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Commissioner of Income-tax, Gujarat-i Vs. Industrial Machinery Manufacturing P. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 55 of 1975
Judge
Reported in[1985]151ITR533(Guj)
ActsIncome Tax Act, 1961 - Sections 80J(3), 84, 253 and 254
AppellantCommissioner of Income-tax, Gujarat-i
Respondentindustrial Machinery Manufacturing P. Ltd.
Appellant Advocate G.N. Desai, Adv.
Respondent Advocate J.P. Shah, Adv.
Excerpt:
.....to raise additional ground with regard to deductibility of debts and liability when no such ground raised before ito. - - 80j and 80j(3) was orally urged before the aac and he had still not dealt with the same, the tribunal had failed to find out whether factually such an oral contention had or had not been raised before the aac. a totally new aspect of law, for which no foundation on facts was laid before the departmental authorities and upon which no findings were invited, was thus sought to be raised for the first time before the tribunal and such aspect cannot be said to be the subject-matter of the appeal before the tribunal, having regard to the aforesaid well-settled legal position. however, the law on this point is well-settled, so far as this court is concerned, and..........different'. 10. the question then is whether the further view of the tribunal that the additional ground of appeal, which it admitted, being purely of a legal nature, could have been allowed to be raised, although, according to the postulate underlying the first question, such ground had not been raised before the ito or the aac during the course of the assessment proceedings for the relevant assessment years, is correct. the answer to this question depends upon the jurisdiction of the tribunal in allowing the parties before it to raise points which were not urged before the departmental authorities. this question has been the subject-matter of examination in various decisions and so far as this court is concerned, it is now set at rest by the decision in steel cast corporation's case :.....
Judgment:

Desai, J.

1. Three assessment years are involved in this reference made at the instance of the commissioner of Income-tax. They are assessment years 1960-61, 1961-62 and 1963-64. The corresponding previous years are financial years ending March 31, 1960, March 31, 1961, and March 31, 1963, respectively.

2. The assessee is a private limited company. It manufactures humidifiers and other connected machineries. In the course of proceeding for assessment to income-tax in relation to the aforesaid assessment years, the assessee claimed tax relief in the form of fractional exemption from tax on its profits, in view of the fact that it was a newly established industrial undertaking. Such relief was claimed, in respect of the assessment years 1960-61 and 1961-62, under s. 15C of the Indian I.T. Act, 1922, and, in respect of the assessment year 1963-64, under s. 84 of the I.T. Act, 1961. For the purpose of granting such relief, it was necessary to compute the capital employed in the assessee's industrial undertaking. The contention of the assessee before the ITO was that one-half of the net profits earned during the course of each assessment year was required to be taken into account for ascertaining the average amount of capital employed in the business during each computation period. The ITO rejected the aforesaid claim. In the appeal against each assessment order, the AAC confirmed the decision of the ITO. In separate further appeals against the aforesaid decision before the Income-tax Appellate Tribunal, the assessee originally challenged the decision of the lower authorities in so far as it related to the aforesaid ground. In addition, the assessee sought permission of the Tribunal under r. 11 of the Income-tax (Appellate Tribunal) Rules, 1963 (hereinafter referred to as 'the Tribunal Rules'), to add and be heard in respect of the following ground :

'The appellant submits that while determining capital employed for the purpose of section 15C/84, no deduction could be made for debts and liabilities. The appellant submits that rules cannot go beyond section. That being the position, there being no provision for deduction of debts or liabilities in the section, the same cannot be done. It is submitted that it may be held so now.'

3. The Tribunal allowed the appeal in so far as it related to the original claim made by the assessee in view of the decision of this court in CIT v. Elecon Engineering Co. Ltd. : [1976]104ITR510(Guj) . In so far as the additional ground is concerned, the Tribunal granted leave to the assessee to urge the same in each of the appeals pending before it. However, as the AAC did not have the occasion to deal with the said additional ground, the Tribunal felt that in the interests of justice, the matter was required to be sent back so that the AAC could consider and decide the validity of the said ground on merits and in accordance with law.

4. The Revenue, feeling aggrieved by the decision of the Tribunal, required it to state a case in respect of two questions of law arising out of its order and the Tribunal has, accordingly, referred the following two questions to this court for its opinion :

'1. Whether the Tribunal was right in law in allowing the assessee to raise the additional ground that in computing the capital employed in the business for the purpose of section 15C of the Indian I.T. Act, 1922/or under s. 84 of the I.T. Act, 1961, no deduction could be made for debts and liabilities when such ground had not been raised before the Income-tax Officer or the Appellate Assistant Commissioner for the relevant years

2. Whether the Tribunal was right in law in holding that the assessee was entitled to include half of the profits of the relevant year for computing the capital employed for the purpose of business for working out the relief under section 15C of the Indian I.T. Act, 1922, for 1960-61 and 1961-62 and/or for 1963-64 under section 84 of the I.T. Act, 1961 ?'

