(a) Wealth tax---

----Revision---Scope of S.25(2)---Section 25(2) is in pari materia with S.263 of I.T. Act---Merger of assessment order in appellate order---Issue not raised before or considered by Appellate Authority---No merger of assessment order on that issue---Indian Wealth Tax Act, 1957. S.25---Indian Income Tax Act, 1961, S.263.

(b) Wealth tax---

----Revision---Meaning of "record" ---Law applicable---Amendment to S.25 by Finance Act, 1989---Amendment is retrospective---Commissioner has power to refer to documents available at the time of inspection by him-- Indian Wealth Tax Act, 1957, S.25.

The power conferred upon the Commissioner under section 25(2) of the Wealth Tax Act, 1957, to revise an order passed by the Wealth Tax Officer is in identical terms with the power conferred under section 263 of the Income Tax Act, 1961, to revise an order passed by the Income-tax Officer under the Income Tax Act, 1961. The doctrine of merger applies to wealth tax proceedings but the extent to which it applies depends upon the scope and subject-matter of appeal and the decision rendered by the Appellate Authority. In case the order of assessment passed by the Wealth Tax Officer has been challenged by the assessee before the Appellate Assistant Commissioner in respect of only some of the items covered by the Wealth Tax Officer's assessment order and the remaining items forming part of the order of assessment have neither been raised nor decided by the Appellate Authority suo motu and no decision has been given by the Appellate Authority in respect of those items, only that portion of the order of assessment merges with the appellate order which has been considered and decided by the Appellate Authority. In other words, to the extent of the matters which are not covered by the appellate order of the Appellate Assistant Commissioner and are left untouched, the order of assessment survives, permitting the exercise of revisional jurisdiction by the Commissioner under section 25(2) of the Wealth Tax Act. In clause (b), after the word "record", the words "shall include and shall be deemed always to have included" have been inserted by the Finance Act of 1989 with effect from June 1, 1988. If the amendment in Explanation (b) to section 25(2) of the Wealth Tax Act is not to be read with retrospective effect and it is to be read as applicable with effect from June 1, 1988, then, the deeming provision would become redundant.

The Wealth Tax Officer passed four separate orders for the assessment years 1971-72, 1972-73, 1973-74 and 1974-75 on December 29, 1978, wherein he accepted the valuation of a residential building of the assessee but disallowed the liability to the Life Insurance Corporation to the extent of Rs.11,000 and passed the assessment orders accordingly. The respondent-assessee had instituted four separate appeals before the Appellate Assistant Commissioner challenging the disallowance of the liability to the Life Insurance Corporation. The appeals were dismissed by the Appellate Assistant Commissioner, vide his order dated August 18, 1979. The Commissioner of Wealth Tax exercising powers under section 25(2) of the Wealth Tax Act and taking the view that the values of the property of the assessee as given by him and accepted by the Wealth Tax Officer were erroneous and prejudicial to the Revenue because the values were underestimated, directed the Wealth Tax Officer for fresh assessment. The Tribunal set aside the order. On a reference:

Held, (i) that the assessment orders for the assessment years 1971-72 to 1974-75 had not merged with the order of the Appellate Assistant Commissioner with regard to valuation of the property and as such the Commissioner of Wealth Tax had jurisdiction to revise the order.

State of Madras v. Madurai Mills Co. Ltd. AIR 1967 SC 681; (1967) 19 STC 144; Kaliki Veera Reddy & Co. v. State of Andhra Pradesh (1974) 34 STC 517 (AP); CIT v. Late Begum Noor Banu Alladin (1993) 204 ITR 166 (AP); CIT v. K.L. Rajput (1987) 164 ITR 197 (MP) and CIT v. East Coast Marine Products (P.) Ltd. (1990) 181 ITR 314 (AP) fol.

