Puranmal Radhakishan And Company v. Commissioner Of Income-Tax, Bombay

Chagla, C.J:— The facts have been set out in our judgment delivered on the 7th March, 1956*, when we directed the Tribunal to refer a question of law to us and they need not be reiterated. The question that arises is with regard to the jurisdiction of the Tribunal. It will be noted that the case of the Department both before the Income-tax Officer and the Appellate Assistant Commissioner was that the price of the shares should be taken at Rs. 715 per share which was the market value on the 29th March, 1948, when the shares were acquired, and the case of the assessee was that the price of the shares should be Rs. 1,100 which was the actual price paid by the assessee for the purchase of these shares. It was common ground that the price of the shares on the 31st March, 1949, was Rs. 225 per share. It was also common ground that the assessee was entitled to a deduction for loss in the share business with regard to these shares on the basis of the difference between the purchase price and the price prevailing on the 31st March, 1949. Therefore, the controversy between the Department and the assessee was whether the assessee was entitled to loss on the basis of the difference between Rs. 1,100 and Rs. 225, or Rs. 715 and Rs. 225. The Income-tax Officer and the Appellate Assistant Commissioner held in favour of the Department and the assessee appealed to the Tribunal, his ground of appeal being that he should have been allowed loss on the basis of the difference between Rs. 1,100 and Rs. 225. In this appeal the Tribunal, while dismissing the appeal of the assessee, held (1) that the shares were not stock-in-trade but constituted capital investment, (2) that the price of the shares should be Rs. 524-6-0 as of the 28th August, 1948, when according to the Tribunal these shares were converted into stock-in-trade, (3) that the loss should be calculated on the basis of the difference between Rs. 524-6-0 and Rs. 225, and (4) that this was a clear case of under-assessment. The question is whether the Tribunal had jurisdiction to arrive at these findings.

2. Now, the jurisdiction of the Tribunal is to be found in Section 33(4) which is in very wide terms:

“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.”

3. Wide as the language seems to be, this Court has construed this section and has particularly emphasised the language used by the Legislature, viz., “thereon”, and the view taken by the Court, as we will presently point out, is that the orders that the Appellate Tribunal can pass, whatever the nature of the order may be, must be orders on the appeal and the Tribunal cannot travel outside the appeal.

4. This decision is to be found in Motor Union Insurance Co., Ltd.…Assessee; v. Commissioner Of Income-Tax, Bombay [1945] 13 I.T.R 272. and Mr. Justice Kania in that case held that the word “thereon” used in section 33(4) must mean on the grounds raised in the appeal, and that section gave power to the Appellate Tribunal to give its decision and pass orders in respect of all grounds urged on behalf of the appellant in respect of the decision appealed against. In deciding those grounds it could pass appropriate orders, but it was not open to the Tribunal itself to raise a ground or permit the party who has not appealed, to raise a ground which will work adversely to the appellant. The words of the section were not wide enough to include a power of enhancement without an appeal by the Commissioner.

5. Applying this decision to the facts of this case, let us see what the position is. The finding of the Tribunal that the price of the shares should be Rs. 524-6-0 per share and that it was a clear case of underassessment was definitely a finding adverse to the assessee. The finding was not on any ground of appeal. There was no ground of appeal that the price should be less than Rs. 715. Therefore, this finding was outside the grounds which were the subject-matter of the appeal. By reason of this finding the assessee found himself in a worse position than he would have been if he had not appealed. If he had not appealed the result would have been that the decision of the Income-tax Officer and the Appellate Assistant Commissioner that the price should be taken at Rs. 715 would have stood. That decision was accepted by the Department. The assessee came to the Tribunal to improve his position and to get a price fixed by the Tribunal which was higher than Rs. 715. The result was not only that his appeal was dismissed, which it was competent to the Tribunal to do, but the Tribunal gave a finding that the price was Rs. 524-6-0 and it was a clear case of under-assessment, which neither arose out of any ground of appeal and was clearly adverse to the assessee. We wish to make this perfectly clear, as has been pointed out by Mr. Justice Kania, that it was open to the Tribunal to have upheld the decision of the Appellate Assistant Commissioner not only on the ground on which the judgment of the Appellate Assistant Commissioner was based but on any other ground. In this very case it was open to the Tribunal to say that it took the view that the shares were capital investment and not stock-in-trade. All that it could have done was to have used this argument to support the finding of the Appellate Assistant Commissioner that the price was Rs. 715 and not Rs. 1,100. But it made use of this finding that the shares were not stock-in-trade not in order to support the decision of the Appellate Assistant Commissioner but to arrive at a conclusion which is different from the conclusion arrived at by the Appellate Assistant Commissioner and which conclusion is prejudicial to the assessee, viz., that the price was Rs. 524-6-0 per share. How prejudicial is this finding of the Tribunal is clear from the fact that by reason of this finding proceedings have already been initiated by the Taxing Department under section 34. It is clear that the Tribunal could not have itself directed the Income-tax Officer to assess the assessee on the basis of the price of the shares being Rs. 524-6-0 per share. What it could not do directly, equally it could not do indirectly. If it could not give the finding that the price of the shares was Rs. 524-6-0 per share for the purpose of directing the Income-tax Officer to reassess the assessee on the basis of that price, it could equally not give that finding so as to afford the Commissioner an opportunity of reopening the assessment under section 34.

6. Mr. Palkhivala wanted to raise the larger question that it was not open to the Tribunal on its own initiative to decide a question of fact which was not in issue between the parties either before the Income-tax Officer or the Appellate Assistant Commissioner. Mr. Palkhivala says that both the Department and the assessee proceeded before the Income-tax Officer and the Appellate Assistant Commissioner on the basis that the shares constituted stock-in-trade and it was not open to the Tribunal at the appellate stage to arrive at a finding of fact which was not the case either of the assessee or the Department. We do not wish to decide that larger question on this reference because that question does not arise in view of our opinion on the finding given by the Tribunal with regard to the price of the shares and the fact that this was a case of under-assessment. We also do not wish to say anything which might suggest that if a finding is given by the Tribunal with jurisdiction that finding cannot be made the basis of proceedings under section 34. We wish to limit our decision to this point only that on the facts of this case the finding given by the Tribunal was a finding adverse to the assessee and it was a finding which did not arise from any question raised in the appeal and therefore it was beyond the competence of the Tribunal to give this finding.

7. On this part of the reference we will amend the question, which we had asked the Tribunal to refer, in order to clearly bring out the controversy between the parties which has now been clarified by reason of the arguments advanced by us, and the amended question will be:

“Whether it was competent to the Tribunal to give a finding that at the relevant date the price of the shares was Rs. 524-6-0 per share and that this was a clear case of under-assessment?”

8. We will answer the question in the negative.

9. With regard to the main question on the reference, in view of our decision of I.T Reference No. 30 of 1956, it is clear that on the second question we must hold that the purchase price was Rs. 715 and not Rs. 1,100. With regard to question (1) the Tribunal has now stated that that question was referred to us by mistake, so we need not answer it. The Commissioner to pay three-fourths of the costs of the reference.

10. No order on the notice of motion. No order as to costs.

11. Reference answered in the negative.