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Assam Co-operative Apex Bank Ltd. Vs. Commissioner of Income-tax, Assam. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 33 of 1974
AppellantAssam Co-operative Apex Bank Ltd.
RespondentCommissioner of Income-tax, Assam.
Excerpt:
- - we have also gone through the statement of the case as well as the elaborate order of the tribunal. sen states that not having been satisfied with the decision of the cit they filed writ petitions before the honble high court, gauhati, and the same are pending for decision. the onus in this case was, therefore, clearly on the bank to proved that the securities in question were held as trading assets. not having done that and having relied upon purely legal proposition which is clearly untenable, i do not see how can appellant claimed any exemption under section 264 has given adequate reasons for holding that the securities were not a part of the stock-in-trade. i am therefore, satisfied that on the facts of the case the appellant has proved that the securities in question were held..... pathak c.j. - the following question of law has been referred by the income- tax appellate tribunal, gauhati bench (hereinafter referred to as "the tribunal"), under section 256(1) of the income-tax act, 1961 (hereinafter referred to as "the act") :"whether, on the facts and in the circumstances of the case, the tribunal was justified in setting aside the consolidated order dated march 31, 1970, of the appellate assistant commissioner of income-tax, shillong range, shillong relating to the assessment year 1967-68, 1968-69, and 1969-70, with a direction to give a finding on the point as to what amount out of the securities is the stock-in-trade or circulating capital of the assessee, the assam co-operative apex bank ltd. and which is the capital investment of the.....
Judgment:

PATHAK C.J. - The following question of law has been referred by the Income- tax Appellate Tribunal, Gauhati Bench (hereinafter referred to as "the Tribunal"), under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the consolidated order dated March 31, 1970, of the Appellate Assistant Commissioner of Income-tax, Shillong Range, Shillong relating to the assessment year 1967-68, 1968-69, and 1969-70, with a direction to give a finding on the point as to what amount out of the securities is the stock-in-trade or circulating capital of the assessee, the Assam Co-operative Apex Bank Ltd. and which is the capital investment of the assessee-bank ?"

Officer that the assessees sole income including interest on securities was in the nature of business income and, therefore, it was totally exempt under section 80P(2)(a)(i) of the Act. The Income-tax Officer found from the records that the assessee was assessee only on interest on securities during the earlier year holding the opinion that the securities ware not trading assets of the assessee, and therefore, the income in question was not business income.

Against the order of the Income-tax Officer in the preceding year, the assessee field revision petitions under section 264 of the Act before the Commissioner of Income-tax, who disposed of the assessee on April 19,1969, confirming the orders of the Income-tax Officer.

The assessee thereafter moved the High Court in Civil Rules Nos. 799 to 809 of 1969 [Assam Co-operative Apex Bank Ltd. v. commissioner of Income-tax against the order of the Commissioner passed on the relevant time. The said Civil Rules were pending for decision at the relevant time. The Income-tax Officer took the view that unless the Commissioners orders stand and on that basis the Income-tax Officer held that the income derived by the assessee as interest on securities were to be treated as taxable income under section 18 of the Act. The Income-tax Officer in the assessment order for the assessment order for the assessment year 1967-68 has observed that the assessee, being a co-operative society, its income is exempt except Rs. 3,61,503 which is the interest on securities.

For the assessment year 1968-69, on the same grounds the Income-tax Officer assessed the taxable income of the assessee at Rs. 4,38,427 as interest on securities. On similar ground for the assessment year 1969-70, the Income- tax Officer assessed the taxable income of the assessee at Rs. 5,45,372 as interest on securities.

The assessee preferred appeals before the Appellate Assistant Commissioner against the assessment orders of the Income-tax Officer relating to the aforesaid three assessment years. By his consoildated order dated March 31.1970, the Appellate Assistant Commissioner rejected the three appeals and confirmed the assessment order passed by the Income-tax Officer. From the order of the Appellate Assistant Commissioner it is found that the only point raised before him was whether the income derived by the assessee from certain Government securities were assessable to tax or not. The Appellate Assistant Commissioner has observed that such income from Government securities amounted to Rs. 3,61,503 for the assessment year 1967-68, Rs. 4,38,427 for the assessment year 1968-69 and Rs. 5,45,372 for the assessment year 1960-70.

The assessee thereafter filed three appeals before the Tribunal from the said consolidated order of the Appellate Assistant Commissioner, the appeals being numbered as ITA Nos. 2092 (Gau), 2093 (Gau) and 2094 (Gau) of 1970-71. The ground taken in these appeals is that the interest from the Government Securities is business income of the assessee, and, therefore, it was exempt from taxation under section 80P(2)(a)(i) of the Act.

