BANERJEE J. - This reference, under section 66(1) of the Indian Income-tax Act, 1922, has been made in circumstances hereinafter relate.
The assessee is not obliged, under a resolution of its board of directors, to pay a pension of Rs. 12,000 per annum, to one Mr. Hunter, a retired manager of the assessee. This amount used to be claimed by the assessee in previous assessment years and used always to be allowed by the Income-tax Officer in those years as permissible business expenditure.
In the assessment year 1958-59 (corresponding to the accounting year ended with December 31, 1957), the assessee do not make the claim for deduction of the said amount as a business expenditure, in the return filed by it. The said sum was not also debited to the profit and loss account The amount was, however, debited to an account headed 'staff account', appearing as reserve in the balance-sheet.
In the aforesaid circumstances, the Income-tax Officer made the assessment without considering the question of allowability of the expenditure.
The assessee preferred an appeal before the Appellate Assistant Commissioner and there claimed deduction of the said sum of Rs. 12,000 from the computation of the total income. The Appellate Assistant Commissioner allowed the claim with the observation :
'As the amount was allowed by the Income-tax Officer himself in earlier years and as the pension payment is to the same gentleman, the amount is allowed in computing the appellants business income. The Appellant therefore gets a reduction of Rs. 12,000'.
Aggrieved by the order of the Appellate Assistant Commissioner the revenue appealed before the Appellate Tribunal. The Tribunal allowed the appeal with the observation.
'The amount in question, namely, Rs. 12,000, was not claimed in the return and it was debited in the profit and loss account. The income-tax Officer had no occasion to consider the allowability thereof. In the circumstances, the assessee had no right of appeals before the Appellate Assistant Commissioner on this ground and that the latter should not have admitted the case. We would, therefor, allow the appeal and set aside the order of the Appellate Assistant Commissioner.'
Thereupon, the assessee obtained a reference to this court, on the following two questions of law.
'(1) Whether, on the facts and in circumstances of the case, the Tribunal was competent to consider the question of the admissibility of the appeal filed by the assessee before the Appellate Assistant Commissioner ?
(2) If the answer to the above question be in the affirmative, whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee had no right to appeal before the Appellate Assistant Commissioner ?'
Now an Appellate Tribunal constituted under section 5A of the Indian Income-tax Act, is invested with authority to hear appeals against orders passed by Appellate Assistant Commissioners, under section 28 or under section 31 of the Act, Sub-section (4) of section 33 reads :
'33. (4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner.'
Sub-section (8) of section 5A of the Act invests the Appellate Tribunal with power to regulate its own procedure. In exercise of the aforesaid power, the Tribunal has framed a set of Rules, known as the Appellate Tribunal Rules. Rule 12 of the said Rules reads :
'The appellant shall not, except by the leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal shall not be confined to the ground set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule :
Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had sufficient opportunity of being heard on the ground.'
The extent of appellate jurisdiction of the Tribunal has been described in New India Life Assurance Co. Ltd. v. Commissioner of Income-tax/Excess Profits Tax as that of a court of appeal under the Civil Procedure Code and its powers are identical with the powers enjoyed by the appellate court under the Code. The limitation on the power of the Tribunal has been indicated in Pokhraj Hirachand v. Commissioner of Income-tax in the following language :
'Rule 12 of the aforesaid Rules (meaning Appellate Tribunal Rules) Provides that the appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule. Rule 27 provides that the respondent, though he may not have appealed, may support the order of the Appellate Assistant Commissioner on any of the grounds decided against him. It is well settled that the expression thereon occurring in sub-section (4) of section 33 means on the subject-matter of the appeal before the Tribunal. Reading these rules together with sub-section (4) of section 33, it is clear that the subject-matter of appeal before the Tribunal is the grounds of appeal raised by the appellant in his memorandum of appeal, the grounds which the Tribunal allows him to raise under rule 12, and the contentions raised by the respondent before the Tribunal in support of the order made by the Appellate Assistant Commissioner by challenging the adverse finding against him.'
