Commissioner of Income Tax vs Madanlal and Co.

K. Shivashankar Bhat, J.—In respect of the assessment year 1978-79, the following two question have been referred u/s 256(1) of the Income Tax Act, 1961 ("the Act", for short) :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to weighted deduction u/s 35B(1)(b)(iii) in respect of (a) certificate charges, (b) freight, and (c) insurance charges incurred by the assessee in respect of its export trade ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in stating that a decision of the Bombay High Court is a binding precedent for this case inasmuch as the regular assessment has been made within the jurisdiction of the Bombay High Court ?"

The assessee was carrying on his business at Bombay and an order of assessment came to be passed by the Income Tax Officer, D-II Ward, Bombay. The assessee appealed. The appeal was considered by the Commissioner of Income Tax (Appeals) - II, Bangalore; the statement of the case sent by the Appellate Tribunal states that "the appeal preferred to the first appellate authority had been transferred to Bangalore and the same was disposed of by the Commissioner of Income Tax (Appeals - II), Bangalore, by order dated September 2, 1985". The assessee thereafter filed the further appeal before the Appellate Tribunal at Bangalore. The Appellate Tribunal upheld the assessee''s claim for weighted deduction u/s 35B, following a decision of the Bombay High Court reported in Commissioner of Income Tax, Bombay City-VI, Bombay Vs. Eldee Wire Ropes Ltd., The decision of this High Court in Ullalnarayan Mallya''s case [1976] 1 Kar 487 was distinguished. Hence, this reference at the instance of the Revenue.

Mr. K. R. Prasad, learned counsel for the assessee, raised a preliminary objection to the maintainability of the reference to this court. Learned counsel contended that the assessment order being of the Income Tax Officer at Bombay, reference could have been made only to the Bombay High Court, though the appellate decision is of the Bench of the Tribunal at Bangalore. Learned counsel for the Revenue, on the other hand, contended that when a case is transferred from one Income Tax Officer to another all further proceedings could be continued in the same manner as if the original order was made by the transferee officer.

In PANNALAL BINJRAJ AND ANOTHER Vs. THE UNION OF INDIA AND OTHERS. (AND OTHER CASES)., the Supreme Court pointed out that the Explanation to section 5(7A) of the earlier Act was added to get over the situation which was created by the judgment in Bidi Supply Co. Vs. The Union of India (UOI) and Others, After the Board transferred the case of the petitioner from one officer to another, the latter instituted several proceedings; those proceedings and the orders of transfer, including the validity of section 5(7A) were challenged before the Supreme Court. The scope of the said provision was stated by the Supreme Court at page 591 thus :

"Regarding section 5(7A) and the Explanation thereto, it is clear that when any case of a particular assessee which is pending before the Income Tax Officer is transferred from that officer to another Income-tad Officer whether within the State or without it, all proceedings which are pending against him under the Act in respect of the same year as also pervious years are meant to be transferred simultaneously and all proceedings under the Act which may be commenced after the date of such transfer in respect of any year whatever are also included therein so that the Income Tax Officer to whom such case is transferred would be in a position to continue the pending proceedings and also institute further proceedings against the assessee in respect to any year. The proceedings pending at the date of transfer can be thus continued but in the case of such proceedings the provision in regard to the issue of notices contained in the main body of section 5(7A) would apply and it would not be necessary to re-issue any notice already issued by the Income Tax Officer from whom the case is transferred. This provisions applies to pending proceedings which have been transferred leaving unaffected the further proceedings which may be commenced against that assessee after the date of the transfer where fresh notices would have to be issued."

The "further proceedings" referred to in the above observation pertain to the further proceedings that may be instituted by the Income Tax Officer. The Supreme Court nowhere held that on transfer of the case, all further proceedings including appellate and reference proceedings also get transferred. The proceedings which could be initiated by an Income Tax Officer in respect of the particular assessee, thereafter, has to be initiated by the "transferee-officer".