The Tribunal by its consolidated order dated August 29, 1973, passed in the three appeals set aside the consolidated order dated March 31, 1970, passed by the Appellate Assistant Commissioner relating to the assessment year 1967-68, 1968-69 and 1969-70 and remanded the three appeals to the Appellate Assistant Commissioner for disposal in accordance with law and in the light of the directions given in the Tribunals judgment after giving opportunity to both the parties of being heard. In its order the Tribunal has held that the investment in securities under section 24(2A) of the Banking Regulation Act, 1949, is an investment in securities for the purpose of banking business, that the investment in share cannot be said to be easily realisable amounts and, therefore, they cannot be held to be stock-in-trade and that the amount of the reserve fund which is invested in securities may be said to be sterilise and blocked and it cannot be withdrawn at the will of the assesee-bank and, therefore, not easily realisable securities. The Tribunal has further observed that the circumstances that the borrowings from the State Bank of India have been increasing and thus the borrowings are invested in securities instead of recovering the amounts of securities which show that all the amounts invested in securities cannot be said to be stock-in-trade or the circulating capital of the assessee. That the Income- tax Officer and the Appellate Assistant Commissioner have only held that the investment in securities cannot be said to be stock-in-trade of the assessee-bank, but they have not given a decision on these lines. Under the Circumstance, the Tribunal finds, the Appellate Assistant Commissioner is required to give a finding as to which amount out of the investment which of the amounts can be treated as capital investment of the assessee. The Tribunal has further observed that the assessee argued the case before the securities is the stock-in-trade or circulating capital of the assessee and which of the amounts can be treated as capital investment of the assessee. The Tribunal has further observed that the assessee argued the case before the Income-tax Officer and the Appellate Assistant Commissioner on the understanding that all the investments have to be taken as stock-in-trade or circulating capital of the . As it was not possible for the Tribunal to decide this question of fact without the findings given by the Income-tax Officer or the Appellate Assistant Commissioner, the Tribunal thought it proper to remand the appeals to the Appellate Assistant Commissioner after setting aside the order of the Appellate Assistant Commissioner.

On the above facts the aforesaid question of law has been referred.

We have heard Mr. Kalyan Ray, the learned counsel for the petitioner- assessee, and Mr. G. K. Talukdar, the learned standing counsel for the department, at length. We have also gone through the statement of the case as well as the elaborate order of the Tribunal.

As observed hereinabove, in the relevant assessment years 1967-68,1968-69 and 1669-70, the assessee, the Assam Co-operative Apex Bank Ltd., is a co- operative society which comes within the definition as given in section 2(19) of the Act. That being so, the deduction as mentioned in section 80P of the Act may be available to the assessee if, of course, the requirements of that section are fulfilled in the case of the assessee.

The relevant portion of section 80P of the Act reads as follow :

"80P. Deduction in respect of income of co-operative societies. - (1) Where in the case of an assessee being a co-operative society, the gross total income includes any income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (1) shall be the following, namely : -

(a) in the case of a co-operative society engaged in -

(i) carrying on the business of banking or providing credit facilities to its members, or....

the whole of the amount of profit and gains of business attributable to any one or more of such activities."

In the assessment order passed by the Income-tax Officer for the assessment year 1967-68 (vide annexure "A" at page 2 of the paper-book) it has been observed as follows :

"In response to notice under section 143(3) Shri B. K. Sen, Addl. Secretary, appears and states that the banks sole income including interest on securities is in the nature of business income and this is totally exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. It is found from the records that the assessee has been assessed only on intertest on securities in earlier years holding the opinion that the securities were not a trading asset of the bank and that income, therefore, was not business income. Against the ITOs orders the assessee had filed revision petitions u/s 264 of the I.T. Act, 1961, before the Commissioner of Income- tax, Assam, etc. The Commissioner of Income-tax has disposed of the petition of 19-4-1969 confirming the action of the ITO. Shri B. K. Sen states that not having been satisfied with the decision of the CIT they filed writ petitions before the Honble High Court, Gauhati, and the same are pending for decision. Unless there is any otherwise decision of the Honble High Court, Gauhati, the earlier decision of the Deptt. still stands for the assessment in question. Hence, the income derived by the bank as interest on securities will have to be treated as taxable income u/s of the I.T. Act. The books of accounts produced are examined and the case is discussed. Total income is computed as below :

 

Rs.

Net profit as per a/c.

 

17,81,874

Addl. Income-tax

Rs. 65,127

 

Surcharge

Rs. 9,200

74,327

 

18,56,201

Less : Interest on Treasury savings a/c.

2,069

 

Total income

Rs. 18,54,132

Being a co-operative society, income is exempt, except Rs. 3,61,503 being the interest on securities. Give tax credit of Rs. 74,327 deducted at source."

Thus, from the assessment order of the Income-tax Officer for the assessment year 1967-68, it is found that in the opinion of the Income-tax Officer as in the earlier years, interest on securities was taxable as it was not business income.

Secondly, it is found from the order of the Income-tax Officer that the particular assessee approached the Commissioner of Income-tax in revision under section 264 of the Act against the assessment of tax on interest on securities for the earlier years and the Commissioner rejected the revision petitions and upheld the order of the Income-tax Officer for the earlier years, and thought the assessee had moved the High Court against the orders of the Commissioner of Income-tax passed on the revision petitions and till then the cases before the High Court were not disposed of, the order of the Commissioner of Income-tax stood valid and the Income-tax office accordingly followed the order of the Commissioner of Income-tax and assessed tax on interest on securities for the relevant assessment year.

