S.S Sodhi, A.C.J:— In the context of the revisions of section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) does the Commissioner, having formed the opinion that the order of the Income Tax Officer is prejudicial to revenue, lose his jurisdiction thereunder, if in the meanwhile, the appeal against the assessment framed by the Income Tax Officer is heard and decided by the Appellate Assistant Commissioner in other words is Section 263 of the Act rendered inapplicable upon the Appellate Assistant Commissioner deciding the assessee's appeal under Section 143 (3) of the Act herein lies the controversy raised.

2. The matter here pertains to the assessment year 1975–1976. On February 23, 1977, the Income Tax Officer completed the assessment of the Assessee. The Punjab State Civil Supplies Corporation Limited, under Section 143(3) of the Act. The assessee, appealed against this order which was decided by the Appellate Assistant Commissioner on April 6, 1978, whereby the assessment as framed by the Income Tax Officer was modified. Almost a year later, on February 5, 1979, the Commissioner of Income Tax issued a notice to the assessee under Section 263 of the Act, on forming the opinion that the assessment order passed by the Income Tax Officer was prejudicial to the interests of revenue. Some of the points mentioned in this notice, being those considered and dealt with by the Appellate Assistant Commissioner in his order of April 6, 1978.

3. The assessee, in its reply to the notice under Section 263 of the Act took the plea that the order of the Income Tax Officer had merged with that of the Appellate Assistant Commissioner and no proceedings could, therefore, be initiated or taken under Section 263 of the Act. This was negatived both by the Commissioner of Income Tax as also by the Tribunal. The reasoning of the Tribunal being that the order of assessment of the Income Tax Officer merges in the order of the Appellate Assistant Commissioner, only in so far as it relates to items considered and decided by the Appellate Assistant Commissioner, but not that which relates to items not forming the subject matter of the appellate order which is left untouched by it.

4. The question now referred for the opinion of this Court reads as:—

“Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the setting aside of the assessment made by the Income Tax Officer by the Commissioner, of Income Tax, in exercise of the powers vested in him under Section 263 of the Income Tax Act, 1961?”

5. It will be seen that the matter in issue here pertains to the doctrine of merger. In dealing with this doctrine, the Supreme Court in State Of Madras v. Madurai Mills Co., Ltd. . AIR 1967 SC 681., observed as under:—

“The doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior tribunal and the other by a superior tribunal, passed in an appeal or revision, there is a fusion or merger of the appellate of revisional order and the scope of the appeal or revision contemplated by the particular statute”.

6. Next to note is, Commissioner of Income Tax Bombay v. Amrit Lal Bhogilal and Co . 1958 34 I.T.R 130., where the question posed was, where the appeal preferred by an assessee against his assessment has been declined by the Appellate Assistant Commissioner, does the order of registration alongwith subsequent order of assessment merge in the appellate order? It was held by the Supreme Court that if an appeal is provided against an order passed by a Tribunal, the decision of the Appellate Authority would be the operative decision of law. The position would be just the same even if the appellate decision confirms the decision of the Tribunal.

7. Both these decisions of the Supreme Court in Madurai Mills Co. Ltd. and Amritlal Bhogilal & Co's cases (supra), have been referred to at the very out-set as they figure in a string of judgments of various High Courts taking conflicting views on the subjects.

