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National thermal Power Corpn. Vs. Inspecting Assistant - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)12ITD99(Delhi)
AppellantNational thermal Power Corpn.
Respondentinspecting Assistant
Excerpt:
1. this is an appeal by the assessee, a company, being the public sector undertaking, incorporated on 7-10-1975. the object of the assessee-company is developing of thermal power in all its aspects, including installation, generation, operation and maintenance of thermal power and associated transmission networks. the assessee has been depositing its funds, not immediately required on short-term deposits, with banks. the interest received on such deposits during the previous year relevant to the assessment year 1978-79, i.e., the year under appeal, amounts to rs. 22,84,994. this amount was offered for assessment and the assessment has been completed under section 143(3) of the income-tax act, 1961 ('the act'), on 29-12-1980 on that basis.the appeal was filed against the order of.....
Judgment:
1. This is an appeal by the assessee, a company, being the public sector undertaking, incorporated on 7-10-1975. The object of the assessee-company is developing of thermal power in all its aspects, including installation, generation, operation and maintenance of thermal power and associated transmission networks. The assessee has been depositing its funds, not immediately required on short-term deposits, with banks. The interest received on such deposits during the previous year relevant to the assessment year 1978-79, i.e., the year under appeal, amounts to Rs. 22,84,994. This amount was offered for assessment and the assessment has been completed under Section 143(3) of the Income-tax Act, 1961 ('the Act'), on 29-12-1980 on that basis.

The appeal was filed against the order of assessment. A number of additions/disallowances were challenged. The inclusion of the aforesaid amount of Rs. 22,84,960 was neither challenged nor was considered by the Commissioner (Appeals), who considered and decided all the grounds taken by the assessee vide his appellate order, dated 14-1-1982.

2. Aggrieved by the aforesaid order of the Commissioner (Appeals) the assessee filed appeal in the Tribunal's office on 6-3-1982, in which as many as 10 grounds of appeal have been taken. The inclusion of Rs. 22,84,960, being the interest from short-term deposits with banks, has not been objected to in the grounds originally taken. However, by means of a forwarding letter dated 16-7-1983, which seems to have been received in the Tribunal's office on 18-7-1983, the following additional grounds were raised : 1. The sum of Rs. 22,84,994 deducted from 'Statement of expenditure during construction' cannot be included in the total income.

2. It is contended that on admission (erroneous), no income (the sum of Rs. 22,84,994) can be included in the total income.

3. The authorities below have erred and failed in their duty in not adjudicating the facts and evidence on record and mechanically including Rs. 22,84,994 in the total income.

3. The appeal was heard on 1-9-1983, 10-1-1984 and on 3-4-1984. Being of the view that the issue regarding the admission of a ground taken for the first time before the Tribunal, and that too by way of an additional ground long after the filing of the appeal, was intricate and important, the Bench put forward a proposal for constitution of a Special Bench to hear and dispose of the appeal. The proposal having been accepted, the appeal has come up before the Bench constituted under Section 255(3) of the Act for hearing.

