COMMISSIONER OF INCOME-TAX VS EURASIA PUBLISHING HOUSE (P.) LTD
2000 P T D 789
[232 I T R 381]
[Delhi High Court (India)]
Before R. C. Lahoti and J. K. Mehra, JJ
COMMISSIONER OF INCOME-TAX
versus
EURASIA PUBLISHING HOUSE (P.) LTD
Income-tax References Nos. 52, 53, 54 and 55 of 1980, decided on /01/.
th
October 1997. (a) Income-tax---
----Revision---Appeal to AAC---Rectification of mistakes---Doctrine of merger---Scope of doctrine---Application for revision to CIT and appeal to AAC---Order passed in revision by CIT---ITO's order merged in order of CIT---Appeal to AAC rendered incompetent---Order passed by AAC contrary to order of CIT was not valid---Indian Income Tax Act, 1961, Ss. 154 & 264...
(b) Income-tax---
----Rectification of mistakes---Decision on debatable point is not a mistake and cannot be rectified---Mistake which is patent and obvious can alone be rectified ---Concessional rate of tax---Manufacturing concern---Question whether a publishing concern is a 'manufacturing concern is a debatable issue---Order refusing concessional rate of tax to a publishing concern cannot be rectified---Indian Income Tax Act, 1961, S.154.
The following are the principles with regard to the merger of an order of an inferior authority in that of a superior authority; (i) the application of the doctrine of merger cannot be rendered inapplicable by drawing a distinction between an application for revision and an appeal; (ii) the application of the doctrine of merger depends on the nature of the appellate or revisional order in each case and on the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The doctrine of merger is not a doctrine of rigid and universal application. Whether there is fusion or merger of the order of the inferior tribunal into an order by a superior tribunal shall have to be determined by finding out the subject matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute; (iii) ordinarily, a judgment pronounced in appellate or revisional jurisdiction after issuing a notice of hearing to both the parties would replace the judgment of the lower Court thus constituting the appellate or revisional judgment as the only final judgment; (iv) the doctrine of merger does not apply where an appeal is dismissed (a) for default, (b) as having abated by reason of the omission of the appellant to implead the legal representatives of a deceased respondent; (c) as barred by limitation; (v) an appeal dismissed inlimine on the ground of bar of limitation may still be an order in appeal for the purpose of determining whether a right of further appeal would be available or not but that does not amount to saying that the order appealed against merges into the appellate order dismissing the appeal in limine as barred by time.
Only a glaring and obvious mistake of law or of fact being apparent from the record can be rectified.
The assessee a publishing concern was treated as a non-manufacturing company liable to income-tax at the higher rate of tax for the four assessment years 1965-66 to 1968-69. The assessment orders for these years were passed on January 5, 1970, January 19, 1970 and February 7, 1970. On June 12, 1970, the assessee moved application under section 154 of the Income Tax Act, 1961, before the Income-tax Officer for each of these four assessment years, requesting therein that concessional rate of tax should have been applied on the net taxable income as it was an industrial company engaged in publishing books and journals. On December 21, 1970, the Income-tax Officer rejected all the four applications. On December 17, 1970, the assessee-company filed four revision petitions before the Commissioner of Income-tax under section 264 of the Act challenging the orders of assessment in respect of these very assessment years. The common contention raised in all the four revision petitions was that the assessee being a manufacturing company it should have been taxed at the concessional rate applicable to a manufacturing company. All the four revision petitions were dismissed on the merits by the Commissioner of Income-tax by a combined order dated March 28, 1972. The assessee did not challenge the orders of the Commissioner of Income-tax. The assessee on January 4, 1971, preferred appeals to the Appellate Assistant Commissioner against the four orders of the Income-tax Officer dated