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Commissioner of Income-tax, Gujarat-i Vs. Cellulose Products of India Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 124 of 1975
Judge
Reported in[1985]151ITR499(Guj)
ActsIncome Tax Act, 1961 - Sections 37, 80J(1), 80J(3), 251, 253 and 254
AppellantCommissioner of Income-tax, Gujarat-i
RespondentCellulose Products of India Ltd.
Appellant Advocate B.R. Shah, Adv.
Respondent Advocate J.P. Shah, Adv.
Excerpt:
direct taxation - jurisdiction - sections 37, 80 j (1), 80 j (3), 251, 253 and 254 of income tax act, 1961 - jurisdiction of income-tax appellate tribunal to permit matters to be raised before it when not raised before appellate assistant commissioner - whether tribunal had jurisdiction to allow assessee to raise additional ground for first time before it and to restore appeal to appellate assistant commissioner for fresh adjudication - scope of appeal before tribunal extends to subject matter of appeal before appellate assistant commissioner - in case question sought to be raised for first time before tribunal which concerns subject matter of appeal before aac then such question is permissible - question referred answered in affirmative. - - 1. quite an important and interesting.....poti, c.j.1. quite an important and interesting question arises for decision in this case. it is interesting because several high courts in india have expressed differing views not only on the scope of certain provisions of the i.t. act, but also on the scope of decisions on those provisions rendered by the supreme court. it is important because the question which we are called upon to answer is one which will have frequent application before the income-tax appellate tribunal. the question concerns the scope of jurisdiction of the income-tax appellate tribunal to permit matters to be raised before it when these were not (raised) before the aac. 2. though there are earlier pronouncements of this court on this question (cit v. karamchand premchand p. ltd. : [1969]74itr254(guj) followed by.....
Judgment:

Poti, C.J.

1. Quite an important and interesting question arises for decision in this case. It is interesting because several High Courts in India have expressed differing views not only on the scope of certain provisions of the I.T. Act, but also on the scope of decisions on those provisions rendered by the Supreme Court. It is important because the question which we are called upon to answer is one which will have frequent application before the Income-tax Appellate Tribunal. The question concerns the scope of jurisdiction of the Income-tax Appellate Tribunal to permit matters to be raised before it when these were not (raised) before the AAC.

2. Though there are earlier pronouncements of this court on this question (CIT v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) followed by CIT v. Steel Cast Corporation : [1977]107ITR683(Guj) , it is the expression of views by two different Benches in two references that has led to the reference of the question to the Full Bench. Chief Justice Divan, speaking for the Bench in ITR No. 77 of 1975 answered the question similar to the one which arises here in the affirmative, that is in favour of the assessee. A similar question was raised later in ITR No. 55 of 1975 before a Division Bench in which P. D. Desai J., as he then was, spoke for the Bench. Later, when this reference came up before a Bench consisting of Divan C.J. and P. D. Desai J., noticing the two differing vies expressed in these cases, the Bench referred the case to a larger Bench and that is how the matter is now before us.

3. The question referred to us reads :

'Whether, on the facts and in the circumstances of the case, the Tribunal had jurisdiction to allow the assessee to raise the additional ground for the first time before it when it was not raised before the Appellate Assistant Commissioner and to restore the appeal to the Appellate Assistant Commissioner for fresh adjudication ?'

4. The facts leading to the reference may now be stated. The assessee is a public limited company, M/s. Cellulose Products of India Ltd. The relevant assessment year are 1968-69 and 1969-70. For these years, the assessee claimed relief under s. 80J of the I.T. Act, 1961. For the purpose of determining this relief, it is necessary to compute the capital. The computation of capital by the ITO was disputed by the assessee before the AAC in his appeals for the above said two years. The grievance of the assessee was that capital should have been apportioned between the new unit which sought the benefit of s. 80J and the unit in existence earlier on the basis of proportionate value of the fixed assets. The AAC agreed with the ITO and computed capital on the basis of actual capital employed in the two mills and not on the basis of proportionate value of the fixed assets. The assessee took up the matter for the two years before the Income-tax Appellate Tribunal. An additional ground was raised in the appeals by the assessee and that concerned the computation of capital under s. 80J of the Act. The question was whether the assessee was entitled to seek computation of capital by taking note of debts and liabilities or without making deduction for debts and liabilities. Of course, the rule in force did not permit such deduction, but the assessee's case was that the rule transgressed the provisions of the Act and, therefore, irrespective of the rule, the capital had to be computed without deducting debts and liabilities. It was pointed out by the assessee that in a similar case concerning the same assessee for the year 1967-68, the Income-tax Appellate Tribunal had granted relief. The representative for the Revenue opposed the raising of the new ground and further contended that, at any rate, it cannot be decided by the Tribunal itself as in the previous year what was done was to restore the matter to the AAC for a fresh adjudication on merits. Though it may appear from the order of the Tribunal that the departmental representative had no objection to the new ground to be raised and only wanted the matter to be remanded to the AAC, it is seen from the order of reference that the departmental representative did object to the AAC was made only as an alternative. The Income-tax Appellate Tribunal directed remand of the matter to the AAC for fresh adjudication for both the assessment years 1968-69 and 1969-70. Though the assessee wanted the question, 'whether, while computing the capital employed for the purpose of the business as required under s. 80J of the Act, deduction for debts and liabilities should not be taken', also to be referred, the Income-tax Appellate Tribunal noted that not finding has been entered on this question and the matter had only been remanded and that, therefore, that question did not arise. In these circumstances, the question to which we have adverted was referred to this court.

5. The determination of the question depends upon a proper understanding of the appellate power of the Tribunal. The matter is not res integra. This question had received attention from the Supreme Court on earlier occasions and, therefore, it may not be necessary to examine these provisions over again. The real controversy concerns the purport of the decisions of the Supreme Court. Therefore, we would straightaway refer to these decisions.

6. It was in Hukumchand Mills Ltd. v. CIT : [1967]63ITR232(SC) , that the Supreme Court had occasion to consider this question in the form in which it is relevant to us for the first time. The question again came up for consideration in CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) , a decision rendered soon after the earlier decision. It was Ramaswami J., who spoke for the Bench in Hukumchand Mills Ltd. v. CIT : [1967]63ITR232(SC) and Shah J., who was a member of that Bench, spoke for the Bench in CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) and Ramaswami J. was also one of the judges who sat in that Bench. Reference may also have to be made to the decision in CIT v. Nelliappan : [1967]66ITR722(SC) , delivered on the same day by the same Bench which delivered the judgment in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) .

