COMMISSIONER OF INCOME-TAX VS SUBARNA PLANTATION AND TRADING CO. LTD, 2000 PTD-CALCUTTA-HIGH-COURT-INDIA 3510 (1998)

(a) Income-tax---

----Reference---Powers of High Court---High Court can consider whether question referred arises out of order of Tribunal whether it is a question of law ,and whether it is academic---Power to reframe question---Question cannot be refrained in such a way as to widen its scope---Indian Income Tax Act, 1961, S.256.

In a case where the High Court has directed the Tribunal and called for the statement of a case, the Court can consider at the time of hearing whether it arises out of the order of the Tribunal, whether it is a question of law or whether it is academic, unnecessary or irrelevant. When a question is refrained by the High Court, its scope cannot be widened:

Held, (i) that after the merger of the order of the Income-tax Officer with the order of the Commissioner of Income-tax (Appeals), the' Commissioner of Income-tax had no power, under section e63 of the Income Tax Act, 1961, to revise the order of the Income-tax Officer which became final so far as the assessment year 1980-81 is concerned. The answer to the question whether the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue would be of academic interest and could not be answered.

(ii) that so far as the question raised for the assessment year 1981-82 was concerned, the doctrine of merger had not been, applied because though the appeal was filed against the assessment order, no order was passed prior to the order passed by the Commissioner of Income-tax under section 263 of the Act. Therefore, there was no question of merger of the Income-tax Officer's order with the order of the Commissioner of Income-tax (Appeals) prior to the order of the Commissioner of Income-tax under section 263 of the Act. Considering the error, found out by the Commissioner of Income -tax, in the order of the Income-tax Officer, the order of the Income-tax Officer had rightly been revised and set aside for the year 1981-82.

CIT v. Anusuya Devi (Smt.) (1968) 68 ITR 750 (SC) and Lakshmiratan Cotton Mills Co. Ltd. v. CIT (1969) 73 ITR 634-(SC) ref.

(b) Income-tax--

----Revision---Powers of CIT---Appeal---Doctrine of merger of order of Assessing. Officer in that of appellate order---Order of Assessing Officer which has merged in appellate order cannot be revised---Appeal pending before CIT(A)---Order of Assessing Officer had not merged in appellate order ---CIT could revise order---Indian Income Tax Act, 1961, S.263.

Khaitan for the Assessee.

JUDGMENT

Y.R. MEENA, J---As per directions of this Court, on an application under section 256(2) of the Income Tax Act, 1961; the. Tribunal was directed to refer the following question for our opinion:

"Whether, on the facts and in the circumstances of the case, the orders passed by the Commissioner of Income-tax under section 263 of the Income-Tax Act, -1961, relevant to the assessment years 1980-81 and 1981-82 are legal and valid?"

The assessee-company derives, its income from business as an investment company. The assessment years involved are 1980-81 and. 1981-82:

The original assessment for the above assessment years were completed on December 22, 1982 and March 23, 1983, respectively. In a search at the premises of the assessee on September 23, 1983, certain papers were seized and on the basis of those papers and on a perusal of the assessment proceedings for the above referred years, the Commissioner of Income-tax had initiated proceedings under section 263 of the Act, he found that the assessment orders passed by the Income-tax Officer for these years are erroneous and prejudicial to the interests of the Revenue. That order of the Commissioner of Income-tax under section 263 has been challenged by the assessee before the Tribunal. The Tribunal has given a categorical finding that neither the order of the Income-tax Officer was erroneous nor prejudicial to the interests of the Revenue. One more reason has been given by, the Tribunal that the order of the Income-tax Officer for the assessment year 1980-81 that order of the Income-tax Officer merged with the order-of the Commissioner of Income-tax (Appeals). Therefore, thereafter the Commissioner of Income-tax has no power to revise the-assessment order under section 263 of the Act which has already merged with the order of the 'Commissioner of Income-tax (Appeals).

