The Judgment of the Court was delivered by

Sankar Prasad Mitra, J.:— This reference under section 66(1) of the Indian Income-tax Act, 1922, relates to the assessment year 1947–48. The assessee floated a subsidiary company called “Messrs. Clive Row Investment (Holding) Co. Ltd.” during the previous year. To the newly formed company the assessee transferred various shares which the assessee had held. In lieu of these transfers the assessee received shares of the new company valued at Rs. 1,38,81,173. The cost price of the shares which the assessee transferred to its subsidiary was Rs. 1,66,69,391. Apparently, by this transaction the assessee suffered a loss but in the assessee's profit and loss account this loss was not claimed as a deduction on the ground that the transfer of shares to the subsidiary was not a business transaction.

2. The Income-tax Officer found that the market price of the transferred shares was Rs. 2,69,09,937. He called for an explanation for these transfers at a rate which was below the market rate and even the cost price but was not satisfied with the explanation offered. He added the difference between the market price and the cost price amounting to Rs. 1,02,40,546 as the assessee's profit on the sale of shares to its subsidiary.

3. Before the Appellate Assistant Commissioner it was urged that there was complete identity in the instant case between the transferor and the transferee and, therefore, no profit should have been computed on the transaction. The contention, however, did not find favour with the Appellate Assistant Commissioner. He was of the view that the assessee's subsidiary, as a public limited company, was a separate and distinct entity and the plea of identity between the transferor and the transferee was not sustainable but he observed that, in this case, there was no suggestion that the assessee received anything more than the sale price. In his view, therefore, it was “impossible to sustain the addition of Rs. 1,02,40,546 representing the difference between the cost price and market price of the shares transferred by the appellant as the income of the assessee-company”. The Appellate Assistant Commissioner remitted the case back to the Income-tax Officer directing the latter to bring on record further materials to justify the addition. The Income-tax Officer while appealing againt the Appellate Assistant Commissioner's order did not include any ground of appeal against the aforesaid direction of the Appellate Assistant Commissioner. After the appeal before the Tribunal had commenced and was partly heard, the Income-tax Officer tried to raise the following additional grounds:

1. The Appellate Assistant Commissioner was wrong in setting aside the order of the Income-tax Officer; and

2. In view of the fact that the Appellate Assistant Commissioner had set aside the assessment order he was wrong in issuing a direction to bring on record the evidence in support of his conclusions, if any, that the assessee actually received the difference of Rs. 1,02,40,546 on the sale of shares to the subsidiary company fettering thereby the Income-tax Officer's discretion to make a fresh assessment in accordance with law.

4. The Tribunal refused to entertain these additional grounds. Thereafter, it dealt with the maintainability of the appeal and eventually dismissed it. The Tribunal passed its “interlocutory order” on the additional grounds on the 22nd July, 1964, and its final order of dismissal on the 3rd September, 1964. In the final order it stated, inter alia, in the context of its “interlocutary order” on the 22nd July, 1964, rejecting the additional grounds, that when the Income-tax Officer “has no grievance against the order of the Appellate Assistant Commissioner setting aside the assessment and directing a fresh assessment, on the lines indicated by the Appellate Assistant Commissioner, it would be purposeless to dispose of the grounds of appeal actually taken by the Income-tax Officer.”

5. The following questions have been referred to this court:

“Whether, in view of the fact that the Tribunal's order dated the 22nd July, 1964, was an interlocutory order the Tribunal was competent to entertain an application purported to be made under section 66(1) of the Indian Income-tax Act, 1922, in respect of such order?

2. If the answer to question No. 1 be in the affirmative whether on the facts and in the circumtances of the case the Tribunal exercised its discretion judicially in not allowing the applicant's petition for raising the additional grounds?

3. Whether, on the facts and in the circumstances of the case, the Tribunal erred in dismissing the appeal summarily on the grounds stated in the appellate order dated September 3, 1964?”

6. Now, Sub-section (4) of section 33 of the Indian Income-tax Act, 1922, provides:

“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.”