7. To understand the context in which the observations, to which we may make a reference, were made in Hukumchand Mills' case : [1967]63ITR232(SC) , it may be necessary to refer to a few facts of that case. Hukumchand Mills Ltd., hereinafter referred to as 'Hukumchand', was a company incorporated in the Indore State prior to April 1, 1950. Hukumchand had a textile mill in Indore. Assessment on Hukumchand was being made in British India also as a non-resident for the assessment year 1949-50 and certain earlier assessment years. This was of such income of Hukumchand an non-resident which fell within s. 4(1)(a) read with s. 42 of the Indian I.T. Act, 1922. After the Constitution came into force, Indore became a Part B State and the I.T. Act was brought into force in Indore with effect from April 1, 1950. In the Part B State so formed, Hukumchand became liable to be assessed as a resident from the assessment year 1950-51, and the assessee was so assessed for the years 1950-51, 1951-52 and 1952-53. One of the questions which arose for determination in regard to the assessments for these three years was the amount for depreciation to be allowed to the assessee on its buildings, machinery, etc. This would depend on the written down value of the buildings, machinery, etc., for calculating the depreciation allowance under s. 10(2)(vi) of the Indian I.T. Act, 1922. According to the assessee, Hukumchand, the original cost of the machinery, buildings, etc., should have been taken as the written down value under s. 10(5)(b) of the Act, since it was a case of assets acquired before the previous year and the written down value would be the actual cost less all depreciations actually allowed to the assessee under the Act or any Act repealed thereby. The reference was evidently to the Indian I.T. Act, 1922. Since the assessee was being assessed in British India under the Indian I.T. Act only on a part of the income determined as taxable in British India, the assessee's case was that depreciation was not allowed under the Indian I.T. Act and, therefore, the written down should be taken as the original cost of the buildings, machinery, etc. The ITO rejected this connection and held that only that part of the depreciation which entered into the computation of the taxable income of the assessee under the Indian I.T. Act, when the assessee was taxed as a non-resident in British India, can be treated as depreciation 'actually allowed' and not be total depreciation which went into computation in determining the total income of the assessee. Of course, even for the purpose of determining the taxable income in British India, it was necessary to compute the total income of the assessee and for the purpose of that computation it was necessary to take the whole depreciation into account. But when the taxable income in British India was determined only as a part of it, it was the depreciation corresponding to that part which alone was allowed and the Department, therefore, limited deduction on account of depreciation to determine the written down value to the amount proportionate to that determined as the taxable income out of the total income. The assessee's plea was that since, in determining the total income. The assessee's plea was that since, in determining the total income, the entire depreciation had been taken into account, such depreciation must be found to have been taken notice of under Indian I.T. Act, and, if so, the entire depreciation must be deducted in determining the written down value. This contention did not succeed before the ITO or the AAC and, therefore, the assessee took up the matter before the Tribunal. Before the Tribunal, it was contended by the Department that although the ITO had not considered the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 (hereinafter referred to as 'the Taxation Laws Order.'), the provisions of the said Order were applicable in the present case. That Order enabled depreciation allowance made under the Industrial Tax Rules in force in Indore State to be deducted in arriving at the written down value of the assets of the assessee. The Income-tax Appellate Tribunal allowed this contention to be urged by the Department for the first time. Of course, there was the question whether actually depreciation had been allowed under the Industrial Tax Rules and also the further question whether the Industrial Tax Rules related to income-tax or super-tax or any law relating to tax on profits of business so as to bring it within paragraph 2 of the Taxation Laws Order. In view of the submission by the parties, the Tribunal remitted the matter back to the ITO for ascertaining whether any depreciation was allowed under the Industrial Tax Rules and also for considering the question whether the said Rules related to income-tax or super-tax or any law relating to tax on profits of business. If the decision was in favour of the Department, depreciation was to be computed in determining the written down value. On the question of the scope of the term 'all depreciation actually allowed' used in s. 10(5)(b) of the Indian I.T. Act, the Tribunal took the view that it referred only to the depreciation allowed for the purpose of determining the amount liable to Indian income-tax and, therefore, held in favour of the assessee. This was also a question which was referred to the High Court. The High Court agreed with the view taken by the Tribunal. The only other question which the High Court had to answer concerned whether the Tribunal was competent to go into the question as to the application of paragraph 2 of the Taxation Laws Order in so far as this question was raised for the first time before the Tribunal. The decision of the High Court having been against the assessee on this question, the matter came before the Supreme Court in appeal at the assessee's instance. The power of the Tribunal in dealing with appeals was examined by the Supreme Court with reference to ss. 33(3) and 33(4) of the Act. Referring to s. 33(4) which envisages the Tribunal 'passing such orders thereon as it thinks fit', the court observed in the following passage, which has been quoted time and again by the courts, thus (p. 237 of 63 ITR) :

'The word 'thereon', of course, restricts the jurisdiction of the Tribunal of the subject-matter of the appeal. The words 'pass such order 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.'

8. Though reference was made to certain provisions of the Appellate Tribunal Rules in an evident attempt to show that there are limitations on the power of the Tribunal, the court observed in that case that (p. 238 of 63 ITR) :

'The rules are merely procedural in character and do not, in any way, circumscribe of control the power of the Tribunal under section 33(4) of the Act.'

9. The court expressed the opinion that the Tribunal had jurisdiction to entertain the argument of the Department and make the direction which it did. The significance of this decision is that it expressed categorically that, even if a question was not raised before the AAC, in so far as the Tribunal is entitled to entertain an appeal which relates to the subject-matter of the appeal before the AAC, it was competent to allow a new ground to be raised, a ground which related to the same subject-matter. Keeping this in the background, we propose to refer to the decision in CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) . Shah J., who was a party to the decision in Hukumchand's case : [1967]63ITR232(SC) , spoke for the Bench in that decision. To understand the facts of that case, it may be necessary to refer to the decision in CIT v. Mahalakshmi Textile Mills Ltd. : [1965]56ITR256(Mad) , that being the decision of the Madras High Court against which the appeal was taken by the Revenue to the Supreme Court in : [1967]66ITR710(SC) . It may be necessary to make a reference to the facts of the case to understand the observations of the learned judges in that case in the proper setting. The assessee in the case claimed development rebate and extra depreciation in respect of an expenditure of Rs. 93,215. This expenditure was found by the ITO to have been incurred only for the expansion of the existing machinery and not for the installation of new machinery. On the approach that it was new machinery which was installed, the assessee claimed development rebate of Rs. 23,304 and extra depreciation of Rs. 1,544 on such capital expenditure. This was not allowed by the conclusion that the modifications effected to the old machinery were of a capital nature, but nevertheless could not be considered as a new plant and machinery in respect of which alone development rebate and extra depreciation could be allowed. In the appeal to the Appellate Tribunal, it was urged as an alternative ground that if the expenditure was not to be considered as capital expenditure the appellants were entitled to the deduction of the whole amount of Rs. 93,000 as revenue expenditure. Thus, while before the ITO and the AAC, the claim was limited to a sum of Rs. 23,304 as development rebate and Rs. 1,544 as extra depreciation on the expenditure of Rs. 93,215, before the Tribunal the alternative claim was for the entire expenditure of Rs. 93,000 as amounting to revenue expenditure. The Tribunal inspected the mills and studied the working of the machinery in order to appreciate the part played by the replaced materials in the working of the mills. The Tribunal reached the conclusion that by fitting the new parts, the original. Consequently, it reached the conclusion that the entire expenditure on the Casablanca conversion materials amounting to Rs. 93,215 was revenue expenditure. It allowed such revenue expenditure on the basis that the alternate ground was raised before it in regard to such him. Thereupon, at the instance of the Commissioner of Income-tax the following two questions were referred to the High Court :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal had jurisdiction to decide whether the sum of Rs. 93,215 constituted an allowable item of expenditure under section 10(2)(v) of the Act

(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 93,215 or any portion thereof is allowable as an expenditure incurred for current repair under section 10(2)(v) of the Act ?'

10. After examining elaborately the nature of the investment made by the assessee in regard to the sum of Rs. 93,215 on the basis of materials available, the High Court came to the conclusion that in so far as the expenditure incurred by the replacement of parts by the Casablanca High Drafting System was concerned, the expenditure was undoubtedly of a revenue nature and answered question No. 2 in the affirmative. On the other question, the High Court noticed that it called for determination of the jurisdiction of the Tribunal which had noticed that the alternate claim was not before the ITO or the AAC, but nevertheless accepted that the entire sum of Rs. 93,215 constituted revenue expenditure. The question considered by the High Court was whether the alternate claim and that too for a higher sum could be gone into by the Tribunal, and in that context, referred to s. 33(4) of the Indian I.T. Act. The High Court noticed that the Department had sufficient notice of the alternate ground and no objection was taken before the Appellate Tribunal. Though it was argued for the Revenue that the analogy of the jurisdiction of a second appellate court under the Civil Procedure Code should apply in determining the jurisdiction of the Appellate Tribunal, the court was not inclined to accept this contention and the court concluded : [1965]56ITR256(Mad) :

'When once it came to the conclusion that the expenditure was of a revenue nature, the entirely of the expenditure has under law to be allowed as an allowance and it does not depend upon the claim to any particular amount bring made by the assessee.'