Thirdly, from the order of the Income-tax Office it is very clear that the assessee being a co-operative society, its other incomes are exempt except Rs. 3,61,503 which was the interest on securities and that amount was only for that assessment year.

Similarly, for the assessment year 1968-69, on the reasonings given in the assessment order for the assessment year 1967-68, the Income-tax Officer assessed to tax the interest on securities and the total taxable income for the assessment year 1968-69 was assessed at Rs. 4,38,427.

Similarly, for the assessment year 1969-70, the Income-tax Officer, relying on the reasonings given in his assessment order for the assessment year 1967-68, brought the interest on securities to tax and the taxable income was assessed at Rs. 5,45,372 for the assessment year 1969-70.

It is, therefore, very much clear that the assesee was affected by the assessment order of the Income-tax Officer for the three relevant assessment years relating to the tax on interest on securities only.

Thereafter, the assessee preferred three appeals before the Appellant Assistant Commissioner of Income-tax with respect to three assessment orders and these appeals were numbered as Appeals Nos. 167-K & J, 168-K & J and K & J of 1969-70. By a consolidated order dated March 31, 1970, the Appellate Assistant Commissioner dismissed all the three appeals and confirmed the assessment for all the three assessment year as made by the Income-tax Officer.

In his order, the Appellate Assistant Commissioner has in his turn also relied on the decision of the Commissioner of Income-tax in his respect and he has observed as follows :

"It is settled law that an appellant claiming an exemption under a provision of law must proved that its case is covered by any particular provision. The onus in this case was, therefore, clearly on the bank to proved that the securities in question were held as trading assets. Not having done that and having relied upon purely legal proposition which is clearly untenable, I do not see how can appellant claimed any exemption under section 264 has given adequate reasons for holding that the securities were not a part of the stock-in-trade. The Income-tax Officer has followed the Commissioner of Income-taxs decision. It was clear, therefore, that it was the appellants duty to point out the facts which would negative the findings of fact by the Commissioner of Income-tax. This, as mentioned, has has not been done."

Thereafter, after discussing certain matters, the Appellate Assistant Commissioner has observed as follows :

"I am therefore, satisfied that on the facts of the case the appellant has proved that the securities in question were held as stock-in-trade and trading assets."

Thus, it is quit clear that what was upheld by the Appellate Assistant Commissioner in the Income-tax Officers order determining taxable income for the assessment year 1967-68 at Rs. 3,61,503, for the assessment year 1968-69 at Rs. 4,38,427 and for the assessment year 1969-70 at Rs.5,45,372 and all these incomes were the interest on securities.

Against the appellate order of the Appellate Assistant Commissioner the assessee preferred three appeals before the Tribunal, which were numbered as I.T.A. Nos. 2092 (Gau), 2093 (Gau) and 2094 (Gau) of 1970-71, and by a consolidated order dated August 29,1973, the Tribunal set aside the order of the Appellate Assistant Commissioner and remanded the appeals as aforesaid.

It may observed here that against the order of the Appellate Assistant Commissioner, the Commissioner of Income-tax did not file any appeal nor any cross-objection. That being the position, the Tribunals order must confine to the order of the Appellate Assistant Commissioner against which the assessee had come on appeal before it.

The question of law referred for dicision raises two points, namely, (i) whether the Tribunal was justified in setting aside the consolidated the assessment year 1967-68, 1969-70, and (ii) whether after setting aside the Appellate Assistant Commissioners order the Tribunal was justified in remanding the appeals to the Appellate Assistant Commissioner to give a finding on the points as the points as to what amount of the securities is the stock-in-trade or circulating capital of the assessee-bank and which amount is the capital investment of the assessee-bank.

The Income-tax Officer brought the interest on securities to tax holding that it was not the business income of the assessee. In repelling the contentions of the assessee the Income-tax Officer relied on the decision of the Commissioner of Income-tax passed on the revision petition for earlier year. Similarly, the Appellate Assistant Commissioner also relied on the dicision of the Commissioner of Income-tax on this point. Commissioner of Income-taxs order for the earlier year were challenged by the assessee in Civil Rules Nos. 799 to 809 of 1969 [Assam Co-operative Apex Bank Ltd. v. Commissioner of Income-tax ] and these Civil Rule were disposed of by the High Court on September 25, 1973.

In its judgment in Civil Rules Nos. 799 to 809 of 1969 this court has observed as follows (Gau) :

"The petitioners case and part of its circulating capital and accordingly any interest received on deposit of such securities would be trading income and as such exempt from taxation under the aforesaid provision.

The Commissioner in his order under section 264 of the Act, however, held that the petitioner was not entitled to any exemption under section 81 of the Act on the ground that the petitioner was not a dealer in securities .....

The test that was applied by the Commissioner was that unless the prtitioner was a dealer in securities, it would not get the benefit of the section 81 of the Act. The Commissioner also had held that in no circumstances could income from investment on securities be regarded as income from business for any purposes of the Act.......