7. Learned counsel for the revenue argues that, in the instant case, the Tribunal's order of the 22nd July, 1964, was passed under section 33(4). His point is that the appeal was heard on the 4th June, 1963; to meet the objections raised by the assessee, the department made the application for admission of the two additional grounds of appeal; and the Tribunal, upon considering this application for admission of additional grounds, made an order on the 22nd July, 1964, that the application should be refused. On these facts, says learned counsel, it is clear that the order of the 22nd July, 1964, is an order under section 33(4). According to the counsel, the fact that the appeal was finally disposed of by the Tribunal's order of the 3rd September, 1964, made no difference. The position here is the same as if a prayer was made on the date of the first hearing; but the Tribunal proceeded with the hearing after rejecting the prayer. The department's counsel submits that a reference to this court can be made, under section 66 of the Indian Income-tax Act, 1922, on any question of law which arises out of an order under section 33(4). In these premises, the first question in this reference should be answered in the affirmative.

8. But the position seems to be that, under Sub-section (4) of section 33, the Appellate Tribunal hears both parties to an appeal and passes such order “thereon” as it thinks fit. And the order of the Appellate Tribunal is an order relating to the grounds of appeal taken either in the memorandum of appeal or as additional grounds subsequently allowed by the Tribunal or the grounds which the respondent has urged in support of the Appellate Assistant Commissioner's order and the Tribunal is empowered under section 66 to entertain an application for reference to the High Court of any question of law arising out of its order under section 33(4). In numerous decisions the scope of an application under section 66 has been discussed.

9. In Hukumchand Mills Ltd. v. Commissioner of Income-tax [1967] 63 I.T.R 232 (a case on which learned counsel for the department especially relied), rules 12, 27 and 28 of the Appellate Tribunal Rules, 1946, as well as section 33(4) of the Act of 1922 were considered. We have set out above the provisions of section 33(4). Rule 12 provides:

“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:

Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground.”

10. Rule 27 provides:

“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.”

11. Rule 28 provides:

“Where the Tribunal is of opinion that the case should be remanded, it may remand it to the Appellate Assistant Commissioner or the Income-tax Officer, with such directions as the Tribunal may think fit.”

12. The Supreme Court, in this case, has observed that:

“The word ‘thereon’ in section 33(4) restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words ‘pass such orders as the Tribunal thinks fit’ include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31. Consequently, the Tribunal has authority under section 33 to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry.”

13. The subject-matter of appeal before the Tribunal, in the Supreme Court case, was the question as to what should be the proper written down value of the buildings, machinery, etc., of the assessee for calculating the depreciation allowance under section 10(2)(vi). According to the Supreme Court, it was open to the department, in the appeal filed by the assessee before the Tribunal to support the finding of the Appellate Assistant Commissioner with regard to the written down value on any of the grounds decided against it. The appellant to the Supreme Court argued that the Tribunal's action in remanding the case is not strictly justified by the language of rule 27 or rule 12. The Supreme Court says that even assuming that rules 12 and 27 are not strictly applicable the Tribunal has sufficient power under section 33(4) to entertain the department's arguments with regard to the application of paragraph 2 of the Taxation Laws Order and remand the case to the Income-tax Officer in the manner it has done. The Supreme Court has stated that rules 12 and 27 are not exhaustive of the Appellate Tribunal's powers. The rules are merely procedural in character and do not, in any way, control or circumscribe the Appellate Tribunal's powers under section 33(4). The Supreme Court has held that the Tribunal has jurisdiction to entertain the department's arguments and direct the Income-tax Officer to find whether any depreciation was actually allowed under the Indore Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written-down value.

14. It seems to us that this case is not of any assistance to the department in the instant reference. So far as section 33(4) is concerned, the Supreme Court has clearly stated that the word “thereon” restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The subject-matter of appeal in Hukumchand's case was the proper written-down value of certain assets and the decision of the Tribunal was found to be within the scope of this subject-matter.

15. The law on this point has been repeatedly stated by the courts in a number of decisions. In New India Life Assurance Co. Ltd. v. Commissioner of Income-tax, Chagla C.J (sitting with Tendolkar J.) has made the following observations at pages 855 and 856:

“…. one must clearly bear in mind the fundamental difference in the positions of the appellant and the respondent. The appellant is the party who is dissatisfied with the judgment …. the position of the Appellate Tribunal is the same as a court of appeal under the Civil Procedure Code and the powers of the Appellate Tribunal are identical with the powers enjoyed by an appellate court under the Code.

