Commissioner Of Income-Tax v. Pratapsingh And Others

The Judgment of the Court was delivered by

M.C Jain, J.:— The following question of law has been referred to this court for its opinion by the Income-tax Appellate Tribunal, Jaipur Bench, by its decision dated January 28, 1975:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in refusing to entertain the plea of the Department that the income from the lease rent of the cinema building was assessable under the head ‘Income from other sources’ instead of under the head ‘Income from house property’ on the grounds:

(a) that the Income-tax Officer had not taken this plea at any stage in the past,

(b) that if accepted, the direction of the Tribunal might result in enhancement of income?”

2. We may state a few relevant facts giving rise to the present reference. The assessee is an “association of persons” comprising the following four members:

1. Shri Pratap Singh,

2. Shri Rajendra Singh,

3. Shri Amrao Singh, and

4. Shri Deepak Kumar.

3. Till August 31, 1968, the assessee was carrying on a business in exhibition of films in Minerva Talkies, Jaipur, on its own account but from September 1, 1968, the Minerva Talkies was leased out to M/s. Jiwanmal Surajmal on a monthly rent of Rs. 8,000 (Rs. 4,000 for building and Rs. 4,000 for machinery and furniture, etc.). In the return for the assessment year 1969-70, the assessee did not disclose the income from the lease rent of the cinema building on the plea that it was assessable in the hands of the members of the association of persons. The Income-tax Officer therefore, included a sum Rs. 4,305 in the assessment year 1969-70 and Rs. 20,825 in 1970-71 under the head “Income from property”.

4. The assessee went in appeal before the Appellate Assistant Commissioner and contended before him that the Income-tax Officer had taken income from rent of the above property under the head “Income from house property” and as the shares of the co-owners were determinate, the income had to be taxed proportionately in the hands of the co-owners and not in the hands of the “association of persons”, vide section 26 of the Income-tax Act, 1961. This contention found favour with the Appellate Assistant Commissioner and hence this income was deleted from the income of the assessee.

5. The Department took appeals before the Appellate Tribunal and it was submitted that the Appellate Assistant Commissioner has wrongly held that the income from the lease rent of the cinema building was assessable under the head “Property income” as it was clearly assessable under the head “Income from other sources” under section 56(2)(iii) of the Income-tax Act, 1961. The Tribunal rejected the appeals of the Department and considered the matter as under:

“It is, thus, apparent that at no stage in the past, the Department has taken the stand that the income from the lease rent of the cinema building was assessable under the head ‘Other sources’ as per provisions of section 56(2)(iii) of the Income-tax Act, 1961. We are, therefore, unable to entertain the above ground at this stage. This apart, any direction or finding about the chargeability of the income from the lease rent of the cinema building under the head ‘Other sources’ may result in the enhancement of the total income of the assessee for the reason that the various deductions admissible under section 56 of the Income-tax Act, 1961, are quite different from the various deductions admissible under sections 22 to 27 of the Income-tax Act, 1961, while computing the income from ‘house property’. We are unable to give such a finding or direction since section 254(1) of the Income-tax Act does not authorise the Tribunal to pass such order which may result in enhancement of the total income of the assessee. It has been held by their Lordships of the Supreme Court in Hukumchand Mills Ltd. v. CIT, [1967] 63 ITR 232, that 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. In view of the above authority and after considering all the facts and circumstances of the case, we are unable to accept the contention of the Department and reject the same. The findings given by the Appellate Assistant Commissioner in respect of both the assessment years under appeal are, accordingly, upheld.”

6. The Department then moved Reference Applications Nos. 149 and 150.JP/1974-75. It is on these reference applications, the aforesaid question of law arising out of the order of the Tribunal, has been referred to us for our opinion.

7. The question referred to us raises an important question as to the power or jurisdiction of the Tribunal in entertaining the plea, which has not been taken earlier before the authorities below and which may have been taken for the first time before the Tribunal. A perusal of the order of the Appellate Assistant Commissioner shows that the contention raised by Shri S. Gupta, representative of the assessee, has been recorded and, thereafter, the learned Appellate Assistant Commissioner immediately expressed his opinion that the contention appears to be correct. What was the contention of the Department, it appears, has not been stated and perhaps it is on this basis, it has so gone into the order of the Tribunal that at no stage in the past, the Department has taken the stand that the income from the lease rent of the cinema building was assessable under the head “Other sources” under section 56(2)(iii) of the Income-tax Act, 1961. The plea was thus found not entertainable at the stage before the Appellate Tribunal and it was also not found entertainable as it may result in the enhancement of the total income of the assessee. For the second reason, reliance has been placed on a decision of the Supreme Court in Hukumchand Mills Ltd.'s case, [1967] 63 ITR 232. It is to be seen as to whether the reasons assigned by the Tribunal are valid reasons in law for not entertaining the plea taken by the Department before the Tribunal.

