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Commissioner of Income-tax Vs. Edward Keventer (Successors) P. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 56 of 1971
Judge
Reported in[1980]123ITR200(Delhi)
ActsIndian Income Tax Act, 1922 - Sections 33(4); Income Tax Appellate Tribunal Rules, 1946 - Rule 27
AppellantCommissioner of Income-tax
RespondentEdward Keventer (Successors) P. Ltd.
Appellant Advocate M.L. Verma, Adv
Respondent Advocate G.C. Sharma, ; Anoop Sharma and ; D.N. Banerjee, Advs.
Cases Referred(See Panchura Estate Ltd. v. Government of Madras
Excerpt:
direct taxation - disallowance of loss - section 33 (4) of indian income tax act, 1922 and rule 27 of income tax appellate tribunal rules, 1946 - loss incurred by assessed while dealing in shares was allowed by tribunal - reference made challenging the same - while passing decision department not permitted to raise contention regarding disallowance of loss - genuineness of transactions in which loss incurred was in question - tribunal not justified in precluding department from contesting the grounds presented by department - matter remitted back for fresh disposal. - - 1922, raises a difficult and interesting question regarding the powers of the income-tax appellate tribunal in disposing of an appeal preferred to it under the i. to start with, thereforee, the subject-matter of the.....1. this reference under section 66(2) of the indian i.t. act; 1922, raises a difficult and interesting question regarding the powers of the income-tax appellate tribunal in disposing of an appeal preferred to it under the i.t. act. two questions have been referred to us for our decision :' 1. whether the tribunal was justified in allowing the relief of rs. 9,28,000 as against the enhancement of rs. 6,36,309 made by the appellate assistant commissioner of income-tax in the case of the assessed and 2. on the facts and circumstances of the case, whether, the tribunal was justified in coming to -the conclusion that the department was precluded from agitating the disallowance of rs. 2,77,691 though it had not filed any appeal against the same as net result of the decision of the appellate.....
Judgment:

1. This reference under Section 66(2) of the Indian I.T. Act; 1922, raises a difficult and interesting question regarding the powers of the Income-tax Appellate Tribunal in disposing of an appeal preferred to it under the I.T. Act. Two questions have been referred to us for our decision :

' 1. Whether the Tribunal was justified in allowing the relief of Rs. 9,28,000 as against the enhancement of Rs. 6,36,309 made by the Appellate Assistant Commissioner of Income-tax in the case of the assessed and

2. On the facts and circumstances of the case, whether, the Tribunal was justified in coming to -the conclusion that the department was precluded from agitating the disallowance of Rs. 2,77,691 though it had not filed any appeal against the same as net result of the decision of the Appellate Assistant Commissioner of Income-tax even after allowing the above-said interest was enhancement of Rs. 6,36,309 '

2. The reference arises out of the assessment of M/s. Edward Keventer (Successors) Pvt. Ltd., Delhi, for the assessment year 1957-58. The assessed is a private limited company belonging to what may be described as Dalmia group of companies. For the assessment year 1957-58, it filed a return showing a loss of Rs. 4,12,222. This return by the company comprised, inter alia, of two constituent elements. One was a loss on the purchase and sale of certain shares which was computed at Rs. 1,38,078 (gross) and Rs. 1,24,116 (net). The other item which went by way of deduction into the computation of the figure of loss, earlier mentioned, was an interest claim of Rs. 3,22,696 which had been debited to the profit and loss account. The ITO found that the assessed claimed to have purchased and sold several shares of various companies belonging to the Dalmia group as a result of which it sustained the loss of Rs. 1,38,078. He referred in particular to the shares of a company known as Asia Udyog P. Ltd., and also to certain transactions in shares of Alien Berry & Co. (Cal) P. Ltd., Govan Bros. (P.) Ltd. and M/s. Indian National Airways Ltd. These shares were shown to have been purchased at prices far above their real worth. He also found that for the purpose of making some of the above purchases large amounts of the assessed's funds were blocked up, resulting in the company having to pay substantial amounts of interest. He also referred to similar transactions and a similar position that had prevailed in the earlier assessment year. His conclusion was that the assessed had not in truth and reality purchased and sold the several shares on which he claimed to have incurred a loss; likewise the huge interest which the assessed had paid, in so far as it was relatable to the alleged purchase of these shares, was not an expenditure admissible under the Act. In this view of the matter, the 1TO disallowed as against the total interest of Rs. 3,22,696 claimed by the assessed, an interest of Rs. 3,06,091, which admittedly related to borrowings for the alleged investments in these shares. He also disallowed the net loss of Rs. 1,24,116 claimed by the assessed as a loss suffered on shares acquired for collusive, extra-commercial and extra-investment reasons.