4. It is fairly admitted by Shri Ganesan, the learned counsel for the assessee, that apparently conflicting and contrary views have been taken by different High Courts on the issue. It is stated that the Madras High Court has, in the cases of CIT v. Indian Express (Madurai) (P.) Ltd. [1983] 140 ITR 705 and CIT v. Sri Rajagopal Transports (P.) Ltd. [1983] 144 ITR 573 held that a ground can be raised any time including before the Tribunal for the first time. A similar view, it is stated, has been taken by the Punjab and Haryana High Court in the case of Atlas Cycle Industries Ltd. v. CIT [1982] 133 ITR 231. In another decision the Delhi High Court in the case of CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303, it is stated, the assessee had wrongly included some income in its return for the particular year. It was held that this fact by itself cannot confer jurisdiction on the department to tax that income in that year, if legally such an income does not pertain to that year. There is no estoppel and the assessee can challenge the validity of taxing an income, which it had itself wrongly included in its return. The submission, thus, is that just as the assessee can resile before the ITO from the position it had wrongly taken while filing the return, it can do so before the AAC, before whom the entire assessment is open. So long as he does not travel outside the matters considered and determined by the ITO the AAC can correct any decision of the ITO in the course of the assessment even if the assessee was satisfied with it and had not challenged it before the ITO. According to Shri Ganesan, the above discussion indicates that after the order of the AAC the order of assessment gets merged in that of the AAC so much so that an item of income included by the ITO, which was not challenged by the assessee before the AAC, becomes a part of the order of the AAC. Reliance for this purpose has been strongly placed on the Special Bench orders of the Tribunal in the cases of Dwarkadas & Co. (P.) Ltd. v. ITO [1982] 1 ITD 303 (Bom.) and Shree Arbuda Mills Ltd. v. ITO [1983] 3 SOT 311 (Ahd.), where it stated to have been held that the order of assessment merges in that of the AAC not only with regard to issues the AAC has actually considered and dealt with in his order, but also regarding the issues he had jurisdiction to interfere but has not interfered in his discretion. In this manner, it is contended that the AAC should be deemed to have confirmed the inclusion of the above interest income. Once that submission is accepted, he contended that the assessee could have taken a ground against the above inclusion before the Tribunal originally. It could also take such a ground in appropriate cases by seeking permission to take additional grounds.

5. It is stated that the assessee's business has, admittedly, not yet been set up. The interest on short-term deposits was taken to be taxable in the absence of any decision on the issue. That is why the assessee itself included the above interest as income in its return and did not challenge it before the ITO or before the Commissioner (Appeals). It was only when the assessee came to know of the Special Bench orders of the Tribunal in the cases of Arasan Aluminium Industries (P.) Ltd. v. First ITO [1982] 1 ITD 10 (Mad.) and Nagarjuna Steels Ltd. v. ITO [1983] 3 ITD 796 (Hyd.), it realised that the interest income having been received before the commencement or even set up of its business, it was not taxable as such but it would reduce the capital cost of its plant only. Soon thereafter the assessee has raised the grounds as additional grounds.

6. Shri Vaish, who appeared as intervener, placed reliance on the Allahabad High Court's decision in the case of CIT v. Hindustan Commercial Bank Ltd. [1980] 122 ITR 645 and the Bombay High Court's decision in the case of CWT v. N.A, Narielwalla [1980] 126 ITR 344. He argued that the subject-matter of appeal should not be understood in a restricted manner. Jurisdiction of the AAC is coterminous with that of the ITO, as held by the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225. As to the nature of tax proceedings, Shri Vaish strongly relied on the Madras High Court's decision in the cases of Indian Express (Madurai) (P.) Ltd. (supra) and Sri Rajagopal Transports (P.) Ltd. (supra). Referring then to the Supreme Court's decision in the case of Mahendra Mills Ltd. v. P.B. Desai, AAC [1975] 99 ITR 135, it is stated that records mean the entire income-tax records of the assessee and not the record of the year. Thus, according to him, necessary material for deciding the issue raised by way of additional grounds is available on records. In this context, it is pointed out that in the proceedings for the subsequent assessment years, the assessee had challenged the inclusion of such receipts in its total income and that not only the IAC and the Commissioner (Appeals) but the Tribunal has also considered and decided the question of inclusion on merits. In order to show that the business, for which the assessee-company has been incorporated has not commenced up to the end of the previous year, Shri Vaish has invited our attention to the assessment orders for the assessment years 1977-78 and 1978-79 to show that interest income was taxed as income from other sources and no expenses were claimed or allowed in either of the two assessment years.

Reference in this context was made at page 157 of the paper book and pages 21, 24, 25, 27 and 29 of the assessee's printed balance sheet.

