Income Tax Appellate Tribunal - Delhi
Aeroplane Shoe Factory vs Income-Tax Officer on 3 August, 1988
Equivalent citations: [1989]28ITD478(DELHI)
ORDER
--Partial merger, position before 1-6-1988.
Ratio :
Doctrine of partial merger became effective only from 1-6-1988 and order passed before 1-6-1988 got completely merged with appellate order ceased to be revisable. Held :
Any amendment to a statute affecting the legal rights of an individual must be presumed to be prospective unless it is made expressly or impliedly retrospective. Retrospective effect in a provision is not to be lightly and readily inferred. In the present case the Explanation to section 263(3)(1) affects a provisions which is substantive and not merely procedural. It is only a procedural provision to which retrospectivity can be normally attracted. No doubt, the Explanation to section 263(1) as substituted by the Finance Act, 1988 with effect from 1-6-1988 incorporates the provision regarding partial merger (vide clause (c)) but in the light of what has been observed above regarding the Explanation being prospective in effect and not retrospective, it cannot be accepted that the partial merger provision was always there. Therefore, for this reason also the assessment orders in question could not have been purported to be revised under secton 263.
Case Law Analysis :
CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) relied.
Application :
Not to current assessment years.
Income Tax Act 1961 s.263 Revision under s. 263--MERGER WITH APPELLATE ORDER--Partial merger.
Ratio:
Explanation to section 263(1) incorporates the provision of partial merger with effect from 1-6-1988 and therefore partial merger was not valid, therefore, order cannot be revised.
Held:
Any amendment to a statute affecting the legal rights of an individual must be presumed to be prospective unless it is made expressly or impliedly retrospective. Retrospective effect in a provision is not to be lightly or readily inferred. In the present case the Explanation to section 263(1) affects a provision which is substantive and not merely procedural. It is only a procedural provision to which retrospectivity can be normally attracted. No doubt, the Explanation to section 263(1) as substituted by the Finance Act, 1988 with effect from 1-6-1988 incorporates the provision regarding partial merger (vide clause (c)) but in the light of what has been observed above regarding the Explanation being prospective in effect and not retrospective, it cannot be accepted that the partial merger provision was always there. The assessee, in such a situation of difference of views, would be justified in relying upon the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and, therefore, there was complete merger of the assessing officer order with that of the Commissioner(Appeals) and therefore, for this reason also the assessment orders in question could not have been purported to be revised under section 263.
Case Law Analysis:
CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) relied.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263(1),Expln Revision under s. 263--JURISDICTION OF COMMISSIONER--Against assessment made under section 144B before 1-10-1984.
Ratio :
In absence of any specification, amendment should be considered prospectively hence revision of assessment order passed under section 144B before 1-10-1984 was without jurisdiction.
Held :
When even the legislature in its wisdom though fit to give any amendment retrospective effect, it said so specifically. Therefore, on account of the fact that it will have retrospective effect, the only inference would be that it is prospective in effect, and not retrospective. To seek to be wiser than the law is the very thing which, by all good laws, is forbidden. In view of the above, since on the day when the notice under section 163 were given by the Commissioner and the day on which the impugned orders were passed by him namely, 2-4-1984 were both prior to 1-10-1984 and since the Taxation Laws (Amendment) Act, 1984 was operative only prosepctively with effect from 1-10-1984, the order passed by the Income Tax Officer could not, for the purposes of section 263(1), be held to include an order of assessment made on the basis of the directions issued by the Inspecting Assistant Commissioner under section 144B as in this case. Therefore, the Commissioner could not seek to revise these assessment orders.
Application :
Not to current assessment years.
Income Tax Act 1961 s.144B Income Tax Act 1961 s.263 Revision under s. 263--LIMITATION--Partial merger.
Ratio & Held:
The Explanation to section 263(1) as substituted by the Finance Act, 1988 with effect from 1-6-1988, incorporates the provisions regarding partial merger [vide clause (c)] but in the light of what has been observed regarding the Explanation being prospective in effect and not retrospective, it cannot be accepted that the partial merger provision was always there. The assessee, in such a situation of difference of views, would be justified in relying upon the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and therefore, there was complete merger of the assessing officer's order with that of the Commissioner(Appeals) and therefore, for this reason also the assessment orders in question could not have been purported to be revised under section 263.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 ORDER V.P. Elhence
1. The assessee is in appeal against the orders of the Commissioner of Income-tax, Delhi-VII, New Delhi for the assessment years 1981-82 and 1982-83 under Section 263 of the Income-tax Act, 1961 by which he set aside the assessment orders framed by the Income-tax Officer for these two years. So far as the allowance of weighted deduction under Section 35B was concerned by holding that the assessment orders were erroneous insofar as they were prejudicial to the interests of the revenue, he directed him to recompute the said allowance after giving due opportunity to the assessee.