8. On one end of the Scale is the view, namely, that once the Appellate Assistant Commissioner decides the appeal against the assessment framed by the Income Tax Officer, the Commissioner of Income Tax loses his jurisdiction under Section 263 of the Act to revise the order of the Income Tax Officer. This is founded upon the judgment of the High Court of Allahabad in J.K Synthetic Ltd. v. Additional Commissioner of Income Tax U.T . 1976 105 I.T.R 344., where, after noticing the two judgments of the Supreme Court in Madurai Mills Co. Ltd. and Amritlal Bhogilal & Co's cases (supra). It was pointed out that the appellate jurisdiction conferred upon the Appellate Assistant Commissioner under Section 251 of the Act, extends to confirmation, reduction, enhancement or annulment of the assessment. It was accordingly held that in view of the scope and nature of the appellate powers, the entire subject matter of the assessment order was within the jurisdiction of the Appellate Assistant Commissioner and that being so, the entire assessment order would merge in the appellate order irrespective of the points urged by the parties or decided by the Appellate Authority. Further, that from the point of view of the applicability of the doctrine of merger, the fact that some points decided by the inferior authority, were, or were not canvassed before the superior authority was not material. It follows, therefore, that once an appeal is taken and decided, the original order merges in the appellate order and thereafter, it is the appellate order which is operative and enforceable and the Commissioner of Income Tax thereafter, loses his jurisdiction under Section 263 of the Act.

9. A similar view has been taken by the High Court of Bombay in (1987) 167 I.T.R 671, following its earlier decision in Commissioner of Income Tax v. Tejaji Farasram Kharawala . 1953 23 I.T.R 412., with regard to which, it was observed:—

“————Chief Justice Chagla in that case has categorically held that the principle underlying Section 33-B of the 1922 Act, corresponding to Section 263 of 1961 Act, is that it is only the order of the Income Tax Officer which can be revised by the Commissioner. Once the order of assessment is confirmed by the Appellate Assistant Commissioner or any order with regard to the assessment has been made by him, that becomes a final order of assessment and the only right the Department has is the right of appeal to the Appellate Tribunal. The right of the Commissioner continued so long as the order of the Income Tax Officer is not merged in the order of the Appellate Assistant Commissioner. As regards the powers of the Appellate Assistant Commissioner, the learned Chief Justice has gone to say that once an appeal was preferred by the assessee, it was open to the Commissioner to raise before the Appellate Assistant Commissioner any matter dealing with the assessment of the assessee. It is not as if the power of the Appellate Assistant Commissioner was confirmed only to those questions which had been raised before him by the assessee. He has widest jurisdiction. The Commissioner has no right of appeal from an order of assessment passed by the Income Tax Officer. The right of appeal is confined to the assessee only and until Section 33-B of the 1922 Act was enacted, the position in law was that if the assessee did not appeal against the order of assessment, that order became final and conclusive. If the assessee appealed against the order of the Income Tax Officer, the widest jurisdiction was given to the Appellate Assistant Commissioner in appeal. He had the power to confirm, reduce, enhance or annul the assessment, be had the power to direct the Income Tax Officer, to make fresh assessment and the only limitation on the exercise of jurisdiction was that if he wanted to enhance the assessment, he must gave the assessee reasonable opportunity of being heard against enhancement.

It was concluded that the Commissioner completely went out of the picture once the Appellate Assistant Commissioner passed orders in appeal from the decision of the Income Tax Officer.”

10. The other judgments cited, taking the same view being; Commissioner of Income Tax v. Smt. A.S Narendra Kamari Basahaba . 1989 176 I.T.R 515., Jeewanlal (1929) Ltd. v. Additional Commissioner of Income Tax . 1977 108 I.T.R 407., General Beopar Co. (Pvt.) Ltd. v. Commissioner of Income Tax . 1987 107 I.T.R 86. and Additional Commissioner of Income Tax v. Vijayalakshmi Lorry Service . 1986 157 I.T.R 327..

