Commissioner of Income Tax vs Indian Express (Madurai) (P.) Ltd.

V. Balasubrahmanyan, J.—This reference raises a point about the scope of the appellate jurisdiction of the Appellate Tribunal. This Tribunal

came into being in January 1941. In the forty years and more of its existence, this Tribunal has become probably the best-known quasi-judicial

Tribunal in the country. What is more, other quasi-judicial appellate bodies are trying to model themselves on this Tribunal. The chief function of

the Tribunal is to hear and determine appeals from orders passed by the AAC. Similar function has been assigned to the same Tribunal under

either the Direct Taxes Act, such as the Estate Duty Act, 1953, the Wealth-tax Act, 1957, the Gift-tax Act, 1958 and so on. Over the years,

Benches of the Tribunal in far-flung parts of the country have disposed of hundreds of thousands of appeals from orders of the AAC. Many

questions have cropped up during this period touching the scope of the Tribunal''s appellate jurisdiction. The Tribunal itself has dealt with aspects

of its own jurisdiction, on the principle that a Tribunal has undoubted jurisdiction to decide whether it has jurisdiction or not. Many of the

determinations of this Tribunal on the question of its own jurisdiction have been the subject of consideration by the several High Courts in the

country and also by the Supreme Court. The case with which jurisdictional questions have been brought before the High Court and the Supreme

Court is not surprising, because against any order passed by the Tribunal in appeal, a reference is available to the aggrieved party before the High

Court, and against the judgment of the High Court on such reference, the statute provides for an appeal to the Supreme Court if the case is a fit

one for appeal. There is thus no dearth of case law from the High Courts, and the Supreme Court on the subject of the scope of the Tribunal''s

appellate jurisdiction.

The scope of the Tribunal''s appellate jurisdiction has been set out in the simplest terms both in the Indian income tax Act, 1922 (''the 1922

Act''), under which the Tribunal was first constituted and subsequently in the income tax Act, 1961 (''the Act''), in identical terms. The crucial

words of the provision are as under [section 254(1) of the Act]:

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.

The expression ''thereon'' means ''on the appeal''. Thus, the Tribunal has power to pass such orders on the appeal as it thinks fit. The trend of

earlier judicial decisions, however, was to regard the expression ''thereon'' as meaning ''on the subject-matter of the appeal''. This judicial gloss in

construction having been set by earlier decisions, naturally, the subsequent cases in which the Tribunal''s appellate jurisdiction was in point,

reiterated as an axiom of tax appeals that the Tribunal''s jurisdiction must be confined to the ''subject-matter of the appeal''. This test of ''subject-

matter of the appeal'' was almost invariably applied, as if it were a statutory imperative, to all aspects of the Tribunal''s appellate jurisdiction, such

for instance, as the scope of the appeal, the grounds of appeal, the maintainability of additional grounds of appeal and the availability of new pleas

at the hearing, and the points to which and the extent to which the respondent can invite a decision from the Tribunal. In the event, a super-

abundance of case law has grown on the scope of the appellate jurisdiction of the Tribunal.

Three decisions of the Supreme Court, however, stand out prominently on this subject. They are Hukumchand Mills Ltd. Vs. Commissioner of

Income Tax, Central Bombay and Others, Commissioner of Income Tax, Madras Vs. Mahalakshmi Textile Mills Ltd., and Commissioner of

Income Tax, Madras Vs. S. Nelliappan, . In those cases, the Supreme Court had occasion to lay down what the real scope of the Tribunal''s

appellate jurisdiction is. However, before referring to the Supreme Court''s decisions in detail, it is necessary to explain how the point of

jurisdiction had arisen in the present reference.

The assessee is a newspaper publisher having in its labour force as well as staff a number of employees. Year after year, the company was

making appropriate provision in the balance-sheet towards its possible gratuity liability for its workmen. Since gratuity was payable only on

retirement or on certain other eventualities, the assessee paid out money to the concerned workmen, only on retirement, death and the like. To the

extent money was paid out in payment of gratuity, the assessee showed it as a regular outgoing in its books of account. However, according to

accepted accountancy practice, a provision for gratuity might well be made every year on the basis of actuarial calculations and such a provision

can be regarded as a proper charge against the profits of the year, even though no money is paid out. The actual payment, if any, by way of

gratuity made by the assessee to any workman retiring during the year is a different thing altogether from a mere provision. Although the assessee

had followed the method of making an appropriate provision for gratuity in the balance sheet year after year, so far as its income tax assessments

were concerned, the assessee did not claim any deduction of the amount representing the provision for gratuity in each year. On the contrary, the

claim of the assessee in its assessments was restricted to the payments, if any, actually made during the relevant account year to outgoing

employees.