(ii) that the Commissioner of Wealth Tax had found from the record that as early as 1972, the Assessing Authority had formed the opinion on the basis of the local enquiries that the cost of construction and the value of the premises in question had been greatly underestimated by the approved valuer relied upon by the assessee and, therefore, the case should be referred to the valuation cell and, thereafter, the engineers of the cell had actually inspected the building in that year and had come to the conclusion that the cost of construction and the market value of the building as also the value of the land was much higher than returned by the assessee. However, the Wealth Tax Officer accepting the figures returned by the assessee had made the assessment in 1978. Even if it were assumed that the Commissioner had taken the subsequent valuation report into consideration while invoking the provisions of section 25(2) of the Wealth Tax Act, no fault could be found with the order because he had jurisdiction and power to do so under Explanation (b) to subsection (2) of section 25 of the Wealth Tax Act.

The order of revision was valid.

South India Steel Rolling Mills v. CIT (1997) 224 ITR 654 (SC) rel.

CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC); CIT v Orissa Oil Industries' Ltd. (1992) 193 ITR 183 (Orissa); CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC): CIT v Rajasthan Mercantile Co. Ltd. (1995) 211 ITR 400 (Delhi); Jiyajeerao Cotton Mills Ltd. v. CIT (1989) 180 ITR 350 (Cal.); Rathore (S.S.) v. State of Madhya Pradesh AIR 1990 SC 10; (1989) 75 FJR 425 (SC) and State of U.P. v. Muhammad Nooh AIR 1958 SC 86 ref.

S.R. Ashok for the Commissioner.

C. Kodandaram for the Assessee.

JUDGMENT

KRISHNA SARAN SHRIVASTAV, J. ---Pursuant to the order passed by the High Court under section 27(3) of the Wealth Tax Act in W.T.C. Nos.16, 19, 29 and 31 of 1984, dated September 20, 1982, the Income Tax Appellate Tribunal has referred the following two questions to the High Court for its opinion:

"(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the assessment orders for the assessment years 1971-72 to 1974-75 had got merged with the Appellate Assistant Commissioner's order and as such the Commissioner of Wealth Tax had no jurisdiction to invoke section 25(2) of the Wealth Tax Act?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the report of the Valuation Officer did not constitute material for the Commissioner of Wealth Tax to revise the assessment by invoking section 25(2) of the Wealth Tax Act?"

The facts of tile case lie in a narrow compass. The Wealth Tax Officer passed four separate orders for the assessment years 1971-72, 1972-73, 1973-74 and 1974-75, on December 29, 1978, wherein it has accepted the valuation of a residential building of the assessee situated in Banjara Hills, Hyderabad, at Rs.2,39,946, Rs.2,78,300, Rs.2,78,300 and Rs.3,00,000, respectively, but disallowed the liability to the Life Insurance Corporation to the extent of Rs.11,000 and passed the assessment orders accordingly. The respondent-assessee had instituted four separate appeals before the Appellate Assistant Commissioner challenging the disallowance of the liability to the Life Insurance Corporation. The appeals were dismissed by the Appellate Assistant Commissioner vide his order dated August 18, 1979. The Commissioner of Wealth tax exercising powers under section 25(2) of the Wealth Tax Act and taking the view that the values of the property of the assessee as given by him and accepted by the Wealth Tax Officer were erroneous and prejudicial to the Revenue because the values were underestimated, directed the Wealth Tax Officer for fresh assessment The assessee took the matter to the Income-tax Appellate Tribunal which allowed the appeal holding that the order of the Wealth Tax Officer has merged with the order of the Appellate Assistant Commissioner dated August 18, 1979, and the subsequent report of the Valuation Officer could not constitute material for revising the assessments, set aside the order of the Commissioner.

Mr. S.R. Ashok, learned standing counsel for the applicant Department, has taken us through the impugned orders passed by the Commissioner of Wealth Tax under section 25(2) of the Wealth Tax Act and by the Income-tax Appellate Tribunal and urged that the Income-tax Appellate Tribunal has wrongly observed in para 5 of its order that the commissioner had relied on the subsequent report of the Valuation Officer, because, actually he had relied on the report which was already on record of the Wealth-tax Officer at the time of passing the assessment order and, therefore, the second question framed is liable to be refrained because the words "did not constitute material" are unnecessary to decide the real question in controversy.

