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Judgment
Avadh Behari Rohatgi, J.—The Appellate Tribunal, Delhi has referred u/s 256(1) of the income tax Act, 1961 (hereinafter referred to as "the Act") the following questions for opinion of this Court:
Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the income tax Officer was not justified in recomputing the written down value of the ''service lines'' for the period up to 31-3-1961 and that the written down value as on 31-3-1961 was to be taken as the written down value as on 1-4-1961?
Whether, on the facts, and in the circum stances of the case, the Tribunal was right in holding that the income tax Officer was precluded from taking an action u/s 154 in respect of the assessment order for the assessment year 1962-63 which had got merged with the order of the Appellate Assistant Commissioner?
Whether, on the facts, and in the circum stances of the case, the ''actual cost'' of the service lines owned by the assessee-company for the purpose of allowing depreciation and development rebate under the income tax Act, 1961, should be determined not in accordance with the provisions of the said Act but in accordance with those of the Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948?
The first two questions were referred at the instance of the department. Question No. 3 was referred at the instance of the assessee. The assessee is an Electric Supply Co. It used to close its account on the financial year basis. Its accounting year relevant to the assessment year 1962-63 ended 31-3-1962. For this year an assessment u/s 143(3) was made on 30-11-1966 allowing the following amounts of depreciation and development rebate in connection with the service lines which formed part of the company''s assets.
Depreciation
Rs.
29,133
Development rebate
Rs.
8,017
Total
Rs.
37,150
On 27-8-1968 a notice u/s 154 of the Act, was issued to the assessee proposing to withdraw the depreciation and the development rebate on the "service lines." The assessee did not attend the hearing. The ITO presumed that it had no objection to the proposed rectification. Accordingly, he made an order on 31-5-1969 withdrawing depreciation amounting to Rs. 29,133 and the development rebate amounting to Rs. 8,017. In his order u/s 154, the ITO held that he had wrongly allowed depreciation and development rebate under the provisions of section 10(5) of the 1922 Act and that the proper provisions applicable are of section 43(1) of the 1961 Act. u/s 43(1), the term "actual cost" is defined as follows:
''Actual cost'' means the actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority.
On the basis of the balance sheet of the company, he formed the view that as a result of the contribution made by the consumers for the service lines the company had been fully reimbursed and there was no "actual cost" to the company within the meaning of section 43(1) on which it could be allowed depreciation and development rebate. Thus, he withdrew the depreciation and the development rebate which he had allowed in his original assessment order, dated 30-11-1966, both on the existing service lines as well as the additions made thereto during the relevant accounting year.
The assessee appealed to the AAC and contended that the ITO had no jurisdiction to pass an order u/s 154 in respect of the assessment made on 30-11-1966 because an appeal was taken from the order dated 30-11-1966, and as a result it had merged and fused with the order of AAC. The A AC did not accept this contention of the assessee because he found that in the appeal against the quantum of income determined originally on 30-11-1966 the AAC had not given any decision, on the correctness or otherwise of the depreciation and the development rebate allowed on the service lines. He, therefore, confirmed the order of the ITO u/s 154.
The assessee-company went in appeal to the Tribunal from the order of the AAC. Before the Tribunal, the assessee raised three main contentions. The first was that provisions of section 43 (1) did not apply to its case, and that the written down value as on 31-3-1961 had to be worked out necessarily on the basis of the provisions of the 1922 Act. On this point the Tribunal came to the conclusion that section 43(7) of the 1961 Act had no retrospective application and, hence, the "actual cost" as defined in section 10(5) of the 1922 Act cannot be disturbed by taking recourse to the provisions of section 43(7). They held that the ITO was not justified in computing the written down value of the service lines as determined for the period up to 31-3-1961. Their finding was that "in the absence of any provisions to the contrary the written down value as on 31-3-1961 must be taken to be the written down value of the same assets as on 1-4-1961".