During the account year ended 30-4-1968, relevant to the assessment year 1969-70, there was an agreement between the assessee on the one

hand, and its non-working journalists on the other, relating to gratuity. Under the terms of this agreement, the assessee under took to pay these

employees gratuity on their cessation of service, taking into account the period of their past service under the assessee''s employment. With this

agreement having been entered into, the assessee made provision in its balance sheet for Rs. 4,56,810.14 as gratuity liability accruing due to non-

working journalists. A similar provision was made for Rs. 55,657.69 towards gratuity liability for working journalists. Both these amounts were

charged in the profit and loss account and also figured in the balance-sheet. In filing its return of income for the relevant assessment year, however,

the assessee did not claim either of these amounts as deductions. The assessee apparently proceeded on the assumption that a provision for

gratuity, even though made under the terms of a binding agreement with employees and calculated on the basis of scientific principles, cannot come

in as a proper deduction in the computation of business profits for the purpose of income tax. The assessee might have thought that a deduction

would be admissible for the purpose of income tax only in respect of money actually paid out by the assessee to its outgoing employees during the

relevant year of account.

With a return filed on this basis, quite naturally the ITO did not have any occasion to grant any deduction by reason of the gratuity liability being

provided for and duly charged in its profit and loss account and balance-sheet. The assessee objected to certain other calculations and additions

made by the ITO in the order of the assessment; the assessee raised these objections by preferring an appeal from the assessment. But while doing

so, it did not occur to the assessee to raise in the appeal before the AAC any point about the deducibility of the amount of gratuity liability figuring

as a charge in the profit and loss account, and as a provision in the balance, sheet. While disposing of the assessee''s appeal, such as it was, raising

diverse grounds, the AAC dismissed the assessee''s appeal and confirmed the assessment. The assessee filed a further appeal before the Tribunal

reiterating the same grounds of appeal which were put forward at the stage of first appeal. However, when the appeal was taken up for hearing by

the Tribunal, the assessee filed an application to raise an additional ground of appeal. In the additional ground, the assessee raised a plea that the

sum of Rs. 4,56,810.14 and Rs. 55,657.69 which were provisions made in the relevant year towards gratuity liability should be deducted in the

computation of its assessable business profits of the year. On behalf of the department, a preliminary objection was raised at the hearing to the

effect that the Tribunal should not entertain this new plea by the assessee since it had not been raised at any time earlier at any stage of the

proceedings, either before the ITO or before the AAC. The Tribunal, however, overruled this preliminary objection as to its jurisdiction. The

Tribunal regarded the matter as one entirely within its discretion, either to entertain or not to entertain. The Tribunal proceeded to observe that in

the exercise of its discretion, this was a fit case to allow the assessee to raise a new point in the appeal. The Tribunal, however, directed the case

to be sent back to the ITO, for going into the factual and other considerations bearing on this new point.

In this reference, brought at the instance of the department, the question for our decision is:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in admitting the additional ground raised by the assessee relating

to a claim which was never in dispute either before income tax Officer or before the Appellate Assistant Commissioner?

Mr. A.N. Rangaswami, the learned standing counsel who argued the reference for the department, cited before us a number of decisions of

various High Courts. He relied, principally, on a decision of the Gujarat High Court in Commissioner of Income Tax, Gujarat I Vs. Karamchand

Premchand Private Ltd., . He also cited certain other High Courts'' decisions.

As we earlier observed, the scope of the Tribunal''s appellate jurisdiction has been dealt with in three land-mark decisions of the Supreme Court

to which we had made reference earlier. Having regard to the governing principles in our Court system, we think, we should take the law on this

subject, as in any other, from the decisions of the Supreme Court. It is in the context of the overriding effect of Supreme Court precedent that we

have, with respect, desisted from entering into any discussion of the several decisions of High Courts cited at the Bar. We shall, however, at the

appropriate stage, refer to the Gujarat High Court decision cited by Mr. Rangaswami, but only for the sake of illustrating to what extent the

principles laid down by the Supreme Court have been properly understood or not.

The three decisions of the Supreme Court are, in point of chronology, Hukamchand Mills'' case (supra), decided in September 1966, by a Bench

consisting of Shah, Ramaswami and Bhargava, JJ, and two decisions rendered on one and the same day in May 1967, by a Bench consisting of

Shah, Sikri and Ramaswami, JJ., namely, Mahalakshmi Textile Mills'' case (supra) and Nelliappan''s case (supra).

We would, however, take up for discussion those three cases in the reverse order. In Nelliappan''s case (supra), the assessee was plying

motor buses and lorries. He was assessed to income tax on estimates of income, and also on itemised additions of unexplained cash credits. The

assessee appealed against the assessment made in this manner. While conducting the appeals both before the AAC and the Tribunal, the assessee

found fault with the assessment on the limited ground that the estimate was excessive. The Tribunal rejected the assessee''s contention. On a

reference, the High Court observed that the matter required reconsideration by the Tribunal, and disposed of the case accordingly. At the time of

reconsideration, it was for the first time put forward before the Tribunal on the assessee''s behalf that the ITO could not make an estimate of

income and also add further amounts towards unexplained cash credits. The assessee further contended that the addition of credits was redundant,

in the circumstances, and must be deleted. The Tribunal accepted this new plea of the assessee, and allowed the appeal in part directing the

deletion of the cash credits from the assessee''s taxable income. The Commissioner thereupon demanded a reference from the Tribunal, raising the

question whether the Tribunal was right in law in making out a new case for the assessee and interfering with the assessment. The Tribunal rejected

the reference application. The department moved the High Court for a direction to the Tribunal, asking it to state a case and refer the question of

law for decision. This application was dismissed by the High Court. On appeal by special leave, the Supreme Court observed as under:

