M/S. Cewapore Chemic... v. The Commissioner Of ...

K.P Singh, J.:— This is a reference under Section 256(1) of the Indian Income-tax Act, 1961.

2. The following question has been referred to us by the Income-tax Appellate Tribunal, Allahabad Bench:—

“Whether on the facts and circumstances of the case and having regard to the relevant provisions of Sections 251 and 253 of the I.T Act, the Tribunal was correct in law in holding that the disallowance of Rs. 59,117/- and Rs. 11,594/- on account of commission to selling agents could not be contested and considered on merits in the appeal filed against the relevant fresh assessment made after setting aside the original assessment.”

3. Necessary facts leading to the above question are that the assessee-applicant is a private limited company engaged in the manufacture and sale of heavy chemicals. His assessment year under consideration is 1972–73. On 27-2-1973, I.T.O made assessment and disallowed the sums of Rs. 59,117/- and Rs. 11,594/- on account of the commission paid to the selling agents. Against that order the assessee went in appeal which was decided by the Appellate Assistant Commissioner of Income-tax, Special Range, Kanpur, through his judgment dated 27-9-1973 (see Annexure ‘E’ to the paper Books). It appears that the Appellate Assistant Commissioner agreed with I.T.O in disallowing the claim of the assessee on account of the commission paid to the selling agents. Against this order of the appellate authority the assessee did not pursue the matter. After remand the I.T.O through his order dated 28-2-1975 disallowed the claim of the assessee on account of the commission paid to the selling agents. Against the order of the I.T.O the appellate authority agreed with the I.T.O in disallowing the claim of the assessee on account of commission payment to the selling agents. Aggrieved by the judgment of the appellate authority the assessee as well as the department preferred appeals before the Income-tax Appellate Tribunal ‘A’ Bench, Allahabad which were dismissed by the Tribunal through its judgment dated 15th January, 1977. Thereafter the assessee applied for referring question of law arising out of the order of the Appellate Tribunal and the Appellate Tribunal referred the above mentioned question for opinion of this High Court. In this way the above noted question has come up for consideration before us.

4. The learned counsel for the assessee has contended before us that then the original assessment made by the I.T.O was set aside by the Appellate Assistant Commissioner and the case was remanded for fresh assessment, the Income-tax authorities have acted illegally in not examining the claim of the assessee regarding payment to commission agents on the ground that in the earlier order of the Appellate Commissioner the claim of the assessee was not accepted. According to the learned counsel for the assessee, after remand, it was the duty of the Income-tax Officer to decide the claim of the assessee afresh and the I.T.O could not refuse the claim of the appellant regarding disallowance of the payments to the commission agents on the ground that it had been drawn to the rulings reported in (1975) 99 ITR 470, Commissioner of Income-tax v. Seth Manicklal Fomra, 1979 UPTC 999 : (AIR 1979 All 267), M/S. Ram Dayal Harbilas…Applicant; v. The Commissioner Of Sales Tax…. and 1991 UPTC 125, Jute Corporation of India Ltd. v. Commissioner of Income-tax.

5. At this stage it is proper to mention the relevant finding recorded by the Appellate Assistant Commissioner in his order dated 27-9-1973 which is as below:—

“(P. 5) Regarding the commissions paid to two concerns called Anand Chemicals, Kanpur and Chami Leather Traders Madras being in violation of Section 294 of the Companies Act the Income-tax Officer appears to be correct……………I agree with the Income-tax Officer that a Company has to function under the Company Law. It is a juristic person and the Company Law is its personal law. A person may be an artificial or juristic person and it is not correct to say that such a person cannot have a personal law. I think a Company acting in violation of Company Law which is the very basis of its existence cannot incur expenditure, prohibited by Company Law and claim such; expenditure in Income-tax proceedings. Such amounts are in fact refundable to the Company and should not be allowed as outgoing.”

6. It may be pertinent to observe that apart from the disallowance discussed in the preceding paragraphs there were a number of other grounds on which the assessment order was objected by the assessee before the Appellate Assistant Commissioner. It was not necessary for us to refer to those grounds inasmuch as we are not concerned with them in this reference. Suffice to say that the Appellate Assistant Commissioner after giving his comments remanded the matter to the Income-tax Officer to make a fresh assessment in the light of the direction given by him in respect of each ground. It is in this context that in paragraph 11 of his order the Appellate Assistant Commissioner indicated that the assessment has to be refrained in the light of the observations made by him. In paragraph 12 he further observed that during the fresh proceedings the appellant will be free to agitate his other grievances and accordingly he set aside the assessment.