December 21, 1970, passed under section 154 of the Act. The assessee raised a common plea in these appeals that the Income-tax Officer had gone wrong in rejecting the applications under section 154 and not treating the company as a manufacturing company. The Appellate Assistant Commissioner allowed the appeals on February 22, 1973, and upheld the claim of the company to treat it as a manufacturing concern by following the Appellate Assistant Commissioner's order dated February 14, 1972, referable to the assessment year 1969-70. In the appeals before the Appellate Assistant Commissioner his attention was not invited to the order dated March 28, 1972 of the Commissioner of Income-tax dismissing the assessee's revision petitions. Subsequently, the Appellate Assistant Commissioner exercising jurisdiction under section 154 of the Act on the request of the Income-tax Officer, rectified his appellate orders dated February 22, 1973, after giving a show-cause notice and opportunity to the assessee, and dismissed the appeals resulting in the rejection of the assessee's claim for applicability of the lower rate of tax for the four assessment years 1965-66 to 1968-69. The Tribunal held that the appellate orders of the Appellate Assistant Commissioner dated February 22, 1973, did not suffer from any such infirmity as was required to be rectified by exercising jurisdiction under section 154 for the theory of the assessment orders having merged into the revisional orders of the Commissioner of Income-tax was not applicable on that day, and by the time the Appellate Assistant Commissioner exercised his jurisdiction under section 154 of the Income-tax Act, the order of the Income-tax Appellate Tribunal holding the assessee-company to be a manufacturing company was available which should have been held binding by the Appellate Assistant Commissioner and not the finding recorded in the revisional orders of the Commissioner of Income-tax. Thus both on facts and law the Income-tax Appellate Tribunal held that the order of the Appellate. Assistant Commissioner was liable to be set aside. Accordingly the assessee's appeals were allowed. On a reference at the instance of the Revenue:
Held, reversing the orders of the Appellate Tribunal, that the original orders of assessment---all the four----were dealt with in revision by the Commissioner and the questions---whether the petitioner was a manufacturing company of not and hence entitled to a lower rate of tax or not were adjudicated upon and decided adversely to the assessee by the order of the Commissioner dated March 28, 1972. The assessment orders stood merged in the revisional order of the Commissioner to the extent of that issue. The Appellate Assistant Commissioner could not have thereafter passed any such order (whether original or appellate) which would have had the effect of rectifying the orders of assessment passed by the Income-tax Officer which had ceased to exist as per the theory of merger. Even on the merits in the 60s and early 70s wherein fell- the assessment year 1965-66 to 1968-69, the years relevant for the - purpose of the case at hand, when the Income-tax Officer and the Appellate Assistant Commissioner passed their initial orders, it was a highly debatable question of law as to whether a company not owning its own printing press and binding machine and having processual activities performed elsewhere though for and on behalf of itself could be called a manufacturing company. The opinion on this aspect of law came to be settled much thereafter by the Tribunal deciding appeals relevant to the subsequent years of assessment, i.e., 1969-70 to 1971-72. An order of assessment which had already achieved finality (And where the -plea that the assessee was liable to tax at a lower rate being a manufacturing company was not even raised) could not have been rectified by exercising jurisdiction under section 154, of the Act so as to grant a relief on the merits by upholding a claim based on subsequent change or development of judicial opinion.. On the facts and in the circumstances of the case, the Appellate Tribunal was not justified in holding that the assessee was a manufacturing company and was, therefore, liable to tax at the lower rate for assessment years 1965-66 to 1968-69 which were the subject-matter of appeal before the Tribunal.
