Power Finance Corporation Ltd. vs Additional Commissioner of Income Tax

After hearing counsel for the parties, the following substantial question of law is framed :

Whether the Tribunal was right in dismissing the application u/s 254(2) filed by the appellant-Power Finance Corporation Ltd., vide order dated June 18, 2010.

For the assessment year 2003-04, the Assessing Officer had passed an assessment order dated February 27, 2004, computing the deduction u/s 36(1)(viii) of the Act at the figure of Rs. 3,60,15,81,221, instead of Rs. 4,02,58,78,370 as claimed by the appellant-assessee. This difference was on account of the fact that the assessee had computed the said deduction on gross basis, whereas the Assessing Officer had computed the said deduction, net of expenses. Some other issues were also involved.

Against the said assessment, the appellant filed an appeal before the Commissioner of income tax (Appeals) ("the CIT(A)", for short). Ground No. 4 of the grounds of appeal reads as under :

That the learned Additional Commissioner of income tax has erred in granting deduction u/s 36(1)(viii) of the income tax Act at Rs. 3,60,15,81,221 as against the claim of Rs. 4,02,58,80,470 made in the return filed and subsequently revised to Rs. 4,02,58,78,370 in the revised return filed by the assessee ?

The Commissioner of income tax (Appeals) did not examine and decide the aforesaid ground in his order dated October 4, 2004. Aggrieved, the appellant filed an appeal before the income tax Appellate Tribunal ("the Tribunal", for short) raising the following grounds :

Not considering the allocation of direct and common expenses to income from equipment financing and debt refinancing and transitional loan.

In addition to the aforesaid ground, a number of other grounds/contentions were also raised by the appellant before the Tribunal. The Tribunal disposed of the appeal and another appeal for the assessment year 2002-03 by a common order dated August 31, 2009. In the appeal for the assessment year 2002-03, it was held as under :

In line with this Tribunal''s order in the assessee''s own case for the assessment year 1996-97, in the present year also we restore this matter back to the file of the Assessing Officer for considering the direct expenses incurred by the assessee for such income on account of interest on deposits and after examining such expenses the expenses which are incurred for earning this income should be deducted from income on account of interest on deposits and only such net income should be excluded from the business income for the purpose of allowing deduction u/s 36(1)(viii). So this ground of appeal stands allowed for statistical purposes.

It is clear from the aforesaid paragraph, the question of deduction u/s 36(1)(viii) was remitted to the Assessing Officer in terms of its earlier decision of the Tribunal for the assessment year 1996-97.

The Tribunal did not decide the same question relating to section 36(1)(viii) in the appeal for the assessment year 2003-04, in spite of the ground raised by the assessee, which has been quoted above.

The appellant thereafter filed an application u/s 254(2) of the Act stating that the ground mentioned above was not decided in the order dated August 31, 2009, and the same should be decided. The said application has been dismissed, vide the impugned order dated June 18, 2010, passed by the Tribunal. The Tribunal has recorded and noted the statement of the authorised representative of the appellant-assessee that no ground pertaining to deduction u/s 36(1)(viii) of the Act was raised before the Commissioner of income tax (Appeals) and, therefore, it was not sufficient for the appellant-assessee to raise the said ground in the grounds of appeal but a separate application should have been filed by the appellant-assessee before the Tribunal to raise the additional ground on questions which did not arise out of the order of the Commissioner of income tax (Appeals).

As noticed above, the appellant assessee had raised a ground relating to deduction u/s 36(1)(viii) before the Commissioner of income tax (Appeals). Ground No. 4 filed before the Commissioner of income tax (Appeals) has been quoted above. The figures mentioned in the said ground tally with the figures mentioned in the assessment order for computation of special reserve u/s 36(1)(viii) of the Act. It is clear that this grievance was raised but the Commissioner of income tax (Appeals) had failed to consider the said ground. Therefore, the appellant-assessee was compelled to file an appeal before the Tribunal.

The statement/admission of the authorised representative of the appellant that this ground was not raised before the Commissioner of income tax (Appeals) is factually wrong and incorrect. We are satisfied that the appellant had raised ground No. 4 before the Commissioner of income tax (Appeals) and accordingly the appellant had raised the ground in the appeal before the Tribunal that the claim u/s 36(1)(viii) was not considered by the Commissioner of income tax (Appeals) and was not decided by him. Once a question/ground is raised but not decided, it arises and failure to decide can be made the subject-matter of the appellate proceedings. Therefore, no application to raise an additional ground was required to be filed before the Tribunal. As to whether a particular question does or does not arise out of the impugned order was considered in Commissioner of Income Tax, Bombay Vs. Scindia Steam Navigation Co. Ltd., while examining the scope of section 256 of the Act. The Supreme Court held as under (page 611) :

(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the finding given by it.

While the above case law pertains to a reference application against an impugned order delivered by the Tribunal, the same analogy and principle may be applied where an appeal is preferred before the Tribunal.

The question of law is accordingly answered in favour of the appellant-assessee and against the Revenue and the impugned order dated June 18, 2010, is set aside. It is directed that the Tribunal will decide the following ground of appeal "Not considering the allocation of direct and common expenses to income from equipment financing and debt refinancing and transitional loan".

Parties will appear before the Assistant Registrar of the Tribunal on November 21, 2011, when a date of hearing will be fixed.