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Cit Kanpur v. Sahara Inverstment - INCOME TAX REFERENCE No. 19 of 1999  RD-AH 9004 (11 May 2007)
IN THE HIGH COURT OF JUDICATURE AT ALLAHABAD
Income Tax Reference No.19 of 1999
Commissioner of Income Tax (Central),
Kanpur, Lucknow ... Applicant
M/s Sahara Investment India Ltd.,
Lucknow ... Respondent
Mr. Shambhu Chopra, Standing Counsel for the Revenue
Mr. Percy Pardiwala, with Mr. S.D.Singh for the assessee
CORAM : Hon'ble H.L.Gokhale, C.J.
Hon'ble R.K.Agrawal, J.
DATE May 11, 2007
ORAL JUDGMENT (Per : H.L.Gokhale, C.J.) :
1. This reference to the High Court has been made at the instance of the Commissioner of Income Tax (Central), Kanpur, under Section 256(1) of the Income Tax Act, 1961, (hereinafter referred to as "the Act"), as the section then stood prior to its deletion from the statute. It relates to the assessment years 1991-92.
2. The question of law which is referred for our decision is as follows:-
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in exercising jurisdiction to admit and allow the assessee's miscellaneous application arising out of the order of the Assessing Officer passed to give effect to the Tribunal's order rendered u/s 254(1) of the Income Tax Act?"
3. The facts leading to the present reference are as follows:-
The respondent assessee was stated to be a closely held finance company. It collected deposits from the public under various schemes. The collection and management of its deposits was done by a sister concern to which certain reimbursements were made at certain percentage. In the year 1991-92, 20% of the gross collection was shown as administrative and process charges. During the course of the assessment proceeding, the assessee submitted a revised computation of income in which the credit on account of administrative and process charges was excluded on the plea that the deposits received under various schemes constituted capital receipt. The Assessing Officer, however, noted that in the previous year, relevant to the assessment year 1983-84 the company had been running similar schemes and the administrative and process charges were calculated at 15% of the opening balance and 30% of the current collections. The Assessing Officer, therefore, refused to accept the changed accounting system adopted in the assessment year 1991-92. He determined the process and administrative charges at 15% of the opening balance and 30% of the collection during that year and assessed the total income of the assessee for that year at Rs.26,00,650/- under Section 143(3) of the Act as against the returned loss at Rs.6,24,147/-. This was done by invoking the power of the Assessing Officer under the first proviso to Section 145(1) of the Act, as it then stood, which permitted the Assessing Officer to make computation upon such basis and in such manner as he may determine, where, in the opinion of the Assessing Officer, the method of computation employed was such whereby the income would not properly be deduced therefrom.
4. The assessee having filed an appeal to the Commissioner of Income Tax (Appeals), Lucknow, the Appellate Officer, vide his order dated 13th January, 1995, upheld the applicability of the first proviso to Section 145(1) of the Act, but he took 30% of the current collection only as administrative and process charges and computed the assessee's total income at Rs.8,60,190/-.
5. The assessee as well as the Revenue filed appeals against that order. The Tribunal in its order dated 13th June, 1995, noted in paragraph 26 thereof that the crux of the matter in the appeal was as to whether the deposits accepted by the appellant or any part thereof or any amount based on those deposits, could be brought to tax as Revenue receipts in the hands of the appellant. The Tribunal, by its common order, dismissed the Department's appeal but allowed that of the assessee. The Tribunal held that there was no justification and no material to take recourse to the first proviso to Section 145(1) of the Act. It also held that the deposits received by the assessee company, under its various schemes, retained their characteristic of capital receipt and they could not be taxed as Revenue or trading receipt.
6. Thereafter when the matter went down to the Assessing Officer (Assistant Commissioner of Income Tax) to give effect to the Tribunal's order in the remanded proceeding under Section 150 of the Act, the Assessing Officer noted that the Tribunal had held that the deposits could not be treated as Revenue receipts by any stretch of imagination and that those deposits retained the characteristic of capital receipts and could not be taxed as Revenue or trading receipts. The Assessing Officer, therefore, held in paragraph 3 of its order that it follows that the expenditure incurred in collecting these deposits was capital expenditure. He, therefore, assessed the interest income earned by the assessee company from the fixed deposits, as ''income from other sources'. On this basis, he computed the total income of the assessee at Rs.12,57,730/-.
