Commissioner of Income Tax vs Salonah Tea Co. Ltd.

Bhagabati Prasad Banerjee, J.—The following question of law has been referred to this Court by the Tribunal u/s 256 of the income tax Act, 1961 (''the Act''):

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the order of Inspecting Assistant Commissioner to the extent of the mistake in calculating the amount disallowable u/s 44C of the income tax Act, 1961 should be deemed to have merged with the order of the Commissioner (Appeals) and consequently, the Commissioner had no jurisdiction to initiate proceeding u/s 263 of the income tax Act and in that view in partly allowing the appeal of the assessee?

The assessment year involved in this reference is the assessment year 1977-78, for which the relevant period of account is the period ending on 31-12-1976.

The point of controversy in this case is whether the subject-matter of refund was also under consideration before the appellate authority. In this case, the Commissioner sought to invoke the provisions of section 263 of the Act in respect of the assessee''s claim u/s 44C of the Act. The ITO, it appears had made certain addition u/s 44C. The assessee preferred an appeal before the appellate authority and the appellate authority had considered the scope and applicability of the section 44C extensively. When the matter brought before the Tribunal, the Tribunal also found that:

In these circumstances, we got hold of the relevant part of the order from the file of the department. Therein we noticed that the question of applicability of section 44C was certainly in dispute before the Commissioner (Appeals) because the assessee had challenged the applicability of this section altogether. The Commissioner (Appeals) upheld the applicability but did not interfere in the amount disallowable because according to him, there was no dispute about the calculation of the amount. However, even if the Commissioner (Appeals) has not considered this the fact remains that the question of applicability of section 44C being in dispute the Commissioner (Appeals) could have considered correctness of calculation also and the ITO could have pointed out to him since the dispute was before him.

So, it is clear that this question was considered by the AAC and as such, on this point there was a question of merger.

This point has been considered in the judgment of this Court in the case of Hindustan Aluminium Corporation Ltd. Vs. Commissioner of Income Tax (Central) and Others, . There this question was fully discussed and it was held that the appellate authority did not take into consideration that part of the assessment order because that particular part of the order was not appealable or for any reason whatever that assessment order was wholly appealable. In this particular case, the question of applicability of section 44C was not before the appellate authority and as such there was a merger of the original order with the appellate order and consequently, the Commissioner (Appeals) could not invoke the provisions of section 263 for revising the order passed. In this particular case, the Tribunal specifically observed that though the question of applicability of section 44C was an issue, neither of the parties has disputed the quantum in this regard. There is no dispute about the calculation of section 44C but only the applicability of section 44C was disputed. The Tribunal has decided this matter and, therefore, there has been merger of the appellate order with the order of the Commissioner (Appeals). Therefore, the Commissioner (Appeals) had no jurisdiction to invoke the provisions of section 263.

Accordingly, the question of law is answered in the affirmative and in favour of the assessee. There will be no order as to costs.

Sen, J.

I agree.