PETITIONER: ADDITIONAL COMMISSIONER OF INCOME TAX,GUJARAT, I, AHMEDABAD Vs. RESPONDENT: M/S. GURJARGRAVURES PRIVATE LIMITED DATE OF JUDGMENT08/11/1977 BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. SHINGAL, P.N. CITATION: 1978 AIR 40 1978 SCR (2) 169 1977 SCC (4) 571 ACT: Income-tax Act, 1961, s. 251 (1) (a) equivalent to s. 31(3) of Act of 1922-Powers of the Appellate Assistant Commissioner in disposing of an appeal-Scope of HEADNOTE: The respondent assessee is a Company carrying on its business of, copper engraving and manufacturing labels. For the assessment year 1963-64, the assesee did not ask for any exemption in respect of a portion of its profits under section 84 of the Income-tax Act, though in the subsequent years the assessee did ask and the Income-tax Officer accepted it. Dismissing the appeal against the orders of the assessments for the year 1963-64, the Appellate Assistant Commissioner, therefore, held that the question of error on the part of the Income-tax Officer did not arise as no claim for exemption under section 84, which was made for the first time before him, had been made before the Income-tax Officer. The Tribunal, on further appeal, took a different view and held that "since the entire assessment was open before the Appellate Assistant Commissioner" there was no "reason for not entertaining the claim of the assessee." The Tribunal directed the Income-tax Officer to allow appropriate relief under section 84 of the Act. On a reference made at the instance of Commissioner of Income- tax, the Gujarat High Court answered it against the revenue and in favour of the assessee. Allowing the appeal the Court, HELD : (1) 'Consideration' does not mean incidental or collateral examination of any matter by the Income-tax Officer in the process of assessment. There must be something mind in the assessment order to show that the Income tax Officer applied his mind to the particular subject matter or the particular source of income with a view to its taxability or its non-taxability. If an item of income noticed by the Income-tax Officer, but not examined by him from the point of view of its taxability or non- taxability cannot be said to have been considered by him, the Income-tax Officer examining a portion of the profits from the point of view of its taxability should not be deemed to have also considered the question of its non- taxability. [172 F-G] Commissioner of Income-tax (Central), Calcutta v. Rai Bahadur Hardurroy Motilal Chamaria (1967) 66 I.T.R. 443 applied. Commissioner of Income-tax v. Shapoorji Pullonji Mistry (1962 44 I.T.R. 891; Narronday Manordass v. Commissioner of Income-tax (1957) 31 I.T.R. 909.referred to. (2)In the instant case,; (a) on the facts of the case, the question referred to the High Court should have been answered in the negative; (b) Neither any claim was made by the assessee before the Income-tax Officer nor was there any material on record supporting such a claim; (c) in the statement of the case, drawn up by the Tribunal there is no basis for an assumption by the High Court that a portion of the profit in the relevant assessment year was exempt from tax under section 84 and that the assessee failed to claim an exemption to which he was admittedly entitled. From that admission that in the years subsequent to the assessment year in question, a relief under section 84 had been allowed to the assessee, it cannot be presumed that the prescribed conditions justifying a claim for exemption under the section were also fulfilled in an earlier year. [172 A-C, G- H 173 A-B] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1655 of
1972.
170
From the Judgment and Order dated 13th/14th September, 1971
of the Gujarat High Court in Income Tax Reference No. 2/70.
B. B. Ahuja and R. N. Sachthey for the Appellant.
G. L.’Sanghi, Ravinder Narain, D. N., Mishra, J. B.
Dadachanji and O. C. Mathur for the Respondent.
The Judgment of the Court was delivered by
GUPTA, J.-This appeal by the Additional Commissioner of In-
come-tax, Gujarat, 1, Ahmedabad, on a certificate under
section 261 of the Income-tax Act, 1961 granted by the
Gujarat High Court, raises a question relating to the powers
of the Appellate Assistant Commissioner in disposing of an
appeal.
The respondent, a company carrying on the business of copper
engraving and manufacturing of lables, appealed to the
Appellate Assistant Commissioner against an order of
assessment made under section 143(3) of the Income-Tax Act,
1961, and one of the grounds of appeal was that the Income-
tax officer had erred in not. giving the assessee any
benefit under section 84 of the Act. The assessment year
was 1963-64. No claim however had been made before the
Income-tax officer when he completed the assessment that the
assessee was entitled to an exemption in respect of a
portion of its profits under section 84. The Appellate
Assistant ‘Commissioner dismissed the appeal on the ground
that the question of error on the part of the Income-tax
officer did not arise as no claim for exemption under sec-
tion 84 had been made before him. The Tribunal look a
different view and held that “since the entire “assessment
was open before the Appellate Assistant Commissioner” there
was no “reason for not entertaining the claim of the
assessee”. The Tribunal accordingly directed the Income-tax
officer to allow appropriate relief under section 84 of the
Act. It is on record that in the subsequent years the
assessee asked for exemption under section 84 and the
Income-tax officer accepted the claim. On these facts the
Tribunal referred the following question to the High Court
at the instance of the Commissioner of Income-tax :
“Whether on the facts and in the circumstances
of the case it was competent for the Tribunal
to hold that the Appellate Assistant
Commissioner should have entertained the
question of relief under section 84, and to
direct the Income-tax officer to allow
necessary relief ?”
The High Court answered the question in the affirmative.
The correctness of this decision is questioned before us by
the Revenue.
Referring to a number of authorities including the decision
of this Court in Commissioner of Income-Tax v. Shapoorji
Pallonji Mistry,(1) and the case of Narrondas Manordass v.
Commissioner of Income-Tax,(2) decided by the Bombay High
Court, the High Court found it well settled that the various
items of income or deductions which have
(1)(1962) 44 I.T.R. 891.