2. The assessee M/s. Aeroplane Shoe Factory, Gurdwara Road, Karol Bagh, New Delhi is a registered firm which derives income from the manufacture and sale of shoes and shoe-uppers. The sales consist mostly of export to West Germany and Russia (GDR & USSR). The facts leading to the impugned action under Section 263 are as follows. The assessments for both these years were completed by the ITO on 11-10-1983, in accordance with the directions of the IAC under Section 144B. The ITO had made additions for both the years in respect of cash assistance and duty drawback and had added interest under Sections 139(8) and 217(1A). So far as the claim of weighted deduction is concerned, for the A.Y. 1981-82, the ITO did not accept the claims in regard to hidden defect charges and expenses on the maintenance of facilities for quality control and inspection of goods. For the A.Y. 1982-83, the claims in respect of the hidden defect charges and export promotion expenses were held to be not qualified for allowance of weighted deduction. However, weighted deduction was allowed by the ITO on the following items :--
SI.No Claim Amount allowed Amount allowed
for the A.Y. for the A.Y.
1981-82 1982-83
Rs. Rs.
1. Subscription to foreign
Journals & Periodicals 6,000 5,925
2. Foreign Buyers' commission 2,96,052.16 5,89,462
3. Export Inspection Agency
Charges (re-inspection charges) 1,11,972 1,10,000
4. Buyer's inspection charges 2,51,644.22 4,21,275
5. STO Guarantee margin 2,96,052.97 4,95,618
6. 15% expenses on maintenance ... 1,16,026
of facility for quality
control and inspection of goods 9,61,721.35 17,38,306
3. The assessee went up in appeal before the CIT(A) and the CIT(A) vide his separate orders, both dated 13-3-1984 dismissed the assessee's appeals in regard to the additions of cash assistance, duty drawback and interest under Sections 139(8) and 217(1A). No appeals were filed by the assessee against the part disallowance of the claims under Section 35B. In further appeal, the Appellate Tribunal by a consolidated order dated 26-5-1988, accepted the assessee's appeals against the addition of cash assistance by following the Special Bench decision in the case of Gedore Tools (India) (P.) Ltd. v. IAC [1988] 25 ITD 193 (Delhi). However, the addition by way of duty draw back was confirmed. The Commissioner of Income-tax took the action under Section 263 as mentioned above by holding that the allowance of weighted deduction under Section 35B was erroneous insofar as it was pre judicial to the interests of the revenue. He, therefore, passed the orders which are impugned before us. It is not necessary here to detail the reasons mentioned by the learned Commissioner of Income-tax for holding that the claims under Section 35B had been allowed erroneously. This is because, as we shall presently see, the appeals are being disposed of on the basis of the preliminary legal objec tions raised by the assessee. Therefore, arguments of both the sides were not heard on merits.
4. Grounds 2 and 4 in both the appeals raised these preliminary objections. The first objection is that since the ITO passed the assessment order in accordance with the directions of the IAC (Asst.) under Section 144B, his orders could not be revised by the Commis sioner under Section 263. In support of this objection, Shri Pradeep Dinodia, the learned Counsel for the assessee relied upon the Special Bench decisions, of the Appellate Tribunal in the cases of Dwarkadas & Co. (P.) Ltd. v. ITO [1982] 1 ITD 303 (Bom.) and East Coast Marine Products (P.) Ltd. v. ITO [1983] 4 ITD 73 (Hyd.). On the other hand, on behalf of the department, Shri O.S. Bajpai, the learned depart mental representative pointed out that in terms of Explanation (a) to Section 263(1) as inserted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-10-1984 and later on substituted by Finance Act, 1988 with effect from. 1-6-1988 "an order passed by the assessing officer" was to include an order of assessment made on the basis of directions issued by the IAC under Section 144A or Section 144B and that Section 144B in its earlier form stood substituted. He laid particular emphasis on the fact that in the Explanation to Section 263(1) the expression used being "For the removal of doubts, it is hereby declared..." the amendment was to be taken as of a clarificatory nature for the removal of doubts and therefore, the amendment had retrospective effect. Shri Bajpai, therefore, argued that the decisions of the Special Bench of the Appellate Tribunal on which reliance had been placed on behalf of the assessee could no longer be pressed into service. In reply to a query from the Bench, he submitted that since the earlier Explanation had been substituted, and since the amendment referred to above was of a clariflcatory nature, it was no longer relevant whether the said amendment was to a substantive provision or to a procedural provision. He particularly relied upon the decision of Bombay Bench 'C' of the Appellate Tribunal in the case of Agro Exports Ltd. v. ITO [1988] 25 ITD 46 wherein it was held that the Explanation to Section 263(1) as inserted by the Taxation Laws (Amendment) Act, 1984 was of a clarifioatory nature and was to have a retrospective operation though it was inserted with effect from 1-10-1984.