In hearing an appeal the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal, and in deciding the

appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal was,

therefore, competent to allow the assessee to raise the contention relating to the cash credits which was not made the subject-matter of a ground in

the memorandum of appeal. It cannot be said that in accepting the contention of the assessees that the cash credits represented income from the

business withheld from the books, the Tribunal made out a new case inconsistent with the assessee''s own plea. In any event, the Tribunal is not

precluded from adjusting the tax liability of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded

by the assessee.

In Mahalakshmi Textile Mills'' case (supra), decided by the Supreme Court, the course of appellate proceedings was different. The assessee in

that case was a textile mill engaged in the manufacture of cotton yarn. In its spinning plant, the assessee introduced what was called the

''Casablanca conversion system''. The introduction of this system involved the replacement of certain existing parts in the spinning machinery with a

new device. The assessee claimed that development rebate should be allowed on this amount of Rs. 93,215 on the score that the parts of

machinery called the ''Casablanca conversion system'' which replaced the existing spinning plant must themselves be regarded as new plant or

machinery installed for the first time. The claim for development rebate was founded on this view of the Casablanca system. But the claim for

development rebate was rejected by the ITO. On appeal filed by the assessee, the claim for development rebate was rejected by the AAC as

unsustainable. On further appeal before the Tribunal, the assessee gave up its original ground of claim and raised fresh claim. This new plea was

quite inconsistent with its claim for allowance of development rebate, as a percentage on the cost of the Casablanca system. The assessee

contended that the amount spent for the introduction of the Casablanca conversion system must be allowed in the whole sum as a revenue item of

expenditure under the head ''Current repairs''. The Tribunal entertained this new plea. And on being satisfied about the merits of this plea, the

Tribunal directed the deletion of the entire amount of Rs. 93,215 as an admissible deduction of the revenue expenditure. The department

challenged the propriety of the Tribunal entertaining this new plea. The department brought a reference before the High Court, on this question, as

a jurisdictional issue. But the High Court upheld the jurisdiction of the Tribunal to permit the assessee to raise a new contention, which had not

been raised by the assessee before the departmental authorities. The Commissioner thereupon took the matter on special leave before the

Supreme Court. It was urged for the department that the Tribunal had no jurisdiction to allow a plea from the assessee which was inconsistent with

the plea raised before the departmental authorities. This contention, however, was negatived by the Supreme Court. The Court observed thus:

...Under sub-section (4) of section 33 of the Indian income tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal

''as it thinks fit''. There is nothing in the income tax Act which restricts the Tribunal to the determination of questions raised before the departmental

authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons

recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it

would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the

assessee to the relief is not restricted to the plea raised by him.

These two decisions of the Supreme Court which we have considered at some length, were disposed to view the Tribunal''s jurisdiction fairly

widely. The Supreme Court''s view clearly was that, while exercising its appellate jurisdiction, the Tribunal is not confined to the grounds which are

set forth in the appeal memorandum or taken by leave of the Tribunal. In Nelliappan''s case (supra), the assessee''s new contention was that the

assessment of unexplained cash credits had become redundant, when the assessing officer had already decided to estimate the year''s income. This

plea was put forward very late, only after the case came back to it from the High Court. In Mahalakshmi Textile Mills, case (supra), the plea of the

assessee for the first time in the appeal before the Tribunal was for deduction of the entire amount spent on the Casablanca conversion system as

an item of the revenue expenditure, just like current repairs, in contrast with the assessee''s original claim for the allowance of a percentage on that

amount as development rebate. In both cases, the Supreme Court held that such a plea, although new, was within the appellate jurisdiction of the

Tribunal. Indeed, in Mahalakshmi Textile Mills'' case (supra), the Supreme Court described the Tribunal''s appellate jurisdiction in the widest terms

possible when they said that all questions, whether of law or of fact, which relate to the assessment of the assessee may be raised before the

Tribunal and there is nothing in the income tax Act, which restricts the Tribunal to the determination of the questions raised before the departmental

authorities. On the basis of the principles laid down by the Supreme Court, it must be held in this case that the assessee was not precluded from

raising a new contention, and the Tribunal was not precluded from examining and determining that contention, merely on the score that it had not

been put forward at the earlier stages of the proceedings in assessment and in the first appeal.

In the passages which we have earlier quoted from Mahalakshmi Textile Mills'' case (supra), the Supreme Court did not lay down the

Tribunal''s jurisdiction as being limited to the ''subject-matter'' of the appeal. On the contrary they said that the Tribunal is competent to pass such

orders on the appeal as it thinks fit. They proceeded to explain what they meant by saying that it would be the duty of the Tribunal to decide all

questions of fact and law before it even though it was not raised before the departmental authorities.