Now, in the first place, we must look at the section which confers jurisdiction upon the Tribunal to hear appeals from the decisions of the Appellate Assistant Commissioner. Sub-section (4) of section 33 provides that 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. The expression ‘thereon’ has come in for considerable judicial comment and observation, and the authorities lay down that the power of the Tribunal is confined to dealing with the subject-matter of the appeal and the subject-matter of the appeal is constituted by the grounds of appeal preferred by the appellant. This subject-matter cannot be expanded even by the appellant unless leave is granted to him to do so by the Appellate Tribunal. The subject-matter can certainly not be expanded by the respondent, as already pointed out, if he has not either appealed or cross-objected. Now, there is a rule of procedure framed by the Tribunal with regard to the hearing of appeals, which rule is in the following terms:

‘It will be noticed that this rule is identical in terms with rule 2 of Order XLI….”

16. It is true that the Supreme Court has said in Hukumchand Mills' case [1967] 63 I.T.R 232 that rule 12 and the other rules do not exhaust the Appellate Tribunal's powers. But that does not mean, in our view, that the Appellate Tribunal can exceed the powers given to it by section 33(4) itself.

17. We shall now consider the other decisions which have more or less adopted the views which Chagla C.J had expressed in the above cited case.

18. The decision in New India Life Assurance Co.'s case was followed by another Bench of the Bombay High Court consisting of Tendolkar J. and Desai J. in Lajwanti Sial v. Commissioner of Income-tax [1957] 32 I.T.R 526 Bom...

19. In V. Ramaswamy Iyengar v. Commissioner of Income-tax, the Madras High Court has compared the provisions of section 31(3) dealing with the powers of the Appellate Assistant Commissioner with those of section 33(4) as well as rules 27 and 28 of the Appellate Tribunal Rules, 1946. At page 394, it is observed:

“Thus, the power of the Appellate Assistant Commissioner is not confined to the subject-matter of appeal by the assessee. It is much wider. He might examine all matters and dispose of the appeal, even to the prejudice of the assessee by himself enhancing the tax or remanding the case to the Income-tax Officer with a view to increase the tax liability. But, when the matter comes before a judicial tribunal, by way of appeal, the same principle cannot apply. The jurisdiction of the Appellate Tribunal should, in the absence of express words in the statute, be governed by the subject-matter of the appeal. Section 33 declares that there would be a right of appeal against an order of the Appellate Assistant Commissioner both to the assessee as well as to the department.”

20. At page 395, the Madras High Court says:

“The aforesaid rules, including the power to remand, would be governed by the provisions of section 33(4), and, therefore, the jurisdiction of the Tribunal would be circumscribed by the subject-matter of the appeal —the subject-matter of the appeal being that contained in the original grounds of appeal, together with such other grounds as may be raised by the assessee by leave of the Tribunal….”

21. The decisions in the case of the New India Life Assurance Co. and of Lajwanti Sial, referred to above, were followed by the Madhya Pradesh High Court in Central India Insurance Co. Ltd. v. Income-tax Officer, “A” Ward, Indore [1963] 47 I.T.R 895 M.P.. The Bombay High Court in J.B Greaves v. Commissioner Of Income-Tax, Bombay City I. [1963] 49 I.T.R 107 Bom.. once again, at page 125 explicitly stated:

“…. the subject-matter of appeal would get confined to the limits of the grounds specifically raised in the memorandum of appeal, the new grounds raised by the appellant with the previous permission of the Tribunal and the grounds urged by the respondent in support of the decree passed in his favour, even though the decision of the court, against which the appeal is filed, is against him.”

22. The Bombay High Court expressed the same view in Pokhraj Hira-chand v. Commissioner of Income-tax [1963] 49 I.T.R 293 Bom... A Special Bench of the Madras High Court in S. Chenniappa Mudaliar v. Commissioner of Income-tax [1964] 53 I.T.R 323, 329 Mad. [S.B]. has said that the order of the Appellate Tribunal should be co-related to the actual subject-matter in controversy; a dismissal for default of appearance has nothing to do with the matter in controversy; it merely puts an end to the appeal; and such a method of disposal cannot be said to be in accordance with section 33(4).