3. The assessed preferred an appeal to the AAC. There were eight grounds taken in the appeal of which five were pressed. The first two of these contentions were as follows:

'1. That the Income-tax Officer was wrong in disallowing Rs. 3,06,091 as interest on loan taken for the purchase of shares.

2. The Income-tax Officer erred in disallowing a loss in dealing in shares amounting to Rs. 1,24,116.'

4. The third contention related to an addition of Rs. 20,000 made by the officer and contentions (4) and (5) related to the computation respectively of depreciation and the amount of losses and unabsorbed depreciation to be carried forward.

5. The AAC discussed these grounds one after the other. But, in the very nature of things, even while discussing the first contention of the assessed, he had to consider the nature of the transactions entered into by the assessed in which it claimed to have sustained a loss which was the subject-matter of the second contention. He came to the conclusion that two transactions in shares were definitely collusive and were made with the purpose of transferring profits, that could be earned by the appellants, to others or with a view to increase the liability of the company. These transactions and the inferences drawn by the AAC were to the following effect:

(i) The assessed had alleged a purchase on September 30, 1955, of 2,84,000 ordinary shares of Asia Udyog P. Ltd. from Bharat Union Agencies Ltd. (B.U.A.), another company of the same group, at Rs. 12 per share. On the same day, it had purchased the same shares from another company, it had also sold all the shares at Rs. 10 per share of this company held by it (including those purchased on September 30, 1955) at Rs. 11 on December 9, 1955 and Rs. 10 on February 28, 1956, respectively. This showed that the purchase price of the shares had been inflated by Rs. 2 per share or Rs. 5,68,000 in all. The liability to B.U.A. had been inflated by Rs. 5,68,000 between September 30, 1955, and December 9, 1955.

(ii) The assessed had sold, on September 2, 1955, 18,000 preference shares at Rs. 100 per share to B.U.A. Just 4 weeks thereafter, i.e., September 30, 1955, it purchased 23,000 preferences shares from the same company at Rs. 120 per share. These were again sold on December 9, 1955, to South Asia Industries at face value. It was, thus, apparent that the assessed had inflated the price of the 18,000 shares purchased on September 30, 1955, by Rs. 20 per share or Rs. 3,60,000 in all. The liability, to the extent of Rs. 18,00,000 shown in the books between September 30, 1955, and December 9, 1955, was unreal and artificial. He thus concluded that the assessed had understated the profits on these two transactions by Rs. 9,28,000 in all. While discussing these transactions, the AAC pointed out that his conclusions in regard to these transactions ' would also result in the disallowance of interest which was to be paid by it to M/s. Bharat Union Agencies Ltd., by the creation of an artificial liability '. He gave notice to the company, calling upon it to show cause, why these transactions should not be treated as having resulted in a profit of Rs. 9,28,000 and why the interest due to B.U.A. Ltd. should not be disallowed as amount claimed in respect of a fictitious and artificial liability. After hearing the assessed, he concluded so far as contention (1) was concerned:

' Apart from this since the appellant had created a fictitious liability against itself favoring Bharat Union Agencies Ltd. amounting to Rs. 23,68,000 made up as follows :

Rs. 5,68,000 for the period September 30, 1955, to December 9, 1955, Rs. 18,00,000 for the period September 30, 1955, to December 9, 1955.

No interest on this can be allowed. This would work out to Rs, 28,400 at the rate of 6%. The appellant would get a relief under the disallowance of interest amounting to Rs, 2,77,691 under the head 'Interest '.'

6. Then, coming to contention (2) he observed:

' I have already mentioned earlier under contention No. (1) when disallowing the interest on some of the appellant's so-called loans that the transactions of the appellant in respect of shares of Asia Udyog Ltd. were collusive and sham, and that there was actually a profit therein instead of loss. In view of this, the loss claimed to have been suffered by the appellant in these transactions cannot be allowed and a profit of Rs. 9,28,000 should be worked on it.'