7. It is apparent from the order of the Appellate Assistant Commissioner that he gave specific directions to the Income-tax Officer in respect of each contention that had dealt with. In paragraph 5 of his judgment in which he dealt with the controversy with which this reference is concerned. Therefore, it is apparent that the Appellant Assistant Commissioner had not remanded the case for fresh determination rather he asked the I.T.O to deal with the claim of the assessee in the light of the observations made in his judgment dated 27-9-1973. No doubt, some observations in the ruling reported in 99 ITR 470 support the contention raised on behalf of the assessee before us. But, in the reported case the Income-tax Officer was directed to redo the assessment in the light of the observations contained in the order of the Appellate Assistant Commissioner. In the present case the Appellate Assistant Commissioner had recorded a clear cut finding against the assessee in his order dated 27-9-1973 and those findings cannot be termed as mere observations. Therefore, the assessee cannot derive any benefit out of the aforesaid ruling in the facts and circumstances of this case.

8. The learned counsel for the assessee also placed reliance upon the ruling, reported in 1979 UPTC 999 : (AIR 1979 All 267) M/S. Ram Dayal Harbilas…Applicant; v. The Commissioner Of Sales Tax….. The aforesaid ruling has considered the provisions of U.P Sales Tax Act and while interpreting the provisions of S. 9 of that Act some observations have been made which might help the assessee in the present case under our consideration. But, if the ruling is read as a whole it would be evident that the Judge has indicated that the powers of the Appellate Assistant Commissioner under S. 251(1) of the Income-tax Act, 1961 is wider than the powers exercised by the Appellate Assistant Commissioner under the U.P Sales Tax Act. In paragraph 17 of the ruling their Lordships have indicated as below:—

“………but then it is open to the Appellate Assistant Commissioner to, while setting aside the assessment, direct the Income-tax Officer to consider only certain matters when making the assessment and in that event the Income-tax Officer cannot be behind the direction and enquire into other matters. See Pulipati Subbarao v. A.A.C, 35 ITR 673 : (AIR 1959 AP 505). However, the Appellate Authority under the Sales Tax Act has not, while setting aside an assessment and remanded the case for making fresh assessment, been given any power to limit the scope and ambit of reassessment proceeding and the power of the assessing authority for making assessment under S. 7 of the Act cannot be inhibited in any manner.”

9. In paragraph 13 of the aforesaid Full Bench, ruling their Lordships have observed as below:—

“………In exercise of that power the revising authority can remand a case to the assessing authority for making assessment or fresh assessment in accordance with the directions given by it. Here the revising authority, like the Appellate Assistant Commissioner under the Income-tax Act has been given ample power to inhibit the scope and ambit of the assessment proceedings to be carried on by the assessing authority………”

10. In our opinion the observations in this Full Bench do not support the contention raised on behalf of the assessee. According to the observations contained in paragraph 18 of the reported Full Bench ruling it is evident that under the Income-tax Act the Appellate Assistant Commissioner had ample power to inhibit the scope and ambit of the assessment proceedings to be carried on by the assessing authority. The Income-tax authorties, in the present case, have rightly construed the judgment of the appellate authority dated 27-9-73 while disallowing the payment of commission to the selling agent claimed by the assessee. The last ruling, reported in 1991 U.P.T.C 125 Jute Corporation of India Ltd. v. Commissioner of Income-tax, cited by the learned counsel for the assessee does not throw any light upon the contention raised by the learned counsel for the assessee. In our opinion the contention raised on behalf of the assessee have no merits.

11. In (1979) 120 ITR 872: (1979 Tax LR 578) Surendra Overseas Ltd. v. Commissioner of Income-tax West Bengal, Bench of Calcutta High Court has indicated that if a Division the Appellate Assistant Commissioner set aside the assessment only partially and gave a specific direction to the I.T.O, the I.T.O had no jurisdiction to consider the admissibility or otherwise of the development rebate. In this case the principle of law laid down in Pulipati Subbarao and Co. v. A.A.C, (1959) 35 ITR 673: (AIR 1959 AP 505) that where the order of the Appellate Assistant Commissioner is specific, it is not open to the I.T.O to conduct a fresh enquiry beyond the said directions and to proceed to make a fresh assessment without any reference to the earlier assessment. In (1984) 145 ITR 255: (1983 Tax LR 181); S.P Kochhar v. Income-Tax Officer, Dehradun., Division Bench of this Court has indicated at page 262 of the ruling as below:—

“………The scope of ITO's powers to make a fresh assessment under an order of remand passed by the appellate authority has come up for consideration in numerous cases. This Court in J.K Cotton Spinning and Weaving Mills Co. Ltd. v. C.I.T, (1963) 47 ITR 906, laid down that where on an appeal from an assessment the AAC set aside the assessment and directed the ITO to make a fresh assessment, ITO is bound by the directions of the AAC in making the fresh assessment……”

12. In view of the above observations of this Court we think that the contentions raised on behalf of the assessee have no merits and the I.T.O was bound by the directions made in the order of the Appellate Assistant Commissioner dated 27-9-73. For the foregoing discussions, we answer the referred question as framed in the affirmative and in favour of the Department and against the assessee. There will be no order as to costs.

13. Reference answered in affirmative in favour of Dept.