PUNJAB STATE CIVIL SUPPLIES CORPORATION LTD. VS COMMISSIONER OF INCOME TAX
1993 P T D 1041
[200 I T R 536]
[Punjab and Haryana High Court (India)]
Before S.S. Sodhi, Actg. CJ., N.C. Jain and G.C Garg, JJ
PUNJAB STATE CIVIL SUPPLIES CORPORATION LTD.
Versus
COMMISSIONER OF INCOME TAX
Income Tax Reference No. 52 of 1982, decided on /01/.
th
, November, 1992. (a) Interpretation of statutes---
----- Words in fiscal statute---To be given their plain and ordinary meaning-- ICIT v. International Computers Indian Manufacture Ltd. (1991) 187 ITR 580 (Born.) and Ritz Ltd. v. Union of India (1990) 184 ITR 599 (Born.) dissented from]:
It is a well-recognised rule of interpretation of statutes that, primarily, it is the plain and ordinary meaning of the words used in the enactment that has to be taken and further that all the words used by the Legislature have to be given their due meaning and effect and no surplus ages in the language employed is to be imputed to it. Seen in this light, the words in Explanation (c) of section 263, "filed on or before or after June 1, 1988" cannot possibly be read to limit the retrospectivity of it .to June 1, 1988, and not earlier.
CIT v. International Computers Indian Manufacture Ltd.. (1991) 187 1TR 580 (Born.) and Ritz Ltd. v. Union of India (1990) 184 ITR 599 (Born.) dissented from.
(b) Income-tax--
------Revision---Appeal to AAC----Doctrine of merger---Effect of amendment of .263---Rctrospectivity of amendment not limited to June 1, 1988---Matters considered by AAC---ITO's order with respect to such matters merges with fiat of the AAC---CIT can revise order of ITCH with respect to matters not considered by AAC---Indian Income Tax Act, 1961, S.263.
Once an appeal against an order of the Income Tax officer under section 143(3) of the Income Tax Act, 1961, has been heard and decided by the Appellate Assistant Commissioner, the Commissioner, under section 263 of the Income Tax Act, 1961, has no jurisdiction with regard to issues considered and decided in appeal. In other words, his jurisdiction is restricted only to that part of the order of assessment which is not dealt with in appeal. What merges with the appellate order is only that part of the order of the Income Tax Officer under section 143 of the Act as was the subject-matter of the appeal and no more. Immunity from proceedings under section 263 of the Act is restricted to this extent.
Addl. CIT v. Vijayalakshmi Lorry Service (1986) 157 ITR 327 (Kar.); CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC); CIT v. Banwarilal (R.S.) (1983) 140 ITR 3 (MP); CIT v. City Palayacot Co. (1980) 122 ITR 430 (Mad.); CIT v. Mandsaur Electric Supply Co. Ltd. (1983) 140 ITR 677 (MP); CIT v. Muncherji (P.) & Co. (1987) 167 ITR 671 (Bom.); CIT v. Narendrakumari Basaheba (A.S.) (Sint.) (1989) 176 ITR 515 (Bom.); CIT v. Rajput (K.L.) (1987) 164 ITR 197 (MP); CIT v. Tejaji Farasram Kharawala (1953) 25 ITR 412 (Bom.); General Beopar Co. (Pvt.) Ltd. v. CIT (1987) 167 ITR 86 (Cal.); J. K. Synthetics Ltd.,v: Addl. CIT (1976) 105 ITR 344 (All.); Jeewanlal (1929) Ltd. v. Addl. CIT (1977) 108 TTR 407 (Cal.); Karsandas Bhagwandas Patel v. G.V.Shah, ITO (1975) 98. ITR 255 (Guj.); Premchand Sitanath Roy v. Addl. CIT (1977) 109 ITR 751 (Cal.); Puthuthotam Estates (1943) Ltd. v. State of Tamil Nadu (1980) 125 ITR 41 (Mad.); Singho Mica Mining Co. Ltd. v. CIT (1978) 111 ITR 231 (Cal.); State of Madras v. Madurai Mills Co. Ltd: AIR 1967 SC 681 and (1967) 19 STC 144 (SC) ref.
B.S. Gupta, Senior Advocate and Sanjay Bansal for the Assessee.
R.P. Sawhney for the Commissioner.
The case originally came up before the Division Bench consisting of G.C. Mital and S.S. Sodhi, JJ. who by order, dated 4-5-1989 referred the matter to a larger Bench consisting of S.S. Sodhi (Actg. C.J.) and N.C. Jain and G.C. Garg, JJ. The Full Bench delivered its judgment on 11-11-1992.
