Commissioner of Income Tax vs Cochin Refineries Ltd.

G. Sivarajan, J.—In this Income Tax referred case, three questions have been referred to this court for its opinion :

" 1. Whether, on the facts and in the circumstances of the case, on an appeal filed by the Revenue before the Tribunal agitating an issue and without there being an appeal or cross-appeal by the assessee, the Tribunal is right and with jurisdiction in considering and pronouncing on an altogether different issue regarding the jurisdiction of the Income Tax Officer in passing the order dated January 18, 1975, and the assessee''s right to apply for rectification of that order ?

Whether, on the facts and in the circumstances of the case, the dollar loan could be treated as forming part of the capital employed by the assessee for the purpose of relief u/s 80J of the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income Tax Officer was not within his jurisdiction while he modified the computation of the capital in the order dated January 18, 1975, for giving effect to the order of the Appellate Assistant Commissioner for this assessment year ?"

The assessee is a public limited company. The assessment year concerned is 1968-69. The original assessment of the assessee for the assessment year 1968-69 was completed on January 24, 1972. In the said assessment, the assessing authority did not consider the claim of the assessee for relief u/s 80J of the Act, as according to him, the assessment had resulted in a loss. But, it was specifically observed in the assessment order that the relief will be computed at the appropriate time in which Section 80J is to be actually allowed. Aggrieved by the assessment order, the assessee took up the matter in appeal before the Commissioner of Income Tax (Appeals), Ernakulam. While the appeal was pending before the Commissioner of Income Tax (Appeals), the assessing authority reopened the assessment of the assessee for the year 1968-69 u/s 147(b) of the Act for various reasons. The assessing authority made the reassessment order on March 11, 1974. In the said reassessment order, the assessing authority considered the claim of the assessee for relief u/s 80J of the Act and the said relief was computed in a separate statement referred to as the last page of the annexure and described as item 3 thereof. The computation made by the assessing authority in the said order is follows :

"III. Computation of relief u/s 80J of the Act

Rs.

Fixed assets as on 1-9-1966, as per balance-sheet : 11,86,52,528

Other assets--as per balance-sheet : 13,79,65,679

Investments : 5,000

Total assets : 25,66,23,207

Less : Current liabilities : 1,09,61,561

Net capital employed : 24,56,61,646

As there is no profit after adjustment of development rebate for this year, the unabsorbed relief u/s 80J will be carried forward to the next year."

Subsequently, the Commissioner of Income Tax (Appeals) by order dated March 18, 1974, directed the assessing authority to consider the claim of the assessee for relief u/s 80J of the Act on the ground that the assessing authority has not given any reason for not computing the relief u/s 80J in his order. But, since the assessing authority in the reassessment proceedings had already computed the relief available to the assessee u/s 80J of the Act, the said direction in reality has become superfluous.

The assessee filed appeals against the reassessment order dated March 11, 1974, before the Commissioner of Income Tax (Appeals), Ernakulam, against disallowances made in the assessment order. The question regarding the relief u/s 80J was not the subject-matter of the appeal.

The Commissioner of Income Tax (Appeals) disposed of the appeal against the reassessment by his order dated December 30, 1974. Pursuant to the appellate orders dated March 18, 1974, and December 30, 1974, the assessing authority passed an order dated January 18, 1975, giving effect to the directions contained in the said appellate orders. In the consequential order dated January 18, 1975, passed by the assessing authority, besides giving effect to the directions contained in the appellate orders, he also recomputed the relief available to the assessee u/s 80J of the Act. In that process, he reduced the net cost of the fixed assets from the original figure of Rs. 11,86,52,528. In addition, he also reduced the total value of the assets by a sum of Rs. 4,50,00,000 being a short-term dollar loan, in addition to other deductions from the capital of the company.

