1. In this case, at the instance of the revenue, the following question has been referred to us for our opinion :
(i) Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner had erred in law in entertaining the additional ground when it was not raised earlier before the Income-tax Officer about the allowance of rebate on export profit at 2% on the export sales made by the assessee during the relevant years ?'
2. The assessment year under reference is assessment year 1965-66. The assessee is a limited company and is engaged in the manufacture of cotton textiles. Against the order of assessment for assessment years 1964-65 and 1965-66, the assessee preferred appeals to the AAC and in the course of those appeals it was claimed that the assessee was entitled to rebate at two per cent. on the export sales made by the assessee during the concerned previous year. It was submitted on behalf of the assessee before the AAC that the ground relating to this claim of rebate on export sales was not raised before the ITO. The AAC, however, allowed the point to be raised and in his order for assessment years 1964-65 the directed that the ITO should gather the details regarding the quantum of exports effected between February 28, 1963, and December 31, 1963, and should work out the rebatge as mentioned in s. 5(1)(iii) of the Finance Act of 1964. (The reference is to s. 2, sub-s. (5)(a)(ii) of the Finance Act of 1964). Similarly, as regards assessment year 1965-66 which is under reference, by his order the AAC directed the ITO to verify export sales and to allow rebate under s. 2(5)(a)(iii) of the Finance (No. 1) Act of 1965. (The section is wrongly mentioned as s. 5(a)(iii) in the statement of the case). The department being aggrieved by the order of the AAC filed an appeal in respect of the above assessment years before the Income-tax Appellate Tribunal. The Tribunal held that the AAC was justified in entertaining the additional ground for allowing rebate on export profit at two per cent. of the export sales made by the assessee during the two years under appeal. The Tribunal found that there was no dispute that the assessee's case was covered by the relevant section of the Finance Act of 1965 and the assessee would have been entitled to rebate at two per cent. on the claim being made before the ITO. Though the assessee had admitted that no such claim was made before the ITO, it was raised before the AAC who had admitted the additional ground and directed the ITO to verify the claim of the assessee for allowance of rebate in accordance with law. Thereafter at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion.
Under the Finance Act of 1965, being the Act 10 of 1965, under s. 2 as regards income-tax, it was provided by s. 2, sub-s. (5)(a) :
'In respect of any assessment for the assessment year commencing on the 1st day of April 1965 - ... (iii) where an assessee of the type referred to in sub-clause (i) engaged in the manufacture of any articles in an industry specified in the said First Schedule has, during the previous year, sold such articles to any other person in India who himself has exported them out of India had evidence is produced before the Income-tax Officer of such articles having been so exported, the assessee shall be entitled to a deduction, from the amount of income-tax with which he is chargeable for the assessment year of an amount equal to the income-tax calculated at the average rate of income-tax on a sum equal to two per cent. of the sale proceeds received by him in respect of such articles from the exporter.'
Sub-clause (i) refers to the type of manufacturer, namely :
'an assessee being an Indian company or any other company which has made the prescribed arrangements for the declaration and payment of dividends within India or an assessee (other than a company) whose total income includes any profits and gains derived from the export of any goods or merchandise out of India, shall be entitled to a deduction, from the amount of income-tax with which he is chargeable, of an amount equal to the income-tax calculated at one-tenth of the average rate of income-tax on the amount of such profits and gains included in the total income.'
3. The AAC considered the case only under c. (iii) of s. 2(5)(a) of the Finance Act, 1965, and the relief which claimed before the AAC was claimed for the first time, no claim having been made in that behalf before the ITO under the provisions of the Finance Act, of 1965.
4. As regards the powers of the AAC in the appeal under s. 251 of the I.T. Act, 1961, being a section similar to s. 33(b) of the Indian I.T. Act, 1922, there has been the authoritative pronouncement of the Supreme Court in Addl. CIT v. Gurjargravures P. Ltd. : 111ITR1(SC) . In that case, the Supreme Court reversed the decision of this High Court which is to be found reported in : 84ITR723(Orissa) . In the case of Gurjargravures P. Ltd. one of the grounds of appeal raised by the respondent in the appeal before the AAC was that the ITO had erred in not giving the respondent of benefit of s. 84 of the I.T. Act, 1961. No such claim had been made before the ITO when he completed the assessment, nor was there any material on record supporting such a claim. In the subsequent years relief under s. 84 had been allowed to the respondent. The appeal was dismissed by the AAC on the ground that the question of error on the part of the ITO did not arise as no claim for exemption under s. 84 had been made before the ITO. On further appeal, the Appellate Tribunal held that since the entire assessment was open before the AAC, there was no reason for his not entertaining the claim and directing the ITO to allow appropriate relief. On a reference to this High Court it was held by the High Court that it was competent for the Tribunal to so hold and direct the ITO. On appeal against the decision of this High Court the Supreme Court, reversing the decision of this High Court, held that as there was no claim made before the ITO and further as there was no material before the ITO, from the mere fact that such a claim had been allowed in subsequent years it could not be assumed that the prescribed conditions justifying a claim for exemption under s. 84 were also fulfilled and the Tribunal was not competent to hold that the AAC should have entertained the question of relief under s. 84 or to direct the ITO to allow the relief. The Supreme Court in that case followed its own earlier decision in CIT v. Rai Bahadur Hardutroy Motilal Chamaria : 66ITR443(SC) , and the following passage from that earlier decision was extracted in Gurjargravures' case : 111ITR1(SC) :
'...... it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer with a view to find out new sources of income and the power of enhancement under section 31(3) of the Act is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability.'
