National Thermal Power Co. Ltd. v. Commissioner Of Income Tax ., Supreme Court Of India, Judgment, Law, casemine.com

Factual and Procedural Background

The assessee, engaged in the construction, generation, operation and maintenance of thermal power stations and related transmission networks, earned interest of Rs 22,84,994 during the previous year relevant to Assessment Year 1978-79 by placing surplus funds in short-term bank deposits. This amount was included in its taxable income and the assessment was completed accordingly.

Although the assessee appealed against other aspects of the assessment before the Commissioner of Income Tax (Appeals), it did not contest inclusion of the interest income. The Commissioner (Appeals) likewise made no finding on that issue. An appeal was then filed before the Income-tax Appellate Tribunal (“the Tribunal”), again without challenging the interest inclusion in the original grounds.

Subsequently, through a letter dated 16-7-1983, the assessee sought to add three new grounds contending that, in light of two Special Bench decisions of the Tribunal (Arasan Aluminium Industries (P) Ltd. and Nagarjuna Steels Ltd.), such pre-commencement interest was not taxable but should be adjusted against the capital cost of the plant. The Tribunal declined to entertain these additional grounds.

The Tribunal nonetheless framed five questions for reference to the High Court. Observing that the merits had not been examined, the Supreme Court reframed the decisive question to determine whether the Tribunal had jurisdiction to consider a pure question of law affecting tax liability, even if not previously raised before lower authorities.

Legal Issues Presented

Whether, on facts already found by the tax authorities, the Appellate Tribunal has jurisdiction under Section 254 of the Income-tax Act, 1961 to examine a new question of law that bears upon the assessee’s tax liability, although that question was not raised before the Assessing Officer or the Commissioner (Appeals).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Jute Corporation of India Ltd. v. CIT, 1991 Supp (2) SCC 744; 187 ITR 688	An appellate authority possesses all powers of the original authority unless curtailed by statute, including discretion to admit additional grounds.	Supreme Court relied on this authority to emphasise that appellate bodies (including the Tribunal) may permit new legal pleas where warranted.
CIT v. Anand Prasad, (1981) 128 ITR 388 (Del)	Illustrates a narrower view that the Tribunal’s consideration is limited to issues arising from the CIT(A) order.	Cited as an example of the restrictive approach the Court disapproved.
CIT v. Karamchand Premchand (P) Ltd., (1969) 74 ITR 254 (Guj)	Another decision reflecting the narrow interpretation of the Tribunal’s powers.	Referenced to demonstrate contrary authority that the Court found too restrictive.
CIT v. Cellulose Products of India Ltd., (1985) 151 ITR 499 (Guj)	Also advanced the limited-powers view.	Again cited as authority the Court declined to follow.
Arasan Aluminium Industries (P) Ltd. (Special Bench, ITAT)	Pre-commencement interest should be capitalised, not taxed.	Provided the legal development that prompted the assessee to seek admission of additional grounds.
Nagarjuna Steels Ltd. (Special Bench, ITAT)	Same principle on treatment of pre-commencement interest.	Reinforced the assessee’s application to raise the new plea before the Tribunal.

Precedent

Rule or Principle Cited For

Application by the Court

Jute Corporation of India Ltd. v. CIT, 1991 Supp (2) SCC 744; 187 ITR 688

An appellate authority possesses all powers of the original authority unless curtailed by statute, including discretion to admit additional grounds.

Supreme Court relied on this authority to emphasise that appellate bodies (including the Tribunal) may permit new legal pleas where warranted.

CIT v. Anand Prasad, (1981) 128 ITR 388 (Del)

Illustrates a narrower view that the Tribunal’s consideration is limited to issues arising from the CIT(A) order.

Cited as an example of the restrictive approach the Court disapproved.

CIT v. Karamchand Premchand (P) Ltd., (1969) 74 ITR 254 (Guj)

Another decision reflecting the narrow interpretation of the Tribunal’s powers.

Referenced to demonstrate contrary authority that the Court found too restrictive.

CIT v. Cellulose Products of India Ltd., (1985) 151 ITR 499 (Guj)

Also advanced the limited-powers view.

Again cited as authority the Court declined to follow.

Arasan Aluminium Industries (P) Ltd. (Special Bench, ITAT)

Pre-commencement interest should be capitalised, not taxed.

Provided the legal development that prompted the assessee to seek admission of additional grounds.

Nagarjuna Steels Ltd. (Special Bench, ITAT)

Same principle on treatment of pre-commencement interest.

Reinforced the assessee’s application to raise the new plea before the Tribunal.