7. Then on contention (3), the AAC gave a relief of Rs. 15,000 and on contentions (4) and (5) gave certain directions to the officer. He concluded :

' In the result, the assessment is enhanced by Rs. 6,36,309 (Rs. 9,28,000 minus Rs, 2,77,691 minus Rs. 15,000) minus relief in depreciation allowed under contentions Nos. (4) & (5).'

8. It will be clear from the final computation and enhancement made by the AAC that, though he referred to these transactions as collusive, he actually based his order on the footing that the transactions were real but that the purchase price had been inflated to show the loss.

9. The assessed preferred further appeal to the Tribunal The grounds of appeal were as follows :

' (1) The learned AAC erred in enhancing the income of your appellant-company by, the addition of Rs. 9,28,000 as being alleged profits from the transactions in the shares of Asia Udyog (P.) Ltd. purchased from M/s. Bharat Union Agencies (P.) Ltd. on September 30, 1955.

In any event, the alleged finding of the learned AAC that your appellant-company had inflated the purchase price in the case of 2,34,000 ordinary shares of M/s. Asia Udyog (P.) Ltd., purchased on September 30, 1955, from M/s, Bharat Union Agencies (P.) Ltd. @ Rs 12 per share is arbitrary, without any material and is based merely on suspicion and surmises.

Similarly, the alleged finding of the learned AAC that your appellant-company inflated the purchase price in the case of 23,000 pref. shares of M/s. Asia Udyog (P.) Ltd. purchased on September 30, 1955, from M/s. Bharat Union Agencies (P.) Ltd. @ Rs. 120 per share is arbitrary, without any material and is based merely on suspicion and surmises.

In any event, the transactions in the shares of Asia Udyog (P.) Ltd. having been held by the learned AAC to be collusive and sham, no profits of Rs. 5,68,000 and Rs. 3,60,000 as made by the learned AAC is highly unjust, improper and wrong.

(2) The learned AAC erred in disallowing the interest payment of Rs. 28,400. In any event, the sum of Rs. 23,68,000 on which the said interest was calculated by the learned AAC has been wrongly worked out.'

10. When the matter went before the Tribunal the only ground pressed by the assessed was the first ground. The Tribunal noticed that the ITO had taken pains to prove that the transactions in shares were of a collusive nature and, thereforee, bogus and disallowed the loss on this ground. They also noticed that the AAC seemed to have taken the view that the assessed had claimed fictitious loss but had come to the conclusion that the assessed had, by inflating purchase prices and deflating sale prices, reduced the profits to the extent of Rs. 9,28,000. The Tribunal pointed out:

' There is no evidence to show that such transactions really resulted in any profits. The AAC himself had held that all the transactions were collusive. In other words, according to him, there were no real transactions in which case the only conclusion could be that the loss was fictitious.

But, that by itself cannot, in our opinion, be considered as sufficient reason for estimating imaginary profits on these transactions.'

11. The Tribunal held that the presumption of the AAC that the assessed must have made some profits was not based on any material and that thereforee the enhancement of Rs. 9,28,000 made by him was not justified.

12. Before the Tribunal it was contended on behalf of the department that, in case the Tribunal came to the conclusion that the enhancement made by the AAC was not justified, the entire addition of Rs. 9,28,000 should not be deleted. It was pointed out that the AAC had granted the appellant certain relief on account of interest on loans said to have been obtained for purchasing the shares which was consequent on his finding that the transactions in shares were genuine. It was pointed out that in view of the conclusion of the Tribunal that there were no real transactions in shares and that the assessed had not made any profits or loss thereon, the assessed would not be entitled to the benefit of any deduction by way of interest on loans said to have been obtained for purchasing the shares. It was, thereforee, urged that the department should be permitted to support the addition sustained by the AAC to the extent of Rs. 2,77,691. In support of this plea, the departmental representative relied on Rule 27 of the Income-tax Appellate Tribunal Rules, 1946, which reads as under:

' The respondent though he may not have appealed, may support the order of the Appellate Assistant Commissioner on any of the grounds decided against him.'