7. The assessee felt aggrieved by the decision and filed a miscellaneous application on 30th October, 1995, bearing no.50/ALLD of 1995 before the Income Tax Appellate Tribunal to dispute the inference drawn by the Assessing Officer that since the deposits collected by the assessee company were capital receipts, the expenditure incurred in collecting those deposits was capital expenditure. The assessee submitted that the treatment of income earned by the assessee company as income from other sources, was erroneous. The prayer clause in this application reads as follows:-
"Thus, keeping in view the aforesaid facts, the petitioners, humbly request this Hon'ble Court to exercise the inherent jurisdiction of the Hon'ble Court and issue suitable directions to the Assessing Officer so that she may implement the order passed by this Hon'ble Court properly and may not unnecessarily create illegal and fictitious demand on the petitioner which may prejudice the business of the petitioners."
8. The Tribunal entertained this application and observed that altogether a new front has been opened by the Assessing Officer while giving effect to the Tribunal's order and that the style of implementation of the Court's order was fraught with disastrous consequences. The Tribunal observed -
"The order of the A.O. giving effect to the Tribunal's order cannot be a fresh assessment order in any view of the matter."
9. The Tribunal then referred to and relied upon certain observations from a judgment of the Orissa High Court in Orissa Weavers" Cooperative Spinning Mills Ltd. v. Commissioner of Income Tax, reported in (1991) 187 ITR 646. It observed that the Tribunal could exercise powers ancillary to the specific powers vested under the statute. It noted that the Assessing Officer was not permitted to put words in the mouth of the Tribunal while giving effect to the findings of the Tribunal's order. It, therefore, allowed the miscellaneous application and passed the following order :-
"The A.O.'s order dated 12.9.1995 is set aside and he is directed to implement properly the directions given by the Tribunal in its order dated 13.6.1995 in a proper and legal manner."
It is this order which has led the Commissioner of Income Tax (Kanpur) to seek a reference under Section 256(1) of the Act.
10. Mr. Shambhu Chopra, learned Standing Counsel appearing for the Revenue, submitted that the application dated 30th October, 1995, made by the assessee to the Tribunal, seeking directions could, at the highest, be referable to Section 254(2) of the Act and this submission of Mr. Chopra is not disputed by Mr. Pardiwala, learned counsel appearing for the assessee. He accepted that the application was referable to Section 254(2), though it sought to invoke the inherent jurisdiction of the Tribunal.
11. Thereupon Mr. Chopra submitted that the scope of Section 254(2) was limited to rectify the mistakes apparent on the face of the record and amend the order passed by the Tribunal under sub-section (1). Sub-section (1) provides that when an appeal is preferred, the Tribunal may pass such orders thereon as it thinks fit. Mr. Chopra, therefore, submitted that Section 254(2) gave an authority to the Tribunal to correct its own order and not of any other authority. In the instant case, what the Tribunal has done was to correct the order passed by an Assessing Officer by exercising this jurisdiction which, otherwise, was a limited jurisdiction. He relied upon a judgment of a Division Bench of this Court in Commissioner of Income Tax (Central), Kanpur v. Income Tax Appellate Tribunal, Allahabad, reported in 1996 UPTC 1081. A question came up before the Division Bench as to whether the Tribunal could review or recall the order passed by itself under Section 256(1) of the Act. This Court observed in paragraph 5 of its order that -
"...the power exercisable under sub-section (2) of Section 254 is subject to two limitations. Firstly it has to be confined to rectifying any mistake apparent from the record and secondly it has to be confined to an order passed under sub-section (1) of Section 254. Accordingly it is apparent that the power exercisable under sub-section (2) of Section 254 is not available to be exercised for amending any order passed by it under any section other than sub-section (1) of Section 254. In other words the power of the Tribunal conferred by sub-section (2) of Section 254 for rectifying any mistake apparent from the record cannot be exercised by the Tribunal to recall any order passed by it under Section 256 of the Act."
12. It was, therefore, submitted that if a Tribunal could not exercise its power under Section 254(2) to review or recall its own order under another section, there was no question of the Tribunal exercising that power to correct the order passed by an Assessing Officer. He referred to and relied upon two other judgments to the same effect, one is in the case of Commissioner of Income Tax v. Prahlad Rai Todi, reported in (2001) 251 ITR 833. That is a decision of the Gujarat High Court where a Division Bench has held that this power is restricted to rectify only mistakes apparent on the record and an appeal could not be directed to be re-heard by exercising that power. He also relied upon a judgment of Andhra Pradesh High Court in Commissioner of Income Tax v. Ideal Engineers, reported in (2001) 251 ITR 743, where a Division Bench has taken the view that recalling of the original order on the ground that it was erroneous, was not permissible under Section 254(2) of the Act.