Amrit Sagar Gupta v. Sudesh Behari Lal AIR 1970 SC 5; CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC); CIT v. Indian Institute of Public-Opinion Co. (P:) Ltd. (1982) 134 ITR 23 (Delhi); CIT (Addl.) v. Motors and General Finance Ltd. (1983) 142 ITR 424 (Delhi); Balaram (T.S.) v. Voikart Bros. (1971) 82 ITR 50 (SC); Gojer Bros. (P.) Ltd. v. Shri Ratan Lal Singh AIR 1974 SC 1380; Jokhan Rai v. Baikunth Singh AIR 1987 Pat. 133; Mirza Muzamdar Hussain v. Dodla Bhaskara Reddy AIR 1988 AP 13; Nanikutty Amma Kamalamma v. Trivandrum Permanent Bank AIR 1987 Ker. 161; Rathore (S. S.) v. State of M. P. (1989) 74 FJR 425; AIR 1990 SC 10; Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Thirumale AIR 1960 SC 137; Shanmugam (K. M.) v. S. R. V. S. (P.) Ltd. AIR 1963 SC 1626; Sita Ram Goel v. Municipal Board, Kanpur AIR 1958 SC 1036 and Venkatachalam (M.K.), ITO v. Bombay Dyeing ,end Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC) ref.
Sanjeev Khanna, Senior Standing Counsel with Ms. Prem Lata Bansal and Ajay Jha for the Commissioner.
Nemo for the Assessee.
JUDGMENT
R. C. LAHOTI, J.---These are four references under section 2560) of the Income Tax Act, 1961, at the instance of the Revenue seeking the opinion of the High Court on the following four identical questions arising out of a consolidated order of the Tribunal in I T. As. Nos. 2458 to 2461 of 1974-75:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law, in the appeal arising from the rectification proceedings under section 154 of the Income Tax Act, 1961, in giving relief to the assessee on the merits, without there being an error on the face of the record?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was not justified in holding that the appeal before him was incompetent, and superfluous in view of the order of the Commissioner of Income-tax on the same point for the same assessment year?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee was a manufacturing company and was, therefore, liable to tax at the lesser rate?
(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee company was to be taxed at the lesser rate under item II of Para. F of Part I of Schedule I to the Finance Act, 1965, as a manufacturing company?"
It would suffice to briefly notice the relevant facts in their chronological order.
The four assessment years involved are 1965-66 to 1968-69. The Income-tax Officer completed the assessments under section 143(3) of the Act on the dates given hereunder:
| Assessment year | Date of assessment |
| 1965-66 | 5-1-1970 |
| 1966-67 | 5-1-1970 |
| 1967-68 | 19-1-1970 |
| 1968-69 | 7-2-1970 |
For all the four assessment years, the assessee was treated as a non-manufacturing company liable to income-tax at higher rate of tax though such a finding is not specifically mentioned in the orders.
For the assessment years 1965-66 and 1966-67, the assessee preferred appeals before the Appellate Assistant Commissioner and the same were disposed of vide order dated March 6, 1970. The question whether the company was a manufacturing company or not, was neither raised nor agitated before the Appellate Assistant Commissioner.
For the assessment years 1967-68 and 1968-69, the assessee did not prefer any appeal.
On June 12, 1970, the assessee moved four applications under section 154 of the Act before the. Income-tax Officer for each of the four assessment years under consideration requesting therein that concessional rate of tax should have been applied on the net taxable income of the company as it was an industrial company engaged in publishing books and journals. On December 21, 1970 the Income-tax Officer rejected all the four applications.
On December 17, 1970, the assessee-company filed four revision petitions before the Commissioner of Income-tax under section 264 of the Act challenging the orders of assessment in respect of these very assessment years. The common contention raised in all the four revision petitions was that the assessee being a manufacturing company it should have been taxed at the concessional rate applicable to a manufacturing company. All the four revision petitions were, dismissed by the Commissioner of Income-tax, vide his combined order dated March 28, 1972. The dismissal was on the merits. The assessee did not further challenge the orders of the Commissioner of Income-tax.