Mr. Rangaswami, however, submitted that the real ratio decidendi in Mahalakshmi Textile Mills'' case (supra), is to be found not in the passage

quoted by us, but elsewhere in the judgment. He cited the following passage as containing the real reason of the decision in that case:

The subject-matter of the appeal in the present case was the right of the assessee to claim allowance for Rs. 93,215. Whether the allowance was

admissible under one head or the other of sub-section (2) of section 10, the subject-matter for the appeal remained the same, and the Tribunal

having held that the expenditure incurred fell within the terms of section 10(2)(v), though not u/s 10(2)(vib), it had jurisdiction to admit that

expenditure as a permissible allowance in the computation of the taxable income of the assessee.

Mr. Rangaswami submitted that this passage gives the clearest indication possible to show that the Supreme Court did not abandon the approach

to the question of appellate jurisdiction from the point of view of the inquiry as to what the ''subject-matter'' of the appeal in any case was. Learned

counsel urged that the passage above-quoted formed the crucial part of the Supreme Court''s decision, and that being so, reliance ought not to be

placed on any other observations of the Supreme Court as relevant to the present discussion.

We are prepared to agree with Mr. Rangaswami in thinking that the passage relied on by him constitutes the decision of the Supreme Court in

that case. If it were the decision of any other court, we might even be inclined to regard this passage alone as the binding part of the decision.

However, we cannot make any distinction between a ratio, on the one hand, and the dicta, on the other, in the Supreme Court decision. Where the

particular determination by the Supreme Court not only disposes of the case, but also decides a principle of law, the actual ratio in the case is a

precedent which is binding on all the Courts in the land, including the High Courts. But equally binding are the dicta of the Supreme Court, even

though such dicta cannot be strictly regarded as forming the ratio of the court''s decision in a given case. While, therefore, we regard the passage

relied on by Mr. Rangaswami as a ratio of the case, we cannot afford to disregard the passage which we have earlier quoted from the same

Supreme Court judgment on the score that the observations therein contained are merely dicta and not the real ratio in the case. We regard the

decision in Mahalakshmi Textile Mills'' case (supra) as made up of two parts. In one part, the Supreme Court held : ""The claim put forward by the

assessee before the Tribunal for the first time nevertheless formed part of the subject-matter of the appeal"". This observation, however, is matched

by another observation made by the Supreme Court on the ambit of the Tribunal''s jurisdiction. That enunciation, as we read the judgment, has to

be found in the earlier passage which we have quoted. It is in that passage that the Supreme Court have clearly laid down that even though a plea

is put forward for the first time before the Tribunal and is inconsistent with the pleas earlier made the Tribunal has jurisdiction to try and determine

important question, whether on fact or on law which relates to the assessment of the assessee and there was nothing in the Act which restricts the

Tribunal to determining those questions which have been raised before the departmental authorities. It is in this particular passage that the Supreme

Court have rendered a comprehensive idea of the scope of the Tribunal''s jurisdiction. It may be that the observations of the Court were not strictly

called for, but they must nevertheless be regarded as binding.

That the Tribunal''s appellate jurisdiction is as wide as has been enunciated by the Supreme Court in Mahalakshmi Textile Mills'' case (supra),

must be accepted, considering that this was the view expressed even in the earlier decision in Hukumchand Mills'' case (supra). The facts in that

earlier case related to a claim for depreciation allowance of a textile mill incorporated in the previous Indore State. Its status as an assessee under

the 1922 Act was that of a non-resident, since it was being managed entirely by the native State outside British India. From 1-4-1950, Indore

became a Part B State and the 1922 Act was brought into force in that State as well as in other Part B States. The result was that the mills became

a resident assessee from the assessment year 1950-51 onwards, and was being assessed in that status on profits realised by it from its textile mill.

One of the questions which arose for determination in this case was about the proper written down value (WDV) of its building, machinery, etc.,

for the purpose of calculating the depreciation allowance under the Act. The assessee contended that the original cost of acquisition of the plant

should be taken as the basis of allowing depreciation under the 1922 Act without taking into consideration, the number of years during which the

machinery had been working in the Indore State, the depreciation it had suffered, and the WDV entered in the books. This contention was urged

by taking note of the fact that in making the assessment on the profits of the assessee''s mill in the status of a non-resident for the assessment years

prior to 1950-51, only the profits remitted from Indore State into British India or received as income in British India used to be taxed. Those

assessments, quite naturally, did not take note of the depreciation allowance on plant and machinery. It was true to say that in the past

assessments, no depreciation allowance had been actually allowed under the 1922 Act. It was, therefore, the assessee''s contention that

notwithstanding the actual physical wear and tear of the plant and machinery in Indore State, during the years prior to 1950-51, yet for the purpose

of the assessment from 1950-51 onwards, under the 1922 Act depreciation had to be worked out on the basis of the original cost without making