13. The second submission of the learned counsel for the Revenue was that assuming that the order passed by the Assessing Officer was erroneous one, there was a hierarchy of the authorities to correct it. The assessee could have filed an appeal under Section 246(1)(b) of the Act to the Deputy Commissioner (Appeals) since this was an order passed by an Assessing Officer of the rank of the Assistant Commissioner. It is thereafter only, if the assessee was aggrieved, that it could have filed an appeal to the Appellate Authority under Section 253 or a revision under Section 264 of the Act. At the highest, it could have filed a writ petition before this Court. The application of the type, which was filed before the Tribunal, was, however, impermissible.
14. With respect to the word "thereon", appearing in sub-section (1) of Section 254 of the Act, he drew our attention to a Division Bench's judgment of the Bombay High Court in Pokhraj Hirachand v. Commissioner of Income Tax, Bombay City - II, reported in (1963) 49 ITR 293, to submit that it referred to an order on an appeal alone which could be corrected under sub-section (2) of Section 254. Similar view is taken by the Apex Court in Hukumchand Mills Ltd. v. Commissioner of Income Tax, Central, Bombay, reported in (1967) 63 ITR 232.
15. He lastly submitted that whether an expenditure is a revenue expenditure or a capital expenditure, is a question to be decided on merit. The Assessing Officer's decision cannot be said to constitute a mistake for the Tribunal to correct. He referred to and relied upon a judgment of Bombay High Court in Commissioner of Income Tax v. Glaxo Laboratories (India) Ltd., reported in (1989) 181 ITR 59, in that behalf.
16. That apart, he submitted that an order passed by the Assessing Officer to give effect to an appellate order is an order from which an appeal would lie, which view has been taken by the Andhra Pradesh High Court in Commissioner of Income Tax v. Warner Hindustan Ltd., (1987) 165 ITR 403.
17. With respect to the submission of the assessee that the company was invoking the inherent jurisdiction of the Tribunal, the counsel for the Revenue pointed out that a power of review is not inherent in a Tribunal. The Tribunal is a creature of a statute. The Courts having general jurisdiction, like Civil Courts have inherent jurisdiction, but the Tribunal of limited jurisdiction has no inherent power. For this purpose, he relied upon a judgment of Rajasthan High Court in Commissioner of Income Tax v. Globe Transport Corporation, reported in (1992) 195 ITR 311.
18. In reply, Mr. Pardiwala, learned counsel appearing for the assessee, submitted, to begin with, that apart from filing the application before the Tribunal, the assessee had filed an appeal to the Commissioner of Income Tax also. However, the Miscellaneous application filed before the Tribunal got decided earlier and, therefore, the appeal was disposed off as rendered infructuous. He, however, submitted that the Miscellaneous application filed by the assessee was very much maintainable. He submitted that the Tribunal, like Courts, were constituted to do justice and, therefore, if it was brought to the notice of the Tribunal that its order was being misunderstood and erroneously implemented, the Tribunal could pass an order of the nature that was sought in the present proceeding. He firstly relied upon a judgment of the Apex Court in the case of Income Tax Officer, Cannanore v. M.K.Mohammed Kunhi, reported in (1969) 71 ITR 815. The question before the Apex Court was as to whether while exercising the appellate power under Section 254 of the Act, the Tribunal could grant stay in appropriate cases. This is because although sub-section (1) provides that ''the Tribunal may pass such orders as it thinks fit', the section specifically does not confer power to grant stay. The Apex Court laid down that the section conferred on the appellate Tribunal the powers of widest amplitude in dealing with the appeal before it. By implication it did contain the power of doing all such acts as were essential and necessary. It, therefore, included the power to grant stay of recovery in pending appeal, otherwise the appeal would be rendered nugatory. He emphasized the following observations of the Court from the judgment:-
"Indeed, the Tribunal has been given very wide powers under section 254(1), for it may pass such orders as it thinks fit after giving full hearing to both the parties to the appeal. If the Income-tax Officer and the Appellate Assistant Commissioner have made assessments or imposed penalties raising very large demands and if the Appellate Tribunal is entirely helpless in the matter of stay of recovery, the entire purpose of the appeal can be defeated if ultimately the orders of the departmental authorities are set aside. It is difficult to conceive that the legislature should have left the entire matter to the administrative authorities to make such orders as they choose to pass in exercise of unfettered discretion. The assessee, as has been pointed out before, has no right to even move an application when an appeal is pending before the Appellate Tribunal under section 220(6) and it is only at the earlier stage of appeal before the Appellate Assistant Commissioner that the statute provides for such a matter being dealt with by the Income-tax Officer. It is a firmly established rule that an express grant of statutory power carries with it by necessary implication the authority to use all reasonable means to make such grant effective (Sutherland's Statutory Construction, third edition, articles 5401 and 5402). The powers which have been conferred by section 254 on the Appellate Tribunal with widest possible amplitude must carry with them by necessary implication all powers and duties incidental and necessary to make the exercise of those powers fully effective."