23. Let us now refer to decisions of our court. In Kannan Devan Hills Produce Co. Ltd. v. Commissioner of Wealth-tax, this court had to deal with the provisions of section 24(5) of the Wealth-tax Act, 1957, which were the same as those in section 33(4) of the Indian Income-tax Act, 1922. This court followed the decisions of the Bombay High Court in New India Life Assurance Co.'s case and in Lajwanti Sial's case and said that it was not given to the Commissioner of Income-tax to try to expand the scope of the appeal by application made at the time of hearing of the appeal. This court affirmed the same view in Union Coal Co. Ltd. v. Commissioner of Income-tax.

24. The above decisions of the different High Courts in India establish beyond doubt that the word “thereon” in section 33(4) is restricted to the subject-matter of the appeal before the Tribunal and the subject-matter of the appeal consists of the memorandum or grounds of appeal, the additional grounds, if any, allowed by the Tribunal, and the grounds, if any, urged by or on behalf of the respondent, to support the order under appeal. If the Tribunal, therefore, does not allow a particular ground to be urged, that ground can never be included in or considered to be part of the subject-matter of the appeal.

25. In the instant case the applicant wanted to raise a few additional grounds and made a formal application to the Tribunal for that purpose. The Tribunal has rejected the application and the additional grounds mentioned therein remained outside the purview of the subject-matter of the appeal. It is not disputed by any of the parties to this reference that an application under section 66 of the Act of 1922 can be made only with respect to a question of law arising out of the Tribunal's order under section 33(4). Since the additional grounds did not form part of the subject-matter of the appeal, the Tribunal's order refusing to entertain them was not, in our view, an order made under section 33(4) at all and, as such, no reference to this court against that order was permissible.

26. We intend, however, to refer to a few other decisions in support of the view we are taking. In Munna Lal & Sons v. Commissioner Of Income-Tax, U.P, the Allahabad High Court drew a distinction between an interlocutory order and a final order of the Tribunal and said that an interlocutory order was not an order under section 33(4). The Allahabad High Court is of the view that there can be only one order under section 33(4) and that is the final order, all other orders previously passed by it are interlocutory orders and cannot be said to be orders under section 33(4). According to the Allahabad High Court, there are two kinds of remand orders that may be passed by an appellate authority, namely, (1) keeping the appeal pending before it and remanding the case for further enquiry and a further finding on an issue, and (2) allowing the appeal, setting aside the order of the inferior court and directing it to pass a fresh order; the second kind of remand order passed by the Tribunal is an order under section 33(4); it is the final order on the appeal and it is an order under section 33(4) even though the assessment proceedings may remain pending before the Income-tax Officer; but the same cannot be said in respect of an interlocutory remand order which is not the final order disposing of the appeal.

27. In the instant reference, the facts appear to be that when the appeal was part heard the Income-tax Officer sought to raise two additional grounds. The Tribunal by an order which it has described as an “interlocutory order” made on the 22nd July, 1964, refused to entertain these additional grounds. Thereafter, on the 3rd September, 1964, the Tribunal by another order dealt with the maintainability of the appeal and eventually dismissed it. On these facts, it seems to us, the order made under section 33(4) of the 1922 Act is an interlocutory order.

28. In Commissioner of Income-tax v. Mtt. A.R.S.A.R Arunachalam Chettiar, the Supreme Court has closely examined the provisions of section 66 of the Indian Income-tax Act, 1922, and has stated at page 187 that the jurisdiction of the Tribunal and of the High Court is conditional on there being an order by the Appellate Tribunal which may be said to be one under section 33(4) and a question of law arising out of such an order. In the instant reference, the order which the Appellate Tribunal made on the 22nd July, 1964, does not appear to us, as we have said, to be an order under section 33(4) of the 1922 Act and, therefore, no reference under section 66 is maintainable in respect of that order.

29. For all the reasons aforesaid, our answer to question No. 1 in this reference is that the Tribunal was not competent to entertain any application under section 66(1) of the Indian Income-tax Act, 1922, with respect to the Tribunal's order of the 22nd July, 1964.

30. In view of our answer to question No. 1, the other questions in this reference do not require any answers. We direct the applicant to pay the costs of this reference to the respondent.

Sabyasachi Mukharji, J.:— I agree.