13. In other words, the departmental representative made an attempt to persuade the Tribunal to delete from the assessment not the sum of Rs. 9,28,000 but only the said sum minus Rs. 2,77,691.

14. The Tribunal, however, did not accede to the contention of the departmental representative. It pointed out that all that a respondent in an appeal could do was to support the decree on any of the grounds decided against him in the court below, but that the respondent could not make out a case for a decree for the same amount by attacking the decree in respect of a right decided against him. Referring to certain decisions under Order 41, Rule 22 of the Code of Civil Procedure, the Tribunal rejected the arguments on behalf of the revenue and declined to maintain the addition to the extent of the relief granted by the AAC in the assessed's favor, in the interest account. It is from this order of the Tribunal that the present reference has been made to us.

15. Though the ultimate point for decision is within a narrow compass, it may be useful to preface its consideration by a discussion of the scope and ambit of the powers of the Tribunal while dealing with an appeal before it.

16. This is spelt out in Section 33(4) of the 1922 Act and the rules framed by the Income-tax Appellate Tribunal. Section 33(4) of the Act enjoins that where an appeal is preferred to it, the Tribunal ' may, after giving both the parties an opportunity of being heard, pass such orders thereon as it thinks fit'. Though these words are expressive of the widest possible powers, their scope is restricted by the use of the word ' thereon ' which limits the powers of the Tribunal to the subject-matter of the appeal. As pointed out by the Supreme Court in CIT v. Manick Sons : [1969]74ITR1(SC) , the Tribunal must exercise its powers only ' in respect of matters that arise in the appeal and according to law '. It cannot travel outside the scope of the appeal and adjudicate or give findings on a question which is not in dispute and which does not form the subject-matter of the appeal before it.

17. How then is the subject-matter of the appeal to be determined This is easy, for an appeal comes up before the Tribunal because one of the parties before the AAC--the assessed or the ITO is aggrieved by the order of the AAC. He comes to the Tribunal to have his grievance redressed and the subject-matter of his grievance is set out in the grounds of appeal .filed by him. To start with, thereforee, the subject-matter of the appeal is constituted by the grounds of appeal filed by him which will clearly identify the question in dispute in the appeal. Rule 12 of the Tribunal Rules, as they stood at the relevant time, laid down the general rule that an appellant shall not urge or be heard in support of any ground of objection, not set forth in the grounds of appeal. But this rule has also an exception for the very rule impliedly confers a power on the Tribunal to grant leave to the appellant to urge additional grounds not set forth in the memorandum of appeal. Normally speaking such additional grounds can be urged only in relation to the subject-matter already appealed against and in regard to such grounds the Tribunal has discretion to grant or refuse permission and the grant of permission may also be express or implied. But, where an appellant seeks to bring in new items -which had nothing to do with the subject-matter of the appeal as originally filed, it will be as if the appeal in this regard has been filed belatedly and the Tribunal can entertain them only after considering whether there are grounds to excuse the delay in filing the appeal (See Panchura Estate Ltd. v. Government of Madras : [1973]87ITR698(Mad) . Where, however, permission is granted by the Tribunal, the scope of the original appeal will stand expanded or enlarged so as to cover the matters raised in the original grounds as well as those raised in the additional grounds. Thus, the subject-matter of the appeal is constituted by the original grounds of appeal and such additional grounds as may be raised by leave of the Tribunal. So much regarding the appellant.

18. Now, adverting to the rights of the respondent in an appeal, we start with the basic idea that, if a party appeals, he is the party who comes before the Appellate Tribunal to redress a grievance alleged by him. If the other side has a grievance, he has a right to file a cross-appeal (and under the Civil Procedure Code and the I.T. Act of 1961, a memorandum of objections). But, if no such thing is done, he is deemed to be satisfied with the decision. He is, thereforee, entitled to support the judgment of the first officer on any ground but he is not entitled to raise a ground which will work adversely to the appellant. In fact such a ground may be a totally new ground, if it is purely one of law, and does not necessitate the regarding of any evidence, even though the nature of the objection may be such that it is not only a defense to the appeal itself but goes further and may affect the validity of the entire proceedings. But the entertainment of such a ground would be subject to the restriction that even if it is accepted, it should be given effect to only for the purpose of sustaining the order in appeal and dismissing the appeal and cannot be made use of, to disturb or to set aside, the order in favor of the appellant (See Bamasi v. CIT : [1972]83ITR223(Bom) ). This liberty to the respondent is reserved by Rule 27 of the Tribunal Rules.