any allowance for actual wear and tear. The ITO and the AAC rejected the assessee''s contention. The department''s stand was that although the

assessee was being assessed on the receipt basis and no depreciation actually went into that computation, a notional depreciation must now be

allowed proportionate to the income assessed in British India, for the limited purpose of ascertaining the WDV for the assessment year 1950-51

onwards. On this basis, the ITO made the assessment. This assessment was confirmed by the AAC. The assessee contested this position before

the Tribunal in further appeal. In that appeal, the department, as a respondent before the Tribunal, put forward a new plea for the first time. That

plea was based on the Taxation Law (Part B States) (Removal of Difficulties) Order, 1950. It was contended by the department that if this order

was applied, then whatever had been actually allowed to the assessee''s mill under the Indore State Taxation Rules would have to come in for

reducing the actual cost to a figure of WDV and that figure must be taken as the basis for working out the depreciation allowance for 1950-51 and

subsequent periods. This new plea of the department was opposed by the assessee, but the Tribunal overruled that objection and entertained it.

Since, however, the relevant facts and figures relating to the depreciation actually granted under the Indore Taxation Rules were not readily

available, the Tribunal remanded the case to the ITO for further enquiry. The question, whether the department was entitled to put forward a new

plea for the first time in the appeal before the Tribunal, was carried in reference by the assessee before the High Court and ultimately before the

Supreme Court. The Supreme Court held that the Tribunal had jurisdiction to entertain the argument of the department in this case and also direct

the ITO to find out whether any depreciation was allowed and whether such depreciation has to be taken into consideration for the purpose of

computing the WDV. A reference was made in the course of the argument before the Supreme Court to rules 12 and 27 of the Appellate Tribunal

Rules, 1946. The Supreme Court did not finally decide whether these rules are strictly applicable or not, but proceeded to observe as follows:

...we are of the opinion that the Tribunal has got sufficient power u/s 33(4) of the Act to entertain the argument of the department with regard to

the application of paragraph 2 of the Taxation Laws Order and remand the case to the income tax Officer in the manner it has done....

In the course of their judgment, the Supreme Court referred to the language of section 33(4) of the 1922 Act, and observed that the words ''pass

such orders as the Tribunal thinks fit'' occurring in that section would include all the powers (except possibly the power of enhancement), which are

conferred upon the AAC by section 31 of the 1922 Act. Consequently, it was observed, the Tribunal has authority under the section to direct the

AAC or the ITO to hold a further enquiry and dispose of the case on the basis of such enquiry.

Adverting to this decision of the Supreme Court, Mr. Rangaswami submitted that even in this case, the Supreme Court had only stuck to the

traditional view of the appellate jurisdiction of the Tribunal being co-equal with the ''subject-matter'' of the appeal. He referred to the following

observation of the Supreme Court:

The word ''thereon'', of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal....

It seems to us that this observation relied on by Mr. Rangaswami, taken in isolation, is apt to lead to the impression that the expression ''thereon''

was a limiting factor on the appellate jurisdiction of the Tribunal. A reading of the judgment, as a whole, however, would dispel this impression.

For, here was a case where the department was only a respondent to a second appeal by the assessee before the Tribunal. All along, at the stage

of the assessment as well as the first appellate stage before the AAC, the stand taken by the department was something of a compromise, which

was not based on a strict adherence to the provisions of the Taxation Laws (Removal of Difficulties) Order. This new point was raised by the

department as a respondent when the appeal of the assessee was heard by the Tribunal. A respondent to an appeal is well within his rights if he

seeks to support the order of the lower authority on any ground decided against him. But in this case, what the department had done while raising a

plea based on the Taxation Laws (Removal of Difficulties) Order, was not to support any adverse decision by the AAC on any point urged before

that authority, but altogether a new point which had never been thought of or urged either before the AAC or before the ITO. It follows, therefore,

that the Tribunal''s appellate jurisdiction, as understood by the Supreme Court, even in Hukumchand Mills'' case (supra) is wide enough to take in

a plea by the respondent to an appeal, even though that plea had not been raised at an earlier stage. This decision of the Supreme Court, therefore,

is quite in line with the subsequent decision of the same Court in Mahalakshmi Textile Mills'' case (supra).