5. We have heard the learned representatives of both the sides. In reply, Shri Dinodia while reiterating the submissions, sought to differentiate the decision of the Bombay Bench of the Appellate Tribunal in the case of Agro Exports Ltd. (supra) and further pointed out that a similar amendment by which Explanation 2 was inserted to Section 37(2A) by the Finance Act, 1983 had been expressly made retrospective from 1-4-1976 and, therefore, since in the amendment to Section 263(1) as mentioned above, retrospec tive effect had not been specifically given it could not be inferred and therefore, particularly when the learned Commissioner passed the impugned orders on 2-4-1984, prior to the Taxation Laws (Amendment) Act, 1984 and the Finance Act, 1988, the learned Commissioner could not purport to revise the assessment orders of the ITO framed under compulsion in view of the mandatory provisions of Section 144B which were operative at that time.
6. We have considered the rival submissions of both the sides as also the decisions referred to above. No doubt Bombay Bench 'C' had held in the case of Agro Exports Ltd. (supra) that Explana tion (a) to Section 263(1) as inserted by the Taxation Laws (Amend ment) Act, 1984 was clarincatory in view of the use of the words "For the removal of doubts, it is hereby declared..." However, it may be pointed out that in the case of 6WT v. Mahavirprasad Bubna [1980] 122 ITR 570 it was held by the Hon'ble Bombay High Court itself that a clarificatory provision had no retrospective effect but that it was always prospective in its operation. In the face of such a direct decision of the jurisdictional High Court of Bombay, we are afraid the contrary decision of the Bombay Bench relied upon by the department without noticing the said decision of the Bombay High Court cannot to be taken to be good law and it could not assist the department. At one time, we were inclined to the prima facie view that owing to the aforesaid decision of the Bombay Bench, we should request the President of the Appellate Tribunal for referring the matter to a Larger Bench on this point. However, in view of the direct authority of the Hon'ble Bombay High Court, which was binding on the Bombay Bench, we have on reconsideration thought that reference to the Larger Bench would be unnecessary. Any amendment to a statute affecting the legal rights of an individual must be presumed to be prospective unless it is made expressly or impliedly retrospective. Retrospective effect in a provision is not to be lightly or readily inferred. In the present case the Explanation to Section 263(1) affects a provision which is substantive and not merely procedural. It is only a procedural provision to which retrospectivity can be normally attracted. Another consideration which is very weighty in this respect arises from the reference by Shri Dinodia to the provisions of Explanation 2 to Section 37(2A) which, though using the expression "For the removal of doubts, it is hereby declared..." occurs at no less than 18 different places in the Act. In the following 7 instances retrospectivity has been specifically mentioned in the Explanations inserted using the expression in question :--
Si. Provision Remarks No 1. Explanation to Section 9(l)(ii) Inserted by Finance Act, 1983 with retrospective effect from 1-4-1979. 2. Explanation to Section 10(13A) Inserted by Taxation Laws (Amendment) Act, 1984 with retrospective effect from 1-4-1976, 3. Explanation 1 to Section 16(1) Inserted by Taxation Laws (Amendment) Act, 1984 with retrospective effect from 1-4-1975. 4. Explanation to Section 34(3) Inserted by Finance Act, 1966 with effect from 1-4-1962. 5. Explanation 2 to Section 35B Originally inserted by the Finance Act, 1973 with retrospective effect from 1-4-1968. 6. Explanation 2 to Section 37(2A) Inserted by the Finance Act, 1983 with retrospective effect from 1-4-1976. 7. Explanation 8 to Section 43 Inserted by the Finance Act, 1986 with retrospective effect from 1-4-1974.
As against these 7 instances there are 11 other instances including the one under Section 263 where, though the same expression is used, there is no mention of retrospective effect having been given to it. Those instances are the following :--
SI. No. Provision Remarks 1. Explanation 2 to Section 5. 2. Explanation to Section 15. 3. Explanation 2 to Section 23. 4. Explanation to Section 32A(9). 5. Explanation 2 to Section 36(1)(iia). 6. Explanation 2 to Section 40A(7). 7. Explanation to Section 43B. 8. Explanation to Section 80CCA. 9. Explanation 2 to Section 80G(5A). 10. Explanation 5 to Section 80G(5A). 11. Explanation to Section 263(1).