19. We have next to consider the powers of the Tribunal while disposing of the appeal. Rule 12, earlier referred to, also lays down that the Tribunal, in deciding an appeal, is not confined to the grounds set forth in the memorandum of appeal or those which the appellant may urge with its leave. It can decide the appeal on any ground provided only that the affected party has an opportunity of being heard on that ground. But it has been laid down in a number of cases that this rule does not enable the Tribunal to raise a ground, or permit the party who has not appealed to raise a ground, which will work adversely to the appellant and result in an enhancement. (See, e.g. Motor Union Insurance Co. Ltd. v. CIT : [1945]13ITR272(Bom) . The following observations of Narayana Pai C.J., in Pathikonda Balasubba Setty v. CIT : [1967]65ITR252(KAR) are also apposite in this context:

' The effect of these provisions is that the Appellate Tribunal's powers are limited to passing such orders as they may think fit on the appeal. The expression ' on the appeal', clearly and indubitably points to the conclusion that the powers of the appellate authority, the, Tribunal, are limited to the subject-matter of the appeal.

This is necessarily so because every point dealt with by the lower appellate court, the Appellate Assistant Commissioner, need not be the subject of attack before the Appellate Tribunal. The interests of the revenue are sufficiently protected by the extensive powers given to the first appellate authority, the Appellate Assistant Commissioner. At that stage, the only appellant would be the assessed, not the department although it is entitled to be represented by an officer of the department in support of the order of the original court. A mistake, if any, committed by the original authority, which is adverse to the interests of the assessed, will be canvassed by the assessed before the Appellate Assistant Commissioner. A mistake, if any, committed by the original assessing authority which is detrimental to the interests of the revenue is capable of being corrected by the Appellate Assistant Commissioner even without an appeal having been presented by the department. At the next stage of second appeal to the Appellate Tribunal, the liberty is given to both the sides to go up in appeal to the Appellate Tribunal and when the Appellate Tribunal comes to deal with the matter, the law regards it sufficient to leave it to the parties going up as appellants before the Tribunal to limit their attack on the order of the first appellate authority and to seek the intervention of the Tribunal only to the extent necessary to correct the errors in the order of the Appellate Assistant Commissioner according to the ease of the appellant.

It should be noted that in comparison to the Sections describing the power of the Appellate Assistant Commissioner, the Sections 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 do 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 a 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.'

20. It will be clear from the above discussion that the powers of the Tribunal under the Act and Rules are the same as those of an appellate court under the Code of Civil Procedure which have been succinctly summed up by Chagla C. J. in New India Life Assurance Co.'s case : [1957]31ITR844(Bom) , in the following passage at page 855 :

' When an appellant comes before a court of appeal, he comes there because he is dissatisfied with the decision of the trial court and he challenges that decision ; and he challenges that decision on certain grounds which are set out in the grounds of appeal or in the memo of appeal. The respondent if he has not appealed or has not cross-objected, is satisfied with the decision of the trial court and he is before the court of appeal to support the judgment of the trial court. The appellant may challenge the decision of the trial court even on grounds not contained in the grounds of appeal if the court of appeal grants him leave to do so. Undoubtedly, in granting leave the court of appeal would consider various factors: whether the question raised would involve questions of fact which may necessitate a remand ; whether the conduct of the appellant is such as to disentitle him to raise the new ground ; and so on. But if leave is granted and if the other side has notice of the new ground which the appellant seeks to urge, there does not seem to be any reason why the court of appeal should not permit the appellant to challenge the decision of the trial court on a ground other than those taken in the grounds of appeal. The position with regard to the respondent is different; it is not open to him to urge before the court of appeal and get a relief which would adversely affect the appellant. If the respondent wanted to challenge the decision of the trial court, it was open to him to file a cross-appeal or cross-objections. But the very fact that he has not done so shows that he is quite content with the decision given by the trial court. thereforee, under these circumstances, his only right is to support the decision of the trial court. It is true that he may support the decision of the trial court, not only on the grounds contained in the judgment of the trial court, but on any other ground. In appreciating the question that arises before us, one must clearly bear in mind the fundamental difference in the positions of the appellant and the respondent. The appellant is the party who is dissatisfied with the judgment; the respondent is the party who is satisfied with the judgment.'