7. Shri Kapila, the senior departmental representative, has, on the other hand, strongly relied on the Delhi High Court's decision in the case of CIT v. Anand Prasad [1981] 128 ITR 388, which according to him squarely covers the issue against the admission of a new ground for the first time before the Tribunal. Further, a Full Bench of the Gujarat High Court, it is stated, has in the case of CIT v. Cellulose Products of India Ltd. [1984] 19 Taxman 278 after considering the Madras and Punjab and Haryana High Court decisions relied upon by the assessee, held that an altogether new ground cannot be taken before the Tribunal for the first time. A similar view is stated to have been taken by the Bombay High Court in the case of Ugar Sugar Works Ltd. v. CIT [1983] 141 ITR 326. In this context, Shri Kapila urged that the Madras High Court decisions are full of fallacies. The Court, according to him, failed to appreciate the difference between such expressions as 'subject-matter of assessment', 'subject-matter of appeal before the first appellate authority' and 'subject-matter of ground', which expressions have well defined and distinct meanings. According to him, there is difference between the words 'jurisdiction' and 'power'. While 'jurisdiction' is limited, 'powers' of the appellate authorities within the jurisdiction are unlimited. In other words, the contention is that if the meaning of the observations of the Supreme Court in the three cases -CIT v. S. Nelliappan [1967] 66 ITR 722, CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 and Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 is what the Madras High Court has understood, the Supreme Court would never have held in its latter decision in the case of Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 that the AAC was justified in refusing the assessee to urge an issue before him, about which there was no dispute before the ITO. Reference in this context is also made to the following observations of the Supreme Court in the case of CIT v. Manick Sons [1969] 74 ITR 1 : The power conferred by Section 33(4) of the Income-tax Act, 1922, is wide, but it is still a judicial power which must be exercised in respect of matters that arise in the appeal and according to law.

The Tribunal in deciding an appeal before it must deal with questions of law and fact which arise out of the order of assessment made by the Income-tax Officer and the order of the Appellate Assistant Commissioner. It cannot assume powers which are inconsistent with the express provisions of the Act or its scheme.

Support is also derived from the observations of the Delhi High Court in the case of CIT v. Edward Keventer (Successors) (P.) Ltd. [1980] 123 ITR 200 at pages 206 and 209 as also in the case of Rohtak & Hissar Districts Electric Supply Co. (P.) Ltd. v. CIT [1981] 128 ITR 52 (Delhi). Again, according to the departmental representative, the necessary facts for a decision on the issue are not on records of assessment for the year and on this ground also, the prayer for admission of new grounds requires to be rejected.

8. In reply, Shri Ganesan stated that the Delhi High Court in the case of Edward Keventer (Successors) (P.) Ltd. (supra) was concerned with the rights of a respondent to take additional grounds. In terms of the Supreme Court decision in the case of Mrs. Khorshed Shapoor Chenai v.ACED [1980] 122 ITR 21, the inclusion of interest receipts as income, even though admitted by the assessee, has to be taken as a decision by the ITO.9. Before proceeding to consider the rival contentions, it is desirable to mention that Shri Ganesan, the learned counsel for the assessee, objected to the hearing of this appeal by the Special Bench as constituted. He stated that on merits, the learned Accountant Member has quite recently, i.e., on 28-2-1984, taken a view contrary to the two Special Bench orders of the Tribunal in the cases of Arasan Aluminium Industries (P.) Ltd. (supra) and Nagarjuna Steels Ltd. (supra) in the assessee's own case for the assessment years 1979-80 and 1980-81, for which the appeals somehow came up first. Assuming that the Special Bench holds that the assessee is entitled to challenge the inclusion of Rs. 22,84,994 being interest on short-term deposits with the banks in its income, the learned member may find it difficult to take a contrary view. The preliminary objection is stated merely to be rejected. Firstly, when a member sits on a Special Bench, he is supposed to sit with an open mind. No embarrassment is caused to him in taking one view or the other. The learned counsel is, perhaps, not aware and at least one of the other two members of the Special Bench has flowed the view taken by the two Special Benches. That apart, in case we hold that the assessee is entitled to challenge the inclusion of the above sum in its total income, we feel like not deciding the issue on merits ourselves and would prefer to send the same back to the Commissioner (Appeals) as he had, admittedly, no occasion to consider such a ground.

10. As regards broad facts, there is no dispute. The assessee-company is a Government of India Undertaking, incorporated with the main object of development of thermal power in all its aspects including construction, generation, operation and maintenance of thermal power stations and associated transmission network. The business as such has not yet commenced. Construction and erection is going on. Money is withdrawn from the Central Government against capital expenditure to be incurred from time to time. When the money so withdrawn cannot be utilised for the construction or erection work immediately, the amounts are deposited with banks as short-term deposits. Interest of Rs. 22,84,994 has been earned during the previous year on such short-term deposits. For the purpose of facilitating its construction and erection work, the assessee has purchased heavy cranes and other machines, which it allows its contractors to make use of on rent. The assessee, thus, has derived some income by way of hire charges as well, but there is no dispute in these proceedings about those receipts.