The appellate power of the Appellate Assistant Commissioner, under section 31 of the Indian Income-tax Act, is however, wider. The extent and the limitation of this power was described by the Supreme Court is Commissioner of Income-tax v. Shapoorji Pallonji Mistry in the following language :
'... section 31 of the Income-tax Act confers not only appellate powers upon the Appellate Assistant Commissioner in so as he is moved by an assessee but also a revisional jurisdiction to revise the assessment with a power to enhance the assessment. So much, of course, follows from the language of the section itself. The only question is whether in enhancing the assessment for any year he can travel outside the record, that is to say the return made the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income, not disclosed in either. It is contended by the Commissioner of Income-tax that word assessment here means the ultimate amount which an assessee must pay, regard being had to the charging section and his total income. In this view, it is said that the words, enhance the assessment are not confined to the assessment reached through a particular process but the amount which ought to have computed if the true total income had been found. There is no doubt that this view is also possible. On the other hand, it must not be overlooked that there are other provisions like section 34 and 33B, which enable escaped income from new sources to be brought to tax after following a special procedure. The assessee contends that the powers of the Appellate Assistant Commissioner extend to matters considered by the Income-tax Officer, and if a new source is to be considered, then the power remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of finding by two tribunals and one right of appeal.
The question is whether we should accept the interpretation suggested by the Commissioner in preference to the one which has held the field for nearly 37 years. In view of the provisions of sections 34 and 33B by which escaped income can be brought to tax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commissioner to enhance the assessment has been accepted by legislature as the true exposition of the words of the section. If it were not, new would expect that the legislature would have amended section 31 and specified the other intention in express words.'
We need remind ourselves of the aforesaid interpretation put on sections 33 and 31 of the Indian Income-tax Act, in order to appreciate the arguments addressed by the learned counsel appearing for the parties.
Mr. K. K. Roy, learned counsel for the assessee, submitted that the memorandum of appeal before the Appellate Tribunal consisted of one ground only, namely :
'The Appellate Assistant Commissioner erred in law and facts in allowing the sum of Rs. 12,000 towards payment of pension.'
According to him, that ground did not include the point that the appeal before the Appellate Assistant Commissioner was incompetent. What he meant to argue was that the subject-matter of appeal before the Tribunal was not whether the Appellate Assistant Commissioner had jurisdiction or competency to entertain the appeal, on the question of allowability of a sum of Rs. 12,000 as business expenditure, inasmuch as the Income-tax Officer had not the occasion to consider the allowability of the said expenditure, but that the scope of the appeal was limited to the point whether the Appellate Assistant Commissioner had erred in allowing the said expenditure. He submitted that, in dismissing the appeal on the ground that the assessee had no right of appeal before the Appellate Assistant Commissioner on the question of allowability of the sum of Rs. 12,000 as business expenditure and that the Appellant Assistant Commissioner should not have admitted the said ground, the Appellant Tribunal proceeded beyond the ground of appeal and rested its decision on a point which was not the subject-market of the appeal. We few not impressed by the argument. The better course for the Appellate Assistant Commissioner might have been to remand the matter to the Income-tax officer, with a direction to him to consideration the claim made by assessee concerning the allowability of the sum of Rs. 12,000 as business expenditure, which claim had not been made before the Income-tax Officer and which claim the Income-tax Officer had no occasion to consider. The Tribunal also might have made the same order.
Mr. Sabyasachi Mukherji, learned counsel for the revenue, did not, in his fairness, dispute the proposition that a claim may for the first time be made before the Appellant Assistant Commissioner and that the Appellant Assistant Commissioner had the jurisdiction prima facie to consider the admissibility of such a claim and, if, prima satisfied about the admissibility of the claim, to remand the claim to the Income-tax officer for further consideration. He, however, contended that the Appellate Assistant Commissioner lacked the jurisdiction by himself to allow the claim, if the Income-tax Officer had not the opportunity of considering the same. He relied on the judgment of the Supreme Court in Commissioner of Income-tax v. Shapporji Pallonji Mistry in this Context.
Proceeding on the basis that this is the legal position, then the most that may be said is that the Appellant Assistant Commissioner erred is forthright allowing the claim without making an order of remand to the Income-tax Officer to consider the claim. The assessees right of appeal in the Appellant Assistant Commissioner on such a question was in no way taken away or barred under section 31 of the Act and the Appellant Assistant Commissioner cannot be condemned for having entertained the claim for consideration.