11. It was the correctness of this view that called for consideration by the Supreme Court in the appeal against that decision in CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) .

12. Though before the Supreme Court the correctness of the answer to both the question which were before the High Court was urged, the answer to the second question, it was found, was based on primary findings of fact which findings had not been challenged by the Commissioner and, therefore, the answer to that question made by the High Court must be affirmed. Evidently that meant that the Supreme Court saw no reason to interfere with the finding made on the basis of materials that the expenditure was of a revenue nature. Now, we will carefully examine what the Supreme Court said in regard to the other question. Concerning that question, the Supreme Court noticed that the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities was being canvassed. Then it referred to s. 33(4) of the Indian I.T. Act and noticed that the Appellate Tribunal is called upon to pass such orders on the appeal 'as it thinks fit'. It is further observed by the Supreme Court thus (p. 713 of 66 ITR) :

'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.'

13. Before we go into the other passages in this judgment, we must notice here that it would be doing not justice to this decision if one were to take one sentence out of context and to read and understand or to assume that the Bench was not at that moment aware of the view taken in the earlier decision of the court in Hukumchand's case [1967] ITR 232, a decision to which two of the learned judges including the judge, who delivered the judgment in Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) were parties. That there is nothing in the I.T. Act which restricts the Tribunal to the determination of questions raised before the departmental authorities was said in the context of s. 33(4) which enable the Tribunal to pass orders as it thinks fit. The observation that all questions may be raised and the right of the assessee is not restricted to the plea raised by him have necessarily to be understood as meaning that the assessee is not restricted to the questions which he had raised before the AAC or the ITO. In the case before the Supreme Court, the departmental authorities had rejected the contention of the assessee that the expenditure on investment was capital expenditure and, therefore, the assessee was found not entitled to development rebate and depreciation on such expenditure. This was on the approach by the authorities that the expenditure was of a revenue nature. The Supreme Court observed that if the reasons recorded in rejecting a contention of the assessee would justify grant of relief to the assessee on another ground, it would be open to the departmental authorities to grant such relief. On the facts of the case, when the Tribunal found that the expenditure was of a revenue nature, on the finding it would follow that the assessee would be entitled to succeed on his plea that such allowance should be permissible under s. 10(2)(v) of the Act.

14. It is significant to notice that the Supreme Court then went on to consider what was the subject-matter of the appeal in that case. The subject-matter was found to be the right of the assessee to claim allowance for Rs. 93,215. Having found so, the court proceeded to observe (p. 713 of 66 ITR) :

'Whether the allowance was admissible under one head or the other of sub-section (2) of section 10, the subject-matter of 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.'

15. In an earlier passage, to which also reference may be made here, the Supreme Court said (p. 713 of 66 ITR) :

'The Tribunal in the present case was of the opinion that in order to adjust the tax liability of the assessee, it was necessary to ascertain the true nature of the Casablanca conversion system. The assessee had, it is true, contended that the introduction of the Casablanca conversion system was of the nature of machinery or plant which being new had been installed for the purpose of business within the meaning of section 10(2)(vib) of the Indian Income-tax Act. The Tribunal rejected the claim of the assessee, but on that account the Tribunal was not bound to disallow the claim of the assessee for allowance of the amount spent if it was not bound to disallow the claim of the assessee for allowance of the amount spent if it was a permissible allowance on another ground. The Tribunal, on investigation of the true nature of the alterations made by the introduction of the Casablanca conversion system, came to the conclusion that it did not amount to installation of new machinery or plant, but it amounted in substance to current repairs to the existing machinery.'

16. It is difficult, if not impossible, to read the passage as indicating that the Supreme Court intended to express anything different from what it had expressed in the earlier decision in Hukumchand's case : [1967]63ITR232(SC) . The court positively found in Mahalakshmi Textile Mill's case : [1967]66ITR710(SC) , that the alternative plea urged concerned the subject-matter of the appeal and in understanding the subject-matter, the court took into account (the fact) that the relief claimed related to the same matter as was earlier claimed, though it was a different provision that was invoked to support that relief. Therefore, the rule that the subject-matter of the appeal must be ascertained and a claim to be raised before the Tribunal for the first time is to be permitted if it relates to the same subject-matter, which is the rule in Hukumchand's case : [1967]63ITR232(SC) , is not in any altered or modified by the decision in the later case in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) . On the facts of that case, the court further noticed that, if, for reasons recorded by the departmental authorities in rejecting the contention of the assessee, grant of relief to him on another ground would be permissible, that has to be done and that evidently explains the scope of the term 'subject-matter'.

17. Now we come to another decision of the same Bench which heard Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) , rendered on the same day. That is the decision in Nelliappan's case : [1967]66ITR722(SC) . The facts of the case are quite simple. Additions were made to the returned income of the assessee towards suppressed income and inflated expenditure and the ITO brought the profits so computed to income-tax and excess profits tax. The AAC confirmed the order. The Tribunal declined to deal with the contention raised in the appeal finding that the final computation of the profits gave a reasonable average rate of profit for the operation of the vehicles run by the assessee. The matter went to the High Court and it was contended before the High Court that when addition was made to the returned income, if there are unexplained case credits in the accounts of the assessee, further addition need not be made on that account, if to the extent of the addition the returned income was sufficient to cover the unexplained cash credits. Evidently, if the assessee brought in suppressed income by way of cash credits which could not be explained by him and if there is addition to his returned income sufficient to cover the unexplained cash credits, there would be no scope for both additions. The High Court did not express any opinion on this contention but merely observed that it will be open to the Tribunal to consider the contention in deciding what should be the ultimate estimate of additions to be made to the disclosed income of the assessee in the relevant years. The appeals were directed to be disposed of afresh in accordance with the law by the Tribunal. At the hearing before the Tribunal in pursuance of the order of the High Court, it was urged by the assessee that cash credit of Rs. 19,796 for the assessment year 1946-47 and cash credit of Rs. 32,700 for the assessment year 1947-48 should be deleted. The Tribunal took the view that the cash credit deserved to be treated as the income of the assessee in the respective years in which they had been brought into the books of the business in fictitious means, but found that in each of the amounts of the cash credits, additions of these credits have become redundant and, therefore, should be deleted. It was in these circumstances that the question that was referred at the instance of the Commissioner, viz., whether the Tribunal was right in law in making out a new case for the assessee inconsistent with the assessee's own plea and interfering with the assessment, came up for consideration by the Supreme Court. The Supreme Court said in that context thus (p. 724 of 66 ITR) :

'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 assessee to raise the contention relating to the cash credits which was not made the subject-matter of a ground in the memorandum of appeal.'

18. If further said that (p. 725 of 66 ITR) :

'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 assessee.'

19. This case is clearly an instance of an assessee raising a new ground in regard to the same subject-matter. The assessee challenged the additions. The additions to the returned income may be by way of estimate or may be by way of additions for unexplained cash credits. The whole range was under challenge and one of the arguments raised for the first time before the Tribunal was that such addition was at any rate unjustified to the extent the addition of unexplained cash credits was covered by the addition in making the estimate. That would be redundant as it would already be covered by the other addition. This was only a case of urging a ground within the subject-matter in existence before the first appellate authority, a grievance alive the AAC and alive before the Tribunal.

