by a litigant or the Department who was guilty of laches and who had not availed of himself of such specific remedies.
The decision reported in New Jehangir Vakil Mills Ltd. v. CIT [1959] 37 ITR 11 (SC), is one regarding the jurisdiction of the High Court under Section 66(1) (presently Section 256(1) of the Act). This decision was relied upon by learned counsel for the Revenue to lay emphasis on his submission that in deciding the question referred to by the Tribunal, this court should confine its attention to the question so framed and referred and not travel beyond the same. We are fully alive to the ambit of the jurisdiction of the High Court under Section 256 of the Act in answering a question of law referred to it by the Tribunal and therefore we do not consider it necessary to deal in detail with the ratio laid down by the apex court in the aforesaid decision. The next decision relied upon by learned counsel for the Revenue, i.e., Oriental Investment Co. P. Ltd. v. CIT [1969] 72 ITR 408 (SC), is also with regard to the jurisdiction of the High Court in the matter of exercise of its powers under Section 66(1) (now Section 256(1)) of the Act. For the same reason as above, we are inclined to skip a detailed discussion of the said decision.
As already noticed by us, the facts and the sequence of events narrated in the orders of the Commissioner of Income-tax (Appeals) and the Tribunal and those set out in the statement of the case are not in dispute. The core question is whether the Tribunal ought to have- considered the plea of the applicant-company that it was entitled to the benefit of weighted deduction under Section 35B(1)(b)(iv) of the Act in the absence of any appeal or any cross-objection filed by it against the order of the Commissioner of Income-tax (Appeals). The applicant-company in the reassessment proceedings had claimed the benefit of weighted deduction in respect of warehouse charges on the basis of Section 35B(1)(b)(ix) read with Rule 6AA. The point remains that the head of expenditure on account of which the weighted deduction is claimed by the applicant-company is "warehouse charges". The apex court in CIT v. Assam Frontier Tea Ltd. [2002] 253 ITR 549, as referred to above, had held that in a case where the warehouse in the foreign country is run by an agent of an assessee but the expenditure incurred thereon is reimbursed by the assessee to the said agent, it amounted to maintenance of the warehouse by the assessee for the promotion of sales of its tea outside India and that therefore the assessee was entitled to the benefit of the allowances under Section 35B(1)(b)(iv) of the Act. We have already observed that in a given fact situation an assessee may be entitled to the benefit of weighted deduction under more than one Sub-clause of Section 35B(1)(b) of the Act. It would, however, depend on the primary evidentiary facts available in a given case. It therefore follows that only because the applicant-company had objected to the withdrawal of the benefit of weighted deduction by relying on Sub-clause (ix) of Section 35B(1)(b) of the Act it could not be decisively held, without reference to the entire gamut of facts on record, that the applicant-company under all circumstances could be precluded from raising a plea that it was entitled to the benefit of such deduction under Section 35B(1)(b)(iv) of the Act as well. Whether or not the applicant-company can be permitted to raise that plea only on the ground that it had not preferred any appeal or cross-objection against the order of the Commissioner of Income-tax (Appeals) is the question which now engages the attention of this court. It need not be over-emphasised that the Appellate Tribunal Rules framed by the Tribunal in exercise of its power under Section 255(5) of the Act are wholly for the purpose of regulating its own procedure and the procedure of the Benches of the Tribunal. The rules therefore embody the principles of procedure to be followed by the Tribunal and its Benches for the discharge of its functions. The scheme of the Rules read as a whole does not suggest that the Rules in any way have the effect of curtailing or circumscribing the power, authority and jurisdiction of the Tribunal in dealing with matters at its disposal. We have not been able to read any prohibition in the rules totally precluding the Tribunal from considering any ground beyond those mentioned in the memorandum of appeal filed by a party, whether the assessee or the Department, in the absence of an appeal or cross-objection by the other side projecting the new ground. It is a settled principle of law that procedural law is the hand maid of justice and has to be so interpreted to advance the cause of justice and not to thwart it. Considering the language used in Section 254(1) of the Act conferring powers on the Tribunal which is in the widest possible terms, we feel guided in this regard by the emphatic observations of the apex court contained in its decision of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. We have also taken note of the observations of the apex court to the effect that the purpose of the assessment proceeding before the taxing authority is to assess correctly the tax liability of an assessee in accordance with law. We consider it to be a solemn duty of the taxing authorities to correctly assess the tax liability of an assessee by duly following the relevant provision of law and therefore do not countenance an inflexible and mechanical adherence to the law of procedure and in the process deny an assessee a benefit to which it is otherwise entitled in law. In our considered opinion, that could not have been the purpose of framing the Appellate Tribunal Rules. There cannot be any estoppel against law. In this regard, we are reinforced by the observations of the apex court in Sangram Singh v. Election Tribunal, AIR 1955 SC 425, with reference to the Code of Civil Procedure as under (page 429) :
"Now a code of procedure must be regarded as such. It is 'procedure', something designed to facilitate justice and further its ends : not a penal enactment for punishment and penalties ; not a thing designed to trip people up. Too technical a construction of sections that leaves no room for reasonable elasticity of interpretation should therefore be guarded against (provided always that justice is done to 'both' sides) lest the very means designed for the furtherance of justice be used to frustrate it."
We are therefore not in favour of granting such a primacy to the rules of procedure so as to wipe off a substantial right otherwise available to the assessee in law. We find this view of ours also reinforced by the language of Rule 11 which does not require the Tribunal to be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal provided the party who may be affected thereby had sufficient opportunity of being heard on that ground. In taking this view, we are conscious about the observations of the Madras High Court and the Calcutta High Court made in the decisions relied upon by learned counsel for the Revenue but we are, in the facts and circumstances of the case, persuaded to accept the observations of the apex court made in this regard in the case of National Thermal Power Co. Ltd. [1998] 229 ITR 383. We are therefore of the view that it is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the memorandum of appeal though the party urging the said ground had neither appealed before it nor had filed a cross-objection in the appeal filed by the other party. We must however hasten to add that in order to enable either the assessee or the Department to urge a ground in the appeal filed by the other side, the relevant facts on which such ground is to be founded should be available on record. In the absence of such primary facts, in our opinion, neither the assessee nor the Department can be permitted to urge any ground other than those which are incorporated in the memorandum of appeal filed by the other party. In other words, if the assessee or the Department, without filing any appeal or a cross-objection seeks to urge a ground other than the grounds incorporated in the memorandum of appeal filed by the other side, the evidentiary facts in support of new ground must be available on record.
For the view that we have taken as above, we hold that the Tribunal erred in not considering the contention of the assessee-applicant company that the warehouse charges was covered by Sub-clause (iv) of Section 35B(1)(b) of the Act only on the ground that the applicant-company had not filed any appeal or cross-objection. We therefore answer the question referred, in the affirmative and remand the proceeding to the Tribunal for consideration of the said contention of the applicant-assessee on merits. We however make it absolutely clear that in case the basic facts relating to the claim of the applicant-company for weighted deduction under Section 35B(1)(b)(iv) are not available on record, the applicant-company would not be permitted to urge that ground and the Tribunal would pass appropriate orders as it would deem fit in accordance with law.
With the above observations and directions the present reference proceeding is disposed of.