From the decisions cited above, it would clearly emerge that it is not necessary that the petitioner need have been primarily or exclusively a dealer in securities, in order to quality for the exemption under section 81 of the Act. All that is necessary for the petitioner to show is that the interest was received from Government securities, which had been invested by the co-operative bank as its trading assets, in other words, that the securities represented the funds of the petitioner, which were part ofitscirculating capital.........

In the instant case, the petitioner had invested part of its funds under bye-law 4(h) of uts rykes. This reads as under :

To but and sell, for legitimate investment of the surplus funds, securities of the Government of India or the Government of Assam, or other securities specified in clauses (a), (b), (c) and (d) of section 20 of the Indian Trusts Act and to act as agents of co-operative societies for the purchase and saleof shares and securities.

The petitioners contention before the Commissioner as well as before this court has been that the securities are the trading assets of the bank and that they held the said securities as part of its banking business as provided and prmitted under the aforesaid bye-law 4(h)......

However, the Commissioner came to a clear finding that the interest on securities could be held to have been related to the societys banking business. Nevertheless, it found that since the petitioner was not dealing in securities and sicne the profit and loss was not disclosed in a statement as such dealer in securities, the petitioner was not entitled to the benefit under the aforesaid section of the Act.

In our opinion, the Commissioners finding that only a dealer in securities is entitled to the benefit under section 81 and that a co-operative society, whcih has invested its available funds in securities and has received some interest thereon, is not entitled to any exemption in regard to such interest under the section, is clearly wrong. We are also of the opinion that the Commissioners finding in no circumsrtances can the investment and securities be regarded as income from business is also clearly wrong in view of the decisions cited above...

The learned standing counsel submitted that all these factors including bye- laws (4)(h) and 4(d) were taken into cinsideration by the Commissioner before he came to his finding that the investments did not represent the petitioners trading assest. We, however, cannot subscirbe to his submission in view of the fact that the Commissioner did come to a clear finding that the interest on securities was relatable to the socitys banking business. We also find that the Commissioners entire approach to the matter was on the basis whether the petitioner was a dealer in securities of not...... On the contrary, we find that the Commissioner accepted the contention of the petitioner that the securities represented his trading assets, but nevertheless he found that since the petitioner was not a dealer in securities it was not entitled to the exemption under section 81 of the Act."

Having thus observed, inter alia, this court ordered as follows - See :

In the result, the demand notice issued by the Income-tax Officer, A Ward, shillong, on the petitioner in respect of each of the eleven assessment years concerned, which is impugned in these petitions, is set aside, as prayed for by the learned counsel for the petitioner, who, it may be stated, does not seek any other relife."

Going through the decision of this court in Civil Rules Nos. 799 to 809 of 1969 [Assam Co-operatuve Apex Bank Ltd. v. Commissioner of Income-tax ], we find that the Commissioners order, on which the Income-tax Officer relied in making the assessments in question and also on the basis of which the Appellate Assistant Commissioner rejected the appeals preferred by the assessee and upheld the assessment orders of the Income-tax Officer, has been set aside by the High Court, and therefore, It does not exist.

That being the position, the very basis of assessment, that is, the Commissioners order, to tax the interest on securities of the particular assessee for the relevant assessment years, as made by the Income-tax Officer, is for all practical removed. So also the basis of the appelate order of the Appellate Assistant Commissioner, by whcih the assessment orders of the Income-tax Officer were upheld, has been, in fact removed.

It may be mentioned here that original section 81 of the Act has subsequently been amended as section 80P of the Act.

In paragraph 3 of the Tribunals order it has been observed as follows :

"The Appellate Assistant Commissioner has pointed out that the assessee is a co-operative society carrying on business of banking. From the orderof the Appellate Assistant Commissioner, it is also evident that the only point at issue before him was whether the income derived by the assessee from certain Government securities are assessable to tax or not. He has also clerly pointed out that such income amounted to Rs. 3,61,503 for the assessment year 1967-68, Rs. 4,38,427 for the assessment year 1968-68 and Rs. 5,45,382 for the assessment year 1969-70."

Thus, it is quite clear from the order of the Tribunal itself that the aforesaid three amounts of income related to income derived by the assessee from certain Government securities, or, in other words, interest on Government securities. These three amounts of income also were under consideration before the Income-tax Officer, as it is quite clear from the assessment orders for the relevant assessment years. To be more precise, it may be pointed out that in the assessment order for the assessm,ent year 1967-68, the sum of Rs. 3,61,503 was assessed to tax as interest pm securities. In the assessment order for the assessment year 1968-69, the sum of Rs. 4,38,427 was assessed to tax as interest on securites. Similarly, in the assessment order for the assessment year 1969-70, the sum of Rs. 5,45,372 was brought to tax as interest on securities. Thus, there is no escape from the conslusion that the aforesaid three amounts represented the incomes of the assessee by way of interest on Government securtities and the Income-tax Officer and the Appellate Assistant Commissioner held that these incomes were taxable because these were not the business incomes of the assesses, as was held by the Commissioner of Income-tax. The Commissioners finding has been set aside by the High Court, as mentioned hereinabove, holding that the Commissioners finding that these amounts could not be out of business income was wrong. The Tribunal also held : "In view of this ruling it has to be held that the Appellate Assistant Commissioner was not justified in saying that the interest on securities cannot be regarded as income from business."