We have earlier indicated that reliance was placed by Mr. Rangaswami on the judgment of the Gujarat High Court in Karamchand

Premchand''s case (supra). In the case before the Gujarat High Court, the assessee, which was a private limited company, claimed in its

assessment a deduction in respect of a sum of Rs. 25,920 being the aggregate of stamp duty, registration charges, lawyers'' fees, and other

miscellaneous expenses, in connection with the issue of debentures secured on its fixed assets. This claim for deduction of Rs. 25,920, however,

was disallowed. There were other disallowances too in the assessment. The assessment was carried in appeal by the assessee before the AAC on

several grounds, but the disallowance of Rs. 25,920 was not among them. The AAC was naturally not called upon by the assessee to consider the

admissibility or otherwise of this item of expenditure amounting to Rs. 25,920. Considering the other grounds actually put forward in the appeal

before him, the AAC allowed the appeal in part. The assessee then filed a second appeal reiterating the same objection, which the assessee put

forward before the AAC, without success. At the time when the appeal was up for hearing by the Tribunal, however, the assessee urged an

additional ground contending that the disallowance of Rs. 25,920 in the assessment was not justified. The department raised a preliminary

objection and urged the Tribunal not to entertain this new plea. The Tribunal overruled the department''s objection and proceeded to consider the

new plea on its merits, and ultimately allowed the claim for deduction of Rs. 25,920 as legitimate. The department took up the matter on reference

on the question whether the Tribunal has jurisdiction to allow the assessee to raise an additional ground in respect of Rs. 25,920. The Gujarat High

Court considered the position that in an appeal before the AAC, the entire assessment was before him and he had the power, if he so chooses, to

examine any particular decision of the ITO even though it had not been raised in the appeal by the assessee. But, according to the Gujarat High

Court, the AAC was not under an obligation suo motu to go into the entire assessment in every case, but would be acting rightly if he had confined

himself to the points raised by the assessee in the appeal. Adverting to the case before them, the Gujarat High Court observed that the assessee

did not raise any question about the disallowance of Rs. 25,920 and, therefore, the AAC did not go into it. Neither did he suo motu go into that

aspect of disallowance. Hence, according to the Court, the assessee had no cause for complaint since the AAC was not under any obligation to

suo motu go into the question of disallowance of the expenditure. The appeal before the Tribunal, according to the learned judges, was possible

only if the assessee could contend that the AAC had erred in deciding a particular matter. If the AAC had not decided any matter, for the reason

that it was not raised before him, there was nothing on which the assessee could feel aggrieved or could file a further appeal to the Tribunal. In this

situation, the Gujarat High Court held that the assessee was not entitled to appeal against the disallowance, raising the question for the

consideration of the Tribunal as a new point.

We cannot bring ourselves to say that there is no logic behind the reasons of the Gujarat High Court. We are, however, not in a position to

accept their reasoning as being in accord with the decision of the Supreme Court, particularly the decision in Mahalakshmi Textile Mills'' case

(supra). We have earlier examined Mahalakshmi Textile Mills'' case (supra). We have laid down the gist of that decision, which is to the effect that

all questions, whether of law or of fact, which relate to the assessment of the assessee may be raised before the Tribunal and there is nothing in the

Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. We may observe that the Gujarat High

Court did not refer at all to Mahalakshmi Textile Mills'' case (supra) in their judgment, though they took up for a pretty detailed consideration the

other decision of the Supreme Court rendered on the same day as Mahalakshmi Textile Mills'' case (supra), namely, Nelliappan''s case (supra).

The learned judges sought to distinguish the Nelliappan''s case (supra) from the case on hand before them. They pointed out that the Supreme

Court in Nelliappan''s case (supra) did not say that even where a decision of the ITO on a particular item is not challenged before the AAC and

the AAC had not considered and decided that matter, it can still be agitated by the assessee in the appeal to the Tribunal. This observation might

pass as one manner of understanding Nelliappan''s case (supra). But the same comment cannot be made in respect of Mahalakshmi Textile Mills''

case (supra). To the extent, therefore, that the Gujarat High Court decision does not refer to the principle decided in Mahalakshmi Textile Mills''

case (supra), we must hold that it is thereby not only robbed of its value of a precedent, but also of a judgment possessing persuasive value. The

decisions of other High Courts, which Mr. Rangaswami referred to us in the course of his argument, really followed the line taken by the Gujarat

High Court in Karamchand Premchand'' case (supra). In the view, we hold that the ruling in the Gujarat decision is not in accordance with the law

laid down by the Supreme Court in Mahalakshmi Textile Mills'' case (supra), it is unnecessary for us to deal at length with the citations of other

High Courts decisions.

Mr. Rangaswami then submitted that there is till now no decision of the Supreme Court which had gone to the extent of saying that a point

which has never been addressed at the assessment stage or at the first appellate stage can be gone into by the Tribunal, and, therefore, the present

case cannot be regarded as falling within the rules laid down by any previous decision. We agree that, on facts, we cannot draw a parallel between

the case on hand before us and any other reported cases, on the scope of the appellate jurisdiction. In Mahalakshmi Textile Mills'' case (supra), in

some measure or other, the assessee had made a claim in relation to the ''Casablanca conversion system'' both before the ITO and before the

AAC. Again, in Hukumchand Mills'' case (supra), the question of WDV figured, in one form or another, both before the ITO and before the AAC

and some decision or other had been taken on the subject by the time the matter came before the Tribunal for consideration. It is true that the

Gujarat decision alone deals with a case where a point had not been raised at all before any authority except at a later stage before the Tribunal.