8. For the proper appreciation and adjudication of the controversy, we read section 254(1) of the Income-tax Act:

“Section 254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.”

9. Section 253 provides for appeals to the Appellate Tribunal by the assessee or by the Department and on such appeals, the Appellate Tribunal passes its orders under section 254 of the Income-tax Act and section 255 provides for procedure of the Appellate Tribunal.

10. A bare reading of sub-sections (1) and (2) of section 254 of the Income-tax Act would reveal that the Appellate Tribunal has the power or the jurisdiction to pass such orders in appeal as it thinks fit. The word “thereon” occurring in section 254(1) means an appeal and the words “as it thinks fit” are general and confer powers of the widest amplitude on the Appellate Tribunal.

11. It is true that under section 251, the Appellate Assistant Commissioner possesses the powers of confirmation or reduction and enhancement or annulment of the assessment and he may also remand the case to the Income-tax Officer for making a fresh assessment. Thus, specific powers of enhancement have been conferred on the Appellate Assistant Commissioner or, as the case may be, on the Commissioner (Appeals) and specifically no such expressions have been made use of in section 254, but, in our opinion, on that basis, the powers of the Appellate Tribunal can in no way be considered limited, narrow or circumscribed but the powers conferred on the Appellate Tribunal are of the widest amplitude. The Appellate Tribunal can pass any order which it thinks fit which includes the power of enhancement of tax. The wording or the phraseology used in section 254(1) knows no limitation and a point or a contention not raised earlier can be allowed to be raised by the Tribunal and the Tribunal may proceed to pass an order on the basis of such a new point or contention or submission. Even after presentation of the memorandum of appeal, a new ground can be allowed to be taken for which there is specific rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963. Rule 11 reads as under (49 ITR (St.) 66):

“Grounds which may be taken in appeal.— 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.”

12. A perusal of the above rule shows that the Tribunal is competent to decide the appeal on grounds which are not set forth in the memorandum of appeal, or taken by leave of the Tribunal and if the Tribunal takes such grounds in consideration, the only obligation of the Tribunal is to give to the party affected by such ground, a sufficient opportunity of being heard on that ground. Rule 11 thus only places this restriction on the powers of the Tribunal that it cannot rest its decision on any other ground, which has not been set forth in the memorandum of appeal or taken by leave unless it gives the party affected by such ground, a sufficient opportunity of being heard.

13. On behalf of the Revenue, Mr. B.R Arora referred to a number of decisions throwing light on the above question and no direct case has been cited by Shri Sudesh Gupta, representing the assessee. By learned counsel for both the parties, some cases have been referred on the point that under what head the rental income of the assessee would fall, i.e, whether it is income under the head “Property” or “Income from other sources”. This question as to under what head the income falls is beside the point referred to us; so, we need not examine that point as it would be beyond the scope of the reference. The question before us is limited to the power or the jurisdiction of the Tribunal to go into the point of contention which has not been raised earlier by the Department. The observations made in Hukumchand's case, [1967] 63 ITR 232 (SC) have been pressed into service by the Tribunal for coming to the conclusion that it cannot consider and examine the point not raised by the Department as it may involve enhancement of tax liability. It may be stated that their Lordships of the Supreme Court have not laid down that the Tribunal cannot exercise the power of enhancement under its appellate jurisdiction. The words “except possibly the power of enhancement” have been put by their Lordships in brackets. The use of the word “possibly” and putting these words in brackets shows that only an observation has been made and the effect of it cannot be taken that any law has been laid down. The word “possibly” is clearly indicative of it.