Question No. 1 is somewhat oddly worded. There is no procedure for admission of an appeal before an Appellant Assistant Commissioner. If an appeal is not a maintainable in law or barred under the provision of the Act, the maintainability of the appeal many be disputed before the appellant court. The maintainability of the appeal was not dispute before the Appellant Assistant Commissioner. The ground of appeal before the Appellant Tribunal was also not very revealing. The ground we have quoted hereinbefore. It is not, however, impossible to read in the ground objection against the maintainability of the appeal. The ground says that the appellant Assistant Commissioner erred in allowing the sum of Rs. 12,000 towards payment of pension. Now, an error may be manifold In a case where the proper procedure is to remand a claim, for the first time made before the Appellant Assistant Commissioner, to the income-tax officer for consideration, then to allow the claim forthright is a procedural error. There is no difficulty in including the question of procedural error in the ground as taken, although it must be concerned that the ground was not happily worded. On that reading of the ground, it cannot be said that the Tribunal proceeded beyond the subject-matter of the appeal as indicated in the ground in deciding upon the maintainability of the appeal. Question No. 1 must, therefore, be answered in the affirmative and against the assessee.
Turning now the second question, we need take notice of a recent decision of the Supreme Court in Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal (briefly reported in Notes portion) in which it was observed : 'The Appellate Assistant Commissioner has no jurisdiction under section 31(3) of the Indian Income-tax Act, 1922, to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order. It is not, therefore 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 finding out new sources of income, and the power of enhancement under section 31(3) 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. In this context 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 categorically laid down that, if the Income-tax Officer had not considered entry from the point of view of taxability, the Appellate Assistant Commissioner had no jurisdiction to enhance the assessment by inclusion of that entry in the computation.
Mr. K. K. Roy, learned counsel for the assessee, submitted that in the instant case there was no question of inclusion of any fresh item of income in the computation. The question before the Appellate Assistant Commissioner was whether income, as computed by the Income-tax Officer, should be reduced by exclusion of an admissible item of business expenditure. That, he submitted, the Appellate Assistant Commissioner had always the right to consider.
Mr. Sabyasachi Mukherji, learned counsel for the revenue, however, placed strong reliance on the briefly reported judgment of the Supreme Court in Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal and submitted that there was nothing in the return filed by the assessee claiming deduction. There was also nothing in the assessment order showing consideration by the Income-tax Officer about the admissibility of the expenditure. That being the position, he submitted, the Appellate Assistant commissioner would have no power to allow the expenditure, because he should not consider anything not considered by the Income-tax Officer. In the same line of reasoning he contended that the Tribunal was right in dismissing the appeal as done in this case.
In our opinion, Mr. Mukherji is not right. Nothing debars an assessee from making a new claim for deduction before the Appellate Assistant Commissioner. Nothing prevents the Appellate Assistant Commissioner, prima facie, to examine the force of such a claim. If prima facie satisfied about the maintainability of such a claim the Appellate Assistant Commissioner may remand the matter to the Income-tax Officer for consideration of the new claim for deduction. The right of appeal, conferred by section 30 of the Act, includes right of appeal against the assessment of income. In the instant case, the income was assessed without deduction of a claim made for the first time by the assessee before the Appellate Assistant Commissioner. The assessee was at liberty to challenge the assessment in appeal and argue that the assessment should be reduced by allowing a claim for deduction, as we have already observed. The Appellate Assistant Commissioner may, if satisfied, remand the case to the Income-tax Officer to consider the claim made by the assessee and allow the same if allowable. The absence of materials in the assessment order will not affect the right of the assessee to appeal before the Appellate Assistant Commissioner. The only effect of such absence of materials may be that the appeal may fail not because the right of appeal was absent but because materials for allowing the appeal were not available and goof reasons for remand were not out. The Tribunal was, therefore, in error in holding that the assessee had no right of appeal before the Appellate Assistant Commissioner.
In the view that we take the second question must be answered in the negative and in favour of the assessee.
In view of the divided success we make no order as to costs.
K. L. ROY J. - I agree.