In Commissioner of Income Tax, Calcutta Vs. Bidhu Bhushan Sarkar (Dead) through his Legal Representative Mihir Kumar Sarkar, the Supreme Court was considering the scope of section 5(7A) of the Indian Income Tax Act, 1922. The Additional Income Tax Officer who had initiated proceedings u/s 34 made an order that the case be "filed". Thereafter, an order came to be passed u/s 5(7A) transferring the case to the principal Income Tax Officer, who issued a fresh notice u/s 34. The question was whether any case was pending before the Additional Income Tax Officer which could be transferred. The Supreme Court held (at page 287) :

"The Explanation to section 5(7A) makes it clear that the word ''case'', in relation to any person whose name is specified in the order of transfer means all proceedings under the Act in respect of any year which may be pending on the date of the transfer, and also includes all proceedings under the Act which may be commenced after the date of the transfer in respect of any year. The word ''case'' is thus used in a comprehensive sense of including both pending proceedings as well as proceedings to be instituted in future. Consequently, an order of transfer can be validly made even if there be no proceedings pending for assessment of tax and the purpose of the transfer may simply be that all future proceedings are to take place before the officer to whom the case of the assessee is transferred. In the present case, the proceedings on the notice dated 23rd February, 1950, had already been terminated by the Additional Income Tax Officer by his order directing that the case be filed. Consequently, the effect of the order of the transfer was that all the records relating to the assessment of the assessee had to be sent to the Principal Income Tax Officer and this was with the object that, in future, all proceedings relating to assessment of this assessee were to be taken by the Principal Income Tax Officer and not the Additional Income Tax Officer. The order does not necessarily indicate that those proceedings which the Additional Income Tax Officer had actually terminated were still to be treated as pending and to stand transferred as pending proceedings."

Mr. Raghavendra Rao argued that the effect of transferring a "case" enables the transferee officer to deal with the assessee even in future; what is transferred is the "assessee''s case" and, therefore, all further proceedings, including appeals and references, are to be continued as if the assessment order was made by the transferee officer; since the transfer is of the assessee''s case, the entire jurisdiction under the Act in respect of the assessee got transferred.

The decision of the Supreme Court has to be read in the background of the facts of the said case. The question was whether, after a case stood terminated, the assessee''s case could be transferred. The present submission of Mr. Raghavendra Rao seems to us to be incompatible with the provisions of sections 126 and 127 of the Act. A case is transferred by an order of the Central Board of Direct Taxes u/s 127(1) of the Act; at the relevant time, under this section, the Board may transfer any case from any Income Tax Officer to any other Income Tax Officer. The Explanation to section 127(2) explained the word "case" for the purpose of sections 121, 123, 124 and 125; it did not govern the provisions of section 122. The jurisdiction of the Appellate Assistant Commissioner is determined u/s 122 by the directions of the Board. Therefore, the legislative intention seems to be that a specific direction is necessary conferring jurisdiction on the Appellate Assistant Commissioner to deal with the case of an assessee whose case was transferred to another Income Tax Officer (when the latter is not judicially subordinate to the Appellate Assistant Commissioner.)

In fact, in the instant case, there was a specific order conferring appellate power on the Commissioner of Income Tax (Appeals), Bangalore, to consider the assessee''s appeal, as is clear from para 3 of the statement of case sent by the Appellate Tribunal.

The Rajasthan High Court in Uma Kant and Co. (P) Ltd. v. CIT [1977] Tax LR 476, held that the jurisdiction of the High Court to entertain a reference u/s 256 of the Act is determined from the fact as to whether the case has arisen and whether the Assessing Officer was located within the jurisdiction of the High Court or not. It was a case where an appeal was pending before the Appellate Tribunal, Delhi; this was transferred by the President of the Appellate Tribunal to the Calcutta Bench of the Appellate Tribunal at the instance of the assessee. The Calcutta Bench rejected the appeal on the merits; the reference application filed by the assessee was also rejected. Thereafter, the assessee moved the Rajasthan High Court u/s 256(2) to all for a reference. The question was whether the Rajasthan High Court had jurisdiction ? The High Court held that it had jurisdiction. The court held (at page 477) :