5. It will be convenient to first deal with the second question. It is not in dispute between the parties that the decision of this court in CIT v. Elecon Engineering Co. Ltd. : [1976]104ITR510(Guj) completely covers in favour of the assessee the point arising for decision under the second question. It must, therefore, be held that the Tribunal was right in law in holding that the assessee was entitled to include one-half of the profits of the relevant years for the purpose of computing the capital employed for working out the relief under s. 15C or s. 84, as the case may be.

6. Turning now to the first question, the contention of the Revenue before the Tribunal appears to have been that since the point sought to be raised by the additional ground, which the assessee wanted to urge before the Tribunal, was not raised before the ITO or the AAC during the course of the assessment (or appeal) proceedings, it was not open to the assessee to raise and the Tribunal to permit it to raise such a totally new dispute at the stage of second appeal before the Tribunal. In support of this submission, the Revenue relied upon the decision of this court in CIT v. Karamchand Premchand Pvt. Ltd. : [1969]74ITR254(Guj) . The Tribunal, relying upon one of its earlier decisions, held that in Karamchand Premchand's case, the attention of this High Court had not been drawn to the decisions of the Supreme Court in Hukumchand Mills Ltd. v. CIT : [1967]63ITR232(SC) and CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) and that had the attention of this High Court been drawn to those two decisions, 'perhaps the judgment in that case would have been different'. The Tribunal, purporting to 'respectfully follow' the decisions of the Supreme Court in the aforesaid two matters and 'the additional ground being purely of a legal nature', granted leave to the assessee to raise the additional ground in each of the appeals. However, in view of the fact that the AAC had no occasion to deal with the merits of the additional ground, it remitted to the AAC for his consideration and decision in accordance with law.

7. At the hearing of this reference, it was contended on behalf of the Revenue : (1) that the Tribunal erred in law in not following the decision of this court in Karamchand Premchand's case : [1969]74ITR254(Guj) on the assumption that the earlier decisions of the Supreme Court in Hukumchand Mills Ltd.'s case : [1967]63ITR232(SC) and Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) ran counter to the decision of this court in Karamchand Premchand's case : [1969]74ITR254(Guj) and that the decision of this court in CIT v. Steel Cast Corporation : [1977]107ITR683(Guj) has put this matter beyond the pale of controversy; (2) that, in any case, the Tribunal ought not to have granted leave to the assessee to raise an additional point whereunder the assessee, in substance and reality, intended to challenge the provisions of a statutory rule as being beyond the power of the rule-making authority and, hence, ultra vires, on the ground that the rule was in conflict with the provisions of the section.

8. We may, at the very outset, observe that the view of the Tribunal that the decision of this court in Karamchand Premchand's case : [1969]74ITR254(Guj) might perhaps have been different, had the attention of this court been drawn to the decisions of the Supreme Court in Hukumchand Mills Ltd.'s case : [1967]63ITR232(SC) and Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) , is not sound in law. This question indeed is not res integra. In Steel Cast Corporation's case, the question of the interaction of these three decisions and the effect of the ratio of the two Supreme Court decisions on the ratio of the decision of this court in Karamchand Premchand's case : [1969]74ITR254(Guj) was gone into in depth. This court observed in the said decision as follows (pp. 696, 698) :

'The earlier decisions of the Supreme Court in Hukumchand Mills Ltd.'s case : [1967]63ITR232(SC) and in Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) do not lay down anything contrary to what has been observed by this High Court in Karamchand Premchand Pvt. Ltd.'s case : [1969]74ITR254(Guj) it cannot be said that what has been held by this High Court in Karamchand Premchand Pvt. Ltd.'s case : [1969]74ITR254(Guj) is in any way in conflict with the decisions of the Supreme Court in Hukumchand Mills Ltd.'s case : [1967]63ITR232(SC) and Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) . This High Court has merely applied one aspect of the principle......'

9. It would thus appear that the Tribunal was in error in refusing to follow the decision of this court in Karamchand Premchand's case : [1969]74ITR254(Guj) on the presumption that the decisions of the Supreme Court in Hukumchand Mills Ltd.'s case : [1967]63ITR232(SC) and Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) laid down a different legal proposition and that had the attention of this court been drawn, when it decided Karamchand Premchand's case : [1969]74ITR254(Guj) to those two decisions, 'the judgment in that case would have been different'.