Being aggrieved by the recomputation of the relief u/s 80J of the Act made by the assessing authority in the order dated January 18, 1975, the assessee filed an application u/s 154 of the Act, inter alia, contending that the question regarding grant of relief u/s 80J has already been considered by the assessing authority in the reassessment order dated March 11, 1974, granting relief and that the assessing authority in such circumstance, has no jurisdiction suo motu to recompute the same and the said recomputation is beyond the jurisdiction of the assessing authority. The assessing authority by his order dated May 13, 1977, vide annexure-D produced along with the supplementary statement of case, held that there is no change in the Section 80J relief carried forward, namely, Rs. 1,20,39,699. Absolutely, no discussion is seen in the said order regarding the contentions raised by the assessee in the rectification application.

Aggrieved by the said order in the rectification application, the assessee filed appeal before the Commissioner of Income Tax (Appeals), who by his order dated August 30, 1978, allowed the appeal directing the assessing authority to recompute the deduction u/s 80J including the loan in question in the capital employed. It is to be, noted here that the assessee has raised the contention that the assessing authority acted without jurisdiction in modifying the computation made in the order dated March 11, 1974, and in the consequential order passed on January 18, 1975, the appellate authority did not decide the said question, for, according to him, the assessee is otherwise entitled to the relief by virtue of the order of the Appellate Tribunal in the case of the assessee for the assessment year 1969-70 to the effect that the dollar loan was properly includible in the computation of capital employed.

Being aggrieved by the said appellate order, the Department took up the matter in appeal before the Income Tax Appellate Tribunal, Madras Bench, "D" (Camp, Kochi). It was contended before the Tribunal by the Department that the assessing authority in the original assessment order has rightly rejected the claim for relief u/s 80J, that the assessing authority in the reassessment order had no jurisdiction to consider the said claim much less to grant the relief u/s 80J in the said proceedings. It was also contended that short-term dollar loans are not liable to be included in the capital of the company for the purpose of grant of relief u/s 80J. The Appellate Tribunal rejected both the contentions of the Department and agreed with the conclusion of the first appellate authority. It is against this order of the Appellate Tribunal that the Department has come up by way of reference before this court.

Sri P.K.R. Menon, senior counsel for the Department, vehemently contended that the assessing authority in the original assessment refused to consider the claim u/s 80J, for the net result of the assessment was a loss ; that the reassessment proceedings are only for the benefit of the Department, that in such a proceeding, it if not open to the assessee to claim any relief nor for that matter, is the assessing authority obliged to consider the claim of the assessee for any relief, that the assessing authority in the reassessment order has acted wholly without jurisdiction in granting relief to the assessee under Section, 80J of the Act. Learned senior counsel also contended that the order dated January 18, 1975, must be considered to be an order passed u/s 154 also. It was also contended that on the merits also the assessee has no case for the reason that the decisions in Madras Industrial Linings Ltd. Vs. Income Tax Officer and Others, and in Century Enka Ltd. Vs. Income Tax Officer, "D" Ward and Others, relied on by the Tribunal in support of the case that dollar loans are liable to be included in the capital of the company have been overruled by the Supreme Court in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, .

On the other hand, Sri C.N. Ramachandran Nair, learned counsel appearing for the assessee, contended that the assessing authority in the original assessment order did not consider the claim for relief u/s 80J of the Act only because it was a loss and that he has specifically stated in the said order that it Will be considered at the appropriate time. He also contended that the assessing authority had acted wholly without jurisdiction in modifying'' the relief granted in the reassessment order dated March 11, 1974. He also contended that the matter on the merits is covered by the decision of this court in the case of the assessee itself in Commissioner of Income Tax Vs. Cochin Refineries Ltd., followed by the decision in Commissioner of Income Tax Vs. Cochin Refineries Ltd., .

We have considered the rival submissions. We are unable to agree with the senior counsel appearing for the Department that the order passed by the assessing authority in the reassessment proceedings dated March 11, 1974, is illegal and without jurisdiction.