He, therefore, pressed for an analogy and submitted that if an order of stay could be granted, similarly the rectification, as sought in the present case, could also be done, which was necessary for granting effective relief.
19. The next judgment relied upon by Mr. Pardiwala was in the case of Union of India and another v. Paras Laminates Pvt. Ltd., reported in (1990) 186 ITR 722. In that matter, the President of the Customs, Excise and Gold (Control) Appellate Tribunal had appointed a larger Bench, which had been struck down by the Delhi High Court. The Apex Court held that the President did have the power to constitute such Bench for effective disposal of the matter and, in that context, it observed as follows:-
"There is no doubt that the Tribunal functions as a court within the limits of its jurisdiction. It has all the powers conferred expressly by the statute. Furthermore, being a judicial body, it has all those incidental and ancillary powers which are necessary to make fully effective the express grant of statutory powers. Certain powers are recognised as incidental and ancillary, not because they are inherent in the Tribunal, nor because its jurisdiction is plenary, but because it is the legislative intent that the power which is expressly granted in the assigned field of jurisdiction is efficaciously and meaningfully exercised. The powers of the Tribunal are no doubt limited. Its area of jurisdiction is clearly defined but, within the bounds of its jurisdiction, it has all the powers expressly and impliedly granted. The implied grant is, of course, limited by the express grant and, therefore, it can only be of such powers as are truly incidental and ancillary for doing all such acts or employing all such means as are reasonably necessary to make the grant effective. As stated in Maxwell on the Interpretation of Statutes (eleventh edition) "where an Act confers a jurisdiction, it impliedly also grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution." [See also ITO v. M. K. Mohammed Kunhi  71 ITR 815,819 (SC)]."
20. Lastly, he relied upon the judgment of a Constitution Bench of the Apex Court in Shivdeo Singh and others v. State of Punjab and others, reported in AIR 1963 SC 1909, where the Court observed that there is nothing in Article 226 of the Constitution to preclude the High Court from exercising the power of review which inheres in every Court of plenary jurisdiction to prevent miscarriage of justice or to correct grave and palpable errors committed by it. He relied upon it to submit that a tribunal like every other Court, has plenary jurisdiction to prevent miscarriage of justice.
21. We have considered the submissions of both the counsel.
We are concerned with the reference as to whether the Tribunal was justified in law in exercising the jurisdiction to allow the assessee's miscellaneous application arising out of an order passed by the Assessing Officer.
Sub-sections (1) and (2) of Section 254 of the Act are the relevant sub-sections. These two sub-sections read as follows:-
"254. Orders of Appellate Tribunal.
(1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.
(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer:
Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard."
22. As submitted by the counsel for the Revenue and accepted by the counsel for the assessee, the application made by the assessee though seeks to invoke inherent jurisdiction of the Tribunal, the same is clearly referable to Section 254(2) of the Act. As seen from some of the judgments which have been referred to above, an application under sub-section (2) is essentially to rectify a mistake apparent on the record of an order passed under sub-section (1). Thus, as has been noted above, even an order of the Tribunal under Section 256 cannot be corrected by exercising this power. The power is restricted to rectify only the mistake apparent on the record. It has also been seen that while exercising these powers only rectification of the mistake is contemplated and nothing beyond. There cannot be a full review or recall of the order passed in appeal in exercise of these powers. Thus, the scope of the power under sub-section (2) is quite restricted. It is confined to the orders passed by the Appellate Tribunal itself, it is confined to the order passed by the Appellate Tribunal under sub-section (1) only and it is confined merely to correct the mistakes apparent on the face of the record of that order. The power is a limited power and if the Miscellaneous application is referable to sub-section (2) of Section 254, undoubtedly, the application will have to be held as a misconceived one. This is because the order which was sought to be corrected in exercise of this power, was not an order passed by the Appellate Tribunal, it was not an order passed by the Tribunal under sub-section (1) and it was also not an application to correct any mistake manifest in any such order. Thus, on the face of it, an application, referable to Section 254(2), was, undoubtedly, a misconceived one. The power could not be exercised to correct any such other order as also has been held by a Division Bench of this Court, as pointed earlier.