The assessee has, inter alia, included interest received as a part of its income in the return. The assessment is completed by the IAC on that basis. No dispute is raised about its inclusion in the total income before the Commissioner (Appeals), who has also not considered it on his own. Inclusion has not been disputed even before the Tribunal in the appeal memo filed originally.

It appears that the assessee came to learn from the two Special Bench orders of the Tribunal in the cases reported in Arasan Aluminium Industries (P.) Ltd.'s case (supra) and Nagarjuna Steels Ltd.'s case (supra) and the Delhi High Court decision in the case of Addl. CIT v.Indian Drugs & Pharmaceuticals Ltd. [1983] 141 ITR 134 that receipts from sources which were not independent but which were inextricably linked with the process of setting up the business, do not constitute income liable to tax. The additional ground has been raised sometime thereafter on the basis thereof. In this view of the matter, we are inclined to condone the delay in raising the additional grounds on as late as July 1983 and proceed to consider the legal issue, viz., whether the assessee is entitled to raise such a ground for the first time before the Tribunal.

11. Answer to the controversy will depend upon one's understanding of the Supreme Court decisions in the cases of Hukumchand Mills Ltd. (supra), Mahalakshmi Textile Mills Ltd. (supra) and S. Nelliappan (supra) and in particular the observations quoted hereunder : ...The powers of the Tribunal in dealing with appeals are expressed in Section 33(4) of the Act in the widest possible terms. Section 33(3) of the Act states that 'An appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner 'Section 33(4) 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 communicate any such orders to the assessee and to the Commissioner.

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.

Consequently, the Tribunal has authority , under this section to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry..." (p. 236) [Hukumchand Mills Ltd.'s case (supra)] ...Under Sub-section (4) of Section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the 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 law or of fact which relate to the assessment of the assessee may be raised before the Tribunal : If for reasons recorded by the departmental authorities in rejecting 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.

The subject-matter of the appeal in the present case was the right of the assessee to claim allowance for Rs. 93,215. Whether the allowance was admissible under one head or the other of Sub-section (2) of Section 10, the subject-matter for the appeal remained the same, and the Tribunal having held that the expenditure incurred fell within the terms of Section 10(2)(v), though not under Section 10(2)(vib), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee." (p. 713) [Mahalakshmi Textile Mills Ltd.'s case (supra)] In hearing an appeal the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal, and in deciding the appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal was, therefore, competent to allow the assessees to raise the contention relating to the cash credits which was not made the subject-matter of a ground in the memorandum of appeal. It cannot be said that in accepting the contention of the assessees that the cash credits represented income from the business withheld from the books, the Tribunal made out a new case inconsistent with the assessee's own plea. In any event, the Tribunal is not precluded from adjusting the tax liability of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessees." (p. 724) [S. Nelliappan's case (supra)] These observations have been understood by the Madras High Court in its decisions in Indian Express (Madurai) (P.) Ltd.'s ease (supra) and Sri Rajagopal Transports (P.) Ltd.'s case (supra) to mean that an altogether new ground can be urged for the first time before the Tribunal.

12. It was submitted before the Madras High Court by the standing counsel for the revenue that the observations of the Supreme Court in Mahalakshmi Textile Mills Ltd.'s case (supra), S. Nelliappan's case (supra) and Hukumchand Mills Ltd.'s case (supra) should not be read in isolation. If read in the context of the facts, the real ratio decidendi in all the three decisions will be found to be that new grounds can be taken before the Tribunal pertaining to the subject-matter of appeal before the Tribunal only. In particular, Shri Rangaswamy laid emphasis on the latter part of the passage as containing the real ratio of the decision in Mahalakshmi Textile Mills Ltd.'s case (supra) at page 713 and the small passage in the case of Hukumchand Mills Ltd.'s case (supra) at page 237. The Court in a way agreed with the standing counsel's submissions. However, it was of the view that no distinction can be made between a ratio on the one hand and the dicta on the other in a Supreme Court decision. Where the particular determination by the Supreme Court not only disposes of the case but also decides a particular law, the actual ratio in the case is a precedent which is binding on all the Courts in the land including the High Courts. Equally binding are the dictas of the Supreme Court, even though such dictas cannot be strictly regarded as forming the ratio of the Court's decision in a given case.