In paragraph 20 of its order the Tribunal has observed as follows :

"The Appellate Assistant Commissioner has pointed out that it appears from the balance-sheet of the assessee-bank that the securities from which interst has been shown in the profit and loss account and a part of which has been brought to tax by the Income-tax Officer have been shown under the heading "Investment" and that such investments amount to Rs. 82,51,180 for the assessment year 1967-68, Rs. 1,02,17,430 for the assessment year 1968-69 and Rs. 1,21,72,430 for the assessment year 1969-70, and that it is also seen that a major part of these investments, i.e., Rs. 62,29,950, for the assessment year 1967-68, Rs. 81,96,200 for the assessment year 1968-69 and Rs. 1,01,51,200 for the assessment year 1969-70 are in Central and State Government securities shown at book value. The Appellate Assistant Commissioner has also pointed out that there are other securities, some trustee securities, shares in other co-operative institutions, some shares in Industrial Finance Corporation, Assam Financial Corporation, Agricultural Refinance Corporation and Central Warehousing Corporation and that some of these investments are apparently long-term investments."

From the above observations of the Tribunal it is found that the Tribunal has accepted the finding of fact of the Appellate Assistant Commissioner that the investments of Rs. 62,29,950 for the assessment year 1967-68, Rs. 81,96,200 for the assessment year 1968-69 and Rs. 1,01,51,200 for the assessment year 1969-70 were in Central and State Government securities and, as already observed above, the question before the Income-tax Officer and the Appellate Assistant Commissioner was regarding the tax on Government securities only. So, from the order of the Tribunal itself it is found that the assessee preferred the appeals before the Tribunal on the ground that the income from investment in Government securities was not taxable under section 80P of the Act. The Income-tax Officer and the Appellate Assistant Commissioner of Income-tax, which has been found to be bad in law and has been set aside.

The Tribunal has also observed that it could not be doubted that the investment in securities under section 24(2A) of the Banking Regulation Act, 1949, has to be held to be an investment in securities for the purpose of banking business. Thus, it is found that the Tribunal had no jurisdiction to go to other investments excepting the investments on Government securities, which was the subject-matter before the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal has set aside the finding of the Appellate Assistant Commissioner that these interests on Government securities are taxable. Having done so, whether the Tribunal has jurisdiction to remand the appeals to the Appellate Assistant Commissioner with a direction for investigating which amounts of the securities were stock-in-trade or circulating capital and which were the capital investments of the assessee-bank This remand order with the direction aforesaid enlarges the scope of the dispute that was before the Tribunal on appeal by the assessee.

By the remand order the Tribunal has directed the Appellate Assistant Commissioner to go into the question which amounts of the securities are stock-in-trade or circulating capital of the assessee-bank and which amounts are capital investments of the assessee-bank. The remand order, on the face of it, enlarges the scope of the appeal before the Tribunal. We have already observed that the Income-tax Officer has held that the assessee being a co-operative society, its income is exempt from tax except Rs. 3,61,503 being the interest on Government securities for the assessment year 1967-68, Rs. 4,38,427 being the interest on Government securities for the assessment year 1968-69 and Rs. 5,45,372 being the interest on Government securities for the assessment year 1969-70.

From the above observations of the Tribunal it is found that the Tribunal has accepted the finding of fact of the Appellate Assistant Commissioner that teh investments of Rs. 62,29,950 for the assessment year 1967-68, Rs. 81,96,200 for the assessment year 1968-69 and Rs. 1,01,51,200 for the assessment year 1969-70 were in Central and State Government securities and, as already observed above, the question before the Income-tax Officer and the Appellate Assistant Commissioner was regarding the tax on Government securities only. So, from the order of the Tribunal itself it is found that the assessee preferred the appeals before the Tribunal on the ground that the income from investment in Government securities was not taxable under section 82P of the Act. The Income-tax Officer and the Appellate Assistant Commissioner of Income-tax, which has been found to be bad in law and has been set aside.

The Tribunal has also observed that it could not be doubted that the investment in securities under section 24(2A) of the Banking Regulation Act, 1949, has to be held to be an investment in securities for the purpose of banking business. Thus, it is found that the Tribunal had no jurisdiction to go to other investments excepting the investments on Government securities, which was the subject-matter before the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal has set aside the finding of the Appellate Assistant Commissioner that these interests on Government securities are taxable. Having done so, whether the Tribunal has jurisdiction to remand the appeals to the Appellate Assistant Commissioner with a direction for investigating which amounts of the securities were stock-in-trade or circulating capital and which were the capital investments of the assessee-bank This remand order with the direction aforesaid enlarges the scope of the dispute that was before the Tribunal on appeal by the assessee.