20. We understand these decisions to lay down certain principles which appear to us to be clear beyond doubt. When an assessee files an appeal against an assessment order, he may object to the amount of income assessed, he may object to the amount of tax determined, to the amount of loss computed, to the status under which he is assessed or he may object to his liability to be assessed. The range of appeal extends to the entire range of questions that could be raised at the stage of assessment. The assessee may not be aggrieved with certain of the decisions taken by the ITO and, hence, naturally the appeal would not relate to those decisions. Though the entire range of assessment is open to challenge in the appeal and all the decisions taken by the ITO are liable to be challenged in the appeal, the assessee may confine his objection to the assessment to certain only of the decisions taken by the ITO, expressly or impliedly. The subject-matter of the appeal may be limited to some part or other of the assessment order to which the assessee really takes objection. Therefore, he would be seeking relief in regard to that matter in relation to which he has objection in the matter of assessment. The scope of relief sought by the assessee in appeal determines the subject-matter of the appeal. That may have to be inferred since the assessee may not indicate in specific terms what the scope of the relief that he seeks in the appeal is. This has quite often to be understood from the range of attack made on the assessment order as reflected 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 a challenge on grounds other than those raised by him, it would 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 or not, is not a matter of jurisdiction. It is a matter of discretion which should understood as distinct from the jurisdiction. It is open, in the exercise of discretion, to an appellate authority vested with powers of accepting or rejecting fresh ground to entertain a fresh ground or not. Of, course, he has to act judicially, but this discretion is distinct from the jurisdiction with which alone we are concerned here. It might happen that before he came to the Tribunal, the assessee had not viewed the question urged by him for the purpose, of seeking the relief in the appeal from the proper perspective, a perspective from which he could have successfully mounted an assault on the order of assessment. 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 sought 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 before the Appellate 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. The fact that the assessee had failed to make the approach which he makes before the Tribunal before the first appellate authority should not in any way preclude him from making that approach.

21. It is evident, therefore, that the attempt of the Tribunal in every case, where it is called upon to consider the question whether the new approach should be permitted should be to determine whether the subject-matter would remain the same, even if the new ground is permitted to be raised.

22. 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 Tribunal to grant such relief.

23. 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 of 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.

24. Now, we will advert to the decisions of this court which had occasion to deal with this question. Two decision of this court, that of Bhagwati C.J., speaking for the Bench, in CIT v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) and a later decision in CIT v. Steel Cast Corporation : [1977]107ITR683(Guj) , where Divan C.J. spoke for the Bench, have considered in rather elaborate detail the question now before us though no advertence is made to Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) , in the earlier of the two decisions in Karamchand's case : [1969]74ITR254(Guj) . While many of the High Courts have chosen to follow the view expressed in these decisions of this court, there is a contrary view held by some of the High Courts in India and it would be necessary to refer to these decisions. We will first deal with the decisions of our court.

25. We will now advert to CIT v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) . To understand why no specific reference was made to Mahalakshmi Textile Mill's case : [1967]66ITR710(SC) in CIT v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) , it may be necessary to refer to the facts of that case. While making the assessment, the ITO disallowed a sum of Rs. 25,920 being the aggregate of stamp duty, registration charges, lawyers' fees and other miscellaneous expenses said to have been incurred by the assessee in connection with the issue of debentures during the relevant accounting year. There were other claims such as depreciation on lands and buildings and claim for development rebate. An appeal was filed in regard to those other claims by the assessee before the AAC. Evidently, the decision in regard to the sum of Rs. 25,920 was not challenged in the said appeal. That was a claim independent of the other claims which were agitated in appeal, viz., that of disallowance of depreciation on land on which the building of the company stood and the disallowance of development rebate on machinery installed during the year. Independent decisions for the purpose of assessment would have been taken by the ITO in regard to those claims as well as the claim in regard to the expenses in connection with the issue of debentures. While the assessee felt aggrieved in regard to the disallowance of depreciation and development rebate, he did not evidently feel aggrieved by the disallowance of expenditure on the issue of debentures. Therefore, he did not challenge such disallowance in his appeal. That was a clear case where the subject-matter of the appeal did not relate to such disallowance. When he filed the appeal before the Appellate Tribunal, he only urged the grounds with regard to development rebate and depreciation and there was no question of challenge to the disallowance of the sum of Rs. 25,920. That he sought to be raised later by moving for permission to raise an additional ground while the appeal was pending before the Appellate Tribunal. Evidently, that was because of a situation which arose consequent upon the decision in India Cement Ltd. v. CIT [1966] 60 ITR 252. The assessee felt that in view of that decision, he could successfully challenge that part of the assessment order also and, therefore, for the first time, challenged that part of the order by seeking to raise an additional ground. The Tribunal seems to have taken the view that the question sought to be raised being a pure question of law can be raised at any stage of the proceedings and, therefore, the assessee should be permitted to raise the additional ground. Evidently, the question raised before the High Court was whether the Tribunal was right in making this approach. Bhagwati C.J., speaking for the Bench, particularly noticed that the disallowance of the third claim which was the one with which the reference was concerned was not challenged by the assessee in the memorandum of appeal. It was not sought to be raised before the AAC, even by leave later. Thus, at no time was the AAC called upon to consider whether the disallowance of that claim was properly made by the ITO. It was not before him and he rendered no decision thereon. In this context, the learned Chief Justice examined the provisions relating to assessment of income and we refer to those observations here (p. 259 of 74 ITR) :

'Now the process of assessment of the amount of income and determination of the amount of tax would ordinarily involve consideration of diverse items or sources of income and reaching of several decisions by the Income-tax Officer and the assessee who is aggrieved by an order of assessment may object to the amount of income assessed or to the amount of tax determined on one or more grounds directed against the decisions reached by the Income-tax Officer in the course of the assessment. The assessee may be satisfied with some decisions given by the Income-tax Officer and may be dissatisfied with orders and to the extent to which he is dissatisfied, he may challenge such decisions by raising specific grounds of appeal and urge that the amount of income assessed or the amount of tax determined as a result of such decisions be either set aside or reduced.'

26. Reference was made to the following observations of Chagla C.J. in Narrondas Manordass v. CIT : [1957]31ITR909(Bom) :

'If the assessment is opened up by the action of the assessee himself, then the powers conferred upon the Appellate Assistant Commissioner are much wider than the powers of an ordinary court of appeal. The statute provides that once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment.'

27. The learned judge, Bhagwati C.J., in the same judgment, after examining the powers of the AAC, observed (p. 261 of 74 ITR) :

'The order of the Appellate Assistant Commissioner would thus consist of various decisions on matters which may be raised in appeal by the assessee or considered suo motu by the Appellate Assistant Commissioner and the effect of these decisions would be to confirm or reduce or enhance or annual or set aside the assessment as stated in sub-section (1), clause (a) of section 251.'

'The order of the Appellate Assistant Commissioner, as pointed out above, would consist of various decisions on matters considered by him and out of these decisions, some may be against the assessee and some may be against the Revenue. The assessee, if he does not accept the decisions which are against him, may prefer an appeal to the Tribunal against that part of the order of the Appellate Assistant Commissioner which comprises such decisions (vide sub-section (1)) and the Revenue also, similarly, may, if it does not accept the decisions recorded against it, prefer an appeal to the Tribunal against that part of the order of the Appellate Assistant Commissioner which consists of such decisions (vide sub-section (2).' (p. 261 of 74 ITR).

28. We extract the following passages also from the judgment (p. 262 of 74 ITR) :

'The appeal by the assessee or by the Revenue against any part of the order of the Appellate Assistant Commissioner is, therefore, really an appeal against the decisions of the Appellate Assistant Commissioner which are against the decisions of the Appellate Assistant Commissioner which are against him and by which he is aggrieved. It is, therefore, imperative that there must be a decision of the Appellate Assistant Commissioner by which the assessee or the Revenue is aggrieved before he can prefer an appeal against that part of the order of the Appellate Assistant Commissioner consisting of such decision. A fortiori, if a particular matter is not considered and decided by the Appellate Assistant Commissioner and the decision on it does not form part of the order of the Appellate Assistant Commissioner, there can be no appeal against it. This much was not disputed, and indeed could not be disputed, by the learned advocate appearing on behalf of the assessee.'

