(Appeal by special leave against the order, dated June 13, 1977 of the Bombay High Court in I.TA. No.9 of 1977).

Income-tax---

----Reference---Question of law---Company---Surtax---Computation of capital---Amount utilised for issuing bonus shares during previous year from general reserves as on first day of that year---ITO including amount in capital base---Appeal by assessee on other points---Power of Commissioner to exclude amount in revision---Question of law arises---India Companies (Profits) Surtax Act, 1964, Ss.16(1).& 18(2).

On the first day of the relevant previous year the assessee had certain amounts of general reserve. During that previous year an amount of Rs.5,53,041 was utilised by the assessee out of the general reserve for issuing bonus shares. The Income-tax Officer added the amount representing bonus shares to the capital base of the assessee and made an assessment under the Companies (Profits) Surtax Act, 1964. An appeal was preferred by the assessee against the assessment order on some other points and the appeal was disposed of. The Commissioner invoked his power of revision under section 16(1) and deleted the amount representing the bonus shares from the capital base. The assessee appealed to the Appellate Tribunal, and the Tribunal allowed the appeal and cancelled the order of the Commissioner holding that the Commissioner had no jurisdiction to revise the assessment order as it was the subject-matter of an appeal to the Appellate Assistant Commissioner. Both the Tribunal and the High Court rejected the Department's application for a reference. On appeal to the Supreme Court:

Held, reversing the decision of the High Court, that the question of law whether the Tribunal was right in law in cancelling .the order in revision passed by the Commissioner under section 16(1) as without jurisdiction arose out of the Tribunal's order and the Tribunal had to state a case on that question to the High Court.

CIT v. East Coast Marine Products (P.) Ltd. (1990) 181 ITR 314 (AP) ref,

Decision of the Bombay High Court reversed.

J. Ramamurthy, Senior Advocate (S. Rajappa and P. Parameswaran, Advocates with him) for Appellant.

Dipa Dixit, Advocate for Swarep John & Co., Advocates for Respondent.

ORDER

This appeal is preferred against the judgment of the Bombay High Court dismissing an application filed by the Revenue under subsection (2) of section 18 of the Companies (Profits) Surtax Act, 1964. The question raised by the Revenue reads as follows:--

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the order of the Commissioner passed under section 16(1) of the Surtax Act, 1964, as without jurisdiction?"

The assessment year concerned is 1972-73, the previous year being the calendar year 1971.

The case of the Revenue is this on the first day of the previous year, the assessee had a certain amount of general reserve. During the said previous year, an amount of Rs.5,53,041 was utilised out of the general reserve for issuing bonus shares. The Income-tax officer added the amount representing bonus shares to the capital base of the company and made an assessment under the Act. An appeal was preferred by the assessee against the assessment order on some other points. The appeal was disposed of. At that stage, the Commissioner invoked his power under section 16(1) of the Act and revised the order of the Income-tax Officer. He deleted the said amount representing the bonus shares from out of the capital. Against this order, the assessee filed an appeal before the Income-tax Appellate Tribunal. The Tribunal allowed the appeal holding that inasmuch as the Income-tax Officer's order was the subject-matter of an appeal before the Appellate Assistant Commissioner, the Commissioner had no jurisdiction to revise that order. The Revenue sought to question the said view of the Tribunal by obtaining a reference.

Section 16(1) of the Act reads as follows:--

"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 Income-tax 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."

The Revenue says that this section corresponds to section 263 of the Income Tax Act, 1961, before it was amended by the Finance Act, 1988, and the Finance Act, 1989. Even under the unamended section 263, the Revenue says, it has been held that where an appeal is preferred by the assessee to the Appellate Assistant Commissioner from an order made by the Income-tax Officer in respect of only some of the items formed by the Income-tax Officer's order arid the remaining items forming part of the Income-tax Officer's assessment order were not agitated before the Appellate Assistant Commissioner nor did he pronounce thereupon, the filing of the appeal does not bar the jurisdiction of the Commissioner in respect of the items not appealed against and not pronounced upon by the Appellate Assistant Commissioner. Reliance is placed upon a decision of the Andhra Pradesh High Court in CIT v. East Coast Marine Products (P.) Ltd: (1990) 181 ITR 314). The same principle should hold good here, says counsel for the Revenue.

We are of the opinion that this is an appropriate case where a reference ought to have been directed as prayed for by the Revenue. The appeal is accordingly allowed. The Tribunal is directed to state the aforesaid question under section 18(2) of the Act for the opinion of the High Court. No costs.

M.B.A./53/T.F.??????????????????????????????????????????????????????????????????????????????????? Order accordingly.