The second point raised before the Tribunal by the assessee was that the Indian Electricity Act, 1910, read with the Electricity (Supply) Act, 1948, provided a special mode of calculating depreciation and written down value of the service lines and those Acts also required the undertaking supplying electricity to set apart the amounts collected from the consumers against the service lines for being handed over to the Government or the Electricity Board which may in future take over the administration of the undertaking. In a word, it was said that the provisions of the income tax Act were not applicable for determining the "actual cost" of the assets and that the aforesaid Electricity Acts applied. This contention of the assessee was rejected. It was held that the Electricity Acts have no relevance for determining an assessee''s income tax liability which had to be determined under the income tax Acts.
The third objection raised by the assessee was about the jurisdiction of the ITO to rectify his original order of assessment dated 30-11-1966 u/s 154. It was contended, and the revenue did not dispute it, that the assessee in his appeal from the original assessment order did take in the grounds of appeal before the AAC the question of determination of depreciation and development rebate. The Tribunal took the view that once grounds of objection were taken in appeal, the operative order was that of the AAC on the issues raised. The Tribunal observed that though it is true that the AAC did not pass any order in respect of the items of depreciation and development rebate, his "silence" meant that he had confirmed the order of the ITO on these two items. Therefore, it was held that the operative order was that of the AAC. The Tribunal in the result held that the ITO''s action in rectifying the depreciation and development rebate in respect of service lines was without jurisdiction.
The questions set forth above arising out of the order of the Tribunal had been referred to us for our opinion, as we have said.
Question No. 1 - On the first question we think the ITO was right and the Tribunal was wrong. The assessment year in question is 1962-63. The written down value had to be found as on 1-4-1961. The Tribunal thought that section 10(5) of the 1922 Act applied because the 1961 Act came into force with effect from 1-4-1962. This was their first conclusion. Secondly, they concluded that the written down value as on 31-3-1961 must be taken to be the written down value of the same assets on 1-4-1961. In both these conclusions the Tribunal was wrong. u/s 297(2)(b), "where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice u/s 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of the person for that year shall be made in accordance with the procedure specified in this Act". The return of income from the assessment year 1962-63 was filed after the commencement of the 1961 Act and, therefore, the 1961 Act applied. The "actual cost" had to be determined u/s 43(1). The written down value could not be determined under the 1922 Act for the assessment year 1962-63. This is the view which the ITO took in his order u/s 154 and we think he was right.
It will also be wrong to say that the written down value as on 31-3-1961 was the same as on 1-4-1961. For the assessment year 1961-62, the written down value as on 1-4-1960 had to be determined and depreciation allowed thereon u/s 10(5) of the 1922 Act which was applicable at that time. The written down value thus reduced would be the written down value of the assets as on 31-3-1961 and would also have been taken as the written down value as on 1-4-1961, had the 1922 Act continued in force unamended. However, the position changed for the assessment year 1962-63 for which the previous year was the financial year 1961-62. On 1-4-1962 the 1961 Act came into force and the "actual cost" u/s 43(7) ought to be determined after deducting the contributions received from the consumers. The contributions received from the consumers could not be deducted from the "actual cost" u/s 10(5) of the 1922 Act. That is what the House of Lords have held in Commissioner of Income Tax Vs. Poona Electric Supply Co., Ltd., . The "actual cost", u/s 10(5) of the 1922 Act, as under the English law, means "the cost, the whole cost and nothing but the cost", to use the words of Lord Atkin. But on 1-4-1961 the actual cost had to be determined u/s 43(1) after deducting the contributions received from the consumers-- CIT v. Hides & Leather Products (P.) Ltd. [1975] 1C1 ITR 61 (Guj.).
The Tribunal was not right in holding that the written down value on 1-4-1961 was the same as on 31-3-1961. Nor was the Tribunal right in holding that the Act 1922 applied. Subject to what we have to say on Question No.. 2, our answer to Question No. 1 is in favour of the Department.
Question No. 2 - On this question we think the Tribunal was right in holding that the ITO had no jurisdiction u/s 154 to revise the original assessment order dated 30-11-1966 because that order had merged and fused with the order of the AAC. In this connection the following dates will clarify the issue at a glance:
30-11-1966
-
Date of original order.
23-1-1968
-
Date of the order of the AAC in appeal from the original assessment order dated 30-11-1966.