21. We are concerned in this case with the right of the respondent under Rule 27 to support the order of the AAC on the ground decided against him by the AAC before we proceed to discuss the facts of the present case, we may perhaps point out that it may not be correct or proper to confine the subject-matter of the appeal strictly and liberally to the grounds. The difficulty that arises in this regard may be explained by reference to the facts before and the decision of the Madras High Court in CIT v. Sundaram & Co. P. Ltd. : [1964]52ITR763(Mad) . In this case, the ITO reopened the assessment of the assessed-company under Section 34(I)(b) of the Indian I.T. Act, 1922, and withdrew certain rebates on the ground that the assessed had obtained excessive relief in the form of rebates in respect of its dividend distribution which it was not entitled to. The assessed preferred an appeal to the AAC contending that the provisions of Section 34 were not attracted.

22. But this objection was overruled by the AAC. He, however, came to the conclusion that the assessed was entitled to some relief in respect of the quantum and so he granted relief partially by holding that the assessed was entitled to rebate to the extent of Rs. 3,54,716. There was a further appeal not at the instance of the assessed but at the instance of the Commissioner. The contention taken by the department, on the grounds of appeal was that the AAC erred in granting the relief to the assessed to the extent of Rs. 3,54,716. At the hearing of the appeal, the assessed raised the objection before the Tribunal that the proceedings under Section 34 were entirely without jurisdiction. On behalf of the department, it was contended before the Tribunal that the assessed was not competent to raise this objection as to the non-applicability of Section 34 as it had not filed an independent appeal against the adverse finding of the AAC holding that the provision was applicable. It, is in this context that the High Court had to go into the scope of the powers of the Tribunal while dealing with an appeal before it. After referring to the powers of the Tribunal to grant leave to the appellant, to raise additional grounds, the court turned to Rule 27 and observed (p. 770):

' Turning to rule 27 which permits the respondent before the Tribunal to support the order of the Appellate Assistant Commissioner on any of the grounds decided against him, it seems to be clear that this is a right conferred upon him. The Tribunal has no discretion to deprive the respondent of the benefit of this rule. It is an enabling provision which the respondent can avail himself of in order to retail the benefit which has accrued to him from the order appealed against.

The rule that a respondent before the court or Tribunal can justify and support the decision in his favor not merely on grounds favorably decided but also on other grounds held against him by an authority whose. decision is challenged on appeal is nothing peculiar to the procedure before the Income-tax Appellate Tribunal. A similar provision is found in the Civil Procedure Code. '

23. After quoting Order XLT, Rule 22 of the Code of Civil Procedure, the court proceeded (p. 770):

' The reason for such a rule is obvious. If the final outcome of a decision is favorable to a person it would not matter to him how and by what reasoning the decision is arrived at so long as it is not challenged by his adversary. But, if it is attacked he must be in a position to support it on every ground he urged before the deciding authority whether or not it found favor. If he were not given that amount of freedom he would be a victim of wrong reasons. This would be unjust in the extreme. If rule 27 had not been enacted there would still have been scope for invoking the principle underlying that rule in the name of natural justice. The true rule is that an appeal is a continuation of the original proceeding and that eights of parties cannot be defeated by the form of the order but by the actual decision.'

