R.L Rajgharia v. Income-Tax Officer And Others.

Sabyasachi Mukharji, J.:— In this application under article 226 of the Constitution the petitioner has challenged an order and/or direction of the Income-tax Tribunal. The question has arisen in respect of assessment year 1962-63. In that year the assessee had claimed loss of Rs. 23,100 to be set off against his business income. The said loss had arisen, according to the assessee, in share dealing and as such the assessee was entitled to set off the said loss against his other income. The Income-tax Officer in his order of assessment came to the view that the said loss of Rs. 23,100 was speculative loss and as such not entitled to be set off against business gains. The assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner agreed with the view of the Income-tax Officer. The assessee thereupon preferred an appeal to the Income-tax Appellate Tribunal. By an order dated the 16th December, 1969, the Appellate Tribunal disposed of the appeal. The Tribunal came to the conclusion that the departmental authorities were not justified in treating the loss as a speculative loss. Thereafter, the Tribunal observed as follows:

“However, the fact remains whether the said loss is a capital loss or a trade loss in the hands of the assessee. It appears that the departmental authorities have not applied their mind to the said question. There is nothing on record to suggest that the assessee was a dealer in shares. Similarly, there is nothing on record to determine the intention of the assessee at the time of purchase of the said block of shares. The block of shares represented investment made by the assessee or the assessee's stock-in-trade. In view of the fact that the departmental authorities have not looked into the said issue, which is material for purposes of finding out whether the loss should be allowed as a deduction to the assessee, we are of opinion that the matter should once again be restored to the file of the Appellate Assistant Commissioner. With this end in view we set aside the order of the Appellate Assistant Commissioner and restore the appeal once again to his file for fresh disposal according to law after investigating the relevant facts.”

2. From the aforesaid direction of the Tribunal it is clear that the Tribunal has remanded the matter back to the Appellate Assistant Commissioner to decide whether the loss was capital loss or revenue loss. The question posed in this application under article 226 is whether the Tribunal has jurisdiction and power to give the aforesaid direction. Section 254(1) of the Income-tax Act, 1961, authorises the Appellate Tribunal after giving both the parties to the appeal an opportunity of being heard “to pass such order thereon as it thinks fit”. Therefore, the Tribunal has authority and jurisdiction to pass such order as the Tribunal thinks fit on the appeal before it. The amplitude of the power of the Tribunal is only circumscribed by the subject-matter of the appeal. The question, therefore, is what is the appeal before the Tribunal. This question had been the subject-matter of several judicial pronouncements to some of which my attention was drawn. It is not necessary to refer to all of these. Reliance may, however, be placed on the observations of the Supreme Court in the case of Hukumchand Mills Ltd. v. Commissioner of Income-tax [1967] 63 ITR 232 (SC). The Supreme Court observed that the powers of the Appellate Tribunal in dealing with appeals were expressed in section 33(4) of the Indian Income-tax Act, 1922 (which is in similar terms with section 254(4) of the present Act) in the widest possible terms. The word “thereon” in section 33(4) of the old Act, according to the Supreme Court, restricted the jurisdiction of the Tribunal to the subject-matter of the appeal. Many of these authorities were reviewed by a Bench of this court in the case of Commissioner Of Income-Tax, West Bengal v. Calcutta Discount Company Ltd. [1971] 82 ITR 941 (Cal), to which I was a party. After reviewing several authorities, Sankar Prasad Mitra J., as the learned Chief Justice then was, observed as follows at page 948 of the report:

“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.”

3. In the instant case the controversy before the Income-tax Officer as well as Appellate Assistant Commissioner was whether the loss of Rs. 23,100 should be treated as speculative loss or business loss. The grounds of appeal filed before the Tribunal by the petitioner were as follows:

“Grounds of appeal

1. For that on the facts and in the circumstances of the case the learned Appellate Assistant Commissioner was not justified in confirming the Income-tax Officer in treating the loss of Rs. 23,100 in share account as speculation loss.