The Court has, it may be stated, dwelt upon the primary purpose of the Act and the role of the appellate authorities, including the Tribunal.

It has taken the view that all authorities under the Act, including the Tribunal, are empowered to and have to go into all questions necessary for the adjustment of the taxpayers liability irrespective of the fact whether a particular ground was urged or not before the ITO or the first appellate authority. We may consider for the present that the theoretical exposition of the purpose of the Act and the role of various authorities in the administration of tax laws is correct. We are, however, of the view that the decision has to depend primarily upon the ratio of the above-said three Supreme Court decisions in the light of the Madras High Court and the Punjab and Haryana High Court on one side and the Gujarat, Bombay and Delhi High Courts on the other.

13. It is significant to mention that the Delhi High Court decision in particular is binding on us in this case. It has been laid down by the Delhi High Court in the case of Anand Prasad (supra) that ; In the cases of both the assessee and the department the right of appeal under Section 33 of the Indian Income-tax Act, 1922, is the same. There must be an objection to the order passed by the AAC. If a point has not been taken before the AAC and is not mentioned in the order of the AAC, then the Commissioner cannot object nor can the assessee object. The word 'objects' must signify that there is some error or mistake or defect in the AAC's order. The very nature of an appeal is to bring to light errors or defects in the decision under appeal. There can be no error or defect on any point which is not urged, and, hence, normally a new point is not to be permitted to be raised.

The facts in the above case, it may be stated, were better for the revenue. The issue involved was whether the sale of plots by the assessee constituted a business or the surplus was liable to be assessed as capital gains. Since the ITO had held that it constituted business and assessed the profits therefrom as business income and since it had not taken alternative plea before the AAC that in the alternative capital gains arose from the sale of the plot of land, the Tribunal refused to permit the department to raise alternative contention before it for the first time. This order has been confirmed by the High Court. It is evident that the issue involved in the case was not altogether independent. Yet their Lordships held that the alternative contention involved some other amount chargeable to income-tax as capital gains and was a completely different point. The Tribunal's order holding that such a point could not and should not be permitted to be raised before it, was upheld. Similar view has been indirectly taken by the Delhi High Court in the case of Edward Keventer (Successors) (P.) Ltd. (supra). It was held that the subject-matter of appeal should be understood not in a narrow and unrealistic manner but should be so comprehended as to encompass the entire controversy between the parties, which is sought to be got adjudicated upon by the Tribunal. However, when one goes through the facts, it is found that all these observations have been made in the context of inter-connected grounds of appeal having impact on the subject-matter of dispute. It would have been in order for us to say that the Delhi High Court decision is binding on this Bench and following the said decision respectfully, we hold that altogether new grounds taken by the assessee for the first time before the Tribunal cannot be entertained.

14. Besides, the observations of the Supreme Court, quoted above, have also been understood to mean differently by the Bombay High Court in Ugar Sugar Works Ltd.'s case (supra) and a Full Bench of the Gujarat High Court in the case of Cellulose Products of India Ltd. (supra). It is pertinent to mention that the Full Bench of the Gujarat High Court has, particularly, taken note of the above two Madras High Court decisions and the Punjab and Haryana High Court decision in the case of Atlas Cycle Industries Ltd. (supra), where a contrary view was taken.