11. The contrary view canvassed finds expression in Commissioner of Income Tax v. L Rajput . 1987 I.T.R 197., where it was held that the doctrine of merger does apply to proceedings under the Income Tax Act, but the extent of its application depends upon the scope and subject matter of the appeal and the decision rendered by the Appellate Authority and that the order of the Income Tax Officer merges with the appellate order only to the extent that it was considered and decided by the Appellate Assistant Commissioner. The extent, however, to which the order of the Income Tax Officer survives, namely; matter therein which are not covered by the appellate order of were left untouched by its permits the exercise of revisional jurisdiction by the Commissioner under Section 263 of the Act. Instances, where this view has been propounded are to be found in Commissioner of Income Tax v. R.S Banwarilal . 1988 140 I.T.R 3., Commissioner of Income Tax v. Mandsaur Electric Supply Co. Ltd . 1983 140 I.T.R 677., Puthuthotam Estates v. State of Tamil Nadu . 125 I.T.R 41., Karsandas Bhagwandas Patel v. G.V Shah, Income Tax Officer, Rajkot . 1975 98 I.T.R 255.. Prem Chand Sitanath Ray v. Addl. Commissioner of Income Tax West Bengal-III . 1977 109 I.T.R 751., Singho Mica Mining Co. Ltd. v. Commissioner of Income Tax. Central, Calcutta . 1978 111 I.T.R 231. and Commissioner of Income Tax, Tamil Nadu-I v. City Palayacot Co. . 1980 122 I.T.R 430..

12. It was the importance and complexity of the issue raised and the conflict of judicial precedents with regard to it, that impelled this reference to a Full Bench.

13. To resolve this vexed issue, Parliament has now come forth-with an amendment, incorporating by the Finance Act of 1988, Explanation (c) to Section 263 of the Act, which was further amended by the Finance Act of 1989. The relevant provision of Section 263(1) now reads:—

“263 (1) The Commissioner may call for and eximine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

“Explanation: For the removal of doubts, it is hereby declared that, for the purposes of this sub section:—

(a) xxxxxx

(b) xxxxxx

(c) where any order referred to in this sub-section and passed by the assessing Officer had been the subject matter of any appeal (filed on or before or after the Ist day of June, 1988) the powers of the Commissioner under this sub-section shall extend (and shall be deemed always to have extended) to such matters as had not been considered and decided in such appeal.”

14. The contention on behalf of the revenue being that after this amendment what merger with the appellate order is only that part of the order of the Income Tax Officer under Section 143 of the Act as was the subject matter of the appeal and no more. Immunity from proceedings under Section 263 of the Act, thus, being restricted to this extent.

15. Mr. B.S Gupta, Senior Advocate, counsel for the assessee on the other hand, sought to press in aid the judgment of the High Court of Bombay in Ritz. Ltd. v. Union of India . 1990 184 I.T.R 599., where, in dealing with the amendment to Explanation (c) of Section 263(1), by the Finance Act of 1989, it was held that it is only in cases where action under Section 263 is taken after June 1, 1988, that merger of the assessment order is to be treated as confined to the issues actually considered and decided in appeal. It being observed, “irrespective of the language, in which the amending provisions are couched, the amendment cannot be retrospective with effect from a date: earlier to the date on which the provision sought to be amended itself was brought on the statute book”. This view was later followed and approved by the Division Bench of the same Court in Commissioner Of Income-Tax v. International Computers Indian Manufacture Ltd. . 1991 187 I.T.R 580..

16. It is a well recognised rule of interpretation of statutes that primarily it is the plain and ordinary meaning of the words used in the enactment that has to be taken and further that all the words used by the Legislature have to be given their due meaning and effect and no surplusages in the language employed is to be imputed to it. Seen in this light, the words in Explanation (c) of Section 263, “filed on or before or after the Ist day of June, 1988” cannot possibly be read to limit the retrospectivity of it to June 1, 1988 and not earlier. We cannot, therefore, with respect concur with the view taken by the High Court of Bombay in Ritz Ltd's and International Computers India Manufacture Ltd.'s cases (supra).

17. We consequently hold that once an appeal against an order of the Income Tax Officer under Section 143(3) of the Act has been heard and decided by the Appellate Assistant Commissioner, the Commissioner under Section 263 has no jurisdiction with regard to issues considered and decided in appeal. In other words, this jurisdiction is restricted only to that part of the order of assessment which is not dealt with in appeal. We answer the question referred to accordingly. There will be no order as to costs.

Sd./- N.C Jain, J.

Sd./- G.C Garg, J.

R.M.S

Reference answered accordingly.