On January 4, 1971, the assessee had preferred four appeals before the Appellate Assistant Commissioner against the four orders of the Income tax Officer dated December 21, 1970, passed under section 154 of the Act, raising a common plea that the Income-tax Officer had gone wrong in rejecting the applications under section 154 and in not treating the company as a manufacturing company. During the course of hearing before the Appellate Assistant Commissioner the assessee-company's representative referred to an order dated February. 14, 1972, passed by the predecessor-in- office of the then Appellate Assistant Commissioner for the assessment year 1969-70 wherein the claim of the company to treat it as a manufacturing company was upheld. The Appellate Assistant Commissioner was persuaded to allow the appeals vide his order dated February 22, 1973, following the Appellate Assistant Commissioner's order dated February 14, 1972, referable to the assessment year 1969-70. Thus the assessee's claim for lower rate of tax rejected by the Income-tax Officer under section 154 was allowed -by the Appellate Assistant Commissioner for the four assessment years in question. It is pertinent to note that in the four appeals before the Appellate Assistant Commissioner attention was not invited to the order dated March 28, 1972, of the Commissioner of Income-tax dismissing the assessee's revision petitions.
The Appellate Assistant Commissioner thereafter received a request of the Income-tax Officer for rectification of his orders dated February 22, 1973, inviting the latter's attention to the fact that the assessee's revisions having been rejected by the Commissioner of Income-tax and the assessment orders of the Income-tax Officer having been maintained in revision, the Appellate Assistant Commissioner could not have exercised his appellate jurisdiction. The Appellate Assistant Commissioner having satisfied himself on the provisions of section 154 being attracted in such circumstances issued notice to the assessee to show cause as to why his orders dated February 22, 1973, be not recalled and rectified as there was a mistake apparent from the record. The Appellate Assistant Commissioner held that the very same question whether the assessee was entitled to the benefit of a lower rate of tax being a manufacturing company was decided by the Commissioner of Income-tax adverse to the assessee and hence the same question could not have been agitated before the Appellate Assistant Commissioner for the same assessment years. The appeals before the Appellate Assistant Commissioner were incompetent and superfluous. The appeal should have been rejected as against being allowed. On these finding, the Appellate Commissioner exercising jurisdiction under section 154 of the Act rectified his appellate orders dated February 22, 1973, and dismissed the appeals resulting in the rejection of the assessee's claim for applicability of the lower rate of tax.
The assessee preferred appeals before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal allowed all the four appeals. During the course of its order, the Tribunal observed, inter alia:
"In our view, there is substance in the pleas put forth by the learned authorised representative of the assessee. We have seen that though the assessee had moved an application under section 264 before the Commissioner of Income-tax on December 17, 1970, which was before the passing of the Income-tax Officer's order under section 154 on December 21, 1970, the Commissioner of Income tax had not disposed of the application under section 264 till as late as March 28, 1972. Meanwhile the assessee had filed on January 4, 1971, an appeal to the Appellate Assistant Commissioner against the Income-tax Officer's order under section 154 dated December 17, 1970 (sic-December 22, 1970). In this appeal, therefore, the Appellate Assistant Commissioner was concerned with an order of the Income-tax Officer, which had not merged with the Commissioner of Income-tax's order. Moreover, before the rectification order of the Appellate Assistant Commissioner on the application by the Income-tax Officer could be passed, the order of the Delhi Bench 'C' of the Tribunal in ITA Nos. 427, 866 and 867 of years 1969-70 to 1971-72 was already available before him wherein the Tribunal while endorsing the appellate orders of the Appellate Assistant Commissioner observed as under:
'Although the assessee was not owning a printing press or a binding machine, it was responsible for the production of books right from the point of selling the complete books. All the intermediate processes including the process of printing and binding were undertaken at the assessee's risk and cost and responsibility and it, was getting the books printed and bound under contracts other than contracts of purchase. In most cases it was supplying the raw; materials and even the stores required for completing the processes, say of binding. It was also responsible for design of the jackets and, also for providing the material for the same. In the circumstances, the assessee was clearly engaged in the manufacture of goods and the mere fact that it did not own the printing press or the binding machine did not in any manner derogate from its engagement as such. The orders of the Appellate Assistant Commissioner, therefore, are in accordance with law and did not call for any interference on our part. "'