On the other hand, Shree C. Kodandaram, learned counsel for the respondent-assessee, has argued that the High Court cannot reassess the facts of the case and should accept the facts reached by the Income-tax Appellate Tribunal as correct and, therefore, the second question should not be refrained

A bare perusal of the order of the Commissioner reveals that it has relied on the report of the engineers of the Valuation Cell who had inspected the building in question in the year 1972 only. There is no material on record which indicates that the Commissioner has relied on the valuation report which was subsequent to the order passed by the Wealth Tax Officer on December 29, 1978. Thus, it is crystal clear that the finding of the Income Tax Appellate Tribunal in para 5 of its order that the Commissioner had relied on the subsequent report of the Valuation Officer is based on surmise and, therefore, it is perverse. Under these circumstances, the wrong statement of the fact by itself makes it a question of law to be investigated by this Court and it necessitates refraining of the second question which we reframe as stated below.

"Question No.2.---Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in haw in holding that the report of the Valuation Officer constituted the basis for the Commissioner of Wealth tax to revise the assessment by invoking section 25(2) of the Wealth Tax Act?"

Relying on the cases of State of Madras v. Madurai Mills Co. Ltd., (1967) 19 STC 144 and Kaliki Veera Reddy & Co. v. State of Andhra Pradesh (1974) 34 STC 517 (AP), it has been contended by learn standing counsel for the applicant-Department that the Wealth Tax Officer has accepted the valuation of the property in question as given by the assessee respondent and has disallowed the liability to the Life Insurance Corporation therefore the assessee-respondent has challenged only that part of the orders of assessment in the appellate Court, which had dismissed the appeals. Therefore, it cannot be said that the orders of the Wealth Tax Officer had merged with the order of the Appellate Assistant Commissioner dated August 18, 1979, with the result the Commissioner had jurisdiction to revise the order of the Assessment Officer and to pass appropriate orders. It has been further contended that the Commissioner has based his finding only on the valuation report of the engineers which was already on record before the Wealth Officer at the time of passing the impugned orders of assessment and, therefore, it cannot be said that he had relied on any material which was brought on record subsequent to the passing of the impugned orders. Even otherwise, Explanation (b) to section 25(2) of the Wealth Tax Act, defines the word "record" as "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner", and, therefore, even if it is assumed for the sake of arguments, that the Commissioner had taken into consideration the subsequent report of the Valuation Officer the impugned order passed by the Commissioner cannot be attacked on this count.

On the other hand, learned counsel for the respondent-assessee has urged that the Wealth Tax Act is a complete code. The Commissioner has no jurisdiction and power to go into the question of assessment of the properties in question, because, when the appeal was filed by the assessee, it was open to the Department to raise before the Appellate Assistant Commissioner any matter including the alleged wrong valuation of the building in question, because, the Appellate Assistant Commissioner had got powers to consider that question also which had not been raised by the assessee. Once that has not been done, the impugned order passed by the Wealth Tax Officer stands merged with the order of the Appellate Assistant Commissioner of Income tax and, therefore, the Commissioner had no jurisdiction to order reassessment. It has also been urged on behalf of the respondent-assessee that the Tribunal has correctly observed that the Commissioner had based his opinion on the subsequent report of the Valuation Officer. The impugned Explanation to section 25(2) of the Wealth Tax Act has been substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from June 1, 1988 and, therefore, this Court cannot travel beyond that date as the Legislature has made the Explanation operative prospectively by words expressed 'therein. Parliament has limited the retrospectivity of the Explanation with effect from June 1, 1988, and it cannot be given further retrospectivity as it is impermissible in law. It has lastly been urged that both the questions should be answered in favour of the assessee. Reliance has been placed on the case of CIT v. Rajasthan Mercantile Co. Ltd. (1995) 211 ITR 400 (Delhi) and on the case of CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC).