By the remand order the Tribunal has directed the Appellate Assistant Commissioner to go into the question which amounts of the securities are stock-in-trade or circulating capital of the assessee-bank and which amounts are capital investments of the assessee-bank. The reman order, on the face of it, enlarges the scope of the appeal before the Tribunal. We have already observed that the Income-tax Officer has held that the assessee being a co-operative society, its income is exempt from taxexcept Rs. 3,61,503 being the interest on Government securities for the assessmentyear 1967-68, Rs. 4,38,427 being the interest on Government securities for assessment year 1968-69 and Rs. 5,45,372 being the intrest on Government securities for the assessment year 1969-70.

The assessee preferred appeals before the Appellate Assistant Commissioner against the orders of the Income-tax officer and the appeals were rejected by the Appellate Assistant Commissioner. Then the assessee alone preffered appeals against the order of the Appellate Assistant Commissioner before the Tribunal. The departmeent did not prefer any appeal nor filed any cross-objection. That being so, the Tribunals order in disposing of the appeals casnnot travel beyond the disputed taxable amounts in question. But by the impugned remand order the learned Tribunal has in fact enlargedthe scope of the subjects of the subjects of the appeals, inasmuch as the securities other than the Government securities are also directed to be considered by the Appellate Assistant Commissioner. This, it is submitted on behalf of the assessee, is illegal and without jurisdiction inasmuch as the Tribunal has no power of enhancement of tax as assessed by the Income-tax Officerand affirmed by the Apprllate Assistant Commissioner.

At this stage, therefore, we are required to consider the scope of the appellate power of the Tribunal. Section 254 of the Act reads as follows :

"254. Orders of Apellate Tribunal. -(1) The Appeate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any oder passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its by the assessee or the Income-tax Officer :

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonble opportunity of being heard.

(3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the Commissioner.

(4) Save as provided in section 256, orders passed by the Appellate Tribunal on appal shall be final."

It would be conveninet to quote section 251 of the Act, whcih deals with the power of the Appellate Assistnant Commissioner, section 251 reads as follows :

"251. Powers of the Appellate Assistnat Commissioner. -(1) In disposing of an appeal, the Appellate Assistant Commissioner shall have the following powers -

(a) in an appeal against an order of assessment, he may confirm, reduce, enchance or annul the assessment; or he may set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the directions given by the Appellate Assistant Commissioner and after making such futher inquiry as may be necessary, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and dertermine, where necessary, the amount of tax payable on the basis of such fresh assessment;

(b) in an appeal against an order imposing a penlty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty;

(c) in any other case, he may pass such orders in the appeal as he thinks fit.

(2) The Appellate Assistant Commissioner shall not enhance an assessment or a penlty or reduce the amount of refund unless the appellanthas had a reasonable opportunity of showing cause against such enhancement or reduction.

Explanation. - In disposing of an appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissiiner by the appellant."

Under section 251(1) the Appellate Assistant Commissioner has jurisdiction, inter alia, to enhance the assessment. The power of enhancement is not to be found in so many words in section 245(1) of the Act. Section 254(1) lays down that the Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such orders there on as it thinks fit. The scope of the appellate power of the Tribunal and the word "thereon" in sub-section (1) of section 254 came up for considweartion before the different High Courts and the Supreme Court.

Section 33 of the Indian Income-tax Act, 1922, deals with appeals against the orders of the Appellate Assistant Commissioner. Section 33(4) of the 1922 Act reads as follows :

"33. (4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall commnuicate any such orders to the assessee and to the Commissioner."

It is found that sub-section (1) and (3) of section 254 of the 1961 Act are almost in identical terms with sub-section (4) of section 33 of the 1922 Act.

In motor Union Insurance Co. Ltd. v. Commissioner of income-tax : [1945]13ITR272(Bom) , the powers of the Appellaate Tribunal were considered by the Bombay High Court under the Act and Kania J., as he then was,delivering the courrts judgment, case as follows (Pages 282, 283) :

"In order to appreciate the powers of the necessary to into consideration sections 30, 31 and 33

After the Income-tax Officer has made an order, if the assessee feels aggrieved, he can appeal to the Appellate Assistnat Commissioner. The powers of the Appellate Assistant Commissioner in scuh a case are defined in section an appeal the Appellate Assistant Commissioner may confirm, redyce, enhance or annual the assessment. He has also power under clause (b) to set aside the assessment and direct the Income-tax Officer to make a fresh assessment, after making such inquiry as the Income-tax Officer thinks fit, or the Appellate Assistant Commissioner may direct. The Appellate Assistant Commissioner under section 31(2) is himself authorized to make such futher inquiry as he thinks fit, or cause further inquiry to be made by the income- tax Officer. It is singnificant that there is no provision for appeal to the Appellate Assistnat Commissioner by the depatment against the assessment made by the income-tax Officer. Under section 33 a right of appeal to the Appellate Tribunal is given, on the order made by the Appellate Assistant Commissioner. That right is given both to the assessee and to the Commissioner. Under sub-section (3) the appeal has to be filed in the prescirbed form and verified in the prescribed manner. Under sub-section (4) the Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate the orders to the assessee and to the commissioner.........