Court's Reasoning and Analysis

The Court analysed Section 254 of the Income-tax Act, noting that it confers the Tribunal with the widest possible powers to “pass such orders thereon as it thinks fit” after hearing both parties. The overarching purpose of assessment proceedings is the correct determination of tax liability in accordance with law.

Hence, if during the pendency of an appeal a judicial development establishes that an item earlier assessed is non-taxable or that a deduction was wrongly denied, the Tribunal’s broad mandate allows it to entertain such questions—even when not previously raised—provided the relevant facts are already on record.

Relying on Jute Corporation of India, the Court reiterated that an appellate body enjoys powers co-extensive with those of the original authority unless circumscribed by statute, and may in its discretion admit additional grounds when satisfied they are bona fide and could not reasonably have been raised earlier.

The Court found the contrary line of authority limiting the Tribunal to issues emanating strictly from the Commissioner (Appeals) order to be unduly narrow. While acknowledging that admission of new grounds remains discretionary, the Court held that questions of law arising from facts already on record and necessary to compute the correct tax liability should normally be heard.

Holding and Implications

Holding: The reframed question is answered in the affirmative: the Appellate Tribunal has jurisdiction to examine a pure question of law arising from facts on record which affects the assessee’s tax liability, even if the question was not raised before lower authorities. The matter is remanded to the Tribunal to consider the assessee’s additional grounds on their merits.

Implications: The decision clarifies and broadens the procedural flexibility of the Income-tax Appellate Tribunal, ensuring that correct tax liability prevails over procedural technicalities. It underscores that, subject to discretion and bona fides, new legal grounds may be advanced at the appellate stage when the underlying facts are already available. No new substantive tax precedent was set on the taxability of pre-commencement interest; that issue is left for the Tribunal to decide on remand.

National Thermal Power Co. Ltd. v. Commissioner Of Income Tax .

Order

1. The assessee carries on the business inter alia, of construction, generation, operation and maintenance of thermal power stations and associated transmission network.

2. During the Assessment Year 1978-79 the assessee had deposited its funds which were not immediately required, on short-term deposits with banks. Interest received on such deposits during the previous year relevant to the Assessment Year 1978-79 amounted to Rs 22,84,994. This was offered by the assessee for tax assessment and the assessment was completed on that basis. Before the Commissioner of Income Tax (Appeals) a number of grounds were taken by the assessee challenging the assessment. However, the inclusion of this amount of Rs 22,84,994 was neither challenged by the assessee nor considered by the Commissioner of Income Tax (Appeals). From the order of the Commissioner of Income Tax (Appeals) the assessee filed an appeal before the Tribunal. The inclusion of the said amount of Rs 22,84,994 was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, by a forwarding letter dated 16-7-1983 the following additional grounds were sought to be raised by the assessee:

1. The sum of Rs 22,84,994 deducted from “Statement of Expenditure during construction” cannot be included in the total income.

2. It is contended that on admission (erroneous), no income (the sum of Rs 22,84,994) can be included in the total income.

3. The authorities below have erred and failed in their duty in not adjudicating the facts and evidence on record and mechanically including Rs 22,84,994 in the total income.

3. The assessee contended that on account of two orders of special Benches of the Tribunal in the cases of Arasan Aluminium Industries (P) Ltd. and Nagarjuna Steels Ltd. the assessee learnt that the interest earned in this manner before the setting up of business is not taxable as income and it goes to reduce the capital cost of the plant. On learning about this legal position the assessee sought to include the above three grounds in its grounds of appeal. The Tribunal has declined to entertain these additional grounds.

4. The Tribunal has framed as many as five questions while making a reference to us. Since the Tribunal has not examined the additional grounds raised by the assessee on merit, we do not propose to answer the questions relating to the merit of those contentions. We reframe the question which arises for our consideration in order to bring out the point which requires determination more clearly. It is as follows:

“Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same.”

Under Section 254 of the Income Tax Act 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. The power of the Tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

5. In the case of Jute Corpn. of India Ltd. v. CIT 1991 Supp (2) SCC 744, (1991) 187 ITR 688 this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the appellate authority is vested with all the preliminary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.

6. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income Tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal [vide e.g CIT v. Anand Prasad (1981) 128 ITR 388 (Del), CIT v. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) and Commissioner Of Income-Tax, Gujarat-I v. Cellulose Products Of India Ltd. (1985) 151 ITR 499 (Guj)]. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

7. The reframed question, therefore, is answered in the affirmative i.e the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on merit.

Tax Reference Case No. 4 of 1988, decided on December 4, 1996

National Thermal Power Co. Ltd. v. Commissioner Of Income Tax .

Factual and Procedural Background

Legal Issues Presented

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

National Thermal Power Co. Ltd. v. Commissioner Of Income Tax .

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