Madhu Jayanti (P.) Ltd. vs Commissioner of Income Tax

Ajit K. Sengupta, J.—In this reference u/s 256(2) of the income tax Act, 1961 (''the Act''), the following question of law has been referred to this Court for the assessment year 1979-80:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the Commissioner''s order u/s 263 of the income tax Act, 1961?

Shortly stated, the facts are that for the assessment year 1979-80 the original assessment was completed on a total income of Rs. 40,37,351 as per the ITO''s order u/s 143(3) of the Act dated 30-5-1981 on which income tax was charged at a rate applicable to a non-industrial company. The assessee claimed before the Commissioner (Appeals) that it was entitled to be taxed at a concessional rate, being an industrial company. The Commissioner (Appeals) by his order dated 24-8-1981 rejected the assessee''s contention and held that various processes undertaken by the assessee in the blending of tea did not amount to manufacture or processing of a new article so as to entitle the assessee to the benefit of being taxed at a concessional rate as an industrial undertaking. The assessee did not take up the matter further in appeal before the Tribunal.

Subsequently, the assessment was revised in pursuance of the Commissioner''s order u/s 264 on 31-12-1981.

By another order dated 6-3-1982, the ITO rectified the assessment u/s 154 determining the total income of the assessee at Rs. 33,08,910 as against the total income determined in the original assessment at Rs. 40,37,351. The ITO in the said order calculated the tax payable by the assessee at 65 per cent income tax and 5 per cent surcharge.

Thereafter, on 18-3-1983 the ITO once again rectified the said order dated 6-3-1982 u/s 154 holding that the assessee was entitled to be taxed at a concessional rate as an industrial company in view of the Calcutta High Court decision in the case of G.A. Renderian Ltd. Vs. Commissioner of Income Tax, and the Commissioner (Appeals) ''s order dated 7-3-1983 in the assessee''s case for another year.

This order of the ITO dated 18-3-1983 has been set aside on 15-3-1985 by the Commissioner u/s 263 of the Act on the ground that the ITO had no jurisdiction to invoke the provisions of section 154 of the Act when the ITO''s order for the assessment year 1979-80 had merged with the order of the Commissioner (Appeals) dated 24-8-1981. The Commissioner further observed that the point at issue being debatable the ITO was wholly wrong in passing the impugned order u/s 154.

It was submitted by the assessee that the said order of the ITO dated 6-3-1982 did not merge with the Commissioner (Appeals) ''s order dated 24-8-1981. It was also argued by the assessee''s counsel during the hearing before the Tribunal that the ITO was bound to follow the High Court''s order by rectifying the assessment u/s 154 and in support of this contention he relied on the Allahabad High Court decision in the case of Omega Sports and Radio Works Vs. Commissioner of Income Tax, wherein it had been held that ''if there is a decision on a particular point by the High Court of a State, it is binding on the income tax authorities in that State and merely because there is some judicial divergence of opinion on that point between some High Courts, it cannot be said that the point being debatable one was beyond the scope of section 154. Opposing this contention, the departmental representative, by referring to the provisions of section 154(1A), stated that the ITO could not amend the order on a point which had already been decided by the appellate authority for the very same assessment year. On consideration of the arguments of the authorised representatives for the parties, the Tribunal was of the opinion that ''the income tax Officer could not, therefore, amend his order which became final on the basis of the Commissioner of income tax (Appeals) ''s order in view of the clear provisions of section 154(1A) of the Act''. So it was of the opinion that the decision in the case of Omega Sports & Radio Works (supra) was not applicable to the facts of the present case. The Tribunal, therefore, declined to interfere with the order of the Commissioner u/s 263 and dismissed the appeal.

In our view, having regard to the facts and circumstances as narrated hereinbefore, the Tribunal was justified in upholding the order passed by the Commissioner u/s 263. As indicated, the assessee challenged the action of the ITO in treating the assessee as non-industrial company before the Commissioner (Appeals) and the Commissioner (Appeals) upheld the said order. The issue whether the assessee was an industrial company or not was considered and decided by the said appellate authority and, accordingly, to that extent the order of the ITO merged with the order of the Commissioner (Appeals). The ITO while passing the order u/s 154 sought to give relief to the assessee as an industrial company which the ITO had no jurisdiction to do in view of the first appellate order upholding the assessment order of the ITO wherein the assessee was treated as non- industrial company. The assessee did not prefer any further appeal against the said order. So long as the appellate order is not set aside by the Tribunal, on further appeal, the ITO had no jurisdiction to rectify the assessment order so far as the determination of status of the assessee-company as industrial company is concerned.

For the reasons aforesaid we are of the view that the Tribunal on the facts and circumstances of the case came to a correct conclusion. In the result, we answer the question in this reference in the affirmative and in favour of the revenue. There will be no order as to costs.

Sen, J.

I agree.