29. Again it is observed (p. 264 of 74 ITR) :

'The fact remains that the Appellate Assistant Commissioner did not consider and decided whether the disallowance of the third claim was proper or not. It is no doubt true that the order of assessment passed by the Income-tax Officer was merged in the order of the Appellate Assistant Commissioner and the order of the Appellate Assistant Commissioner was thereafter the only operative order of assessment but that has no bearing on the question as to whether there was any decision of the Appellate Assistant Commissioner on the question of disallowance of the third claim from which an appeal could be preferred by the assessee or the Revenue.'

30. It is in this context that the Bench came to the conclusion that (p. 266 of 74 ITR) :

'Whatever grounds of appeal could be taken by the appellant in the memorandum of appeal, he can urge them with leave of the Tribunal if he has omitted to take them in the memorandum of appeal. But if he was not entitled to take a ground of appeal even in the original memorandum of appeal, he cannot avail of this rule and improve his position by obtaining leave of the Tribunal'.

31. The court proceeded to hold (p. 266 of 74 ITR) :

'Since we are of the view that there being no decision of the Appellate Assistant Commissioner on the point whether the disallowance of the third claim was proper, the assessee was not entitled to appeal against it to the Tribunal and the ground of appeal relating to such disallowance could not therefore have been taken even in the memorandum of appeal, we must hold that the Tribunal was not entitled to allow the assessee to agitate this question under the guise of granting leave under this rule.'

32. It is true that the learned judges did not refer to the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) , but we fail to see why reference should have been made to it as nothing turned on the scope of that decision and on the facts of the case before the learned judges, it was evidently not necessary to advert to it. If the principle of the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) was that the appeal must be confined to the subject-matter, this was a clear case where it was not so confined. It could not be as if the learned judges were not aware of the decision as a reference has been made to another decision rendered on the same day in CIT v. Nelliappan : [1967]66ITR722(SC) , and that has been referred to because reference to it was relevant and called for. After going through that decision, the court noticed that the Supreme Court did not say in that case that even where a decision of the ITO on a particular item is not challenged before the AAC and the AAC has not considered and decided that matter, it can still be agitated by the assessee in the appeal to the Tribunal. With great respect, we must observe that we are in full agreement with the approach made in CIT v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) , and we see no reason to that any rule laid down earlier by the Supreme Court had been overlooked by the Bench.

33. Now, we will refer to a later decision of this court in CIT v. Steel Cast Corporation : [1977]107ITR683(Guj) , a decision which had been cited by other High Courts on many occasions. The case of the assessee there was that though he had not raised in the ground of appeal filed before the AAC any ground relating to refer under s. 80J(3) of the I.T. Act, 1961, he did raise it really at the time of hearing and the AAC agreed to admit the further ground, but when he actually came to pass the order, he did not grant any relief under s. 80J(3) of the Act. When the assessee filed appeal before the Appellate Tribunal, he complained that the AAC had failed to consider his contention regarding relief under s. 80J, though it had been raised before the AAC, at the time of hearing. The Tribunal did not want to enter into that controversy as to whether it was raised or not, but felt that the point was one of law and, therefore, permitted that to be raised before the Tribunal, remanded the case to the AAC to enable him to consider this aspect and pass orders giving an opportunity to the ITO and the assessee to put up their respective cases. The question that arose in the reference as reframed was whether the Tribunal was right in the circumstances and facts in directing the AAC to consider the claim of the assessee under s. 80J, a claim which was not made either before the ITO or before the AAC. This court examined the scope of the power of the Tribunal with reference to the decisions of the Supreme Court to which we have already adverted to. Hukumchand's case [1967] 73 ITR 232 was understood as laying down the law that it is open to the Tribunal to exercise its jurisdiction restricted to the subject-matter of the appeal and while dealing with the subject-matter of the appeal in the exercise of its wide amplitude of powers, the Tribunal may allow the party to take up a new ground of appeal provided ample opportunity is given to the other side to meet the new ground of appeal. The court noticed that there distinct phrases have been used by the Supreme Court : 'jurisdiction of the Tribunal', 'power of the Tribunal' and 'the grounds of appeal'. The court went on to observe : [1977]107ITR683(Guj) :

'But even the new ground of appeal must relate to the same subject-matter of appeal because the jurisdiction of the Tribunal is restricted to the subject-matter of the appeal. It must also be pointed out that so long as the subject-matter of the appeal remains the same ground as before, a new section of the Act can be relied upon which was not relied upon before either the Income-tax Officer or the Appellate Assistant Commissioner. But that is a new ground of appeal which is a distinct thing from the subject-matter of the appeal or from the powers which the Tribunal is entitled to exercise while hearing the appeal before it. In our opinion, unless a clear distinction between these three concepts, namely, jurisdiction of the Tribunal which is restricted to the subject-matter of the appeal, the powers of the Tribunal which are very wide but which can only be exercised within the four corners of the jurisdiction enjoyed by the Tribunal and the grounds of appeal is borne in mind, a lot of unnecessary confusion is likely to arise.'

34. The passages in the decision of Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) , to which we have already adverted, were referred to by the learned judges and the judges noticed that if the first part of the passage is read divorced from the second part, it might appear that the Supreme Court had interpreted the jurisdiction of the Tribunal to be unlimited and the court observed, 'But, that is not so', and went on to hold (p. 690 of 107 ITR) :

'Therefore, the first part of the passage which is in very wide terms must be read in the context of the powers which the Tribunal could exercise within the four corners of the jurisdiction which is restricted to the subject-matter of the appeal. All that Shah J. is emphasizing in the first part of the passage quoted above is that within the four corners of the jurisdiction which is restricted to the subject-matter of the appeal, the Tribunal has very wide powers and even though a particular ground of relief relating to the same subject-matter might not have been raised at any earlier stage either before the Income-tax Officer or before the Appellate Assistant Commissioner, it can be raised for the first time at the stage of appeal before the Tribunal but it must be in connection with the subject-matter of the appeal, and that is why Shah J. emphasised at page 713 : [1967]66ITR710(SC) :

'If for reasons recorded by the departmental authorities in rejecting a connection 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.'

So Mahalakshmi Textiles Mills Ltd.'s case : [1967]66ITR710(SC) cannot be read as holding that the Tribunal has unlimited jurisdiction to cover all possible points that may be urged before it. The power to deal with all questions of law or fact must be exercised within the four corners of the jurisdiction which is restricted to the subject-matter of the appeal.'

35. Elaborate reference was made to the earlier decision of this court in CIT v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) , evidently because the correctness of that decision seems to have been called into controversy particularly because that decision did not specifically advert to the decision of the Supreme Court in Mahalakshmi Textile Mill's case : [1967]66ITR710(SC) . After discussing the decision, the court went on to observe (p. 695 of 107 ITR) :

'We have quoted in extenso from this judgment in Commissioner of Income-tax v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) to point out that this High Court was very much conscious of the distinction between the powers and jurisdiction of the Appellate Assistant Commissioner on the one hand and the powers and jurisdiction of the Tribunal on the other while disposing of the appeals before those respective authorities. The jurisdiction of the Appellate Assistant Commissioner is with reference to the subject-matter of the appeal as well as to the subject-matter of the entire assessment whereas the jurisdiction of the Tribunal is restricted to the subject-matter of the appeal and the subject-matter of the appeal can only be the grievance against one or the other decisions of the Appellate Assistant Commissioner.'

36. By way of conclusion, the court said in that case (p. 701 of 107 ITR) :

'Once the subject-matter of the appeal is determined, the Tribunal has very wide powers to deal with all questions of fact and law pertaining to that subject-matter of appeal and it can allow a new question of law to be raised in support of the same claim for relief. On the facts found, if a new aspect of law can be applied, it can allow it to be urged even though that aspect of the law was not urged either before the Income-tax Officer or the Appellate Assistant Commissioner.'