In substance, the Income-tax Appellate Tribunal while hearing the, A2 appeal arising out of the assessment years 1969-70 to 1971-72 had held the assessee to be a manufacturing company. In its opinion, it was the finding of the Income-tax Appellate Tribunal which was binding on the Appellate Assistant Commissioner in supersession of the finding of the Commissioner of Income-tax holding the assessee not to be a manufacturing company (though the findings recorded by the two authorities were relatable to different sets of years of assessment but the question of law was the same). M, Secondly, on the date of filing of the appeals before the Appellate Assistant Commissioner, the assessment orders under appeal had not merged in the order of the Commissioner of Income-tax and, therefore, the jurisdiction ofthe Appellate Assistant Commissioner to dispose of the appeals was not taken away. Thus the Income-tax Appellate Tribunal has proceeded to hold that the appellate orders of the appellate Assistant Commissioner dated February 22, 1973, did not suffer with any such infirmity as was required to be rectified by exercising jurisdiction under section 154 for the theory of the assessment orders having merged into the revisional orders of the Commissioner of Income-tax was not applicable on that day, and by the time the Appellate Assistant Commissioner exercised his jurisdiction under section 154 of the Income-tax Act, the order of the Income-tax Appellate Tribunal holding the assessee' company to be a manufacturing company was available which should have been held binding by the Appellate Assistant Commissioner and not the finding recorded in the revisional orders of the Commissioner of Income-tax. Thus, both on facts and law the Income-tax Appellate Tribunal held the order of the Appellate Assistant Commissioner (referred to in paragraph 2.8 (page 386 supra) above) liable to be set aside.
The appeals preferred by the assessee have been allowed: The present references arise out of this consolidated order of the Income-tax Appellate Tribunal.
Mr.. Sanjeev Khanna, learned senior standing counsel for the Revenue, has submitted that the view of the law taken by the Tribunal is wholly unsustainable and that is why the questions referred to the High Court do arise as referable questions of law from the order of the Tribunal and all the questions deserve to be answered in favour of the Revenue. He has forcefully advanced two contentions on the theory of merger and jurisdiction of rectification referable to section 154 which we proceed to notice and state shortly hereinafter.
Section 154 of the Income Tax Act, 1961, speaks of "any mistake apparent from the record" being rectified by an income-tax authority. It has been held in T. S. Balaram. ITO v. Volkart Bros. (1971) 82 ITR 50 (SC) that a mistake apparent on the record must be an obvious arid patent mistake and not something which can be established by a long-drawn thrust of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point is not a mistake apparent from the record. (Also see K. M. Shanmugam v. S. R. V. S. (P.) Ltd. AIR 1963 SC 1626 and Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale, AIR 1960 SC 137).
The original orders of assessment--all the four--were dealt with in revision by the Commissioner and the questions--whether the petitioner was a manufacturing company or not and hence entitled to a lower rate of tax or not, were adjudicated upon and decided adversely to the assessee by the order of the Commissioner dated March 28, 1972. The assessment orders stood merged in the revision order of the Commissioner to the extent of that issue. The Appellate Assistant Commissioner could not have thereafter passed any such order (whether original or appellate) which would have had the effect of rectifying the orders of assessment passed by the Income-tax Officer which had ceased to exist as per the theory of merger.
We may deal with the first contention relating to the applicability of section 154 of the Income Tax Act, 1961, to the facts of the case at hand.
In M. K. Venkatachalam, ITO v. Bombay Dyeing and Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC) their Lordships of the Supreme Court have held that a glaring and obvious mistake of law or of fact being apparent from the record can be rectified.
In CIT v. Indian Institute of Public Opinion Company (P.) Ltd. (1982) 134 ITR 23 a Division Bench of the Delhi High Court has held (page 27):
"It is well settled that the provisions of section 154 cannot be resorted to in order to make a revision in a matter on which there could be two plausible interpretations."