On behalf of the Commissioner it is urged that section 33(4) does not circumscribe the powers or the Tribunal, and leaves the Tribunal, and leaves the Tribunal at large to raise any question it pleases and decide the same. In our opinion, this argument is unsounded. Apart from statute, it is elementary that if a partly appeals, he is the party who comes before the Appellate Tribunal to redress a grievance alleged by him. If the other side has any grievance, he has a right to file a cross-objections. But if no such thing is done, the other party, in law, is deemed to be satisfied with the decision. He is of course, entitled to support the judgment of the first officer on any ground open to him, but he is not entitled to raise a ground so as to to work adversely to the appellant and in his favour. Apart from that, the section, in our opinion, does not permitthe course adopted by the Tribunal in this case. Under section 31, when the legislature thought of giving power to Appellate Assistant Commissioner to enhance the assessment, it has in terms enacted that. In our opinion, that fact is against the contention that the words of section 33(4) are wide enough to include a power of enhancement, without an appeal by the Commissioner. The word thereon used in section 33(4) only means on the appeal, which must mean on the grounds raised in the appeal. Read in that way, the sub-section only gives power to the Appellate Tribunal to give its decision and pass orders in respect of all grounds urged (which must be on behalf the of the appellant) in respect of the decision appealed against. In desinding those grounds it can pass appropriate orders. But, in our opinion, it is not open to the Tribunal itself to raised a ground or permit the party, Who has not appealed, to raised a ground, which will work adversely to the appellant."

We have already quoted sub-section (1) and (3) of section 254 which are almost in identical terms with sub-section (4) of section 33 of the 1992 Act. The reasonings given in Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax : [1945]13ITR272(Bom) on the point, therefore, are equally applicable to the instance case.

In Puranmal Radhakishan and Company v. Commissioner of Income-tax [1975] 31 ITR 294, Chagla C.J.,delivering the courts judgment observed as follows (page 304) :

"Now, the jurisdiction of the Tribunal is to be found in section 33(4) which is in very wide terms :

The Appellate Tribunal may, after giving both parties to the appeal an apportunity of being heard, pass such order thereon as it thinks fit, and shall communicated any such order to the assessee and to the Commissioner.

Wide as the language seems to be, this court has construed this section and particularly emphasised the language used by the legislature, viz., thereon, and the view taken by the court, as we will presently point out, is that the orders that the Appellate Tribunal can pass, whatever the nature of the order may be, must be orders on the appeal and the Tribunal cannot travel outside the appeal. This is to be found in Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax : [1945]13ITR272(Bom) and Mr. Justice Kania in that case held that the word thereon used in section 33(4) must mean on the grounds raised in the appeal, and that section gave power to the Appellant Tribunal to give its decision and pass order in respect of all grounds urged on behalf of the appellant in respect of the decision appealed against. In deciding this grounds it could pass appropriate orders, but it was not open to the Tribunal itself to raise a ground or permit the party who has not appealed, to raise a ground which will work adversely to the appellant. The words of the section were not wide enough to include a power of enhancement without an appeal by the Commissioner."

In V. Ramaswamy Iyenger v. Commissioner of Income-tax : [1960]40ITR377(Mad) , 393,394, the Madras High Court has held as follows :

"The question that arises is, whether in the absence of an appeal by the department the Tribunal would have power to make the position of an appellant worse than what it was before he filed the appeal. In other words, the question is whether is the Tribunal can dispose of an appeal by directing an assessment in such a manner that it would inevitably result in the refer briefly to the tax liability. It is necessary, in this connection, to refer briefly to the provisions of the Indian Income-tax Act.

It is a fundamental principle that no litigant has an inherent right of appeal against a judicial order, unless such right is given by a statute. It is an equally settled principle that, where the whole or part of an order has not been appealed against, it would be final; and the appellate authority, in case there is an appeal against a part of an order, would have no jurisdiction in the absence of statutory provision to interfere with the other part which does not form the subject of the appeal. Where a statute confers a right to appeal to an appellate authority, its powers and functions are limited by the terms of that statute.

Section 30 gives a right of appeal only to the assessee against an order of assessment by an Income-tax Officer; the department has no right to appeal against the order of the Income-tax Officer, even if it were prejudicial to the revenue. That presumably is for the reason that the Appellate Assistant Commissioner being an officer of the department would be vigilant in protection the interests of the revenue, provided a power is given to him to enhance the tax in an appeal by the assessee. Section 33B enables the commissioner to suo motu revise an order of assessment which is prejudicial to the revenue. Section 31(3), which enumerates the powers of the Appellate Assistant Commissioner, says :

In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment -

(a) confirm, reduce, enhance or annul the assessment, or

(b) Set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment..........

Thus, the power of the Appellate Assistant Commissioner is not confined to the subject-matter of appeal by the assessee. It is much wider. He might examine all matters and dispose of the appeal, even to the prejudice of the assessee by himself enhancing the tax or remanding the case to the Income-tax Officer, with a view to increase the tax liability. But, when the matter comes before a judicial tribunal, by way of appeal, the same principle cannot apply. The jurisdiction of the Appellate Tribunal should, in the absence of express words in the statute, be governed by the subject-matter of the appeal. Section 33 declares that there would be a right of appeal against an order of the Appellate Assistant Commissioner both to the assessee as well as to the department. Section 33(4), which relates to the powers of the Tribunal runs : (section 33(4) quoted above).

