Commissioner of Income Tax vs Dhanalakshmi Mills Ltd.

N.V. Balasubramanian, J.—In compliance with the directions of this Court in T.C.P. No. 259 of 1985, dt. 25th February, 1985, the

Tribunal has stated a case and referred the following questions of law under s. 18 of the Companies (Profits) Surtax Act, 1964 (hereinafter

referred to as ''Surtax Act''), r/w s. 256 of the IT Act, 1961) :

(i) Whether on the facts and in the circumstances of the case, the Tribunal is justified in not permitting the Revenue to put forward a plea that the

amount to be excluded is Rs. 6.99,841 which is the proposed dividend for the year 1972, instead of Rs. 4,86,000 mentioned in the assessment

order ?

(ii) Whether the sum of Rs. 6,99,841 should not have been excluded from the capital ?

The assessee is a company and in computing the liability of the assessee for the asst. yr. 1974-75, the ITO deducted three amounts. We are not

actually concerned in the present reference with reference to the correctness of the view of granting deduction of the three amounts made by the

Surtax Officer in the computation of capital under the provisions of the Surtax Act. However, it is necessary to state certain facts with reference to

one of the items, which we deducted by the Surtax Officer, viz., a sum of Rs. 4,86,000 being the dividend declared in the year 1972 under Expln.

to r. 1 of the Second Schedule to the Surtax Act from the capital base for the purpose of arriving at the standard deduction from chargeable profits

for surtax purposes. The Surtax Officer deducted the sum of Rs. 4,86,000 in the computation of capital from the general reserve of the assessee-

company on the ground it represented dividends declared in 1972. The assessee contended before the first Appellate Authority that this sum was

already deducted in arriving at the balance as on 1st January, 1973, and, therefore, there cannot be any double deduction. The first appellate

authority viz., the CIT(A) accepted the contention of the assessee and ordered the deletion of the addition to the capital base. The Revenue

preferred an appeal before the Tribunal, against the order of the CIT(A). There was no dispute also before the Tribunal that there was a double

deduction with reference to the sum of Rs. 4,86,000 which related to the dividend paid in 1972, but, it was urged on behalf of the Department

before the Tribunal was that the Surtax Officer in the order of assessment meant to disallow an amount of Rs. 6,99,841 which was divided for the

year 1972 and paid during the accounting year 1973.

Learned senior counsel appearing for the assessee opposed the admission of the fresh ground urged on behalf of the Department. It was

conceded by the representative on behalf of the Department that there was some confusion in the matter and the case of the Department should be

considered with reference to the amount of Rs. 6,99,841 instead of a sum of Rs. 4,86,000 deducted by the Surtax Officer in the order of

assessment passed by him. The Tribunal found the new ground raised on behalf of the Department was not the subject-matter of appeal before the

first Appellate Authority and the Tribunal held that it cannot entertain the new ground which was not the subject-matter of appeal before the first

appellate authority. The Revenue has questioned the finding of the Tribunal by raising two questions of law set out earlier.

Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the order of the Tribunal refusing to entertain the new ground of the score that

it was not the subject-matter of appeal before the first Appellate Authority is erroneous in point of law as the Tribunal has wide jurisdiction and the

entire assessment was before the Tribunal, Mr. S. A. Balasubramanian, learned counsel for the assessee, submitted that a sum of Rs. 4,86,000

deducted by the Surtax Officer was already deducted from the general reserve and, therefore, the Tribunal was justified in refusing to entertain the

additional ground.

We have carefully considered the rival submissions of the learned counsel for the parties. It is no doubt true that the question of deduction of the

sum of Rs. 6,99,841 relating to the declaration of dividend out of the general reserve pertaining to the accounting year 1972 which was actually

distributed in 1973 was not the subject-matter of consideration by the Surtax Officer. Though the officer has deducted a sum of Rs. 4,86,000, the

finding of the Tribunal is clear that the said sum was entirely a different figure as it related to the dividend pertaining to the current year 1971 and

distributed in 1972. There is also no doubt that this matter of deduction of Rs. 6,99,841 was not and could not be the subject-matter of

consideration before the CIT(A) in the appeal preferred by the assessee. However, when the matter came before the Tribunal relating to the

proper computation of the capital for the asst. yr. 1974-75 the mistake committed by the Surtax Officer was noticed and it was urged on behalf of

the Department that the Surtax Officer meant to deduct only to sum of Rs. 6,99,841 though the order mentioned the figure as Rs. 4,86,000.

The Tribunal, apparently on the law then existing, refused to entertain on the ground that the matter was not the subject-matter of appeal before the

CIT(A). The view of the Tribunal that it has no jurisdiction to entertain a ground which was not the subject-matter of the appeal before the first

Appellate Authority is not sustainable in law. It is now well settled that the entire assessment is before the Tribunal and it is open either to the

assessee or to the Department to raise question arising out of the assessment proceedings, though the question was not raised earlier.

The Supreme Court in National Thermal Power Co. Ltd. Vs. Commissioner of Income Tax, had an occasion to consider the powers of the

Tribunal to entertain a new ground relating to the assessment proceedings although not raised earlier and the Supreme Court held that there are no

reasons to restrict the powers of the Tribunal under s. 254 of the IT Act only to decide the grounds which arise from the order of the CIT(A). The

apex Court further held that though the assessee as well as the Department have the right to file an appeal or cross-objection before the Tribunal

and there are no reasons why the Tribunal should be prevented from considering the questions of law arising in the assessment proceedings,

although not raised earlier.

The law laid down by the Supreme Court runs as under :

The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the

Tribunal vide e.g. CIT vs. Anand Prasad (1982) 128 ITR 388 : TC 8R.1021, Commissioner of Income Tax, Gujarat I Vs. Karamchand

Premchand Private Ltd., and Commissioner of Income Tax, Gujarat-I Vs. Cellulose Products of India Ltd., . Undoubtedly, the Tribunal will have

the discretion to allow or not to 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.

Therefore, the view of the Tribunal that it has no power to entertain the new ground urged before it by the Revenue, which was not the subject-

matter of appeal before the CIT(A) is erroneous in the light of the decision of the Supreme Court in National Thermal Power Company Ltd.

(supra). Therefore, we are of the view that the matter should be remitted to the Tribunal and the Tribunal is directed to consider the question, in the

light of the decision of the Supreme Court on merits, whether the additional grounds should be entertained or not.

We find that the first question of law referred by the Tribunal gives rise to some confusion as if the Surtax Officer intended to deduct Rs.

6,99,841 instead of Rs. 4,86,000. The Tribunal has found that both the amounts are different. Accordingly, we reframe the first question of law as

under :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not permitting the Revenue to put forward a plea that the

amount to be excluded is Rs. 6,99,841 which is the proposed dividend for the year 1972 ?

We answer the first question of law in the negative and in favour of the Revenue.

In sofar as the second question referred to us is concerned, that question deals with the merits of the case. Since we have directed the Tribunal

to consider the question whether the additional ground should be entertained or not, it is not possible to render and answer to the second question

of law which related to the merits of the case. Accordingly, we are not answering the second question of law referred to us.

In the circumstances, there will be no order as to costs.