On a reference application under section 256(1) of the Income Tax Act, 1961, the following question was proposed for reference to the Tribunal:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Income-tax Officer, while completing the assessment for the assessment year 1980 81/1981-82 committed no error prejudicial to the interests of the Revenue and in that view canceling the order of the Commissioner of Income-tax passed under section 263 of the Income Tax Act, 1961 for the assessment year 1980-81/1981-82?"

The Tribunal by its order,, dated January 19, 1987, rejected the application on the ground that the Income-tax Officer had applied his mind while making the assessment and had allowed the amount in question correctly and whether the claim was allowed rightly or not, was a question of fact. For the assessment year 1980-81, the application was also rejected on the ground that when the order of the Income-tax Officer was merged with the order of the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax thereafter had no authority to revise that order and that reasoning has not been challenged in the form in the application under section 256(1) or (2) question. Therefore, the reference for 1980-81 on the ground whether the Tribunal was justified in holding that the order of the Income-tax Officer was neither erroneous nor prejudicial to the interests of the Revenue, becomes a question of academic interest.

An application has been moved under section 256(2) of the Income -tax Act before this Court and the question, which was proposed, in the application under section 256(1) was again proposed in the application under section 256(2). It is also brought to our notice that none appeared for the parties when the application was listed before this Court for hearing of rule. On an application under section 256(2), this Court has refrained the question as follows:

"Whether, on the facts and in the circumstances of the case, the orders passed by the Commissioner of Income-tax under section 263 of the Income Tax Act, 1961, relevant to the assessment years 1980 81 and 1981-82 are legal and valid?"

By refraining this question the scope of the question has widened by inserting the words "whether the assessment order was legal and valid". .

Sri Khaitan, learned counsel for the assessee submits that this Court has no power to direct the Tribunal for the statement of a case for a question which was not proposed by the Department in an application under section 256(1) or 256(2) of the Act and even if by mistake the Court has directed for the statement of a case on a question which was not proposed by the assessee or Department in an application under section 256(1) this Court is not bound to answer that question and this Court can consider whether that question which was not proposed by the Revenue or assessee in an application under section 2560) can be returned without answer. Mr. Khaitan placed reliance, on a decision of the apex Court in the case of Lakshmiratan Cotton Mills Co. Ltd. v. CIT (1969) 73 ITR 634 and CIT v. Smt. Anusuya Devi (1968) 68 ITR 750 (SC).

Heard learned counsel for, the parties. The admitted fact is that the question refrained by this Court was proposed in an application under section 25G(1) or in an application under section 256(2).

The question proposed in the application under sections 256(1) and 256(2) reads as under:

"Whether they Tribunal was justified in law in holding that the Income-tax Officer, while completing the assessment for the assessment year 1980-81/1981-82 committed no error prejudicial to the interests of the Revenue and in that view cancelling the order of the Commissioner of Income-tax passed under section 263 of the Income Tax Act, 1961, for the assessment years 1980-81 and 1981 82?"

The question reframed by this Court reads as under:

"Whether, on the facts and in the circumstances of the case, the order passed by the Commissioner of Income-tax under section. 263 of the Income Tax Act, 1961, relevant to the assessment years 1980-81 and 1981-82 is legal and valid?"

Shri Khaitan pointed out that by this reframing the scope of the question has been widened and in fact some additional question, has been incorporated by this reframing. Now the assessee can argue on the point of merger, though it has not been proposed by the Commissioner in an application under sections 256(1) and 256(2).

In Lakshmiratan Cotton Mills Co. Ltd. (1969) 73 ITR 634 (SC), their Lordships held thaw the High Court had no power to call for a statement of the case on questions which were incorporated neither in the application under section 66(1) nor in the application under section 66(2). The power under section 66(4) might be exercised to call for a supplementary statement only when the Court is satisfied that the statements in a case referred under sections 66(1) and 66(2) were not sufficient to enable it to determine the question raised by that statement. Section 66(4) did not confer a power to raise any additional questions or to call for a statement of case on questions not referred by the Tribunal.