"The point in the issue before us is whether this court which has the jurisdiction to call for a reference u/s 256(2) of the Act, is deprived of that jurisdiction because the case was transferred from one Bench to another Bench. There is no specific provision either in the Act or Rules or in any of the standing orders affecting the jurisdiction of the High Court, in case the matter has been transferred from one Bench to another. The jurisdiction of the High Court is determined from the fact as to whether the case has arisen and whether the Assessing Officer was located within the jurisdiction of this court or not. It is true that the Appellate Tribunal did issue directions while disposing of the second appeal of the assessee company to the Commissioner of Income Tax, Calcutta but that fact, in our opinion, does not affect the point of jurisdiction, because it was the Commissioner of Income Tax, Calcutta who had put in his appearance before the Appellate Tribunal, though he was not a party to the appeal."

That the location of the assessing authority thus determines the jurisdiction of the High Court, to deal with the reference is the ration of this decision.

In SETH BANARSI DASS GUPTA Vs. COMMISSIONER OF Income Tax, DELHI (CENTRAL)., the Delhi High Court had to consider a similar problem. The assessment order and the appellate order were made at Meerut; however, further appeal was heard by the Delhi Bench of the Appellate Tribunal. Thereafter, the assessee moved the Delhi High Court seeking reference u/s 256 of the Act. The High Court held that it had no jurisdiction to consider the case of the assessee. On a detailed examination of the relevant provisions of the Act, the Rules and the Standing Orders, the High Court held that the place of location of the Tribunal''s Bench which heard and determined the appeal did not provide a basis for the determination of the jurisdiction of the High Court to which a case has to be stated by way of reference. Since the appeal to the Tribunal arose out of the assessment order of the Income Tax Officer, at Meerut in the State of Uttar Pradesh, it was held that the reference has to be made to the Allahabad High Court. At pages 827 and 828, the High Court held :

"It seems to us that, when there is no direct statutory provision governing the matter, the proper course would be to apply the same basis that has been adopted already with regard to the jurisdiction of a Bench of the Appellate Tribunal for the following reasons :

Firstly, as already noticed, the jurisdiction of an Income Tax Officer, i.e. the place of assessment, has been required u/s 64 of the Indian Income Tax Act, 1922, to be determined on the basis of the place where the assessee carries on a business or profession or vocation and, in other cases, the area in which the assessee resides. This basis, however, has not been adopted in providing the basis for the determination of the jurisdiction of a Bench of the Appellate Tribunal. Under the Explanation to Standing Order No. 1 of 1954, as well as to Standing Order No. 1 of 1967, the aforesaid basis u/s 64 was expressly given a go by, and the basis of the location of the office of the Assessing Office has been adopted. Therefore, in considering the question as to the High Court to which a Bench having jurisdiction over more than one State has to make a reference, the basis adopted for determining the jurisdiction of the Bench would be more appropriate than the basis adopted for determining the jurisdiction of an Income Tax Officer.

Secondly, according to the said basis provided in the Explanation to the standing order for determining the jurisdiction of a Bench, the Bench deals with appeals and applications arising out of the orders of the assessing Income Tax Officer in the various States mentioned as against the Bench in column 2 of the tabular form in clause 1 of the standing order. In other words, the Bench hears appeals and applications in the cases coming from the States over which it has been given jurisdiction. Therefore, when it hears and determines an appeal as an appeal from a particular State, it would be quite appropriate for the Bench to refer a question of law arising out of its order in that appeal to the High Court of the State from which the appeal had come.

Thirdly, this view, in our opinion, would also be in accord with and give meaning and effect to the words ''in relation to any State, the High Court of that State'' in section 66(8) of the Act.