37. Before we notice the decisions of other High Courts in India, it may be relevant to refer to two decisions of this court, that in ITR No. 77 of 1975 (CIT v. Cellulose Products of India Ltd. : [1985]151ITR532(Guj) and ITR No. 55 of 1975 (CIT v. Industrial Machinery Mfg. P. Ltd. : [1985]151ITR533(Guj) , the decisions which caused this reference. In ITR No. 77 of 1975, two questions arose for decision and those were :

'1. Whether, on the facts and in the circumstances of the case, the one-half of the profits arrived at by computation under rule 19(5) was to be added to the figure of average assets arrived at by computation under rule 19(1) for determining the average capital employed in the assessee's undertaking

2. Whether, on the facts and in the circumstances of the case, the Tribunal had jurisdiction to allow the assessee to raise the additional ground for the first time before it, when it was not raised before the Appellate Assistant Commissioner and to restore the appeal to the Appellate Assistant Commissioner for fresh adjudication ?'

38. To understand the questions, we have referred to the original order of reference that is available in the records. Question No. 1 concerned the computation of capital and if it had been found in favour of the assessee before the AAC, there was no scope for grievance for him and the matter could have ended up there. But, evidently, the AAC did not allow the claim and so the matter was brought before the Tribunal. Before the Tribunal, a different approach was made alternatively to compute the capital. As a different aspect of the same question, if the assessee did not succeed on the first question. We say so because the assessee's case on claim was confined to what is indicated by the first question and if that had been granted, he would have had no grievance. When the matter came up in reference before a Division Bench of this court, it was pointed out to this court that question No. 1 had to be answered in favour of the assessee in view of the decision in CIT v. Elecon Engineering Co. Ltd. : [1976]104ITR510(Guj) and this court, therefore, answered the question in favour of the assessee and against the Revenue. We feel that in that view there was no need to refer to the second question as it was only pleaded to support the relief which was sought for by the assessee before the AAC and pursued in the appeal and was urged as another aspect of the same question. That it was another aspect of the same question was noticed by the court and for that reason it found that the Tribunal had jurisdiction to permit that question to be raised. Of course, if it is another aspect of the same question as held in Karamchand Premchand's case : [1977]107ITR683(Guj) , it had to be permitted, but on the facts of the case, whether it was necessary to permit it seems to have been not noticed in that case, for if the entire relief that the assessee sought was covered by the answer to question No. 1, there was no case for raising the other ground. If the assessee gets relief on the answer to question No. 1, there would be no scope for looking into another aspect. Whatever that be, it is evident that in that decision, the Division Bench was only purporting to follow the earlier decision of this court.

39. Now, we advert to the decision in ITR No. 55 of 1975, where again the questions referred to this court concerned an additional ground regarding the computation of capital employed in the business. There again, when once the second question was answered in favour of the assessee based on the decision in Elecon Engineering Co. Ltd.'s case : [1976]104ITR510(Guj) , to which we have adverted earlier, there was no need to go into the other question, for another aspect may not need to be considered and if it is not another aspect, but an entirely new question that is to be urged, it will be outside the subject-matter. For either of these reasons, there would have been no need for discussing question No. 1. Even so, evidently, since it was not pointed out that in view of the answer to question No. 2, the other question would not arise, the court proceeded to consider that question. In discussing the law on the subject, certain observations have been made in that judgment to which we have to advert lest it may be said that we have failed to notice these observations. Dealing with the legal position bearing on the jurisdiction of the Tribunal to allow new points to be raised, the Division Bench observed in the judgment thus (p. 539 infra) :

'It is not open to the Tribunal to allow the assessee to raise before it for the first time a question which was not urged before the Appellate Assistant Commissioner, for, such a question could never form the subject-matter of the appeal before the Tribunal.'

40. Again, in the same judgment, the learned judges say (p. 539 infra) :

'An implied decision can be inferred when a point might have been raised before the Appellate Assistant Commissioner, but in his order the Appellate Assistant Commissioner might not have dealt with the same and thereby impliedly rejected it. A question falling in either of these two classes of cases alone can form the subject-matter of the appeal before the Tribunal.'

41. Again reference may be made to the following passage (p. 540 infra) :

'We are of the view that having regard to the decision in Steel Cast Corporation's case : [1977]107ITR683(Guj) , it is not open to us to entertain this submission. In the said decision, this court has made it amply clear that by implied decision what is meant is that though a point might have been raised before the Appellate Assistant Commissioner, in his final order, the Appellate Assistant Commissioner might not have dealt with that point and thereby impliedly rejected it.'

'It is only if that point was urged and not dealt with by the Appellate Assistant Commissioner that it would be open to infer that by refusing to deal with such point the Appellate Assistant Commissioner has impliedly rejected it.' (p. 540 infra)

42. On this approach the court reached the following conclusion in that case (p. 541 infra) :

'In fact, as earlier pointed out, the very postulate of the question referred to this court is that this ground, which is now sought to be raised as an additional ground, was never raised before the Income-tax Officer or the Appellate Assistant Commissioner. In our opinion, in such a case, the theory of implied decision can never be pressed into service and it cannot be urged on the basis of such theory that the question sought to be raised by way of an additional ground formed the subject-matter of the appeal before the Tribunal.'

43. With great respect to the learned judges who decided that case, we must say that the statement of the law and the conclusions reached by the learned judges cannot be said to be correct. It is not necessary that a question should be specifically raised before the Appellate Assistant Commissioner 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, or some of them might not 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. In fact, the purport of the decisions of the Supreme Court and the Steel Cast Corporation's case : [1977]107ITR683(Guj) of this court is that such questions could be raised provided they fall within the contours of the subject-matter of the appeal before the AAC. Merely because in Steel Cast Corporation's case : [1977]107ITR683(Guj) , reference was made to a decision on questions which are raised but not decided, it does not mean that questions which are not raised are not impliedly decided. The decision in Steel Cast Corporation's case : [1977]107ITR683(Guj) could not be understood in that way and to do so would be going contrary to the law laid down by the Supreme Court. To that extent, the conclusion reached merely on the basis that the question, though it could have been raised was not raised, cannot be permitted to be raised, is not a proper conclusion reached in law.

44. The decisions of the Gujarat High Court in Karamchand Premchand's case : [1969]74ITR254(Guj) and Steel Cast Corporation's case : [1977]107ITR683(Guj) , have been cited and followed by the Madhya Pradesh High Court in Hukumchand Mannalal & Co. v. CIT : [1980]126ITR251(MP) , by the Bombay High Court in Ugar Sugar Works Ltd. v. CIT : [1983]141ITR326(Bom) and the Delhi High Court in CIT v. Anand Prasad : [1981]128ITR388(Delhi) . In the case before the Delhi Court in CIT v. Anand Prasad : [1981]128ITR388(Delhi) , certain income of the assessee arising out of dealing with land was sought to be taxed as income from business. The assessee disputed that he carried on such business and obtained any profits taxable as business gains. The ITO negatived this case. The AAC held that the sale of lands did not constitute business and set aside the assessments in respect of the profits from the sale of the land. In the appeal before the Tribunal by the Revenue, it was contented that if the profits were not taxable as business gains, they were taxable under the head 'Capital gains'. This plea did not succeed and the matter was taken by the Revenue to the High Court in reference. The facts necessary for determining whether capital gains accrued would be entirely different from the facts available on record. Profits from business could be determined on the basis of facts relating to sale price, purchase price, investment after purchase and other relevant matters, but for determination of capital gains, other facts such as the value of the plots as on January 1, 1954, would be necessary and these facts could not be gathered by looking into income-tax assessments. The question was whether the new point should be allowed to be raised under such circumstances. The court was of the view that the Tribunal was right in not allowing the new point to be raised in the circumstances of the case. Attention of the court was drawn to the decisions in Hukumchand's case : [1967]63ITR232(SC) and Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) and referring to these decisions, the court said (p. 394) :

'No doubt, these cases would have great relevance if in the present case the income which was held not to arise from business was sought to be taxed in some other way as being income from business, profession or vocation. However, the income is admittedly not chargeable to income-tax, but if it is thought that some other amount is chargeable to income-tax as capital gains under s. 12B of the Indian I.T. Act, 1922, then a completely different type of point is involved. We are in agreement with the view taken by the Tribunal that such a point cannot be raised and should not be permitted to be raised when not raised either before the ITO or the AAC.'