As already stated in the statement of facts the assessing authority by order dated March 11, 1974, in the reassessment proceedings computed the relief claimed by the assessee u/s 80J of the Act. If the Department was aggrieved by the said order, the proper course would have been to rectify the said mistake by resort to the provisions of Section 154 of the Act or by reopening the assessment u/s 147 of the Act. Further the Commissioner of Income Tax also had the power u/s 263 of the Act, if the order dated March 11, 1974, passed by the assessing authority is prejudicial to the interests of the Revenue. Admittedly, no such powers have been invoked to rectify or to correct the said mistake alleged to have been committed by the assessing authority. Instead, what the assessing authority has done is to recompute the relief already granted in the reassessment order and reduced certain amounts from the capital employed in the purported exercise of giving effect to the appellate orders dated March 18, 1974, and December 30, 1974. This according to us, is not permissible, for the findings in the reassessment order regarding the computation of relief u/s 80J have attained finality. An order which has not been challenged by proceedings known to law cannot be changed in subsequent stages of the proceedings. Therefore, we are in agreement with the Tribunal that the assessing authority acted beyond its jurisdiction in modifying the relief already granted earlier. The other contention of learned senior counsel is that the order dated January 18, 1975, must be treated as an order u/s 154 of the Act. It is to be noted that the Department has no case that the mandatory requirements of Section 154(3), namely, an amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard. We have perused the entire records. We could not find any such notice being issued to the assessee before modifying the computation made in the order dated March 11, 1974. In such circumstances, we are not in a position to agree with the contention of the Department that the order dated January 18, 1975, must be treated as a rectification order also.

There is one more difficulty in considering the claim of the Department that the order dated January 18, 1975, is a rectification order. That is the question as to whether dollar loans can be considered as debenture for the purpose of computation of capital employed. As pointed out by learned counsel himself the question is a debatable one, for, various High Courts have taken conflicting views on this point and a debatable issue cannot be settled in proceedings u/s 154 of the Act. Lastly, we will deal with the question on the merits decided by the Tribunal with reference to which a question is also referred to this court for its decision, that is, whether dollar loan could be treated as forming part of the capital employed by the assessee for the purpose of relief u/s 80J of the Income Tax Act, 1961 ? Though learned counsel appearing for the assessee submitted that the said question is covered by the decisions of this court in the case of the assessee itself (vide Commissioner of Income Tax Vs. Cochin Refineries Ltd., and Commissioner of Income Tax Vs. Cochin Refineries Ltd., , we do not consider it necessary to consider the said question in this proceedings, for according to us, this reference can be decided on the findings on the other issues, namely ; whether the Tribunal was right in holding that the assessing authority was not within his jurisdiction while he modified the computation of the capital in the order dated January 18, 1975, while giving effect to the order of the Appellate Commissioner. We have already found that the Appellate Tribunal was perfectly justified in holding that the assessing authority had acted without jurisdiction and illegally in modifying the computation made u/s 80J in the reassessment order dated March 11, 1974, by his order dated January 18, 1975.

Questions Nos. 1 and 3 go together for, those two questions refer to the jurisdiction of the assessing authority in passing the order dated January 18, 1975. The first question is virtually directed against the action of the Appellate Tribunal in considering the question of jurisdiction of the assessing authority in an appeal filed by the Revenue. It is well-known that a successful party can support the conclusion of the subordinate Tribunal in an appeal filed against such decision on other grounds, even decided against him.

Here, in the instant case, the assessee had succeeded before the first appellate authority and, therefore, when the Department took up the matter in appeal before the Tribunal, though the assessee has not filed any cross-appeal against the non-consideration of the contention regarding the jurisdiction, it is open to him to support the order on the question of jurisdiction also. Even apart, since the question relates to the jurisdiction, it goes to the root of the matter and it can be raised for the first time before the Tribunal provided the factual matrix is available on records.

In view of the above discussions we answer question No. 1 in the affirmative, i.e., against the Revenue and in favour of the assessee. We answer question No. 3 in the affirmative, i.e., against the Revenue and in favour of the assessee. In view of our answer to question No. 3, we decline to answer question No. 2, for, it is only academic.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench, for passing consequential orders.