We must, however, point out that in Nelliappan''s case (supra), the question about the addition of unexplained cash credits being a redundant

addition had never been mooted by the assessee in all earlier proceedings inclusive of the proceedings in appeal before the Tribunal and in

reference before the High Court. This point was raised for the first time after the matter went back before the Tribunal for further consideration. In

one sense, therefore, Nelliappan''s case (supra) on facts is close to the facts of the case before the Gujarat High Court. But the principle of law,

especially the one enunciated by the Supreme Court, cannot be constricted within the strait-jacket of facts and sought to be excluded from being

followed merely because of the absence of matching facts in the case on hand. We have earlier pointed out, more than once, the passage in

Mahalakshmi Textile Mills'' case (supra) in which the appellate jurisdiction of the Tribunal has been laid down in general terms. That passage, it

may be observed, was provoked by the fact that the assessee in that case had raised a plea which was inconsistent with a plea raised by the

assessee at the earlier stage. Addressing themselves to the question whether a new plea which is inconsistent with an earlier plea can be raised, the

Supreme Court have held that the Tribunal is not limited to the discussion of the case before the departmental authorities in the lower stages, but its

jurisdiction is plenary in respect of questions of law and fact arising in an assessment of an assessee. If the Supreme Court in that case can regard

the plea which was raised for the first time before the Tribunal, which is also quite inconsistent with the plea raised earlier, we fail to see why a new

plea, even though not inconsistent with the earlier plea, cannot come within the range of the rules laid down by the Supreme Court. An inconsistent

plea raised for the first time before the Tribunal, either as an alternative plea or otherwise, is really a new plea which has not been put forward

before. There is no reason why a new plea which is not inconsistent with earlier pleas cannot be similarly raised especially when the Supreme

Court has held that the powers of the Tribunal are plenary and are not really limited by what has been discussed before the departmental

authorities.

Quite apart from precedents, it seems to us quite in the fitness of things to invest the Tribunal with the plenary jurisdiction in matters of

assessment. As we earlier observed, the Tribunal was created in 1941 as an independent, non-departmental body, in whose hand the Legislature

intended to entrust the task of reviewing assessments made under the Act. Under the scheme of the Act, which gives only the High Courts and the

Supreme Court the power of interference on questions of law, the Tribunal is constituted the final authority on facts and the penultimate authority

on law touching the assessment and other proceedings under the Act. The primary purpose of the statute is to levy and collect the income tax. This

is based on the cardinal principle, which has been incorporated as a veritable constitutional provision, that no tax can be levied or collected save

under authority of law. The task of an appellate authority under the taxing statute, especially a non-departmental authority like the Tribunal, is to

address its mind to the factual and legal basis of an assessment for the purpose of properly adjusting the taxpayer''s liability to make it accord with

the legal provisions governing his assessment. Since the be-all and end-all of the statutory provisions, especially those relating to the administration

and management of income tax, is to ascertain the taxpayer''s liability correctly, to the last pie, if it were possible, the various provisions relating to

appeal, second appeal, reference and the like can hardly be equated to a lis or dispute as arises between the two parties in a civil litigation.

Although the income tax statute makes the department or its officers figure as parties in appeal proceedings, they are not in the strict sense what

are called by American writers as parties to adversary proceedings. This is so, because the very object of the appeal is not to decide a point raised

as a dispute, but any point which goes into the adjustment of the taxpayer''s liability. In that sense, a view prevails, even in England, that the

authorities sitting in appeal in a tax case, cannot be regarded as deciding a lis, but they are only engaged in an administrative act of adjusting the

taxpayer''s liability. Under our fiscal jurisprudence, we may regard the appellate authorities as exercising quasi-judicial functions in the same sense

as a taxing officer does. But, even so, the proceedings before them lack the basic elements of adversary proceedings. It, therefore, follows that the

discussion and the scope of the appellate jurisdiction of the Tribunal and other authorities under the tax code cannot be pursued by drawing a

parallel to civil litigation with particular reference to appeals from decrees, and the like. The insistence on one party to the appeal being entitled to

the fruits of finality, as it is called, and the appellate authority being con-find to the subject-matter of the appeal, are all ideas which might have

relevance if the discussion centres on purely civil litigation and such like adversary proceedings as in an industrial dispute. But in a case where the

revenue is all the while a party, in a manner of speaking and is also at the same time, an authority vested with the responsibilities of drawing up the

assessment and laying down the correct liability, it would not be in accord with the scheme of the Act to impose restrictions on the ambit and the

power of the Tribunal by such like notions as finality, subject-matter of the appeal and the like. The statutory provision in section 33(4) of the 1922

Act and section 254 of the 1961 Act which confers appellate jurisdiction on the Tribunal clearly lays down that the Tribunal, in disposing of an

appeal, may pass such orders thereon as it thinks fit. Excepting that the expression ''subject-matter'' has taken the fancy of many learned and

eminent judges, that is an expression which is not employed by the provision conferring the jurisdiction in the Tribunal. Indeed, in Mahalakshmi