In CIT (Addl.) v. Motors and. General Finance Ltd. (1983) 142 ITR 424 another Division Bench of this High Court has held (head-note):
"Section 154 of the Income Tax Act, 1961, has a very limited application and enables the rectification of any mistake apparent from the record. The power could be exercised by the Income-tax Officer to correct obvious errors of law and those mistake which are apparent from the record. A decision on a debatable point of fact and the failure to apply the law to a set of facts which remain to be investigated cannot be corrected by way of rectification. "
It cannot, therefore, be doubted that whenever there is a debatable point of fact which needs to be investigated or whenever there is an arguable question of law on which a final opinion is capable of being formed either way, a finding of fact or law recorded one way or the other even if founds to be erroneous either by a probe into the facts or on account of law having been settled subsequently would not be available for change by exercising jurisdiction for rectification of mistakes under section 154 of the Income Tax Act, 1961.
In the 60s and early 70s wherein fall the assessment years 1965-66 to 1968-69, the years relevant for the purpose of the case at hand, and when the Income-tax Officer and the Appellate Assistant Commissioner passed their initial orders, it was a highly debatable question of law as to whether a company not owning its own printing press and binding machine and having processual activities performed elsewhere though for and on behalf of itself could be called a manufacturing company. The opinion on this aspect of law came to be settled much thereafter by the Tribunal deciding appeals relevant to some subsequent years of assessment, i.e., 1969-70 to 1971-72. An order of assessment which had already achieved a finality (and where the plea that the assesssee was liable to tax at a lower rate being a manufacturing company was not even raised) could not have been rectified by exercising jurisdiction under section 154 of the Act so as to grant a relief on the merits by upholding a claim based on subsequent change or development of judicial opinion.
By way of abundant caution it may be placed on record that the Appellate Assistant Commissioner rightly entertained the application of the Department under section 154 of the Act and recalled his earlier order at the instance of the Department inasmuch as the Appellate Assistant Commissioner had committed an obvious error of law in allowing the assessee's appeal earlier by overlooking the fact that the assessment orders of the Income-tax Officer wherein rectification was sought had ceased to exist, having merged into the revisional order of the Commissioner of Income-tax.
Taking up the second contention, we may proceed to notice and state the relevant principle on the doctrine of merger which have come to be well settled by this time. Where an appeal is preferred and the appellate Court disposes of the appeal after a contested hearing, the order or decree of the original Court merges into the appellate order or decree. For all practical purposes, thereafter it is the appellate order or decree which exists and has to be seen as effective and binding between the parties including the purposes of execution, limitation and res judicata. (For general principles see Gojer Bros.(P.) Ltd. v. Shri Ratan Lai Singh, AIR 1974 SC 1380, Jokhan Rai v. Baikunth Singh, AIR 1987 Patna 133 (FB), Nanikutty Amma Kamalamma v. Trivandrum Permanent Bank, AIR 1987 Ker. 163. The proposition has been well stated in the decision of the Kerala High Court in the following words (page 166):
"The jurisprudential justification for the application of the doctrine of merger seems to be that there cannot be at one and the same time, more than one operative order or decree governing the 'same matter. So, it follows that a judgment of an inferior Court if subjected to an examination by the superiors Court and the superior Court disposes of 'that matter, the judgment of the inferior Court ceases to have existence as an operative judgment in the eye of law."