14. We may profitably refer to some decisions, which throw ample light on the question which is required to be answered.

15. In Commissioner Of Income-Tax, Punjab v. Ice Suppliers Corporation, [1967] 64 ITR 195 (Punj), the following question was referred for opinion:

“Where the Appellate Tribunal in appeal finds that the petition of the assessee under section 26A was invalid, whether the Tribunal had jurisdiction to dismiss the assessee's application on this ground when it had not been raised before the Income-tax Officer or the Appellate Assistant Commissioner or in the grounds of appeal filed before the Appellate Tribunal?”

16. Falshaw C.J answered the question in the affirmative to which H.R Khanna J., as he then was, agreed. Falshaw C.J stated that “there is no doubt from the decision of the Supreme Court in Textile Supply Co., Assam v. Commissioner Of Income Tax, Assam , [1959] 36 ITR 242, that the ground on which the Appellate Tribunal set aside the registration was a good ground, but we are not concerned with that matter in the present case, the only question being whether the decision could be based on a point not previously raised at any stage or even in the grounds of appeal” and reference was made to rule 12 of the Income-tax (Appellate Tribunal) Rules. Reliance was placed on New India Life Assurance Co. Ltd. v. CIT/EPT, [1957] 31 ITR 844 (Bom). In that case, the Appellate Tribunal had based its decision on a ground not raised in the memorandum of appeal and it was held by Chagla C.J and Tendolkar J. that the Appellate Tribunal had power to give leave to the appellant to raise the question of apportionment and must be presumed to have given such leave in the circumstances of the case and it was competent to the Tribunal to reverse the decision of the Appellate Assistant Commissioner on the ground that the question of liability to tax should be determined after the question of apportionment had been decided.

17. In Madhu Jayanti P. Ltd. v. CIT, [1985] 154 ITR 277 (Cal), two new grounds were sought to be raised by the assessee before the Tribunal. It was held that the Tribunal was not justified in refusing to allow the assessee to raise the additional grounds.

18. In CIT v. Mahalakshmi Textile Mills Ltd., [1967] 66 ITR 710 (SC), the assessee claimed development rebate and for the first time before the Appellate Tribunal claimed in the alternative that the amount laid out was in any event expenditure for current repairs allowable under section 10(2)(v) of the Indian Income-tax Act. Their Lordships held as under (headnote):

“That because the Tribunal rejected the assessee's claim for development rebate, it was not bound to disallow the claim of the assessee for allowance of the amount spent, if it was a permissible allowance on another ground. Whether the allowance was admissible under one head or another of sub-section (2) of section 10, the subject-matter for the appeal remained the same, and the Tribunal having held that the expenditure incurred fell within the terms of section 10(2)(v), though not under section 10(2)(vib), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee.

Under section 33(4), the Appellate Tribunal is competent to pass such orders on appeal “as it thinks fit”. There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions, whether of law or of facts, which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him.”

19. In the same volume, in CIT v. Nelliappan, [1967] 66 ITR 722 (SC), their Lordships observed as under (at pp. 724 and 725):

“In hearing an appeal, the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal, and in deciding the appeal, the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal.”

20. In D.M Neterwalla v. Commissioner Of Income-Tax, Bombay City-I., [1980] 122 ITR 880 (Bom), the learned judges held that the Tribunal can allow the Department to raise a new contention before it for the first time. The new contention was that the assessment of the amount would be justified in view of the provisions of section 2(6C)(iii) of the Act.

21. Similar is the view taken in CIT v. Gilbert & Barker Manufacturing Co., [1978] 111 ITR 529 (Bom). It was held by Tulzapurkar J., as he then was, speaking for the Bench, as under (vide headnote at p. 529):

“The Appellate Tribunal has the discretion to allow any party to an appeal, may be the appellant or the respondent, to raise a new point or new contention provided two conditions are satisfied:— (1) No new facts are required to be brought on record for disposing of such new point, and (2) An opportunity is given to the other side to meet the point.”

22. Thus, there is a plethora of decisions on the point that a new plea can be taken or can be allowed to be raised for the first time in appeal before the Appellate Tribunal. In the light of the above discussion, our answer to the question is that the Tribunal was not justified in refusing to entertain the plea of the Department that the income from the lease rent of the cinema building was assessable under the head “Income from other sources” instead of under the head “Income from house property” on the grounds mentioned in the question referred to us. Our answer to the question is, therefore, in the negative, in favour of the Revenue and against the assessee.

23. The parties are left to bear their own costs of the reference.