27-8-1968
-
Notice u/s 154.
31-3-1969
-
Order of the ITO u/s 154.
Once the assessment order dated 30-11-1966, is challenged in appeal before the AAC, the order of the ITO dated 30-11-1966 merges in the order of the AAC dated 23-1-1968. The doctrine of merger ought to apply. It is undisputed that in the grounds of appeal before the AAC the assessee took, amongst other grounds, the question of the determination of depreciation and development rebate. It is true that the AAC''s order in respect of depreciation and rebate is silent. But nevertheless the basic general principle imbedded in the doctrine of res judicata will apply. If the AAC did not modify or reverse the ITO''s order on these two items, it meant that he confirmed the decision of the ITO. The operative order in the field was the order of the AAC and not of the ITO. After the order of the AAC dated 23-1-1968, the ITO had no jurisdiction to issue a notice u/s 154.
Counsel for the department referred to us section 154(1 A) which says:
Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.
This amendment was made on 6-10-1964. Even before the amendment, numerous decisions took the view that even after an appeal from an order has been preferred and decided, a mistake in that part of the order which was not the subject-matter of the appeal and was left untouched by the appellate authority can be rectified by the authority which passed the order-- Karsandas Bhagwandas Patel Vs. G.V. Shah, Income Tax Officer, Rajkot and Others, . This principle is now given statutory recognition by sub-section (1A) of section 154.
The question is: What is meant by the words "considered and decided" which are used twice in the sub-section. In the present case, the question of depreciation and development rebate was taken as a specific ground in the memorandum of appeal before the AAC.
Whether this ground was argued before the appellate authority or was abandoned or was not pressed, we do not know. All that we know is that the AAC did not pass any order in respect of depreciation and development rebate. Can it be said on these facts that he did not consider and decide the two items? We are clearly of the opinion that these two items will be deemed to have been considered and decided in the order of the AAC dated 23-1-1968. Was it the subject-matter of an appeal?
This is the question. If the answer is "yes", the matter ought to be held as having been considered and decided. The expression "considered and decided" used in 1964 in subsection (1A) is as old as the hills. It was used in the Code of Civil Procedure, 1908 in a slightly different form. There the expression is "heard and decided" which means much the same thing as "considered and decided". The matter can also be looked at from this point of view. If it is said that the AAC had not considered and decided this ground, it would be open to the assessee (and even the department, for the AAC has powers of enhancement) to move him u/s 154 and request him to deal with this ground. That would result in the position that both the income tax Department and the AAC could rectify the position in regard to the same matter, which was exactly the position which sub-section (1A) was intended to obviate. It appears to us that the order of the ITO dated 30-11-1966 merged in the order of the AAC dated 23-1-1968 and thereafter the ITO lost jurisdiction to rectify any error apparent on its face u/s 154.
We do not doubt that the mistake made by the ITO in his original assessment order dated 30-11-1966 in the matter of depreciation and development rebate was a mistake apparent on the face of the record. Clearly the 1961 Act applied. Erroneously the ITO had applied the 1922 Act. u/s 154, the ITO can recompute the correct amount of depreciation allowance after checking up the previous calculations-- Maharana Mills (Private) Ltd. Vs. Income Tax Officer, Porbandar, . The application of wrong statutory provisions is a mistake apparent on the face of the record. But unfortunately for the assessee the ITO discovered the mistake too late. He discovered it after an appeal had been taken from his original assessment order and decided by the AAC. It is the order of AAC dated 23-1-1968 which is the determining factor in the matter of jurisdiction of the ITO. After this order, he did not have any jurisdiction to act u/s 154. This question is answered in favour of the assessee and against the department.
Question No. 3 - In our opinion, the Tribunal was right in holding that the Electricity Acts, 1910 and 1948 had no application for the purpose of allowing depreciation and development rebate. These had to be determined under the income tax Act. The reason is simple. The assessee asked for these reliefs under the income tax Act. Therefore, the income tax Act governs. The Electricity Acts have no relevance for the purpose of computation of income. The question is answered in favour of the department. In view of the fact that the assessee has partially succeeded and so has the revenue, we make no order as to costs.