24. Dealing with the contention on behalf of the department that it would not be open to a respondent to travel outside the scope of the subject-matter of the appeal under the guise of invoking Rule 27 the court observed (p. 770):

' This contention is unexceptionable and we do not think that the learned counsel for the assessed disputed it. But then, what is the subject-matter of an appeal The answer is simple. The subject-matter is that which the Tribunal or the appellate court is called upon to decide and to adjudicate. The subject-matter cannot be identified with the grounds raised either by the appellant or by the respondent. In the present case the subject-matter of the appeal before the Tribunal was the reduction of tax rebate in respect of Rs. 3,54,716. It is impossible to contend that the subject-matter of the appeal lay within a narrower limit and that it was the question whether the Appellate Assistant Commissioner was right in not allowing reduction of rebate on the ground mentioned by him. The assessed had obtained relief before the Appellate Assistant Commissioner to a particular extent. And this was objected to by the department in the appeal before the Tribunal. The applicability of Section 34 of the Act was a general question raised by the assessed even before the Appellate Assistant Commissioner. It cannot be said that it became debarred from raising the question over again before the Tribunal because of the fact that it did not choose to file an appeal against other portions of the order of the Assistant Commissioner which was unfavorable to it. The scope of Section 34 was a ground which was decided against the assessed before the Appellate Assistant Commissioner and we do not see how the assessed is precluded from relying upon rule 27 and urging that ground before the Tribunal with a view to support only that portion of the Appellate Assistant Commissioner's order which was favorable to it.'

25. Of course, as pointed out by the Bombay High Court in Bamasi v. CIT : [1972]83ITR223(Bom) , earlier referred to, the assessed could use this argument only to sustain the order of the AAC but not to get further relief and have the reassessment itself annulled and thus adversely affect the appellant and place it in a worse position than if it had not appealed at all. This decision illustrates the principle that the subject-matter of the 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 td, be got adjudicated upon by the Tribunal.

26. In the present case, it has been argued for the assessed that the subject-matters of appeal were only two in number: (a) Was a profit of Rs. 9,28,000 assessable on the transactions in the shares of Asia Udyog P. Ltd. (b) Was the AAC right in disallowing interest of Rs. 28,400? It is argued that neither the respondent nor the Tribunal could travel outside these. On the other hand, it is argued for the department that the subject-matter of the appeal.was as to whether the transactions in shares were genuine or not and if they were genuine, how the profits there from were to be determined. In other words, it was open to the Tribunal to consider not only the aspect of the quantum of profits but also the deductions to be made in ascertaining the net profits on these transactions. It is pointed out that the ITO had made two adjustments to the losses returned by the assessed. One was the disallowance of the loss on the ground that the share transactions were collusive. The other was the disallowance of interest made by the ITO on the ground that, since the share transactions were collusive, no interest could be allowed. This integral subject-matter was the subject-matter of two separate contentions before the AAC. The AAC's discussion also shows that the findings on the two contentions were mutually interdependent. He came to the conclusion that the assessed had put through certain share transactions and that he had made a profit thereon. Naturally, he had also to examine the question of interest which was closely linked therewith. Doing so, he allowed the interest to the extent of Rs. 2,66,791 and disallowed it to the extent of Rs. 28,400. Thus, the AAC having enhanced the profits on sale of shares by Rs. 9,28,000 and reduced the disallowance of interest by Rs. 2,77,691 the real effect of his order was that he had computed the profit on the sale of shares at Rs. 6,50,309. thereforee, when we look at the scope of the appeal before the Tribunal, we have to understand the dispute as pertaining to this resultant effect. In other words, the subject-matter of the appeal involved not only the assessability of Rs. 9,28,000 but also the alienability of Rs. 2,77,691 as a deduction. It was, thereforee, open to the respondent to put forward the contention that if the Tribunal came to the conclusion that the finding of the AAC that there had been a profit on sale of shares was not correct, then on the same logic, the allowance of interest was not justified and so the assessed would be entitled to a reduction of only Rs. 6,50,309 from the assessment and not Rs. 9,28,000.

27. We agree in principle with the contention urged by the department. Though the ground raised by the assesses referred only to the figure of Rs. 9,28,000 the subject-matter of the appeal should be understood in the context of facts not as turning round this figure but as pertaining to the addition sustained by the AAC by reference to the transactions in dispute. It would be open to the department, as respondents, to point out that the addition upheld by the AAC was not Rs. 9,28,000 but much less and that the assessed would not be entitled to a relief of Rs. 9,28,000. We may give an example to clarify the position. Suppose there is only one item of income assessed in the case of a particular assessed, viz., the capital gains from a property. Suppose there is a dispute between the assessed and the department on this matter, the relevant figures being as follows :