10. The question then is whether the further view of the Tribunal that the additional ground of appeal, which it admitted, being purely of a legal nature, could have been allowed to be raised, although, according to the postulate underlying the first question, such ground had not been raised before the ITO or the AAC during the course of the assessment proceedings for the relevant assessment years, is correct. The answer to this question depends upon the jurisdiction of the Tribunal in allowing the parties before it to raise points which were not urged before the departmental authorities. This question has been the subject-matter of examination in various decisions and so far as this court is concerned, it is now set at rest by the decision in Steel Cast Corporation's case : [1977]107ITR683(Guj) . The case of the assessee in that case before the Tribunal was that at the time of the hearing of the appeal before the AAC, the assessee had orally prayed for relief under s. 80J(3). The AAC had orally agreed to admit the said further ground but he erred in not granting relief. The Tribunal while dealing with this contention proceeded upon the footing that the assessee had not raised the point regarding s. 80J before the AAC and that it was for the first time that such question was being raised at the stage of the appeal before the Tribunal. The Tribunal was of the view that the question sought to be raised before it was 'purely a legal matter' and that it was entitled to entertain such point even if it was raised for the first time before it. In the circumstances, the Tribunal gave liberty to the assessee to raise such 'legal point' and directed the AAC to consider the aspect and pass orders after giving opportunity to the ITO and the assessee to put up their cases. The decision of the Tribunal was made the subject-matter of reference to this court and the question which this court was required to decide was whether the Tribunal was right in law in directing the AAC to consider the claim of the assessee under s. 80J which was not made either before the ITO or before the AAC. This court examined the ratio of the decisions in Hukumchand Mills Ltd.'s case : [1967]63ITR232(SC) as also in Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) . It also considered the decisions of this court in Karamchand Premchand's case : [1969]74ITR254(Guj) , CIT v. Gurjargravures P. Ltd. : [1972]84ITR723(Orissa) and CIT v. Sayaji Mills Ltd. : [1974]94ITR26(Guj) . The decisions of various other High Courts on the point under examination were also considered. This court ultimately recorded its conclusion in the following words (p. 700) :

'In our opinion, the legal position has to be considered ultimately in the light of the decisions in Hukumchand Mills Ltd.'s case : [1967]63ITR232(SC) and Mahalakshmi Textile Mills Ltd.'s case : [1967]66ITR710(SC) . First, it must be found out what is the subject-matter of the appeal and that can be determined only by finding out what the Appellate Assistant Commissioner expressly or impliedly decided. We must emphasise again that by implied decision, we mean 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. That is an implied decision of the Appellate Assistant Commissioner and a party may be aggrieved by an express decision of the Appellate Assistant Commissioner or by an implied decision of the Appellate Assistant Commissioner. The subject-matter of the appeal before the Tribunal can only be the decision, express or implied, of the Appellate Assistant Commissioner and the jurisdiction of the Tribunal is restricted to the subject-matter of the appeal. 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 though that aspect of the law was not urged either before the Income-tax Officer or the Appellate Assistant Commissioner. The Tribunal is not restricted to the very grounds of appeal on which originally the decision of the Appellate Assistant Commissioner was sought to be challenged when the appeal was filed. It has wide powers to allow the party to add to or alter the grounds of appeal subject, of course, to the opportunity being given to the other side of being heard on this new ground of appeal. These are the restrictions and limitations within which the Appellate Tribunal can function and can exercise its jurisdiction but it must be emphasised that the jurisdiction of the Tribunal which is restricted to the subject-matter of the appeal must not be confused with the powers of the Tribunal to deal with an appeal within the four corners of its jurisdiction. The Tribunal cannot transgress the limits of that jurisdiction even though, in the exercise of that jurisdiction, its powers are plenary and very wide.'

11. In the facts of that case, this court held that though the grievance of the assessee before the Tribunal was that the question of relief under ss. 80J and 80J(3) was orally urged before the AAC and he had still not dealt with the same, the Tribunal had failed to find out whether factually such an oral contention had or had not been raised before the AAC. The Tribunal was, therefore, directed to first ascertain for itself whether such a contention had, in fact, been urged before the AAC. It was further observed that in case the Tribunal came to the conclusion that such point was not urged before the AAC, then the grievance that the AAC did not take that contention into account could not form the subject-matter of the appeal before the Tribunal and it was not open to the Tribunal to allow the assessee to raise the same plea before it for the first time.

12. The legal position bearing on the extent of the jurisdiction of the Tribunal to allow the parties before it to raise points which were not raised before the departmental authorities is thus no longer open to doubt or debate. 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 AAC, for, such a question could never form the subject-matter of the appeal before the Tribunal. The subject-matter of an appeal before the Tribunal can be determined only by finding out what the AAC expressly or impliedly decided. An express decision would find a place in the order of the AAC and, is such a case, there would be no difficulty. An implied decision can be inferred when a point might have been raised before the AAC, but in his order the AAC 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 an appeal before the Tribunal. Since the Tribunal has very wide powers to deal with all questions of fact and law pertaining to the subject-matter of an appeal, it can allow a new question of law to be raised on facts found, even though that aspect of law was not urged either before the ITO or the AAC. Beyond that, however, the Tribunal cannot travel and the jurisdiction of the Tribunal, which is restricted to the subject-matter of an appeal, cannot be enlarged by reference to the powers of the Tribunal to deal with an appeal, which are plenary and very wide.