2. For that the learned Appellate Assistant Commissioner has erred on both points of law as well as fact.”

4. Therefore, the subject-matter of the appeal was the controversy as to whether the loss claimed by the assessee was a loss in the nature of a speculative loss or business loss. The controversy was not whether the loss was a capital loss or revenue loss or of wider point of view whether the loss was liable to be taken into consideration in computation of the income of the assessee. From a broad point of view it is true that the subject-matter of the appeal was the right of the assessee to claim loss in the computation of his income. But the controversy that was raised and the controversy that went up to the Appellate Tribunal was not the general nature of the loss claimed but whether the loss was either business loss or speculative loss. That being the controversy the jurisdiction and the power of the Appellate Tribunal was restricted only to deciding that controversy. The Tribunal, in my opinion, was not entitled to and was not competent, to enlarge the controversy and decide the issue not before it. In so far as the Tribunal has, therefore, remanded the case to the Appellate Assistant Commissioner with a direction to find whether the loss was capital loss or not, the Tribunal, in my opinion, exceeded its jurisdiction. Counsel for the revenue drew my attention to a Bench decision of this court in the case of Union Coal Co. Ltd. v. Commissioner Of Income-Tax, Calcutta. [1968] 70 ITR 45 (Cal) and relied on certain observations at page 47. In my opinion the facts in that case were entirely different and the revenue cannot obtain much support from the observations in that case. Reliance was also placed on a decision of the Supreme Court in the case of Income-tax Officer v. M.K Mohammad Kunhi [1969] 71 ITR 815 (SC). There the question was whether the Tribunal had ancillary power to grant stay of recovery proceedings pending an appeal before the Tribunal. The amplitude of the power of a Tribunal which included the power of the Tribunal to grant ancillary relief is not in dispute before me but the amplitude, as I mentioned before, is circumscribed by the subject-matter of the appeal. The question in this application is only what was the subject-matter of the appeal.

5. It was then contended on behalf of the revenue that the petitioner had an alternative remedy within the Income-tax Act, 1961, and as such was not entitled to any relief. Under sub-section (4) of section 254 of the Income-tax Act, 1961, the order passed by the Appellate Tribunal was final and under section 256 of the said Act the assessee was entitled to ask for a reference on a question of law to this High Court. It is true that the assessee had a remedy under section 256. It was contended on behalf of the petitioner that that remedy was not efficacious enough inasmuch as neither the Tribunal nor the High Court had any power to grant a stay pending a reference and in the meantime the proceedings would have gone on before the Appellate Tribunal which, according to the petitioner (sic). Without deciding the question whether the Tribunal had any power to grant a stay or not, it appears to me that when this court had entertained this application by issuing the rule nisi at this stage it would not be proper to exercise the discretion by this court to refuse relief to the petitioner on the ground that there was an alternative remedy under section 256 of the Act. The Tribunal has clearly acted beyond its jurisdiction and this court had entertained the application by issuing the rule nisi. I think that in the interest of justice the petitioner in this case should not, in the facts and circumstances of the case, be refused relief. I may incidentally mention that the counsel for the petitioner drew my attention to the observations of the Supreme Court in I. Hirday Narain v. Income Tax Officer, Bareilly† [1970] 78 ITR 26 (SC). The facts of that case were slightly different in the sense that the application under article 226 was entertained by the High Court at the time when there was still time for revision application. In the instant case before me the application under article 226 had been moved after the expiry of the time to make an application for reference under section 256 of the Income-tax Act, 1961. In the view, however, that I have taken as mentioned before, the order of the Appellate Tribunal dated the 15th of October, 1971, passed in I.T.A No. 3804 (Cal) 69-70 directing the Appellate Assistant Commissioner of Income-tax to find out whether the loss was capital loss or not is set aside. The rest of the order of the Appellate Tribunal is, however, affirmed.

6. The rule is made absolute to the extent indicated above. There will be no order for costs.

7. Let the operation of this order be stayed for six weeks from date.