Ahmedabad Electricity Co. Ltd. v. Commissioner Of Income-Tax.

T.D Sugla, J.:— The Income-tax Appellate Tribunal has referred to this court the following two questions of law under section 256(1) of the Income-tax Act, 1961:

“(1) Whether the method of determining the ‘actual cost’ of an asset as prescribed by section 43(1) of the Income-tax Act, 1961, was applicable in respect of assets acquired prior to the accounting period relevant to the assessment year 1962-63 in the assessments for the years after April 1, 1962?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in not allowing the assessee leave to raise in its own appeals additional grounds and in the departmental appeals cross-objections regarding the deductibility of the sums transferred to contingency reserve and tariff and dividend control reserve?”

2. The assessee is a company engaged in the generation and distribution of electricity. The proceedings relate to the assessment years 1962-63 to 1972-73 (both inclusive). Counsel are agreed that the first question is covered by the decision of our court in two cases of the same assessee, namely, CIT v. Bassein Electric Supply Co. Ltd. [1979] 118 ITR 884 and [1989] 177 ITR 482 and that, in view thereof, the question is to be answered in the affirmative and in favour of the Revenue. The question is so answered.

3. As regards the second question of law, the pertinent facts are that against the orders of the Appellate Assistant Commissioner for the assessment years 1962-63, 1963-64, 1966-67, 1967-68, 1968-69 and 1969-70, the assessee had filed appeals before the Tribunal. Against the orders of the Appellate Assistant Commissioner for the assessment years 1964-65, 1965-66, 1970-71 and 1971-72, the Department had filed appeals before the Tribunal. For the assessment years for which the Department had filed the appeals, the assessee had filed cross-objections.

4. We are not concerned in the present reference with the grounds involved in all these appeals and/or cross-objections. Suffice it to say that the assessee sought leave of the Tribunal to raise a new ground in its appeals and an additional ground in its cross-objections. Leave was refused by the Tribunal for reasons given in paragraphs 13 and 14 of its impugned order.

5. Facts leading to the additional ground or the new claim are: Under the Electricity (Supply) Act, 1948, the assessee-company is required to transfer certain amounts to a contingency reserve and dividend and tariff reserve. However, the assessee-company did not claim these amounts as deduction before the Income-tax Officer nor before the Appellate Assistant Commissioner in appeal. Subsequently, our court held in the case of Amalgamated. Electricity Co. Ltd. v. CIT [1974] 97 ITR 334, that such amounts represented allowable deductions on revenue account. The new claim or additional ground was sought to be raised on the basis of the said decision.

6. Having heard Shri Dalvi, learned counsel for the assessee, and Dr. Balasubramanian, learned counsel for the Department, at some lenght, we are of the view that there is conflict between the views taken by our court in Ugar Sugar Works Ltd. v. Commissioner Of Income-Tax, Poona. [1983] 141 ITR 326 and in CED v. Bipinchandra N. Patel [1990] 186 ITR 29. The question involved in 186 ITR 29 was about the Tribunal's power under the Estate Duty Act to entertain an additional ground raised before it for the first time. The court noted the argument advanced on behalf of the assessee that, unlike under the Income-tax Act, under the Estate Duty Act, the Tribunal had power of enhancement so much so that the powers of the Tribunal in an estate duty appeal were co-terminous with those of the Appellate Controller, though the decision did not rest on that submission. Having regard to the observations in the last paragraph of the Supreme Court judgment in the case of Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 and the fact that the Andhra Pradesh High Court's judgment in the case of CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778, distinguished the above Supreme Court judgment and special leave petition thereagainst was rejected, our court concluded that the question of entertainment of a new ground in cases where the ground raised a pure question of law or where there was material on record for its adjudication, was left open by the Supreme Court. Referring then to a number of our court's judgments particularly in the case of/. S. Parkar v. V.B Palekar [1974] 94 ITR 616, our court held that the Tribunal's reliance in support of the admission of a new ground before it for the first time was fully justified.

7. The case of Ugar Sugar Works Ltd. [1983] 141 ITR 326 (Bom) was, however, not noticed in that decision.

8. The issue involved in Ugar Sugar Works Ltd. v. Commissioner Of Income-Tax, Poona. [1983] 141 ITR 326 (Bom) was about the Tribunal's jurisdiction under sections 253 an 254 of the Income-tax Act, 1961. Analysing all the relevant case law, it wa held (p. 333):

“… the Tribunal's jurisdiction under section 254 in an appea before it is restricted only to passing of orders on the subject matter of the appeal. However, within the four corners of that jurisdiction, the Tribuna has been clothed with almost the same powers as those of the Appellat Assistant Commissioner except that of enhancement.”

9. As regards the subject-matter of the appeal, it was observed (p. 334):

“The assessee once having accepted the said finding of the Income tax Officer by not having appealed against the same to the Appellate Assis tant Commissioner, the assessee's grievance, if any, against the said finding of the Income-tax Officer cannot form the subject-matter of an appea before the Tribunal so as to give it jurisdiction in exercise of its powers to pass such orders in appeal as it may deem fit.”

10. Relying on a recent judgment of the Supreme Court in the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 : 1991 Supp (2) SCC 744 : AIR 1991 SC 241 Shri Dalvi argued that the Supreme Court had virtually overruled its judg ment in Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1, though factually it only distinguished it by observing that that decision was founded on the special facts of the case. He made particular reference to paragraph 5 of the judgment to show that the observations therein referred to all appellate authorities and was not confined to the Appellate Assistant Commissioner only. In our judgment, such a reading of the Supreme Court judgment is not correct. Paragraph 5 is required to be read as a whole. It reads as (p. 693 of 187 ITR):

“In CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 : AIR 1965 SC 325, a three-judge Bench of this court discussed the scope of sectioin 31(3)(a) of the Indian Income-tax Act, 1922, which is almost identical to section 251(1)(a). The court held as under (at p. 328 of AIR) (p. 229 of 53 ITR):

‘If an appeal lies, section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under sectior 31(3)(a), in disposing of such an appeal, the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce enhance or annul the assessment; under clause (b) thereof he may se aside the assessment and direct the Income-tax Officer to make a fresl assessment. The Appellate Assistant Commissioner has, therefore, pie nary powers in disposing of an appeal. The scope of his power is conter minous with that of the Income-tax Officer. He can do what the Income tax Officer can do and also direct him to do what he has failed to do.’”

11. It is not possible to accept that the Supreme Court has impliedly approved the view taken by this court in CED v. Bipinchandra N. Patil [1990] 186 ITR 29. Other decisions cited pertained to the jurisdiction and power of the Appellate Assistant Commisssioner. In view of the fact that the Supreme Court has now laid down the law clearly and categorically about the Appellate Assistant Commissioner's powers and jurisdiction in Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 : 1991 Supp (2) SCC 744 : AIR 1991 SC 241, it is not necessary to refer to and discus's each and every case sepa rately.

12. Under the circumstances, it appears to us that there is conflict of views between the two judgments of our court in Ugar Sugar Works Ltd. v. Commissioner Of Income-Tax, Poona. [1983] 141 ITR 326 and in CED v. Bipinchandra N. Patel [1990] 186 ITR 29. The conflict has not been resolved by any Supreme Court decision or by any decision of a larger Bench of our court. Under the circumstances, it is only appropriate that this issue, i.e, question No. 2 is placed before the Honourable Chief Justice for constituting a larger Bench to resolve the controversy.

13. We accordingly direct that the papers be placed before Hon'ble Chief Justice for the purpose aforesaid.