The Andhra Pradesh High Court decision in CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778, strongly relied upon by the counsel for the assessee before us has also been considered. The Full Bench has analysed the scope of proceedings before the assessing officer, the first appellate authority and the Tribunal in the following words : On the basis of several Supreme Court pronouncements, the well settled legal position is that though the entire range of assessment made by the ITO is open to challenge in an appeal filed by the assessee, the assessee may confine his objections to only some of the decisions taken by the ITO, expressly or impliedly. The subject-matter of the appeal may be limited to some part or the other of the assessment order to which the assessee has taken objection. Therefore, he would be seeking relief in respect of the matter objected to. The scope of the relief sought by the assessee in appeal determines the subject-matter of appeal that may have to be inferred since the assessee may not indicate in specific term the scope of the relief sought by him. This has often to be inferred from the range of attack made on the assessment order in the grounds of appeal. The contours of the challenge, as so reflected, would determine the scope of the subject-matter of the appeal. In regard to such subject-matter, if he chooses to make challenge on grounds other than raised by him, it could be open to him to seek to urge such grounds. Indeed, it may be possible that he seeks and obtains relief sought by him in the appeal by a different approach, an approach not reflected in his appeal memorandum. Whether he should be allowed to make that approach, is not a matter of jurisdiction.

It is a matter of discretion which should be understood as distinct from jurisdiction. It is open, in the exercise of discretion, to an appellate authority, invested with the powers of accepting or rejecting fresh grounds, to entertain the fresh ground or not,-and of course, it has to act judicially-but this discretion is distinct from jurisdiction with which alone this case is concerned. It might happen that before the assessee came to the Tribunal, he had not viewed the question urged by him from the proper perspective in which he could have succeeded. In all these situations, in an appeal before the Tribunal, he is free to make a fresh approach, present his case from a different perspective and raise new grounds in support of the relief sought by him. The fact that he has failed to make that approach before the first appellate authority should not stand in the way of his making the new approach. But all this must be related to the same subject-matter as was in appeal before the first appellate authority. If the subject-matter remains the same, the new case presented by him to obtain relief in respect of such subject-matter should be permitted. If it is made in the first instance in the appeal memorandum before the Tribunal, there is no question of exercising discretion at that stage. When such a plea is not there before the Tribunal when the appeal is filed, but is raised later, the question whether it should be allowed or not is a matter of discretion as mentioned above. The attempt of the Tribunal in every case should be to determine whether the subject-matter would remain the same even if the new ground is permitted to be raised.

When, on the very finding of the departmental authorities it would follow that the assessee would be entitled to relief, it may not be proper to deny him that relief and in fact there is a duty on the Tribunal to grant such relief.

Speaking of subject-matter, it may happen that substantially a claim is urged by an assessee assuming that he is entitled to that claim under a certain provision of law indicated by him. It may be that he is entitled to relief in respect of such claim or part of it not because of that provision, but some other provision of law. For the mere reason that he does not refer to or advert to the provision appropriately applicable will be no reason to deny him the right to urge his case, since in such a case also the subject-matter will not change by reason of allowing the question to be raised.

It is not necessary that a question should be specifically raised before the AAC as a ground, but not dealt with in order to imply a decision on that point. The decision is on the subject-matter of the appeal. The subject-matter of the appeal may be capable of challenge on various grounds, some of which might have been raised and some might not have been raised. Those raised might have been dealt with, but a decision on the subject-matter is an implied decision on all matters which are raised and which could have been raised, whether dealt with or not. Merely because a ground has not been raised, though could be raised in support of the relief sought in the appeal, it cannot be said that it cannot be raised before the Tribunal. The conclusion reached merely on the basis that the question, though could have been raised was not raised, cannot be permitted to be raised, is not a proper conclusion reached in law.

In sum, it must be taken to be well settled that the scope of the appeal before the Tribunal extends to the subject-matter of the appeal before the AAC, and if the question sought to be raised for the first time before the Tribunal is a question which concerns the subject-matter of the appeal which was before the AAC, then such question would be permissible.

The Full Bench had also the benefit of the Delhi High Court decision in Anand Prasad's case (supra).