JUDGMENT OF FULL BENCH
S.S. SODHI, ACTG. C.J.---In the context of the provisions of section 263 of the Income Tax Act, 1961(hereinafter referred to as "the Act"), does the Commissioner, having formed the opinion that the order of the Income Tax Officer is prejudicial to the Revenue, lose his jurisdiction thereunder, if in the meanwhile, the appeal against the assessment framed by the Income Tax officer is heard and decided by the Appellate-Assistant Commissioner. In other words, is section 263 of the Act rendered inapplicable upon the Appellate Assistant Commissioner deciding the assessee's appeal under section 143(3) of the Act? Herein lies the controversy raised.
The matter here pertains to the assessment year 1975-76. On February 23, 1977, the Income Tax Officer completed the assessment of the assessee, the Punjab State Civil Supplies Corporation Limited, under section 143(3) of the Act. The assessee appealed against this order which was decided by the Appellate Assistant Commissioner on April 6, 1978, whereby the assessment as framed by the Income Tax Officer was modified. Almost a year later, on February 5, 1979, the Commissioner of Income-tax issued a notice to the assessee under section 263 of the Act, on forming the opinion that the assessment order passed by the Income Tax Officer was prejudicial to the interests of the Revenue. Some of the points mentioned in this notice are those considered and dealt with by' the Appellate Assistant Commissioner in his order of April 6,1978.
The assessee, in its reply to the notice under section 263 of the Act, took the plea that the order of the Income Tax Officer had merged with that of the Appellate Assistant Commissioner and no proceedings could, therefore, be initiated or taken under section 263 of the Act. This was negatived both by the Commissioner of Income Tax as also by the Tribunal. The reasoning of the Tribunal being that the order of assessment of the Income Tax Officer merges in the order of the Appellate Assistant Commissioner, only in so far as it relates to items considered and decided by the Appellate Assistant Commissioner, but not in so far as it relates to items not forming the subject matter of the appellate order which is left untouched by it.
The question now referred for the opinion of this Court reads:
"Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the setting aside of the assessment made by the Income Tax Officer, by the Commissioner of Income-tax, in exercise of the powers vested in him under section 263 of the Income Tax Act, 1961?"
It will be seen that the matter in issue here pertains to the doctrine of merger. In dealing with this doctrine, the Supreme Court in State of Madras v. Madurai Mills Co. Ltd. (1967) 19 STC 144, 149; AIR 1967 SC 681, 683, observed as under:
"The doctrine 6of merger is not a doctrine of rigid and universal application, and it cannot be said that wherever there are two orders, one by an 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.
Next to note is CIT v. Amritlal Bhogilal and Co. (1958) 34 ITR 130 (SC), where the question posed was, "where the appeal preferred by an assessee against his assessment has been decided by the Appellate Assistant Commissioner, does the order of registration alongwith subsequent order of assessment merge in the appellate order?" It was held by the Supreme Court that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority would be the operative decision of law. The position would be just the same even if the appellate decision confirms the decision of the Tribunal.
Both these decisions of the Supreme Court in Madurai Mills Co. Ltd.'s case (1967) 19 STC 144; AIR 1967 SC 681 and Amritlal Bhogilal and Co.'s case (1958) 34 ITR 130, have been referred to at the very outset as they figure in a string of judgments of various High Courts taking conflicting views on the subject.
On one end of the scale is the view, namely, that once the Appellate Assistant Commissioner decides the appeal against the assessment framed by the Income Tax Officer, the Commissioner of Income-tax loses his jurisdiction under section 263 of the Act to revise the order of the Income Tax Officer. This is founded upon the judgment of the High Court of Allahabad in J.K. Synthetic Ltd. v. Addl. CIT (1976) 105 ITR 344, where, after noticing the two judgments of the Supreme Court in Madurai Mills Co. Ltd.'s case (1967) 19 STC 144; AIR 1967 SC 681 and Amritlal Bhogilal and Co.'s case (1958) 34 ITR 130, it was pointed out that the appellate jurisdiction conferred upon the Appellate Assistant Commissioner under section 251 of the Act, extends to confirmation, reduction, enhancement or annulment of the assessment. It was, accordingly, held that, in view of the scope and nature of the appellate powers, the entire subject7matter of the assessment order was within the jurisdiction of the Appellate Assistant Commissioner and that being so, the entire assessment order would merge in the appellate order irrespective of the points urged by the parties or decided by the appellate authority. Further, that from the point of view of the applicability of the doctrine of merger, the fact that some points decided by the inferior authority were or were not canvassed before the superior authority was not material. It follows, therefore, that once an appeal is taken and is decided, the original order merges in the appellate order and thereafter, it is the appellate order which is operative and enforceable and the Commissioner of Income-tax thereafter loses his jurisdiction under section 263 of the Act.