(2)(1957) 31 T.T.R. 909.
171
been subjected to the process of assessment constitute the
subject matter of assessment, and that if there is any item
of income or claim for deduction which is not processed by
the Income-tax officer, it would not be a part of the
subject matter of assessment and the Appellate Assistant
Commissioner would not have the power to consider and
process it in an appeal preferred by the assessee. Both the
decisions, Commissioner of Income-Tax v. Shapoorji Pallonji
Mistry (supra) and Narrondas Manordass v. Commissioner of
Income-Tax (supra), are based on section 31(3) of the Indian
Income-Tax Act, 1922 defining the powers of the Appellate
Assistant Commissioner in disposing of an appeal. Section
251 (1) (a) of the Income-Tax Act, 1961 which is the
provision applicable to the case before us, is, as the High
Court has noticed, almost similar in terms to section 31(3)
of the Act of 1922.
Having noticed the established position in law, the High
Court proceeded to consider the contention of ‘the Revenue
which was that no claim for exemption having been made by
the assessee before the Income-tax officer, it was not
considered or-processed by him and the claim could not
therefore be said to he the subject matter of assessment.
It appears to have been argued further that merely because a
particular item of income was taxed, it did not carry with
it a decision that it wag not exempt from tax and the
Appellate Assistant Commissioner had accordingly no power.
to interfere by considering and allowing such claim for
exemption. The High Court rejected the contention on the
following reasoning :
“Here, in the present case the Income-tax
Officer subjected to tax a certain portion of
the profit which was exempt from tax under
section 84. It may be that he brought it to
tax because no claim for exemption was made
before him by the assessee, but the fact
remains that it was ‘subjected to the process
of assessment and it clearly and indubitably
formed the subject matter of assessment. It
is true that no claim for exemption having
been made by the assessee before the Income-
tax Officer, there was no decision of the
Income-tax Officer, express or implied,
holding that a certain portion of profit of
assessee was not exempt from under section 84.
But in order that the Appellate Assistant
Commissioner should be entitled to interfere
in appeal on a particular point, it is not
necessary that there should be a decision of
the point given by the Income-tax Officer. It
is enough if the particular item of income in
relation to which the point is to be raised
has come in for consideration by the Income-
tax Officer and has been subjected by him to
the process of assessment.”
We do not find it possible to agree with the High Court that
if an item of income is taxed, the question of its non-
taxability should be taken to have been considered by the
Income-tax officer though no such claim was made before, him
by the assessee. This is directly opposed to the view taken
by this Court in Commissioner of income-tax
172
(Central),. Calcutta v. Bahadur Hardutroy Motilal
Chamaria(1) Before refer to this case in more detail, we
think it necessary to. point out a mistaken assumption
appearing in the judgment under appeal. If the High Court
assumed that a portion of the profit in the relevant
assessment year was exempt from tax under section 84, only
the assessee failed to claim an exemption. In narrating the
facts of the case the judgment records that the assesses was
“admittedly entitled to exemption”. Again, in the extract
quoted above, it appears to have been assumed that a certain
portion of the profit was exempt from tax under section 84.
We find no basis for the assumption in the statement of the
case drawn up by the Tribunal. What appears to have been
admitted was that in the years subsequent to the, assessment
year in question, relief under section 84 had been allowed
to the assessee. But from this it cannot be assumed that
the prescribed conditions justifying a claim for exemption
under the section were also fulfilled in an earlier year.
Turning now to the decision in Commissioner of Income-tax v.
Rai` Bahadur Hardutroy Motilal Chamaria (supra), this was a
case of enhancement of the assessment by the Appellate
Assistant Commissioner under Section 31(3) of the Indian
Income-Tax Act, 1922. This Court held on a consideration of
the earlier authorities including Commissioner of Income-tax
v. Shapoorji Pallonji Mistry and Narrondas, Manohardass v.
Commissioner of Income-Tax (supra),. that the Appellate
Assistant Commissioner bad no jurisdiction under section
31(3) “to assess a source of income which has not been
processed by the Income-tax Officer” and that “it is not
open to the Appellate Assistant Commissioner to travel
outside the record i.e. the return made by the assessee or
the assessment order of the Income-tax Officer with a view
to find out new sources of income and the power of
enhancement under section 31(3) of the Act is restricted to
the sources of income which have been the subject matter of
consideration by the Income-tax Officer from the point of
view of taxability”. What ‘consideration’ by the Income-tax
officer means in this context was also explained
consideration’ does not mean incidental or collateral
examination of any matter, by the Income-tax officer in the
process of assessment. There must be something in the
assessment order to show that the Income-tax officer applied
his mind to the particular subject matter or the particular
source of income with a view- to its taxability or to its
non-taxability and not to any incidental connection”. If,
as held in this case, an item of income noticed by the
Income-tax officer but not examined by him from the point of
view of its taxability or non taxability cannot be said to
have been considered by him, it is not possible to bold that
the Income-tax officer examining a portion of the Profits
from the point of view of its taxability only, should be
deemed to have also considered the question of its non-
taxability. As we have pointed out earlier, the, statement
of case drawn up by the Tribunal does not mention that there
was any material on record to sustain the claim for
exemption which was made for the first time be fore the
Appellate Assistant Commissioner. We are not here called
(1)(1967) 66 I.T.R. 443.
173
upon to consider a case where the assessee failed to make a
claim though there was evidence on record to support it, or
a case where a claim was made but no evidence or
insufficient evidence was adduced in support. In the
present case neither any claim was made before ,the Income-
tax officer, nor was there any material on record supporting
such a, claim. We therefore hold that on the facts of this
case, the question referred to the High Court should have
been answered in the, negative.
The appeal is allowed but in the circumstances of the case
we make no order as to costs.
S.R.
Appeal allowed.
174