Froth, section 33(6) of the Act provides that ''save as provided in section 66, orders passed by the Appellate Tribunal on appeal shall be final'', and section 66(5) provides that ''the High Court upon the hearing of any such case shall decided the question of law raised thereby and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment''. The said provisions show that in a case where a reference is made to a High Court by a Bench of the Appellate Tribunal u/s 66 of the Act, the reference is just an intermediate stage, it would be quite appropriate to adopt the same basis as the one adopted for determining the jurisdiction of the Bench."

The lis or the cause for further proceedings arises out of the order of the Income Tax Officer. It is this order that is sought to be reversed or modified. Therefore, it is reasonable to inter that the said order should be judicially considered only by the High Court having jurisdiction over the particular Income Tax Officer. An assessee may shift his place of business or residence and it will not be practical to locate such place of residence or business always, to determine the High Court''s jurisdiction. Law should be clear, certain and simple. The location of the assessing authority is easily identifiable. We are in respectful agreement with the test formulated by the Delhi High Court to determine the jurisdiction of the High Court to entertain a reference u/s 256 of the Act.

Birla Cotton, Spinning and Weaving Mills Ltd. Vs. Commissioner of Income Tax, is also a decision of the Delhi High Court, wherein its earlier decision in SETH BANARSI DASS GUPTA Vs. COMMISSIONER OF Income Tax, DELHI (CENTRAL)., was followed. It was held (at page 362) :

"In this case, the assessment orders were passed by the Income Tax Officer at Jaipur and the appeals were also disposed of by the Appellate Assistant Commissioner at Jaipur. The mere accident that when the matters came before the Tribunal the appeal had to be heard by the Delhi Bench of the Income Tax Appellate Tribunal because at that time there was no Bench of the Tribunal at Jaipur, cannot vest this court with jurisdiction to hear references in the matters coming from the State of Rajasthan. Section 66(8) of the Indian Income Tax Act, 1922, as well as section 269 of the Income Tax Act, 1961, define the jurisdiction of the High Court in relation to the State to which the matters pertain and as interpreted by this Court in the earlier decision above referred to, the Rajasthan High Court is the appropriate High Court to which the reference in this case should have been made. We are, therefore, of opinion that the reference to this court has to be returned unanswered to the Tribunal."

Mr. Raghavendra Rao referred to the decision of the Supreme Court in East India Commercial Co. Ltd.,Calcutta and Another Vs. The Collector of Customs, Calcutta, to point out that every Tribunal in a State is bound by the decision of the High Court of the State and, in the instant case, the decisions of the Appellate Tribunal was not in accordance with the decision of this court, as to the applicability of section 35B of the Act. As the Appellate Tribunal is within the supervisory jurisdiction of this court by virtue of articles 226 and 227 of the Constitution, it is reasonable to hold that a reference u/s 256 of the Act also lies to this court.

This contention overlooks the fact that the Appellate Tribunal under the Act is a single entity and only its Benches function from different places. A Bench of the Tribunal located at Bangalore may have competence to deal with appeals coming from other States also, because the powers of the Bench of the Appellate Tribunal depend upon the orders of the President of the Appellate Tribunal, as per rule 4 of the Income Tax (Appellate Tribunal) Rules, 1963. Whatever may be the scope of articles 226 and 227 of the Constitution, we are concerned here with the statutory jurisdiction of the High Court u/s 256 of the Act.

The reference has, no doubt, arisen out of an appeal filed by the assessee before the Bench of the Tribunal at Bangalore. It is unnecessary for us to examine whether the said appeal was within the competence of the Bench of the Tribunal at Bangalore. It may be a case of a specific allotment of work by the President of the Tribunal under rule 4 referred to above; or it may be case of a curable mistake; it may also be a case of a total lack of jurisdiction. As we have no competence to consider this reference, we need not go into this question pertaining to the jurisdiction of the Bench of the Tribunal at Bangalore in entertaining the appeal of the assessee.

Consequently, we are of the view that this reference to this court is not valid and it cannot be considered by this court; the reference is accordingly returned unanswered.