A similar view has been taken by the High Court of Bombay in CIT v. P. Muncherji and Co. (1987) 167 ITR 671, following its earlier decision in CIT v. Tejaji Farasram Kharawala (19531 23 ITR 412, with regard to which it was observed (at page 676):
"Chief Justice Chagla in that case has categorically held that the principle underlying section 33B of the 1922 Act, corresponding to section 263 of the 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 has been made by hum, that becomes a final order of 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 the 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 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 the enhancement.
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."
The other judgments cited, taking the same view being: CIT v. Smt. A.S. Narendrakumari Basaheba (1989) 176 ITR 515 (Bom.); Jeewanlal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407 (Cal.); General Beopar Co. (Pvt.) Ltd. v. CIT (1987) 167 ITR 86 (Cal.) and Addl. CIT v. Vijayalakshmi Lorry Service (1986)157 ITR 327 (Kar.).
The contrary view canvassed finds expression in CIT v. K.L. Rajput (1987) 164 ITR 197 (MP) (1713), where it was held that the doctrine of merger does apply to proceedings under the Income Tax Act, but the extent of its application depends upon the scope and subject-matter of the appeal and the decision rendered by, the appellate authority and that the order of the Income Tax Officer merges with the appellate order only to the extent that it was considered and decided by the Appellate Assistant Commissioner. The extent, however, to which the order of the Income Tax Officer survives, namely, matters therein which are not covered by the appellate order or were left untouched by it permits the exercise of revisional jurisdiction by the Commissioner under section 263 of the Act. Instances where this view has been propounded are to be found in CIT v. R.S. Banwarilal (1983) 140 ITR 3 (MP) (FB); CIT v. Mandsaur Electric Supply Co. Ltd. (1983) 140 ITR 677 (MP) (FB); Puthuthotam Estates (1943) Ltd. v. State of Tamil Nadu (1980) 125 ITR 41 (Mad.); Karsandas Bhagwandas Patel v. G.V. Shah, ITO (1975) 98 ITR 255 (Guj); Premchand Sitanath Roy v. Addl. CIT (1977) 109 ITR 751 (Cal.); Singho Mica Mining Co. Ltd. v. CIT (1978) 111 ITR 231 (Cal.) and CIT v. City Palayacot Co. (1980) 122 ITR 430 (Mad.).
It was the importance and complexity of the issue raised and the conflict of judicial precedents with regard to it that impelled this reference to a Full Bench.
To resolve this vexed issue, Parliament has now come forth with an amendment, incorporated by the Finance Act of 1988, Explanation (c) to section 263 of the Act, which was further amended by the Finance Act of 1989. The relevant provision of section 263(1) now reads:
"263.--(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation.---For the removal of doubts, it is hereby declared that, for the purposes of this subsection.---
(c)where any order referred to in this subsection and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this subsection shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal."
The contention on behalf of the Revenue being that, after this amendment, what merges with the appellate order is only that part of the order of the Income Tax Officer under section 143 of the Act as was the subject- matter of the appeal and no more. Immunity from proceedings under section 263 of the Act, thus, is restricted to this extent.
Mr. B.S. Gupta, Senior Advocate, counsel for the assessee, on the other hand, sought to press in aid the judgment of the High Court of Bombay in Ritz Ltd. v. Union of India (1990) 184 ITR 599, where in dealing with the amendment to Explanation (c) of section 263(1), by the Finance Act of 1989, it was held that it is only in cases where action under section 263 is taken after June 1, 1988, that merger of the assessment order is to be treated as confined to the issues actually considered and decided in appeal. It was observed (at page 603): "irrespective of the language in which the amending provisions are couched, the amendment cannot be retrospective with effect from a date earlier to the date on which the provision sought to be amended itself was brought on the statute book". This view was later followed and approved by the Division Bench of the same Court in CIT v. International Computers Indian Manufacture Ltd. (1991.) 187 ITR 580.
It is a well-recognised rule of interpretation of statutes that, primarily, it is the plain and ordinary meaning of the words used in the enactment that has to be taken and further that all the words used by the Legislature have to be given their due meaning and effect and no surplus ages in the language employed is to be imputed to it. Seen in this light, the words in Explanation (c) of section 263, "filed on or before or after the 1st day of June, 1988" cannot possibly be read to limit the retrospectivity of it to June 1, 1988, and not earlier. We cannot, therefore, with respect, concur with the view taken by the High Court of Bombay in Ritz Ltd.'s case (1990) 184 ITR 599 and international Computers Indian Manufacture Ltd.'s case (1091) 187 ITR 580.
We, consequently, hold that once an appeal against an order of the Income Tax Officer under section 143(3) of the Act has been heard and decided by the Appellate Assistant Commissioner, the Commissioner under section 263 has no jurisdiction with regard to issues considerded and decided in appeal. In other words, his jurisdiction is restricted only to that part of the order of assessment which is not dealt with in appeal, We answer the question referred to us accordingly. There will be no order as to costs.
M.BA./2306/T Order accordingly.