Sabyasachi Mukharji, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court :
'Whether, on the facts and in the circumstances of this case, the Tribunal was justified in law in restoring the appeals once again to the file of the Additional Commissioner of Income-tax, West Bengal-I, Calcutta, for passing fresh orders under Section 263 of the Income-tax Act, 1961, after making further investigation ?'
2. We are concerned in this case with the assessment years 1968-69 and 1969-70, relevant accounting years being the year ending 30th September, 1967, and 30th. September, 1968. The assessee is a public limited company, The Income-tax Officer treated the assessee-company as a non-manufacturing company in which public were substantially interested. Accordingly, the Income-tax Officer charged income-tax on the income so computed at the lower rates prescribed as compared to the rates of income-tax prescribed for companies in which the public were not substantially interested. In the assessment orders, the Income-tax Officer did not give any reasons as to why he treated the assessee-company as one in which the public were substantially interested. The Additional Commissioner of Income-tax, West Bengal-I, thereafter passed an order for the two years under consideration under Section 263 of the Income-tax Act, 1961, because, in his opinion, the two assessment orders passed by the Income-tax Officer were erroneous and prejudicial to the interest of the Revenue. The said Commissioner directed the Income-tax Officer to treat the assessee-company as one in which the public were not substantially interested and to modify the two assessments accordingly.
3. There was an appeal preferred from the said order of the Additional Commissioner of Income-tax to the Tribunal. There was hardly any dispute about the facts. There were two types of share capital, namely,equity share capital and preference share capital. If the position of holdings of both equity and preference shares was looked into together, it can be found out that the affairs of the company during the two years were not controlled by five persons as envisaged in Section 2(18) of the Income-tax Act, 1961, which alone would have made the company one in which the public were not substantially interested. But if the position of only equity shares was taken into consideration, the assessee-company was admittedly one in which the public were not substantially interested. It was urged on behalf of the assessee that the position of the shareholders should be considered by adding both preference shareholdings and equity shareholdings. According to the assessee, the Additional Commissioner had erred by taking into consideration the holdings of only equity shares and coming to the conclusion that only 5 shareholders were controlling the majority of the equity shares of the company; and, accordingly, it could not be held that the affairs of the company during the two relevant years were controlled by five persons.
4. Attention of the Tribunal was drawn to Section 87 of the Companies Act, 1956, which did not envisage that the preference shareholders were not connected with the control and management of the affairs of the company. Furthermore, according to the articles of the company, both were to take part in the voting rights. It was urged that, in view of section 90 of the Companies Act, sections 85 to 89 were not applicable where shares were issued by the company before the commencement of the Companies Act, 1956. Admittedly, in this case, both equity shares as well as preference shares were issued by the company long before the commencement of the Companies Act.
5. It was urged that under Article 100 of the articles of association of the assessee-company every member present in person is entitled to one vote on show of hands and upon a poll every member present in person or by proxy should have one vote for every share, whether ordinary or preference, held by him. From that point of view, it was urged that the control of the company was in the hands of both the equity shareholders as well as preference shareholders and, therefore, there was no reason why the issue should be decided by taking into consideration the equity shareholdings only.
6. The Additional Commissioner in his order held that the voting rights conferred on the redeemable preference shareholders by virtue of Clause 100 of the articles of association could not be exercised by them in view of the provisions of section 87 of the Companies Act, 1956. But as was pointed out by the Tribunal the- applicability of Section 87 of the Companies Act, 1956, would not apply in view of Section 90 and, further, in view of the fact that the shares, both equity and preference, in this case,, were admittedly issued before the commencement of this Companies Act, 1956.
7. It appears that the Additional Commissioner had overlooked the effect of section 90 of the Companies Act and fell into the error in making the impugned order.
8. The Tribunal in those circumstances remanded the matter to the Additional Commissioner of Income-tax with the views of the Tribunal and asked the Commissioner to consider the advisability of passing an order under Section 263 of the Income-tax Act, 1961. In those circumstances, the question as mentioned hereinbefore has been referred to this court.
9. The issue challenges the jurisdiction of the Tribunal to restore the the appeal to the file of the Additional Commissioner with direction upon the said Commissioner to consider the advisability of passing fresh orders under Section 263 of the Act for the two years under consideration.
10. Sub-section (1) of Section 254 of the Income-tax Act, 1961, authorises the Tribunal to pass such orders on the appeal 'as it thinks fit'. The Tribunal has the widest power to remand in an appropriate case. In the case of Hukumchand Mills Ltd. v. Commissioner of Income-tax : 63ITR232(SC) , dealing with the powers of the Appellate Tribunal under Section 33(4) of the Indian Income-tax Act, 1922, which was in similar language, the Supreme Court observed that the powers conferred on the Tribunal were in the widest possible terms. It included all powers except possibly powers of enhancement.
11. On behalf of the assessee, it was, however, contended that, in this case, the Tribunal had no power to remand the matter as the Tribunal had really abdicated its jurisdiction to decide the appeal. It was urged that exercise of power under Section 263 of the Income-tax Act, 1961, was conditional. Then jurisdiction of revision conferred under Section 263 of the Act upon the Commissioner could only be exercised if the conditions were fulfiled. It was urged that if the conditions were not fulfilled the Commissioner could not exercise such power. It was, therefore, submitted that in case the Tribunal found that these conditions had not been fulfilled before the Commissioner assuming jurisdiction to exercise the power as contemplated under Section 263 of the Income-tax Act, 1961, the order was illegal and, therefore, should have been set aside by the Tribunal.