Here admittedly no question was referred on the basis of which the Revenue can argue on the ground of merger, that once the order of the Income-tax Officer merges with the order of the Commissioner of Income-tax (Appeals), thereafter the Commissioner of Income-tax has no power to revise that assessment order invoking the provisions of section 263 of the Act.

In the case of CIT v. Smt. Anusuya Devi (1968) 68 ITR 7.50 (SC) at page 750 their Lordships observed as follows (page 756):

"We are unable, therefore, to hold that at the hearing of a reference pursuant to an order calling upon the Tribunal to state a case, the High Court must proceed to answer the question without considering whether it arises out of the order of the Tribunal whether it is a question of law, or whether it is academic, unnecessary or irrelevant. "

In a case where this Court has directed the Tribunal and called for a statement of the case, the Court can consider at the time of hearing whether it arises out of the order of the Tribunal, whether it is a question of law or whether it is academic, unnecessary or irrelevant.

For the assessment year 1980-81, the Tribunal in its order considered the doctrine of merger and in addition to the fact that there is no error in the order of the Income-tax Officer for the assessment year 1980-81, an additional reason has been given by the Tribunal and held asunder:

"Coming to the doctrine of merger, we find force in the contention raised for the assessee so far as the assessment year 1980-81 is concerned, the Special Bench of the Tribunal in the case of Dwarka Das; 1 ITD 308, considered a similar issue in detail and arrived at the conclusion, on the basis of a Supreme Court decision, that the order of the Income-tax Officer merges in the order of the Commissioner of Income-tax (Appeals) on all points on which the Commissioner of Income-tax (Appeals) could have passed an order either giving relief or effecting enhancement. This view has again been reiterated by the Special Bench of the Tribunal in the case of Shri Arlonda Mills Ltd. (3 SOT 311). Hence, the order of the Commissioner of Income-tax is not tenable in law so far as the assessment year 1980-81 is concerned, on this ground alone."

This finding has not been challenged nor any question has been raised in this regard. Only while the question is refrained by this Court, the scope of the question has been widened and indirectly it is an additional question, which was called for by this Court. This was not in the application under sections 256(1) and 256(2) filed by the Revenue.

When this Court has no power to call a statement for additional question which has not been proposed in the applications under sections 256(1) and 256(2) of the Act, therefore, now, the question is restricted to the extent that whether the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue.

When the reasoning that after merger of the order of the Income-tax Officer with the order of the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax has no power under section 263 to revise the order of the Income-tax Officer became final so far as the assessment year 1980-81 is concerned, the answer to the question whether the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue will be of academic interest and thus, we decline to answer to question for the assessment year 1980-81.

So far as the question raised for the assessment year 1981-82 is concerned, in this year the doctrine of merger has not been applied because though the appeal was filed against the assessment order, but no order was passed prior to the order passed by the Commissioner of Income-tax under section 263 of the Act. Therefore, there is no question of merger of the Income-tax Officer's order with the Commissioner of Income-tax (Appeals) prior to the order of the Commissioner of Income-tax under section 263 of the Act. We have heard learned counsel on merits. Considering the error found out by the Commissioner of Income-tax in the order of the Income-tax Officer the order of the Income-tax Officer has rightly been revised and set aside for the year 1981-82, invoking the power under section 263 of the Act.

In the result, so far as the question as to whether the Tribunal was justified in holding that the order of the Income-tax Officer for the assessment year 1980-81 is erroneous and prejudicial to the interests of the Revenue, we decline to answer, as the answer to that question will be of academic interest.

So far as the question for the assessment year 1981-82 as to whether the Tribunal was justified in holding that the Income-tax Officer while completing the assessment for the assessment year 1981-82 committed no error prejudicial to the interests of the Revenue, we answer in the negative, that is, in favour of the Revenue and against the assessee.

The application is accordingly disposed of.

BIJITENDRA MOHAN MITRA, J---I agree

M.B.A./101/FCOrder accordingly.