15. The Gujarat High Court's above decision is a Full Bench decision.

It also had the benefit of the Punjab and Haryana High Court, the Andhra Pradesh High Court and the Madras High Court decisions heavily relied upon by the assessee's counsel. The benefit of Full Bench decision of the Gujarat High Court was not available to the Madras High Court. Moreover, that is the view taken by the Delhi High Court in Anand Prasad's case (supra). Respectfully following, therefore, the Delhi High Court decision, the Full Bench decision of the Gujarat High Court and the Bombay High Court decision in preference to the Madras and Punjab and Haryana High Court decisions (for reasons given above), we take the view that in order to understand the scope of the Tribunal's jurisdiction one has to draw a clear distinction between the purport and scope of the expressions such as 'subject-matter of assessment', 'subject-matter of appeal before the first appellate authority', 'subject-matter of appeal before the Tribunal' and 'subject-matter of ground'. While the expression 'subject-matter of assessment' would mean and cover all that has been indicated by the Supreme Court in the case of CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443, 'the subject-matter of appeal before the first appellate authority, would be such additions/disallowances/inclusions, as are objected to by the assessee and/ or taken up by the first appellate authority himself suo moto for consideration. While the outer limit of the subject-matter of appeal before the first appellate authority would be the subject-matter of assessment, the outer limit of the 'subject-matter of appeal' before the Tribunal would be the issues raised before or actually decided by the first appellate authority ; the outer limit getting further restricted in the case of an appeal by the grounds decided against the appellant by the first appellate authority and in the case of respondent to interlinked issues having a bearing on the subject-matter of appeal. In other words, it will be open to an assessee or the ITO to challenge that portion of the order of the first appellate authority which is against him partially or in toto. In case the ITO or the assessee omits for some reason to challenge one of the issues decided against him by the first appellate authority originally, he may do so by seeking leave of the Tribunal to raise additional grounds, which the Tribunal, in its discretion, will entertain. Within the scope of the subject-matter of appeal before the Tribunal, the Tribunal will have widest possible power but not with regard to issues which fall outside the subject-matter of appeal, viz., issues which have not been raised before nor considered by the first appellate authority.

It may not be out of place to mention that the Bombay High Court has in its decision in N.A. Narielwalla's case (supra) made a distinction as regards the initial jurisdiction in making a assessment order.

According to the High Court, questions relating to initial jurisdiction to make orders would stand on a different footing as such questions are always present as a part of the subject-matter of appeal at all stages of appeal either before the AAC or the Tribunal. However, the additional grounds raised herein do not, admittedly, refer to the question of initial jurisdiction. In the circumstances, we are inclined to hold that the grounds raised herein by way of an additional ground cannot be entertained.

16. Before concluding, we would like to mention that the Supreme Court in its decision in the case of Gurjargravures (P.) Ltd. (supra) held that the Tribunal was not correct in holding that the AAC should have entertained the question of relief under Section 84 of the Act or to direct the ITO to allow the relief as neither was any claim made before the ITO regarding that relief nor was there any material on record in support thereof. The following observations of their Lordships at page 5 were strongly relied on behalf of the assessee to urge that the question of admission of a new ground has been left open by the Supreme Court in cases where there is material on record to decide the question : ...We are not here called upon to consider a case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case neither any claim was made before the Income-tax Officer, nor was there any material on record supporting such a claim....

Strong reliance was also placed on the Andhra Pradesh High Court decision in the case of Gangappa Cables Ltd. {supra), where the Tribunal was held to be justified in entertaining a fresh ground for the first time on the ground that there was material on record for deciding the same. It was stated that the special leave petition filed by the department has been rejected by the Supreme Court and, therefore, the Andhra Pradesh High Court's decision should be taken to be a decision of the Supreme Court.

In order to understand and deal with the above submissions on behalf of the assessee, it is noteworthy that the claim in the Supreme Court case was made before the AAC for the first time and not before the Tribunal.

The AAC had not entertained the claim for relief on the ground that the claim for exemption had not been made before the ITO. The Tribunal held that since the entire assessment was open before the AAC, there was no reason for his not entertaining the claim and directing the ITO to allow the appropriate relief. This order of the Tribunal was confirmed by the High Court but the Supreme Court has reversed the High Court's order. The implication of the decision, to our mind, is that the observations of the Supreme Court, regarding existence of material for decision, apply to a claim made for the first time before the AAC. It will be too much to read that, that would also be so in the case of a fresh ground taken before the Tribunal. The case of Gangappa Cables Ltd. {supra) has proceeded on the following finding given by the Tribunal : The assessee filed the return of income duly accompanied by the directors' report showing the profit and loss account and balance sheet. There were also other statements filed. The question whether allocation of the entire expenditure to the capital assets can be done was also mooted before the Income-tax Officer. Therefore, all the necessary details for allowing a claim under Section 80J(1) were practically there before the Income-tax Officer.