Sale condideration Market value on 1-1-1954Capital gains Rs.Rs.Rs.assessed2,00,0001,50,00050,000ITO3,00,0001.00.0002,00,000AAC2,50,0001,50,0001,00,000

28. Suppose the assessed prefers an appeal to the Appellate Tribunal, against the AA'C's order, contending that the determination of the sale consideration is excessive and the Tribunal is inclined to accept the figure of Rs. 2 lakhs shown by the assessed. We think it would.be fair to say that the subject-matter of the appeal is not merely the question of what should be the sale consideration but as to what should be the capital gain. If the department was satisfied with the determination of the capital gain at Rs. 1 lakh it could not be expected to file an appeal and it would not be correct to deprive the department of the opportunity to maintain the AAC's order by construing the subject-matter of the appeal in a narrow manner as restricted to the question of the sale consideration. We think, thereforee, that the department would be entitled to support the order of the AAC, under Rule 27, on the basis that the market value as on January 1, 1954, was Rs. 1 lakh as determined by the AAC and not Rs. 11/2 lakhs as decided by the AAC, rejecting the ITO's contention. thereforee, on the same analogy that in a case where certain grounds concerning the same matter are interlinked, they should be considered together and the scope of the subject-matter before the Tribunal should be construed accordingly. The position might be different where different grounds of appeal are dealt with by the AAC, which have no real inter-connection with each other though naturally they all bear upon particular assessment and though they may all broadly relate to the computation of income from the same head of source. But in a case where there are inter-connected grounds of appeal and they have impact on the same subject-matter, the scope of the appeal should be broadly considered in the correct perspective, While the appellant should not be made to suffer and be deprived of the benefit given to him by the lower authority where the other side has not appealed, equally the procedural rules should not be interpreted or applied so as to confer on an appellant a relief to which he cannot be entitled if the points decided in his favor on the same matter by Ihe lower, court are also considered as requested by the respondent.

29. It seems to us that the position in the present case is somewhat similar. The ITO had treated certain transactions as sham and collusive, disallowed the losses claimed and consequently disallowed the interest admitted by the assessed to relate to these transactions. On appeal, the AAC treated the transactions as genuine but considered the prices to be inflated. He, thereforee, computed a profit and as a logical corollary, allowed the interest substantially (except to the extent of inflation found by him). When, on appeal, the Tribunal decides to restore the ITO's finding that the transactions were bogus then the logical consequence will be a reversal of the AAC's allowance of interest also. For the reasons discussed above, we are unable to construe the subject-matter of the appeal as restricted to the ground raised, viz., deletion of Rs. 9,28,000. We think the subject-matter of the appeal was the genuineness or otherwise of the share transactions and the profit assessable in respect thereof. On this, the AAC had given two findings, one against the assessed and the other against the department. In view of the former being substantially beneficial to it, the department could not be aggrieved by the consequential finding on the latter. Unlike in Sundaram's case : [1964]52ITR763(Mad) , where at least it could be said that the assessed could have filed an appeal in regard to the applicability of Section 34 as that was a separate and independent ground decided against it, here, however, as mentioned earlier, the department could not have filed an appeal on this point as it was consequential, according to it, on the finding of the AAC on the first point which was to its benefit. It could not have assailed the latter in appeal without attacking the finding on the first also. To say, in such circumstances, that the department cannot seek to uphold the AAC's order on this subject-matter would virtually amount to denial of natural justice to it which, as pointed out in Sundaram's case : [1964]52ITR763(Mad) , is not the object of the relevant statutory provisions. Moreover, even if the department's ground ultimately succeeds on merits, the assessed will not be adversely affected and will not be in a worse position than if it had preferred no appeal at all.

30. For the above reasons, we are of opinion that the Appellate Tribunal erred in not permitting the department to raise this contention regarding the disallowance of interest by the AAC. It will be seen at once that we cannot answer the first question as referred to us as it involves a decision on the merits of the allowance of Rs. 2,77,691 made by the AAC which the Tribunal is yet to decide. We can only answer the two questions referred to us by saying that the Tribunal was not justified in allowing the relief of Rs. 9,28,000, in the case of the assessed, by precluding the department from agitating the disallowance of interest to the extent of Rs. 2,77,691 and that the Tribunal should have entertained this ground and then disposed of the appeal in the light of its decision thereon.


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