And as to what is meant by 'consideration' the following passage from Rai Bahadur Hardutroy's case : 66ITR443(SC) was cited (p. 5 of 111 ITR) :
''Consideration' does not mean incidental or collateral examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection.'
The Supreme Court observed (p. 5) :
'If, as held in this case, an item of income noticed by the Income-tax Officer but not examined by him from the point of view of its taxability or non-taxability cannot be said to have been considered by his, it is not possible to hold that the Income-tax Officer examining a portion of the profits from the point of view of its taxability only, should be deemed to have also considered the question of its non-taxability. As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner. We are here called upon to consider a case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case neither any claim was made before the Income-tax Officer nor was there any material on record supporting such a claim.'
5. Thus, it is clear that the Supreme Court relied on the earlier decision in Rai Bahadur Hardutroy's case : 66ITR443(SC) , for principles to be culled out regarding the powers of the AAC and the passage which has been relied upon indicates that the record which is spoken of by the Supreme Court in Gurjargravures' case : 111ITR1(SC) in the subsequent passage which we have underlined by supplying emphasis means the return made by the assessee or the assessment order of the ITO and it is in that context that the Supreme Court indicated in Gurjargravures' case : 111ITR1(SC) that they were not called upon to consider the case whether the assessee failed to make a claim though there was evidence in support of it. Mr. Shah for the assessee before us has relied very strongly on this portion of the judgment of the Supreme Court in Gurjargravures' case and has contended that in that particular case the Supreme Court left the question open as to what should be the power of the AAC in a case where the assessee failed to make a claim though there was evidence on record to support it. In our opinion, in view of the passage from the judgment in Rai Bahadur Hardutroy's case : 66ITR443(SC) , it is possible to argue that the Supreme Court in Gurjargravures' cases seems to indicate that the record which is spoken of later on in the course of that judgment at page 5 of the report is the record which is indicated in Rai Bahadur Hardutroy's case, namely, the return made by the assessee or the assessment order of the ITO.
6. However, so far as the present case is concerned, there is a circular of the Board which has been set out in the judgment of this High Court in Chokshi Metal Refinery v. CIT : 107ITR63(Guj) of the report, the circular of the Central Board of Revenue issued in June, 1955, has been set out. The circular is to be found reproduced in volume I of Chaturvedi and Pithisaria's Book, 2nd Edn., at page 532, and the circular runs as follows :
'Officers of the department must not take advantage of the ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officer should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for, it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessees on whom it is imposed by law, officers should -
(a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other ;
(b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.'
7. This is Circular No. 14 (XI-35) of 1955 and is dated April 11, 1955. In view of this circular it is clear that for the purpose of the circular, what should be the guiding factor is whether the proceedings or other particulars before the ITO at the stage of original assessment disclosed any grounds for relief under s. 2(5)(a)(iii) of the Finance Act of 1964 or of the Finance Act of 1965, even though no claim was made for that relief by the assessee at the stage of those proceedings before him. IT is possible to argue that, to the extent to which the circular of 1955 speaks of proceedings or other particulars before the ITO as distinguished from the return and the assessment order which were spoken of by the Supreme Court in Rai Bahadur Hardutroy's case : 66ITR443(SC) , there is a deviation from the correct legal position. But it is now well-settled after the decision of the Supreme Court in Ellerman's case : 82ITR913(SC) , that even if there is a deviation on a point of law, so far as the circular of the Board in concerned, that circular will be binding on all officers concerned with the execution of the I.T. Act and they must carry out their duties in the light of the circular.
8. In view of this clear position regarding the effect of the circular, it is obvious that in the instant case it was incumbent on the ITO to advise the assessee before us to claim relief under s. 2(5)(a)(iii) if the proceeding or any other particulars before him at the stage of the original assessment indicated that the assessee was entitled to such relief under the provisions of the relevant Finance Act, 1965, so far as the order under reference is concerned. This question in the light of this circular of 1955 has not been examined by the Tribunal. What applies to the obligation of the ITO would also apply to all officers of the department concerned with the execution of the I.T. Act, 1961. Therefore, so far as the controversy before us regarding the powers of the AAC is concerned, in the light of the facts before us and in the light of this circular, we decline to answer the question referred to us because the question before us becomes academic in view of this circular of 1955.
9. We, therefore, decline to answer the question and send and matter back to the Tribunal so that the Tribunal can examine the question whether, in the light of what was disclosed in the proceedings or other particulars before the ITO, at the time of the original assessment proceedings, the ITO concerned should have taken the initiative in guiding the assessee before us in claiming this relief under s. 2(5)(a)(iii) of the relevant Finance Act. It is because of the above mentioned circular alone that we are passing this order. There will be no order as to costs of this reference.