There is no difference between an appellate and revisional order, so far as the applicability of the doctrine of merger is concerned to an order, judgment or decree having been subjected to scrutiny of the appellate or revisional jurisdiction exercised by the superior authority or Court over the subordinate authority or Court. In Amrit Sagar Gupta v. Sudesh Behari Lal, AIR 1970 SC 5, their Lordships have held that the right of appeal is one of entering a superior Court and invoking its aid and interposition to redress the error of the Court below Two things are required to constitute the appellate jurisdiction--(i) the existence of relation of superior and inferior Courts, and (ii) the power on the part of the former to review the decision of the latter. When the power of revision is conferred on such superior Court, then the jurisdiction which is being exercised is a part of the general appellate jurisdiction of the superior Court. It is only one of the modes of exercising the power conferred by the statute; basically and fundamentally it is the appellate jurisdiction which is being invoked in- exercise in a wider and larger sense. Their Lordships have held that order of the Court below having merged into the order of the High Court passed in exercise of revisional jurisdiction conferred by section 115 of the Civil Procedure Code, the writ jurisdiction of the High Court could not be invoked to challenge the order of the Court below.
It is true that the revisional order in the case at hand was passed by the Commissioner of Income-tax which is not a court. However, the distinction between a Court and a Tribunal or Departmental authority exercising appellate or revisional jurisdictions has been lost so far as the applicability of the doctrine of merger is concerned. In S. S. Rathore v. State of Madhya Pradesh, AIR 1990 SC 10, their Lordships have held while overruling an earlier decision of the Supreme Court in the case of Sita Ram Goel v. Municipal Board, AIR 1958 SC 1036 (head-note):
"The distinction made between Courts and Tribunals as regards 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 Tribunal and other constituted authorities. In fact, in respect of many disputes the jurisdiction of the Court is now barred and there is a vesting of jurisdiction in Tribunal and authorities."
The Lordships have held that when the Conduct Rules for Government servants provide for departmental remedies by way of appeal or revision, against the order of punishment passed, it is the appellate or revisional order in which the original order of punishment would merge. We see no reason to hold why the same principle should not apply to the appellate or revisional orders passed under the tax laws inasmuch as the appellate or revisional jurisdiction conferred on such superior authorities is by statute well recognised.
We have an illuminating judgment on the doctrine of merger delivered by a Division Bench of the Andhra Pradesh High Court in Mirza Muzamdar Hussain v. Dodla Bhaskara Reddy. AIR 1988 AP 13, Jeevan Reddy J. (as his Lordship then, was), spoke for the Division Bench having taken into consideration all the available Supreme Court decisions on the point as also the decisions by High Courts. The following principles emerge:
(i) the application of the doctrine of merger cannot be rendered in applicable by drawing a distinction between an application for revision and an appeal;
(ii) the application of the doctrine of merger depends on the nature of the appellate or revisional order in each case and on the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The doctrine of merger is not a doctrine of rigid and universal application. Whether there is fusion or merger of the order of the inferior tribunal into an order by a superior Tribunal shall have to be determined by finding out the subject-matter of appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute;
(iii) ordinarily, a judgment pronounced in appellate or revisional jurisdiction after issuing a notice of hearing to both the parties would replace the judgment of the lower Court thus constituting the appellate or revisional judgment as the only final judgment;
(iv) the doctrine of merger does not apply where an appeal is dismissed (i) for default, (ii) as having abated by reasons of the omission of the appellate to implead the legal representatives of a deceased respondent; (iii) as barred by limitation,
(v) an appeal dismissed in limine on the ground of the bar of limitation may still be an order in appeal for the purpose of determining whether a right of further appeal would be available or not but that does not amount to saying that the order appealed against merges into the appellate order dismissing the appeal in limine as barred by time.
Section 264 of the Income Tax, 1961, which confers revisional jurisdiction on the Commissioner over orders passed by an authority subordinate to him is wide in its terms. The Commissioner is empowered to make such inquiry or cause such inquiry to be made after calling for the record of any proceedings under this Act as he thinks fit and may pass such order thereon as he thinks fit subject to the provisions of the Act. The Commissioner is governed by rules of limitation. The function discharged by the Commissioner is judicial in nature.
We are, therefore, clearly of the opinion that the order forming the subject-matter of revision would merge into revisional order of the Commissioner to the extent of the controversies or issues forming the subject-matter of revision and decided ' thereby expressly or by necessary implication.