This shows that the mere use of the expression was not indicative of the fact whether retrospective effect was to be given to it and that whenever the legislature in its wisdom thought fit to give it a retrospective effect, it said so specifically. Therefore, on account of the fact that in Section 263(1) the Explanation does not specifically say that it will have retrospective effect, the only inference would be that it is prospective in effect, and not retrospective. To seek to be wiser than the law is the very thing which, by all good laws, is forbidden. In view of the above, we have no hesitation in coming to the conclusion that since on the day when the notice under Section 263 were given by the learned Commissioner and the day on which the impugned orders were passed by him namely 2-4-1984 were both prior to 1-10-1984 and since the Taxation Laws (Amendment) Act, 1984 was operative only prospectively with effect from 1-10-1984, the order passed by the ITO could not, for the purposes of Section 263(1), be held to include an order of assessment made on the basis of the directions issued by the IAC under Section 144B as in this case. Therefore, In view of the decisions of the Special Bench referred to above, the learned Commissioner could not seek to revise these assessment orders.
7. The second legal objection raised in these appeals on behalf of the assessee is to the effect that the learned Commissioner did not have any jurisdiction to revise the assessment orders because they had merged with the orders dated 13-3-1984 of the learned CIT(A). This objection, therefore, raises the question whether it was a case of complete merger or partial merger. In this connection, reliance was placed by Shri Dinodia on the following decisions to say that there was a complete merger :--
(1) Oil India Ltd. v. CIT [1982J 138 ITR 836 (Cal.) ;
(2) Shree Arbuda Mills Ltd. v. ITO [1983] 3 SOT 311 (Ahd.) (SB);
(3) CIT v. Hindustan Aeronautics Ltd. [1986] 157 ITR 315 (Kar.) (FB);
(4) Addl. CIT v. Vijayalakshmi Lorry Service [1986] 157 ITR 327 (Kar.) ;
(5) General Beopar Co. {P.) Ltd. v. CIT [1987] 167 ITR 86 (Cal.); and (6) CIT v. P. Muncherji & Co. [1987] 167 ITR 671 (Bom.).
On the other hand, Shri O.S. Bajpai, the learned departmental representative submitted that there was only a partial merger of the order of the ITO with the order of the learned CIT(A) since the claim of deduction under Section 35B was not the subject-matter of appeal before the learned Commissioner of Income-tax (Appeals). In this connection, reference was made by him to the following decisions :--
(1) CIT v. Tejaji Farasram Kharaivala [1953] 23 ITR 412 (Bom.) ; (2) State of Madras v. Madurai Mills Co. Ltd. AIR 1967 SC 681; (3) Kar-sandas Bhagwandas Patel v, G.V.Shah, ITO [1975] 98 ITR 255 (Guj.) ; (4) Poonjabhai Vanmalidasv. WTO [1978] 114 ITR 38 (Guj.) ; (5) CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 (Bom.); (6) Smt. Gdnga Devi v. CWT [1986] 28 Taxman 254 (Raj.) ; (7) CIT v. K.L. Rajput [1987] 164 ITR 197 (MP)(FB) ; (8) CIT v. Simplex Metalica [1987] 164 ITR 202 (MP) (FB) ; (9) Sigma Paints Ltd.v. I AC [1987] 21 ITD 11 (Bom.) and (10) Kanhiram Ramgopal v. CIT [1988] 170 ITR 41 (MP).
In reply, Shri Dinodia submitted that even if two views were possible on this point, the assessee was entitled to the benefit in view of the well known decision of the Supreme Court in the case of CIT,-Vv Vegetable Products Ltd. [1973] 88 ITR 192.
8. We have considered the rival submissions on both the sides as also the decisions referred to above. The law on the point of merger has been examined in detail by the Hon'ble Calcutta High Court in the case of General Beopar Co. (P.) Ltd. (supra) and by the Hon'ble Bombay High Court in the case of P. Muncherji & Co. (supra) where all the decisions on the subject including the decision of the Supreme Court in the case of Madurai Mills Co. Ltd. (supra) were examined. The decision of the Hon'ble Allahabad High Court in the case of J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 1TR 344 was also to the effect that there was a complete merger. There is no decision of the Hon'ble Delhi High Court on this subject. No doubt, the Explanation to Section 263(1) as substituted by the Finance Act, 1988 with effect from 1-6-1988 incorporates the provision regarding partial merger [vide Clause (c)] but in the light of what we have observed above regarding the Explanation being prospective in effect and not retrospective, it cannot be accepted that the partial merger provision was always there. The assessee, in such a situation of difference of views, would be justified in relying upon the decision of the Hon'ble Supreme Court in the case of Vegetable Products Ltd. (supra) and therefore, we have to hold that there was complete merger of the ITO's order with that of the CIT(A) and therefore, for this reason also the assessment orders in question could not have been purported to be revised under Section 263.
9. Before parting however, we wish to express our appreciation of the able arguments which were addressed by the learned represen tatives on both the sides on these points.
10. In the result the appeals are allowed.