Section 33(4), unlike section 31(3), does not vest any power in the Appellate Tribunal to enhance the tax except when there is an appeal by the department. Where the decision of the Appellate Assistant Commissioner is detrimental to the revenue, the department could itself appeal to the Tribunal under section 33(3). In the absence of such appeal, the Appellate Tribunal could only deal with the actual subject-matter before it, namely, the appeal of the assessee."

In Pathikonda Balasubba Setty v. Commissioner of Income-tax : [1967]65ITR252(KAR) the Mysore High Court has observed as follows :

"It should be noted that in comparison to the sections describing the power of the Appellate Assistant Commissioner, the section which describe the appellate powers of the Tribunal do not make any reference to a power to enhance the assessment or to enhance the tax in the same way as the Appellate Assistant Commissioner is empowered to de while dealing with an appeal against the order of the assessing authority.

As the appellate power is a power which is conferred by statute, both its existence as well as its extent has to be gathered from the relevant statutory provision. The fundamental idea is that an appellant seeks a relief from an appellate court, and not detriment to himself. Even under the general provisions of the law of procedure, the worst detriment which an appellate court may visit on an appellant is to dismiss the appeal with a direction in an appropriate case to pay costs to the opposite side. An order adverse to the interests of the appellant - adverse in the sense that it takes away from him a benefit which he has already acquired under the order appealed from - is possible only by means of an order made either upon a cross-appeal filed by the other side or on the basis of a memorandum of cross- objections presented by him wherever the law permits him to do so."

In Hukumchand Mills Ltd. v. Commissioner of Income-tax : [1967]63ITR232(SC) , the Supreme Court has observed after quoting section 33(4) of the 1922 Act as follows :

"The word thereon, of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words pass such orders as the Tribunal thinks fit include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act."

In Commissioner of Income-tax v. S. Chenniappa Mudaliar : [1969]74ITR41(SC) the Supreme Court has observed as follows :

"The scheme of the provisions of the Act relating to the Appellate Tribunal Apparently is that it has to dispose of an appeal by making such orders as it thinks fit on the merits. It follows from the language of section 33(4) and in particular the use of the word thereon that the Tribunal has to go into the correctness or otherwise of the points decided by the departmental authorities in the light of the submissions made by the appellant. This can only be done by giving a decision on the merits on questions of fact and law and not by merely disposing of the appeal on the ground that the party concerned has failed to appear. As observed in Hukumchand Mills Ltd. v. Commissioner of Income-tax : [1967]63ITR232(SC) the word thereon in section 33(4) restricts the jurisdiction of the Tribunal to the subject-matter of the appeal and the words pass such orders as the Tribunal thinks fit include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act."

On consideration of the above decisions of the different High Courts and the Supreme Court, the legal position that emerges is as follows :

If the Commissioner has not filed any appeal against the order of the Appellate Assistant Commissioner under section 253 or has not filed any cross objection in an appeal filed by the assessee, the Tribunal in exercise of its appellate power under section 254, cannot pass an order enhancing the tax liability of the appellant-assessee before it.

Again, if the Commissioner has not preferred any appeal and no cross- objection also has been filed, the department cannot be allowed to agitate the other matter which were not the subject-matter of the appeal before the Tribunal, because, in the absence of an appeal or cross-objection by the department, the other matters stand finalised and by the remand order the Tribunal cannot direct the Appellate Assistant Commissioner to do something which would go adversely to the assessee by way of enhancing the tax liability.

In the instant case, the Tribunal has set aside the order of the Appeal Assistant Commissioner and thereafter the Tribunal has remanded the appeals to the Appellate Assistant Commissioner to determine which securities were capital investments of the assessee-bank. As we have already observed, the point at issue before the Income-tax Officer and the Appellate Assistant Commissioner was regarding the tax liability of the interest on Government securities. In the appeals before the Tribunal also the point that was agitated by the assessee was whether the interest on Government securities was liable to be taxed.

The Tribunal has found that the Appellate Assistant Commissioner was not correct in holding that the interest on Government securities was liable to tax in the instant case. We have also noticed that the basis of the Income-tax Officer and the Appellate Assistant Commissioner, that is, Commissioners orders relating to the preceding year, was removed as illegal by the judgment of this court. That being so, the Tribunal itself having come to the conclusion that the Appellate Assistant Commissioners order was not sustainable, it could not pass the remand order on the terms it has passed in the instant case.

In the circumstance, we find that the Tribunal was justified in setting aside the consolidated order dated March 31, 1970, of the Appellate Assistant Commissioner of Income-tax. Shillong Range, Shillong, relating to the assessments for the assessment years 1967- 68,1968-69 and 1969-70; but it was not justified the case with a direction to give a finding on the point as to what amount out of the securities is the stock-in-trade on circulating capital of the assessee and which amount is the capital investment of the assessee- bank.

In the result we answer the question of law referred in the negative and in favour of the assessee.

The reference is answered accordingly. We make no order as to costs.

D. PATHAK J. - I agree.


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