23. If the Miscellaneous application is to be considered as an application invoking the inherent jurisdiction of the Tribunal, as the application very much states, the question will arise as to whether the Tribunal does have any inherent jurisdiction, as is claimed. As far as the nature of powers of the Tribunal constituted under the Industrial Disputes Act are concerned, they came up for consideration before the Apex Court in The Bharat Bank Ltd., Delhi v. The Employees of the Bharat Bank Ltd., Delhi, reported in AIR 1950 SC 188, before a Constitution Bench. Different judgments were rendered by the Judges constituting the Bench and later in J.K. Iron and Steel Co. Ltd., Kanpur v. The Iron and Steel Mazdoor Union, Kanpur, reported in AIR 1956 SC 231, the Apex Court, explaining the judgment in The Bharat Bank Ltd., has held that the powers of the Tribunals are derived from the statute that create them and they have to function within the limits imposed thereunder. The relevant paragraph 22 of the judgment in J.K. Iron and Steel Co. Ltd. reads as follows:-
"22. All the same, wide as their powers are, these Tribunals are not absolute, and there are limitations to the ambit of their authority. In 'Bharat Bank Ltd., v. Employees of Bharat Bank Ltd., AIR 1950 SC 188 at p. 203 (C) this Court held by a majority that though these Tribunals are not Courts in the strict sense of the term they have to discharge quasi judicial functions and as such are subject to the overriding jurisdiction of this Court under Art. 136 of the Constitution. Their powers are derived from the statute that creates them and they have to function within the limits imposed there and to act according to its provisions. Those provisions invest them with many of the "trappings" of a Court and deprive them of arbitrary or absolute discretion and power."
24. It is interesting to note that even the judgment of the Orissa High Court in Orissa Weavers" Cooperative Spinning Mills Ltd., which was referred to and relied upon by the Tribunal, to take out one sentence from that judgment, in fact, states something which is absolutely contrary to the proposition for which the judgment was relied upon by the Tribunal. This judgment clearly states that the Tribunal is a creature of a statute and can exercise powers and that it has no wide power to grant relief where an appeal or cross-objection is not preferred since the same is not ancillary to the main power. The relevant observations, in that judgment, are as follows:-
"When the assessee has not preferred any appeal or cross-objection, there was no scope for the Tribunal to disturb the finding of the Appellate Assistant Commissioner against the assessee which has become final. Mr. Ray, learned counsel for the assessee, submitted that, the Tribunal has power to pass such other order as it considers proper which includes also the power to grant relief or exemption of the balance amount for which no appeal or cross-objection was filed by the assessee.
The Tribunal is a creature of the statute. It is to exercise that much of power which is provided under the statute and can exercise powers ancillary to the power vested. It has no wide power to grant relief where appeal or cross-objection is not preferred since the same is not ancillary to the main power."
25. The judgment of the Apex Court in M.K.Mohammed Kunhi did hold that the power under Section 254(1) includes the power to grant stay. This power is not specifically provided, yet that power is culled out from the nature of the appellate jurisdiction which the Tribunal was exercising under that section. The relevant sentence from the above quotation is that an express grant of statutory power carries with it by necessary implication the authority to use, by all reasonable means, to make such grant effective. The judgment cannot be read as an authority for a proposition that although appropriate remedies are otherwise available under the statute, yet Section 254(2) could still be pressed into service for rectifying the mistake of other authorities. That certainly was not contemplated when the Apex Court observed that by necessary implication the statutory power includes the authority to use all reasonable means to make the grant of power effective. Similarly, the proposition in Shivdeo Singh's case (supra) cannot imply the exercise of power by the Tribunal to correct the assumed mistakes in the order for assessment. It may also be mentioned here that unlike the High Court which exercises supervisory jurisdiction under Article 227 of the Constitution of India over all the authorities within its territorial jurisdiction, the Tribunal, constituted under the Act, has no supervisory jurisdiction over the authorities working within its territorial jurisdiction. Thus, it had no power nor could have exercised any power, to correct an order passed by an authority, whose order were not the subject matter of an appeal before it.
26. In the circumstances, we will have to hold that the application made to the Tribunal invoking its claimed inherent jurisdiction, was misconceived. There is a hierarchy of authorities for correcting the error, assuming that there was any. Instead of following that hierarchy, an application was filed before the Tribunal leading it to exercise the jurisdiction which it did not have.
27. We have, therefore, to allow this reference and to hold that, in the facts and circumstances of the case, the Appellate Tribunal was not justified in law in exercising the jurisdiction to admit and allow the miscellaneous application filed by the respondent assessee. The order of the Appellate Tribunal will, consequently, stand set aside.
28. The question referred to us is, therefore, answered in the negative, i.e., in favour of the Revenue and against the assessee. In the facts and circumstances of the case, the parties are left to bear their own costs.
R.K.Agrawal Chief Justice
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