It is evident from the above finding that the claim for deduction under Section 80J(1) of the Act as such was not made for the first time. It was mooted before the ITO. What was mooted before the Tribunal for the first time is only one more aspect of the claim, viz., that the expenditure incurred by the assessee before it went into commercial production was an admissible deduction for the purpose of Section 80J(1). The Tribunal found that all the necessary details for allowing the claim were practically there before the ITO. In fact, the Full Bench of the Gujarat High Court has also in its decision in Cellulose Products of India Ltd.'s case {supra) taken the same view. On merits, the Full Bench has held that the new ground raised only a new approach to the question of computation of capital and was, therefore, to be entertained.

We have gone through other decisions, relied upon by the parties, before us. In our view, these decisions do not take their respective contentions further than we have noted and consider in the order.

17. Having regard to the above discussion, we refuse to entertain the additional grounds. It is, of course, open to the assessee to seek remedy, if available, before other forums in accordance with law. Apart from the fact that the decision on the additional grounds will require further investigation, we do not finally express ourselves on that aspect in view of our decision against the admission on the basic question.

18. We now take up 10 grounds taken originally in the appeal memo. The first 8 grounds relate to the question of depreciation on construction equipment. It is common ground that the assessee has not yet been able to set up its business as such. The plant is in the stage of construction/ erection. Contracts are given for different jobs to different contractors. In order to facilitate the construction/erection of the plant, the assessee has purchased huge construction, equipment which is hired out to the contractors for the purpose of construction/erection of the plant- The hiring charges are offered for taxation and are taxed as such. It is also common ground that a major part of the equipment has not been used by the contractors during the previous year and hiring charges have naturally not been received in respect thereof. As against the assessee's claim that it is entitled to depreciation on the cost/written down value of the whole construction equipment, the IAC has allowed depreciation only on that part of the construction equipment, which has been actually put to use and in respect of which hiring charges have been received. The Commissioner (Appeals) has confirmed the order of the IAC vide paragraph No. 5 of his order in the following words : The assessee-company had not entered into any agreement for hiring out its entire block of construction equipment and although its primary object was to use its plant and machinery for construction of thermal power units in various parts of the country, it let out on hire some selected items to others and earned hire charges therefrom. I am, therefore, inclined to agree with the view taken by the IAC on the authority of the commentary of the learned author, A.C. Sampat Iyengar, in the 6th edition of his publication to the effect that if there is no user (during the accounting year), the machinery or plant being allowed to remain idle, there can be no allowance for depreciation. The expression 'use for the purpose of business' would mean that the assets must be used by the owner for the purposes of carrying on the business and earning profit therefrom. In the instant case, the assessee-company had not used its entire block of equipment for the purpose of its business and the hire charges from letting out three items of plant and machinery have been offered for taxation under the head 'Income from other sources'. It cannot, therefore, be said that the assessee-company had used its entire block of construction equipment for the purpose of its business. I, accordingly, hold that the IAC was justified in restricting the allowance of depreciation on those items of plant and machinery which were actually used by the assessee for earning hiring charges, which are the subject-matter of taxation in this case.

19. Referring to page 112 of the assessee's paper book, it is fairly admitted by Shri Ganesan that depreciation is being allowed to the assessee on the basis of actual use for hiring purposes in the past also. It is, however, stated that hiring charges are taxed as income from other sources under Section 56(2) (ii) of the Act and, therefore, the claim for depreciation is to be considered under Section 5700 of the Act, which in turn means under Section 32(1)(ii) of the Act. It is stated that that clause nowhere prescribes that the machinery or plant should be actually put to use for hiring. It is sufficient if the machinery or plant is ready for use. The departmental representative strongly relied on the order of the Commissioner (Appeals). We are in agreement with the Commissioner (Appeals) that unless used, the machinery or plant does not qualify for depreciation under Section 32(1)07). This ground is, therefore, rejected.


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