45. We are in agreement with this approach by the Delhi High Court. In Ugar Sugar Works Ltd. v. CIT : [1983]141ITR326(Bom) , the Bombay High Court took the same view as that of this court and after referring to the observations in the decision in CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) , to which we have adverted earlier, the court said (p. 337) :

'The said observations of the Supreme Court read in their proper context cannot support the learned counsel for the assessee. Firstly, before the Supreme Court, in this case, its earlier decision in Hukumchand's case : [1967]63ITR232(SC) , was not cited, possibly because, as is apparent from the later part of the judgment, the court was making the aforequoted observations on the basis that the powers of the Tribunal referred to by it were always subject to its jurisdiction only to deal with the subject-matter of the appeal. That is made clear by the court in its following observations at p. 713 of the report :

'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'.'

46. The same view as that taken by this court has been taken by a Division Bench of the Calcutta High Court in Steel Containers Ltd. v. CIT : [1978]112ITR995(Cal) though no reference has been made to the decision in Karamchand's case : [1969]74ITR254(Guj) and Steel Cast Corporation's case : [1977]107ITR683(Guj) of this court in that judgment. There, the question concerned disallowance of a portion of remuneration paid to Balmer Lawrie & Co. Ltd. under s. 37 of the I.T. Act. The assessee's grievance before the Tribunal was that the AAC erred in upholding the disallowance of Rs. 84,000 out of Rs. 1,20,000. Referring to this, the court said in that case (p. 1005) :

'.... so the grievance that was before the Tribunal was the disallowance of the sum of Rs. 84,000. It is not so much the grounds of disallowance that was appealed from but the factum of disallowance for which the assessee was aggrieved and that was the subject-matter of the appeal before the Tribunal. If we look at ground No. 6 it would be clear that the assessee was contending that the entire expenditure had been wholly and exclusively laid out for the assessee's business. Therefore, whether that was so or not was a question canvassed before the appellate authority.'

47. Then the question was examined in the light of the principle laid down in the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) . Referring to this decision, the court observed that (p. 1006) :

'Whether the allowance was admissible under one head or another of sub-section (2) of section 10, the subject-matter of the appeal remained the same.... If for reasons recorded by the departmental authority in respect of a contention raised by the assessee, grant of relief to him on another ground was justified, it would be open to the departmental authority and the Tribunal, and indeed they would be under a duty to grant that relief.'

48. After quoting this observation from the decision of the Supreme Court, it was found in that case that (p. 1006) :

'If the disallowance of certain expenditure to an assessee was warranted by certain provision of law where the allowance and disallowance were the subject-matter of the appeal, in our opinion, the Tribunal was competent under section 254 to deal with that question and decide the same in accordance with law'.

49. Now we will advert to the decisions which take a contrary view. In fact, some of the decisions have gone to the extent of holding that in view of certain observations in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) , to which we have made reference there, is no limit to the jurisdiction of the Tribunal and any question which could be raised before the ITO could, irrespective of the scope of the appeal before the AAC, be raised before the Tribunal. This seems to us to be not a correct approach and does not follow from the authoritative pronouncements of the Supreme Court. With great respect, this appears to be the result of reading certain observations in the decision of the Supreme Court in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) out of context and unrelated to the other observations in the same decision. The Punjab and Haryana High Court in the decision in Atlas Cycle Industries Ltd. v. CIT was considering the question of the power of the Tribunal in an appeal to allow additional plea and, consequently, additional evidence being taken. The assessee, following the mercantile system of accounting, had instituted a scheme for giving awards and prizes to its dealers by way of a special 'monsoon gift scheme'. This was to push up its sales. During the accounting year 1968-69 relevant to the assessment year 1969-70, it incurred an expenditure of Rs. 47,539 on that account. The expenditure was not claimed at the time of the assessment, though it was claimed in the subsequent assessment year. The claim was disallowed by the AAC on the ground that the amount should have been claimed in the assessment year 1969-70. In the second appeal filed by the assessee pertaining to the year 1969-70, this claim was raised for the first time by way of an additional ground of appeal. The Tribunal did not permit the assessee to raise this ground as it did not arise out of the AAC's order of the relevant year and the Tribunal was of the view that the AAC's order for another year was not relevant to the proceedings. After referring to the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) , in the passage to which we have already adverted to, the High Court seems to have felt that the law has been laid down by the Supreme Court in such terms as to enable any additional ground to be taken in the interests of justice irrespective of the subject-matter. With due respect to the learned judges, we express our dissent with the view expressed in that decision in the following passage (p. 237) :

'The power of the Tribunal to allow the additional plea and consequently additional evidence being taken, has been given to do substantial justice between the parties. The Tribunal has to allow or disallow the additional plea and additional evidence after applying its judicial mind.... It is no doubt true that it was an omission on the part of the assessee not to have claimed the expenditure earlier, but the omission was neither held to be wilful nor intentional. It was brought to our notice by the learned counsel for the assessee that the assessee's application for rectification was dismissed as it was found that there was no error apparent on the face of the record. The observation of the Tribunal that the Tribunal was told at the time of hearing that the assessee was seeking another remedy is, therefore, not of much consequence.'

50. In the case before the Andhra Pradesh High Court in CIT v. Gangappa Cables Ltd. : [1979]116ITR778(AP) , the assessee, for the first time, raised a plea in second appeal before the Appellate Tribunal that the expenditure incurred by the assessee before it went into commercial production was an admissible deduction for the purpose of s. 80J(1) of the I.T. Act. The Appellate Tribunal allowed the assessee to raise such a claim and the matter was taken up in reference at the instance of the Revenue. The decision of the Supreme Court in CIT v. Gurjargravures P. Ltd. : [1978]111ITR1(SC) was relied on by the Revenue in support of its plea that the Tribunal ought not to have allowed the additional plea to be taken. That was distinguished by the court on the approach that the Supreme Court was not dealing with a case where there was evidence to support the claim. That was a case where there was neither claim nor evidence and in the case before it, there were necessary details for allowing the claim before the ITO. We do not propose, for the purpose of this case, to observe on this aspect of the question as it does not arise before us, but we are unable to agree with the statement of the law as made by the court as following from the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) . Referring to that decision, the court said (p. 780) :

'The Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) , dealing with the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities opined that there is nothing in the I.T. Act which restricts the Tribunal to the determination of questions raised before the departmental authorities and that all questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal.'

51. Of course, if the statement of the law is limited as we have attempted to do here, there can be no dispute on the scope of the decision. We are only indicating that, stated in such broad terms as has been done by the learned judges, that may not reflect the real purport of the decision of the Supreme Court.