Relying on the case of CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC) and State of Uttar Pradesh v. Muhammad Nooh, AIR 1958 SC 56, it has been held in the case of State of Madras v. Madurai Mills, AIR 1967 SC 681, that (headnote of AIR 1967 SC 681 and headnote of (1967) 19 STC 144):

"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 authority and the other by a superior authority, 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. 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."

Reproducing the aforementioned doctrine of merger ruled in the case of State of Madras v. Madurai Mills (1967) 19 STC 144, a Division Bench of this Court in the case of Kaliki Veera Reddy (1974) 34 STC 517, has observed that the doctrine of merger depends upon the nature of the appellate orders and the scope of the appellate jurisdiction. In this case, the revised order of final assessment passed by the Commercial Tax Officer was found to be one relating to two disputed items and, therefore, it was held in this case that the assessing authority had no jurisdiction to reopen the assessment in respect of the admitted turnover which was the subject-matter of dispute before the High Court.

A Full Bench consisting of three judges of this Court, in which one of us (P. Venkatarama Reddi J.) was a member, in the case of CIT v. Late Begum Noor Banu Alladin (1993) 204 ITR 166, has observed that, it is difficult to conclude that the entire assessment order in that case became an integral part of the appellate order and that, therefore, any part thereof could be challenged irrespective of the subject-matter of the dispute in first appeal and had added that in view of the legal position, clarified by the Supreme Court in State of Madras v. Madurai Mills (1967) 19 STC 144, the application of the doctrine of merger cannot be readily assumed.

In the case of CIT v. K.L. Rajput (1987) 164 ITR 197, a Full Bench consisting of five judges of the Madhya Pradesh High Court, has held that whenever a question arises as to whether the Commissioner is or is not competent to revise under section 263 of the Act, the order of assessment framed by the income-tax Officer which has been the subject-matter of an appeal before the Appellate Assistant Commissioner, it has to be ascertained as to whether the Commissioner has set aside the entire order of assessment or only that part of the order of assessment which was not the subject-matter of an appeal either because the Appellate Assistant Commissioner had no jurisdiction to consider the matter or because the Appellate Assistant Commissioner, though having jurisdiction to examine that subject-matter, did, not do so. If the Commissioner has set aside the entire order of assessment, then, it could not be held that he has exercised power conferred upon him because he has no power under section 263 of the Act to revise the order of the Appellate Assistant Commissioner.

The principles laid down by the Full Bench of the Madhya Pradesh High Court in the case of CIT v. K.L. Rajput (1987) 164 ITR 197, have been quoted with approval by a Division Bench of this Court in the case of CIT v. East Coast Marine Products(P.) Ltd. (1990) 181 ITR 314 and the Division Bench of this Court has also disapproved the contrary view taken by certain other High Courts.

In the case of S.S. Rathore v. State of Madhya Pradesh, AIR 1990 SC 10, the cause of action in the case of a service dispute was considered and it was held that the cause of action arises not from the date of the original adverse order but on the date when the order of the higher authority where a statutory remedy is provided entertaining the appeal or representation is made and where no such order is made, though the remedy has been availed of, a six months' period from the date of preferring of the appeal or making of the representation shall be taken to be the date when the cause of action shall be taken to have first arisen. It has been further held that the distinction made between Courts and Tribunals as regards the applicability of the doctrine of merger is without any legal justification. Powers of adjudication ordinarily vested in Courts are being exercised under the law by Tribunals and other constituted authorities. It has also been held that the appellate authority's order is the operative order even though it confirms the order of the original authority. But in this case, this point has not been considered as to what extent the order of the lower Court merges with the order of the appellate Court when a certain portion of the order of the trial Court has not been challenged by any party to the appeal and it also remained untouched by the appellate Court.

