Govinda Bhat, C.J.
1. This is a reference under section 256(1) of the Income tax Act, 1961, at the instance of the Commissioner of Income-tax, Mysore at Bangalore. The question of law referred for the opinion of this court is :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal acted within its jurisdiction in allowing the assessee to raise the additional plea as to whether the amount of Rs. 2,34,362 could be taxable as capital gains ?'
2. The assessee is a private limited company owning a tile factory in Mangalore. By a resolution dated July 16, 1972, the assessee decided to sell its business as going concern to a firm and its assets and liabilities consequently were transferred to firm consisting of four partners. The same partners were the directors and shareholders in the company also. Their shares in the firm were in proportion to the shares they held in the company. The transfer resulted in profit of Rs. 2,34,362 which was taken to the profit and loss account. There was also a balancing surplus of Rs. 16,047.
3. The assessee filed a return in respect of the assessment year 1964-65 for which the relevant accounting year is the year ended 30th June, 1963, disclosing loss of Rs. 4,214. The Income-tax Officer, however, assessed the assessee on the total income of Rs. 2,61,121. The assessee's contention was that there was no transfer and that there was a complete identity between the sellers and the purchasers. The said contention was rejected by the Income-tax Officer and the disputed sum of Rs. 2,34,362 was brought to tax as capital gains. The appeal preferred by the assessee to the Appellate Assistant Commissioner was unsuccessful. Then the matter was taken to the Tribunal by way of second appeal. In the memorandum of appeal preferred by the assessee before the Tribunal, the ground urged was that the sum of Rs. 2,34,362 cannot be brought to tax as capital gains, as there was no transfer and that there was a complete identity between the sellers and the purchasers. However, before the Tribunal the assessee sought leave to raise one additional ground, viz., that the sum of Rs. 2,34,362 represented the value of the goodwill of the company and the consideration received for goodwill cannot be brought to tax as capital gains. The Tribunal allowed the assessee's application and granted leave to raise the additional ground.
4. On the ground urged by the assessee before the authority below that there was no transfer and as such there was no capital gain, the Tribunal rejected that ground. However, with regard to the additional ground urged, the Tribunal remanded the matter to the Appellate Assistant Commissioner with a direction to allow both the parties to adduce such material as are necessary to decide the question whether the sum of Rs. 2,34,362 represented the value of the goodwill and whether the said amount could be chargeable to tax in the hands of the assessee as capital gains. Aggrieved by the said orders of the Tribunal, the department sought the reference to this court.
5. It was not urged before us by the learned counsel for the department, Sri Balakrishna, that there was no material before the Tribunal to allow the additional ground to be raised. His contention was that the Tribunal has no jurisdiction to allow the assessee to raise a new ground not agitated before the Appellate Assistant Commissioner To support his contention, the learned counsel sought reliance on the decision of the Gujarat High Court in Commissioner of Income-tax v. Karamchand Premchand Private Ltd. The said decision is clearly distinguishable and has no application to the facts of the instant case. The question before the Gujarat High Court was whether a ground could be raised when there was no appeal with regard to a certain item of income and that it did not form the subject-matter of the appeal before the Appellate Assistant Commissioner or the Tribunal. In the instant case, the sum of Rs. 2,34,362 was the subject-matter of the appeal before the Appellate Assistant Commissioner or the Tribunal. Before the Appellate Assistant Commissioner, the contention of the assessee was that it could not be taxed as capital gains since there was a complete identity between the sellers and the purchasers. The additional ground sought was that the gains arising out of the sale of goodwill are not taxable under the Act as capital gains.
6. There is ample authority for the proposition that the jurisdiction of the Tribunal to raise a new ground not raised before the Appellate Assistant Commissioner is very wide and extensive. In Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd. this is what the Supreme Court has said with regard to the power of the Tribunal under section 33(4) of the Indian Income-tax Act, 1922, which is in pari materia with section 254 of the Income-tax Act, 1961 :
'Under section 33(4) the Appellate Tribunal is competent to pass such orders on appeal 'as it thinks fit'. There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions, whether of allow or of facts, which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him.'
7. In view of the clear statement of law by the Supreme Court there is no substance in the contention raised on behalf of the department. Accordingly, we answer the question referred in the affirmative and against the department.
8. The assessee is entitled to its costs.
9. Question answered in the affirmative.