(Direct reference under section 257 of the Income Tax Act, 1961, to the Supreme Court by the Income Tax Appellate Tribunal).

Income-tax---

----Revision---Doctrine of Merger---Powers of Commissioner---Amendment of S.263(1) by Finance Act, 1989, with retrospective effect from 1-6-1988-- Effect---Powers of Commissioner of Income-tax shall extend and shall be deemed to have extended to matters not considered and decided in appeal filed by assessee to CIT (Appeals)---Indian Income Tax Act, 1961, S.263(1), Expln., CI. (c).

The assessment of the assessee for the assessment year 1975-76 was completed under section 143(3) of the Income Tax Act, 1961 read with section 144-B on March 31, 1978, in which the net business loss was computed at Rs.3,61,086 and the income under the head "Capital gains" at Rs.38,874. The Income Tax Officer made certain additions and disallowances while computing the loss and income and had also accepted, inter alia, the following three claims (i) deduction of a sum of Rs.23,82,621 by way of provision for gratuity; (ii) depreciation on Rs.4,21,000 which was paid by the assessee as consideration for transfer of installed property; and (iii) loss on account of difference in exchange rate which was referable to the purchase of machinery, etc., as revenue expenditure. On appeal to the Commissioner (Appeals) the above three items in respect of which the decision was in the assessee's favour were not the subject-matter of the appeals. The Commissioner of Income-tax exercised his power under section 263 of the Act in respect of these three items. On a reference by the Appellate Tribunal under section 257 of the Income Tax Act, 1961, to the Supreme Court, of the question whether or not the order of the Income-tax Officer regarding the three items had merged in that of the Commissioner (Appeals):

Held, that the Explanation to section 263 (1) which was substituted by the Finance Act, 1988, with effect from June 1, 1988, was again amended by the Finance Act, 1989, with retrospective effect from June 1, 1988, to the effect that where any order referred to in the 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 the 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 consequence of the amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. Therefore, the order of assessment passed by the Income-tax Officer on March 31, 1978, had not merged with that of the Commissioner (Appeals), dated. December 15, 1979, in respect of the three items in dispute so as to exclude the jurisdiction of the Commissioner of Income-tax under section 263.

K.N. Shukla, Senior Advocate (Ranbir Chandra and S.N. Terdol, Advocates with him) for Appellant.

JUDGMENT

The Income-tax Appellate Tribunal has referred under section 257 of the Income Tax Act, 1961, the following question of law for decision of this Court, namely:

"Whether, on the facts and in the circumstances of the case, the order of assessment passed by the Income-tax Officer under section 143(3) read with section 144-B on July 31, 1978, had merged with that of the Commissioner (Appeals), dated December 15, 1979, in respect of the three items in dispute so as to exclude the jurisdiction of the Commissioner of Income-tax under section 263?"

The assessee is a company. The relevant assessment year is 1975-76 ending on December 31, 1974. The assessment was completed under section ' 143(3) read with section 144-B, on March 31, 1978, in which the net business loss computed at Rs.3,61,086 and the income under the head "capital gains" at Rs.38,874. The Income-tax Officer had made certain additions and disallowances while computing the loss and income as above and had also accepted, inter alia, the following three claims:

(i) Deduction of a sum of Rs.23,82,621 by way of provision for gratuity;

(ii) Depreciation on Rs.4,21,000 which was paid by the assessee to United Textile Industries as consideration for transfer of installed property of 17,480 spindles and 400 looms of Old Manek Chowk Mills;

(iii) Loss on account of difference in exchange rate which was referable to the purchase of machinery, etc., as revenue expenditure.

For the purposes of the present matter, it is only these three items of claim which are relevant.

In the appeals filed by the assessee, the items in respect of which the decision was in its favour were not the subject-matter of the appeals. In respect of these three items, the Commissioner exercised his power under section 263 of the Income Tax Act. The above question arises in this context.

The main contention of the assessee which was considered by the Tribunal was whether or not the order of the Income Tax Officer regarding the said three items in respect of which the assessee had no occasion to prefer an appeal had merged in that of the Commissioner (Appeals) so as to exclude the jurisdiction of the Commissioner of Income-tax under section 263 of the Act.

We may refer to the amendment made in section 263 of the Income Tax Act by the Finance Act, 1989, with retrospective effect from June 1, 1988. The relevant part thereof for the present case is as under:

"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 June 1, 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 consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred.

The question referred is, therefore, answered in the negative, in favour of the Revenue and against the assessee.

M.B.A.1863/FCReference answered.