12. Section 263 of the Income-tax Act, 1961, authorises the Commissioner to call, for and examine the records of any proceedings under the Act and thereupon if he considers that any order passed therein by the Income-tax Officer was erroneous, in so far as it was prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making such enquiries to be made, pass such an order as the circumstances of the case may justify. In the instant case the question is whether the Additional Commissioner was justified in considering the order of the Income-tax Officer which he set aside to be erroneous. One of theingredients for considering whether the order passed by the Income-tax Officer was erroneous or not in this case was the question whether the assessee-company was a company in which the public were not substantially interested. The point was how this question was to be resolved, by taking into consideration only the equity shareholdings or by taking into consideration both the equity and preference shareholdings This again would depend upon the question whether Article 100 of the articles of association of the assessee-company would be applicable or not. This question, however, would be dependent on whether Section 90 of the Companies Act, 1956, would be applicable to the facts of this case and the Additional Commissioner of Income-tax in coming to the conclusion that the Income-tax Officer was erroneous had ignored this aspect of the matter. Therefore, the Tribunal thought it fit to direct him to consider this matter in the light of the view of the Tribunal that Section 90 of the Companies Act, 1956, would be applicable and then decide whether the order of the Income-tax Officer was erroneous in the sense that the company in question is one in which the public were not substantially interested. In view of the amplitude of the power conferred on the Tribunal, we are of the opinion that such an order of remand by the Tribunal cannot be considered to be illegal or without jurisdiction.
13. Counsel for the assessee drew our attention to certain observations in the case of Russel Properties Pvt. Ltd. v. A. Chowdhury, Additional Commissioner of Income-tax : 109ITR229(Cal) , where it was held that the power of revision under Section 263 of the Income-tax Act, 1961, could only be exercised if certain conditions were satisfied, viz., the Commissioner must call for and examine the records of the proceedings under the Act and, secondly, the Commissioner must consider the order passed by the Income-tax Officer to be erroneous in so far as it was prejudicial to the interests of the revenue. The principle that the order of the Commissioner must be on fulfilment of the conditions, as enjoined under Section 263 of the Act, does not, in our opinion, militate against the view that the Tribunal is authorised, in an appropriate case, to direct the Commissioner to consider whether in his view the order was correct or not. Reliance was placed on the decision in the case of Maharani Kanak Kumari Sahiba v. Commissioner of Income-tax : 28ITR462(Patna) . There, the Division Bench of the Patna High Court reiterated that though the Tribunal had a very wide discretion in disposing of an appeal, the discretion given under this section to the Income-tax Appellate Tribunal, was judicial discretion, which must be exercised according to the legal principle and not in an arbitrary or capricious manner. In our opinion, this principle, viz., the judicial discretion must be exercised in accordance with reason and justice and not according to private opinion, must be exercised according to law and nothumour, must not be exercised arbitrarily, in vague or fanciful manner but in legal and regular manner, must be exercised within the limit to which an honest man competent to the discharge of his office ought to confine himself, is not breached by the impugned direction . by the Tribunal to the Additional Commissioner of Income-tax to consider the matter in the light of section 90 of the Companies Act, 1956. Incidentally, we may note the background of the facts in which the aforesaid observations of the Division Bench of the Patna High Court were made were entirely different because in that case all the evidence had been produced and the Appellate Assistant Commissioner had, after a full investigation and examination of the records and accounts, had come to a definite finding in favour of the assessee. But the Appellate Tribunal by remanding the matter to the, Income-tax Officer and directing him to come to a finding on the same point again after bringing on record further evidence and after making further investigation and examining further accounts had opened the scope of adducing further evidence depending on the question whether the Tribunal had jurisdiction or not to do, a point which is not relevant for our present purpose.
14. In the case of M. R. M. Periannan Chettiar v. Commissioner of Income-tax : 39ITR159(Mad) , the Madras High Court found that the order of the Tribunal amounted to directing a fresh assessment and in those circumstances the Tribunal had no jurisdiction to make an order of remand. The facts of that case were also entirely different.
15. Reliance was also placed on certain observations of the Mysore High Court in the case of Pathikonda Balasubba Setty v. Commissioner of Income-tax : 65ITR252(KAR) . There, the Division Bench reiterated that the powers of the Tribunal were limited to the subject-matter of appeal and the Tribunal had no power to make an enhancement beyond the figure fixed by the Income-tax Officer. This principle, in our opinion, again is not germane to the controversy before us.
16. For the reasons mentioned hereinbefore, we are, therefore, of the opinion that the order of the Tribunal cannot be challenged as being illegal and without jurisdiction. It is true that the Tribunal might have disposed of the appeal but the Tribunal has the power to make the remand in the manner it had done. If that is the position, we will answer the question in the affirmative and in favour of the revenue.
17. In the facts and circumstances of this case, each party will pay and bear its own costs.
18. I agree.