The power conferred upon the Commissioner under section 25(2) of the Wealth Tax Act to revise an order passed by the Wealth Tax Officer is in identical terms with the power conferred under section 263 of the Income Tax Act, 1961, to revise an order passed by the Income-tax Officer under the Income Tax Act, 1961. The position of law that emerges from the law laid down by the apex Court and the High Courts of Andhra Pradesh and Madhya Pradesh is that although the doctrine of merger applies to the Wealth Tax Act proceedings, the extent to which it applies depends upon the scope and subject-matter of appeal` and the decision rendered by the appellate authority. In case the order of assessment passed by the Wealth Tax Officer has been challenged by the assessee before the Appellate Assistant Commissioner in respect of only some of the items covered by the Wealth Tax Officer's assessment order and the remaining items forming part of the impugned order of assessment have neither been raised nor decided by the Appellate Court suo motu and no decision has been given by the appellate authority in respect of those items, only that portion of the order of assessment merges with the appellate order which has been considered and decided by the appellate authority. In other words, the matters which are not covered by the appellate order of the Appellate Assistant Commissioner and are left untouched, the impugned order of assessment to that extent survives permitting the exercise of revisional jurisdiction by the Commissioner under section 25(2) of the Wealth Tax Act.

In the case of Jiyajeerao Cotton Mills Ltd. v. CIT (1989) 180 ITR 350, -a learned single judge of the Calcutta High Court, relying on the earlier decision of the Division Bench of the Calcutta High Court and on the case of CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC), has held that, once an appeal is preferred by the assessee, it is open to the Commissioner to raise before the Appellate Assistant Commissioner any matter dealing with the assessment of the assessee and there is nothing left for any authority which passed the initial order to reopen in the manner sought to be done as in that case. Similarly, a Division Bench of the Orissa High Court, in the case of CIT v. Orissa Oil Industries Ltd. (1992) 193 ITR 183, has held that where appeal has been filed against the order of assessment, such order merges with the appellate order and there is no scope for the Commissioner to revise the order of assessment made by the Income-tax Officer. On the facts of the case, the Calcutta and the Orissa High Courts reached the conclusion that the orders of assessment passed by the assessing authority had been merged with 'lie appellate orders respectively and, therefore, there was no scope for the Commissioner to revise the order of assessment made by the assessing authority. The principles laid down in the case of CIT v. Amritlal Bhogilal (1958) 34 ITR 130 (SC) have been referred to and explained by the apex Court in the case of State of Madras v. Madurai Mills (1967) 19 STC 144. With respect, if the aforesaid observations made by the learned single judge of the Calcutta High Court and the Division Bench of the Orissa High Court are intended to cover the cases of the present kind and to hold that the order of assessment made by the Assessing Officer merged with the order of the Appellate Assistant Commissioner, eve though certain items were left untouched and not appealed against and no finding has been given by the appellate Court, then, we find ourselves unable to concur in that view and the aforesaid views expressed by the said two High Courts do not appear to be good law.

As noted above, we get from the order of the Commissioner passed in revision that he had found from the record that as early as 1972, the assessing authority had formed the opinion on the basis of local enquiries that the cost of construction and the value of the premises in question have been greatly underestimated by the approved valuer relied upon by the assessee and, therefore, the case should be referred to the valuation cell and thereafter the engineers of the cell had actually inspected the building in that year and had come to the conclusion that the cost of construction and the market value of the building as also the value of the land is much higher than returned by the assessee. However, the Wealth Tax Officer accepting the figures returned by the assessee had made the assessment in 1978. This fact makes the observations of the Income-tax Appellate Tribunal incorrect and wrong that the Commissioner had revised the assessment order on the basis of. the subsequent report of the Valuation Officer.

In order to appreciate the rival contentions of learned counsel for the parties to the reference regarding the retrospectivity of the impugned Explanation, it appears beneficial to reproduce the relevant Explanations of the Income-tax Act, 1961, as also the Wealth Tax Act. Explanation 2 to section 37(2-A) of the Income Tax Act, 1961, reads as under:

"For the removal of doubts, it is hereby declared that for the purposes of this subsection and subsection (2-B), as it stood before the 1st day of April, 1977, 'entertainment expenditure' includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work."