13. Now, in the present case, the assessee claimed before the departmental authorities the relief under s. 15C or s. 84, as the case may be. These sections offer tax incentives in the form of fractional exemption of tax on profits of a newly established undertaking for five assessment years. The fractional exemption is confined to profits and gains not exceeding 6 per cent. per annum on the 'capital employed' in such undertaking computed in the prescribed manner. Rule 9 of the I.T. Rules, 1962, lays down the method of computation of capital employed in an industrial undertaking. Sub-rule (3) of the said rule, inter alia, provides that borrowed money and debt due by the person carrying on the business shall be deducted in computing the capital. In other words, if the capital employed or part thereof consists of borrowed money, then it cannot go into the computation of the capital employed for the purpose of s. 84. Likewise, debts due are also required to be deducted. A similar provision was also to be found in the rules framed under the 1922 Act. In the course of the assessment proceedings, the assessee appears to have raised two contentions bearing on the computation of capital; first, that one-half of the net profits earned in each assessment year were required to be included in determining average capital employed and, secondly, that the advance tax paid and taxation liability ought not to have been ignored. It was never the contention of the assessee before the departmental authorities up to the stage of the AAC were never called upon to find, as a matter of fact, whether the assessee had incurred any liability (other than tax liability) or owed any debt. No claim was made before such authorities that such liability (other than tax liability) or debt, if any, could not be deducted. A totally new aspect of law, for which no foundation on facts was laid before the departmental authorities and upon which no findings were invited, was thus sought to be raised for the first time before the Tribunal and such aspect cannot be said to be the subject-matter of the appeal before the Tribunal, having regard to the aforesaid well-settled legal position.

14. It was, however, urged on behalf of the assessee that the question as to the grant of relief under s. 15C or s. 84, as the case may be, was before the AAC and so also was the further question of computation of capital employed in the industrial undertaking of the assessee for the purpose of the grant of such relief. In the process of computation of capital employed, proceeded the argument, the departmental authorities up to the stage of the AAC, must be taken to have impliedly decided that the liability incurred and debt due by the assessee were required to be deducted and, therefore, the aspect whether such deduction 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 AAC, in his final order, the AAC might not have dealt with that point and thereby impliedly rejected it. It is thus clear that for the purpose of invoking the doctrine of implied decision, it has to be shown in the first instance that a particular contention was, in fact, urged before the AAC. It is only if that point was urged but not dealt with by the AAC that it would be open to infer that by refusing to deal with such point, the AAC has impliedly rejected it. Having regard to the limited ambit of the doctrine of 'implied decision' as explained in Steel Cast Corporation's case : [1977]107ITR683(Guj) , no further extension of the meaning of the said terms is possible. Therefore, merely because in the process of computation of capital, several steps have to be taken by the departmental authorities, it cannot be said that they have impliedly decided the matters covered by each step, unless a contention is first raised by the assessee or the Revenue, as the case may be, as to the applicability, relevance or satisfaction of such matter and such contention is impliedly rejected by being not dealt with by the competent authority. In the instant case, having regard to the state of the record, it could not possibly be urged by the assessee that it had contended before the AAC that the liabilities incurred or debts owed by it, if any, were not required to be deducted in the process of computation of capital. 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 ITO or the AAC. 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.

15. It is true that the aforesaid view might appear to be unduly restricting the jurisdiction of the Tribunal in the matter of raising of additional grounds before it. However, the law on this point is well-settled, so far as this court is concerned, and it appears to us that there is no alternative but to give this restricted meaning to the expression 'subject-matter', having regard to such well-settled legal position.

16. Having regard to the view which we are taking, it becomes unnecessary for us to examine the second aspect placed by the Revenue before us for our consideration, although detailed arguments were advanced on that point by both the sides. We do not think, it is necessary for us to express any opinion on that aspect under the circumstances of the case.

17. The result, therefore, is that it must be held that the Tribunal erred in law in allowing the assessee to raise the additional ground with regard to the deductibility of the debts and liabilities, when no such ground had been raised before the ITO or the AAC during the course of the assessment proceedings of the relevant years.

18. In the result, we answer the questions referred to us as follows :

Question No. 1. - In the negative, that is to say, in favour of the Revenue and against the assessee.

Question No. 2. - In the affirmative, that is to say, in favour of the assessee and against the Revenue.

19. Each party shall bear its own costs of the reference.


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