We can usefully borrow on the principles too well settled by a series of pronouncements on section 152 of the Code of Civil Procedure, 1908, which speaks of amendment of judgment, decree or orders. Unless and until a decree is superseded in appeal or revisions, the Court which passed it is entitled to amend it under this section. Where an appeal or revision has been preferred from the decree, the power of the Court of first instance to amend the decree depends on the question whether the decree has been superseded by the appellate decree or is left intact. Where the decree of the lower Court is confirmed, reversed or varied, it is superseded by the decree of the appellate Court, and the only Court that can amend the decree thereafter is the appellate Court. But where the decree of the lower Court is left intact, as for instance, where an appeal or revision is dismissed in limine or for default, or where the amendment relates to a portion of the decree which is outside the scope of the appeal or where the appeal is withdrawn, the lower Court is entitled to amend the decree. (see Civil Procedure Code by Chitaley Vo1.2, P.607, 10th edition).
It is true that on the date on which the assessee had filed appeals before the Appellate Assistant Commissioner, the revisions before the Commissioner of Income-tax were pending and, therefore, the orders of the Income-tax Officer had not merged into the order of the Commissioner of Income-tax. However, the Appellate Assistant Commissioner came to decide the appeals on February 22, 1973, by which time the revisions had stood decided by the Commissioner of Income-tax on March 28, 1972, on the merits. Therefore, the assessment orders of the Income-tax Officer underrevision had merged into the order of the Commissioner of Income-tax and consequently lost their identity. The same issue which was agitated in appeal before the Appellate Assistant Commissioner had stood decided by the Commissioner of Income-tax. The Appellate Assistant Commissioner could not have, therefore, decided the appeals read-judicating upon the same issue and taking a different view. We may note with advantage the observations of their Lordships of the Supreme Court in CIT v. Amritlal Bhogilal and Co. (1958) 34 ITR 130, 140, wherein their Lordships have held that pendency of an appeal may put an order under appeal in dispute but until the appeal is finally disposed of, the said order subsists and is effective in law. Mere pendency of an appeal does not have the effect of suspending the operation of the order under appeal. In our opinion, the pendency of the revision before the Commissioner of Income-tax did not suspend or render ineffective the order under revision but with the decision of the Commissioner of the Income-tax in revision, the order of the Income-tax Officer had ceased to exist having merged into the revisional order of the Commissioner of Income-tax.
In the light of the above-said discussion, the questions are answered as under:
(1) The proceedings under section 154 of the Income Tax Act, 1961, initiated by the assessee were misconceived and unsustainable in law and hence the Tribunal was not justified in giving relief to the assessee on the merits in an appeal arising from the rectification proceedings as there was no error apparent from the record. The question is, therefore, answered in the negative, i.e., in favour of the Revenue and against the assessee.
(2) By the date on which the Appellate Assistant Commissioner came to decide the appeals, revisions against the orders of assessment were confirmed by the Commissioner of Income-tax and in view of the orders of the Commissioner of Income-tax, the appeals before the Appellate Assistant Commissioner were rendered incompetent. Question No.2 is, therefore, answered by holding that the appeals before the Appellate Assistant Commissioner were incompetent and superfluous in view of the order of the Commissioner of Income-tax on the same point for the same assessment year.
(3) On the fact and in the circumstances of the case, the Appellate Tribunal was not justified in holding that the assessee was a manufacturing company and was, therefore, liable to tax at the lower rate (for the assessment years which were the subject-matter of appeal before the Tribunal)
(4) On the facts and circumstances of the case, the Appellate Tribunal was not justified in holding that the assessee--company was to be taxed at the lesser rate being a manufacturing company (for the assessment year forming the subject-matter of appeals before the Income-tax Appellate Tribunal). The question is answered in the negative, i.e., in favour of the Revenue and against the assessee.
M.B.A./3237/FC Reference answered.