Explanation 2 was inserted by the Finance Act of 1983, with effect from April 1, 1976, Explanation (b) to subsection (2) of section 25 of the Wealth Tax Act, reads as under:

"Explanation. ---For the removal of doubts, it is hereby declared that, for the purposes of this subsection,...

(b) 'record', shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;..."

In clause (b), after the word "record", the words "shall include and shall be deemed always to have included" have been inserted by the Finance Act of 1989, with effect from June 1, 1988.

It is pertinent to note that the words "shall include and shall be deemed always to have included" do not find place in Explanation 2 to section 37(2-A) of the Income Tax Act and for this reason only, the Division Bench of the Delhi High Court in the case of CIT v. Rajasthan Mercantile Co. Ltd. (1995) 211 ITR 400, has held that when the statute, enacting an amendment or introducing a new provision, states that the provision is to be read "with effect from" a particular date, normally the Court cannot travel beyond the said date along with the said provision, while interpreting the words used prior to the said date, unless the natural meaning of the relevant words was totally ignored earlier and the newly added declaratory provision embodies the ordinary and natural meaning of the said words. And for that reason only, it appears that the said view has been approved by the apex Court in the case of CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165, wherein it is held that the widened meaning cannot be extended to past periods when the amended Explanation 2 was not in operation. If the aforementioned amendment in Explanation (b) to section 25(2) of the Wealth Tax Act is not to be read with retrospective effect and it is to be read as applicable with effect from June 1, 1988, then the deeming provision would become redundant.

In the case of South India Steel Rolling Mills v. CIT (1997) 224 ITR 654 (SC), the assessee which was a partnership firm had four partners. This partnership had been constituted on September 1, 1960. Two of the partners subsequently retired from the partnership and the partnership was reconstituted with the remaining two partners, but continued the same business which had been done by the partners before its reconstitution. On March 3, 1968, one of the two partners had died and the partnership stood dissolved. On the next day, a new partnership was constituted to carry on the business previously carried on by the partnership firm, of which one of the two partners of the new firm was a partner. The assessment in question related to the partnership firm which had existed prior to its dissolution on March 3, 1968. The assessee-firm had obtained the benefit of development rebate under section 33(1)(a) of the Income-tax Act during the assessment years in question. Since the partnership stood dissolved on March 3, 1968, before the expiry of the period of eight years, the Commissioner of Income tax in exercise of the powers conferred on him under section 263 of the Act, withdrew the development rebate that had been granted to the assessee for the said assessment years. The apex Court held that in Explanation (b) to section 263, there is an express provision wherein it is prescribed that "record shall include and shall be deemed always to have included all records relating to any proceedings under this Act available at the time of examination by the Commissioner; therefore, due to the death of one of the two partners resulting in the dissolution of the assessee-firm on account of the said death which took place prior to the passing of the order by the Commissioner it could, therefore, be taken into consideration by him for the purposes of exercising his power under section 263 of the Income Tax Act. The event subsequent to the passing of the order by the Income-tax Officer had been taken into consideration by virtue of Explanation (b) to section 263 referred to above. Explanation (b) in section 263 of the Income-tax Act is in pari materia with Explanation (b) to subsection (2) of section 25 of the Wealth Tax Act and in spite of a specific date given for enforcement of the provision on the strength of the deeming clause, the subsequent events had been taken into consideration.

For the foregoing reasons, even if it is assumed that the Commissioner had taken the subsequent valuation report into consideration while invoking the provisions of section 25(2) of the Wealth Tax Act, no fault can be found with the order because it has jurisdiction and power to do so, vide Explanation (b) to subsection (2) of section 25 of the Wealth Tax Act. Viewed from any angle, the second question as refrained by us deserves to be answered in the affirmative.

In the result, we answer the first question in the negative and the second question as refrained by us in the affirmative, that is to say we answer both the questions in favour of the applicant-Department and against the assessee. The referred case is thus disposed of. However, in the circumstances of the case, we leave the parties to bear their own costs.

M.B.A./1858/FCOrder accordingly.