Textile Mills'' case (supra) in one of the passages to which we have made reference, the Supreme Court has understood the Tribunal''s appellate

jurisdiction as jurisdiction to pass ''such orders on the appeal as it thinks fit'', without adding any gloss of their own to the expression. In

Nelliappan''s case (supra), as well as Mahalakshmi Textile Milts'' case (supra), the Supreme Court had even used phrases which are reminiscent of

the language which English judges have used while describing a tax appeal. The Supreme Court observed that the Tribunal is not precluded from

''adjusting'' the tax liabilities of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the

assessee. English judges have regarded a tax appeal, not as a lis, but as a process of further adjustment of taxpayer liability - vide Lord Hewart in

Rex v. Special CIT (1935) 20 TC 381 (CA); Greer L.J. in IRC v. Sneath (1932) 17 TC 149 (CA); Romer L.J. in the same case, Sneath (supra)

and Lord Wright M.R. in Rex''s case (supra).

In Rex''s case (supra), Lord Hewart, CJ. laid down the nature of an appeal in tax matters as under:

In my opinion, the argument of the learned Attorney-General is absolutely correct, and the argument upon the other side is manifestly based, as he

said, upon a misapprehension that an appeal under the income tax Act, 1918, is the same in substance as an appeal where two private persons are

engaged in litigation. It is, of course, totally different.

In Sneath''s case (supra), Greer, L.J. gave a similar description of the true position of a tax appeal in the following words:

I think, the estimating authorities, even when an appeal is made to them, are not acting as judges deciding litigation between the subject and the

Crown. They are merely in the position of valuers whose proceedings are regulated by statute to enable them to make an estimate of the income of

the taxpayer for the particular year in question.

Romer, L.J. in the same case, held as under:

The appeal is merely another step taken by the Commissioners, at the instance of the taxpayer, in the course of the discharge by them of their

administrative duty of collecting the surtax.

Rex''s case (supra), went to the Court of Appeal and there Lord Wright MR reiterated the position in the following passage in his judgment:

I may note here at once that in making the assessment and in dealing with the appeals, the Commissioners are exercising their statutory authority

and their statutory duty which they are bound to carry out, not as judges deciding an issue between two particular parties; their obligation is wider

than that. It is to exercise their judgment on such material as comes before them, and, as we shall see later, to obtain any material which they think

is necessary and which they think they ought to have, and on that to make the assessment or the estimate which the law requires them to make.

They are not deciding the case inter parties; they are assessing or estimating the amount which in the interests of the country at large the taxpayer

ought to have to deal with as the basis on which he is to be taxed.

In a recent Full Bench decision of this Court in State of Tamil Nadu v. Arulmurugan & Co. (1982) 51 STC 381, it was held that the appellate

authorities perform precisely the same functions as the assessing authority. The Full Bench expressed the view that a tax appeal is a rehearing of the

entire assessment and it cannot be equated to adversary proceedings in appeal in civil cases. The following passage from the judgment of the Full

Bench would be relevant to the discussion in the present case:

An appellate authority under the taxing enactments sits in appeal, only in a manner of speaking. What it does, functionally, is only to adjust the

assessment of the appellant in accordance with the facts on the record and in accordance with the law laid down by the Legislature. An appeal is a

continuation of the process of assessment, and an assessment is but another name for adjustment of the tax liability to accord with the taxable event

in the particular taxpayer''s case. There can be no analogy or parallel between a tax appeal and an appeal, say, in civil cases. A civil appeal, like a

law suit in the court of first instance out of which it arises, is really and truly an adversary proceeding, that is to say, a controversy or tussle over

mutual rights and obligations between contesting litigants ranged against each other as opponents. A tax appeal is quite different. Even as the

assessing authority is not the taxpayer''s opponent, in the strictly procedural sense of the term, so too the appellate authority sitting in appeal over

the assessing authority''s order of assessment is not strictly an arbitral Tribunal deciding a contested issue between two litigants ranged on opposite

sides. In a tax appeal, the appellate authority is very much committed to the assessment process. The appellate authority can itself enter the arena

of assessment, either by pursuing further investigation or causing further investigation to be done. It can do so on its own initiative, without being

prodded by any of the parties. It can enhance the assessment, taking advantage of the opportunity afforded by the taxpayer''s appeal, even though

the appeal itself has been mooted only with a view to a reduction in the assessment. These are special and exceptional attributes of the jurisdiction

of a tax appellate authority. These attributes underline the truth that the appellate authority is no different, functionally and substantially, from the

assessing authority itself.

It seems to us, therefore, that both on principle and on precedent, there is no reason why the Tribunal must be precluded from handling a point

which appertains the assessee''s assessment merely because nobody else had handled it before or because it had not occurred either to the

assessee or to the department to raise and urge that point at earlier stages of the proceedings.

For all the above reasons, we hold that the Tribunal in this case was justified in entertaining the additional ground raised by the assessee relating

to a claim which was not raised either before the ITO or before the AAC. Our answer to the question referred to us, is, therefore, in the affirmative

and against the department. The assessee is entitled to its costs. Counsel''s fee Rs. 500.