52. Now, we come to the decisions of the Madras High Court which, we would say, project an extreme view as to the scope of the power of the Tribunal. We shall first refer to the decision in CIT v. Madras Industrial Investment Corporation Ltd. : [1980]124ITR454(Mad) . That was a case, where the assessee claimed a deduction of Rs. 22,500 as discount on a public issue of debentures. The ITO disallowed the claim for deduction of this amount. The AAC allowed only Rs. 12,500 which related to the year in question. Before the Tribunal, the assessee made a fresh claim. According to him, the public issue of debentures was of the total value of Rs. 1.5 crores, the issue price was Rs. 98 per bond of Rs. 100, therefore, the total discount on the entire issue was Rs. 3,00,000 and this amount was to be taken as discount and it had been so taken in the balance-sheet of the company on the assets side. Therefore, it was claimed before the Tribunal that the entire sum of Rs. 3,00,000 ought to have been allowed and the AAC having directed the allowance only of Rs. 12,500, the balance of Rs. 2,87,500 ought to have been allowed irrespective of the fact that before the AAC the claim related only to Rs. 22,500. Unless the court understood the power of the Income-tax Appellate Tribunal as unlimited and understood the Supreme Court decisions also in that manner and, therefore, took the view that it was open to the Tribunal to allow any and every question raised before it, possibly the assessee's case could not have succeeded. Really that was the way the decision of the Supreme Court seems to have been understood by the Madras High Court in that case. The decision in Hukumchand's case : [1967]63ITR232(SC) was simply explained away saying that the Supreme Court was concerned in that case with only the question whether the Tribunal could entertain fresh submission or contention on the part of the Department which had not been considered by the AAC. Referring to the later decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) and particularly the passage to which we have adverted and to some of the observations which, read out of context, may appear to indicate that any question may be raised, the court came to the conclusion straightaway as reflected in the following passage (p. 460 of 124 ITR) :

'It may be seen that in this case what the assessee originally claimed was only a fraction of the sum of Rs. 93,215 spent by him on the introduction of the conversion system, the fraction representing the development rebate which is a part of the asset, admissible under the law. However, when the matter came before the Tribunal, the assessee put forward a different ground and took the plea that the entire amount of Rs. 93,215 was allowable as deduction. The result of the Tribunal's order accepting this alternative plea was to reduce the total income by Rs. 93,215 as against a fraction thereof originally considered by the ITO and the AAC. This decision envisaged a duty on the part of the departmental authorities to grant relief on any ground, if that relief was admissible under the law. The assessee is not restricted only to the plea raised by him before the departmental authorities.'

53. Referring to the decision rendered the same day and reported in Nelliappan's case : [1967]66ITR722(SC) , the court expressed the view (p. 461) :

'This case establishes that even a new case not taken in the memorandum of appeal could be permitted to be urged by the Tribunal.'

54. Since we have already adverted to the scope of these three decisions, we do not think it is necessary to restate the principles which we have indicated or the limitations reflected in the decisions themselves. We do not see any warrant, with great respect to the learned judges of the Madras High Court, to consider those decisions as supporting the view that any and every ground could be urged before the Appellate Tribunal. The same view was reflected in two later decisions of the Madras High Court in CIT v. Indian Express (Madurai) P. Ltd. : [1983]140ITR705(Mad) and CIT v. Sri Rajagopal Transports P. Ltd. : [1983]144ITR573(Mad) . Despite the categorical statement in Hukumchand's case : [1967]63ITR232(SC) and reiterating the same view in the later decisions about confining the appeal to the subject-matter, the Madras High Court is seen to have expressed a contrary view in Indian Express' case : [1983]140ITR705(Mad) . The following observations in the judgment in question reflects how the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) and Nelliappan's case : [1967]66ITR722(SC) , were understood by the Division Bench (p. 714) :

'In both case, the Supreme Court held that such a plea, although new, was within the appellate jurisdiction of the Tribunal. Indeed, in the Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) , the Supreme Court described the Tribunal's appellate jurisdiction in the widest terms possible when they said that all questions, whether of law or of fact, which relate to the assessment of the assessee may be raised before the Tribunal and there is nothing in the I.T. Act, which restricts the Tribunal to the determination of the questions raised before the departmental authorities. On the basis of the principles laid down by the Supreme Court, it must be held in this case that the assessee was not precluded from raising a new contention and the Tribunal was not precluded from examining and determining that contention, merely on the score that it had not been put forward at the earlier stages of the proceedings in assessment and in the first appeal.'

55. The court went to say by referring to the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) that (p. 714) :

'...... the Supreme Court did not lay down the Tribunal's jurisdiction as being limited to 'the subject-matter' of the appeal. On the contrary, they said that the Appellate Tribunal is competent to pass such orders on the appeal as it thinks fit.'

56. Reiterating our view in the discussion elsewhere in this judgment we, with respect, express our disagreement with the statement of the law by the learned judges. Same was the view reiterated by that court in a later case in CIT v. Sri Rajagopal Transports (P.) Ltd. : [1983]144ITR573(Mad) , and the approach being the same as in the earlier decisions, we do not think we should refer to that decision in any further detail.

57. Our attention has been drawn to the decision in Beharilal Ramcharan Cotton Mills Ltd. v. CIT : [1966]62ITR212(Bom) , rendered by the Bombay High Court prior to the decision in Hukumchand's case : [1967]63ITR232(SC) . That was a case where the assessee based his claim for depreciation before the ITO and the AAC on clauses (vi) and (via) of sub-s. (2) of s. 10, but in the grounds of appeal to the Appellate Tribunal raised an alternative claim that on the materials on record, the assessee was entitled to depreciation under s. 12(3). The Tribunal declined to consider this point on the ground that a new case was not new and was covered by the matter taken up before the authorities earlier. The court noticed that the position that emerged was that on the same set of facts the assessee had pleaded right from the beginning under ss. 10(2)(vi) and 10(2)(via) in support of his claim for depreciation and he was making the same claim for depreciation relying upon the same set of facts, but under different provisions of s. 12(3). In doing so, the assessee was found to be not putting forward any new case. Of course, this accords with the view which we have expressed here.

58. We have attempted to show that the view which had all along been expressed by this court as reflected in the decisions in Karamchand Premchand's case : [1969]74ITR254(Guj) and Steel Cast Corporation's case : [1977]107ITR683(Guj) is the correct view and is in accordance with the pronouncements of the Supreme Court.

59. While it is easy to state the law, it is always difficult, on a given set of facts, to apply that law. It must be taken to be well-settled, despite the decisions of certain High Courts holding the contrary view, 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. May be, a different approach to the case is made presenting a different aspect altogether. What the subject-matter of the appeal is, has, therefore, to be decided first. May be the same claim or relief sought may be sustained on a different approach. So far as the assessee is concerned, it is the relief that he seeks to obtain that is material to him. If the controversy concerns the computation of the capital for the purpose of s. 80J of the I.T. Act, the assessee need not be restricted to seeking relief with regard to the computation of capital would be permissible. To that extent the decision in Mahalakshmi Textile Mills' case : [1967]66ITR710(SC) must assist the assessee. That, we notice, was a case where the claim for allowance was claimed under one head and that was permitted under another head, both of a similar character and arising from the same genus. Here also, on the facts, we find that the assessee's case originally was that capital must be computed by allocating capital not on the basis of the actual capital employed by the new unit vis-a-vis that employed by the older unit, but on the basis of the proportionate value of fixed assets of the two units. Perhaps the assessee would get the relief in respect of the computation of capital even on another approach to such computation such as on the premise that debts and liabilities should not be deducted. The relief which the assessee may get in regard to the computation of capital, he may get to some extent even if a different approach is made to the computation of capital, viz., by permitting the plea that debts and liabilities ought not to be deducted. Therefore, the subject-matter would remain the same notwithstanding allowing such a ground to be raised. No doubt it is not easy always to delineate the contours of the subject-matter. Facts of each case will have to be taken into account for that purpose. In the case before us, we have to hold that the question referred to us has to be answered in the affirmative, that is, in favour of the assessee and against the Revenue. We do so.

60. A copy of this judgment shall be sent under the seal of this court and the signature of the Registrar to the Income-tax Appellate Tribunal.


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