Commissioner of Wealth-tax vs Saju Thomas

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal had referred the following question of law for the decision of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment order has totally merged in the order of the Commissioner of Wealth-tax (Appeals) and that consequently the order by the Commissioner of Wealth-tax u/s 25(2) of the Wealth-tax Act, 1957, is not legally sustainable ?"

The respondent is an assessee to wealth-tax. He is a partner in a firm, M/s. Popular Automobiles, Ernakulam. We are concerned with the assessment year 1975-76. The valuation date for the said year is March 31, 1975. Amongst others, the assessee had a building on the Municipal Road, Thrissur. In the original return filed under the Wealth-tax Act, the assessee valued the said property at Rs. 49,750. The return was filed on January 17, 1976. Later, the assessee filed a second (revised) return on March 25, 1980, stating the value of the said property at Rs. 1 lakh. The Wealth-tax Officer computed the wealth on the basis of the value so declared by the assessee and passed the assessment order on March 20, 1981. The value of the building in the Municipal Road was fixed at Rs. 1 lakh. The assessee had filed an appeal before the Commissioner of Wealth-tax (Appeals) against certain other additions made by the Wealth-tax Officer. The Commissioner passed the appellate order on December 14, 1981. It should be stated that the valuation of the property in the Municipal Office Road, Thrissur, was not the subject-matter of appeal before the Commissioner of Wealth-tax (Appeals). Subsequent to the order passed by the Commissioner of Wealth-tax, noticing that the order passed by the Wealth-tax Officer dated March 20, 1981, is prejudicial to the Revenue regarding the valuation of the municipal office road property, he initiated proceedings in revision u/s 25 of the Act. He noticed that, on May 21, 1975, about 1 1/2 months after the valuation date, the assessee had entered into an agreement for the sale of the above said property for a sum of Rs. 1,75,000 and it was actually sold for the same amount on November 10, 1976. This aspect was overlooked by the Wealth-tax Officer when he made the assessment on March 20, 1981. In suo motu revision initiated by the Commissioner of Wealth-tax, the assessee objected to the initiation of the proceedings on many grounds. One of the objections raised was that the order of the Wealth-tax Officer had merged in the order passed by the Commissioner of Wealth-tax (Appeals) dated December 14, 1981. The said plea was repelled by the Commissioner of Wealth-tax. He directed that the assessment should be enhanced by valuing the property at Rs. 1,75,000. The order so passed is dated March 15, 1983. The assessee filed an appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal accepted the plea of the assessee that there will be a total merger of the assessment order in the appellate order passed by the Commissioner of Wealth-tax (Appeals), though the particular issue which was the subject-matter of suo motu revision u/s 25 of the Act was not the subject-matter of appeal. Accordingly, the Appellate Tribunal set aside the order passed by the Commissioner of Wealth-tax dated March 15, 1983. It is thereafter, at the instance of the Revenue, that the question of law formulated hereinabove has been referred for the decision of this court.

We heard counsel. Construing the similar provisions occurring in the Income Tax Act, a Bench of this court in Commissioner of Income Tax Vs. S. Ratnam Pillai, , following an earlier Bench decision of this court in Commissioner of Income Tax Vs. Travancore Tea Estates Co. Ltd., , held that, in the context of a taxing statute, the principle of merger can have only a limited application. The said principle will apply only in respect of matters considered and decided by the appellate authority and not matters falling outside his decision. It was held that the theory of merger is inapplicable in a case where the point at issue in suo motu revision was not the subject-matter of appeal before the appellate authority.

In the light of the above Bench decision of this court, we are of the view that the Appellate Tribunal was in error in holding that there is a total merger of the assessment order in the appellate order passed by the Commissioner of Wealth-tax (Appeals) dated December 14, 1981 and in further stating that the proceedings taken in revision are incompetent. We, therefore, answer the question referred to this court in the negative, against the assessee and in favour of the Revenue. We hold that the Appellate Tribunal was in error in holding that the assessment order totally merged in the order of the Commissioner of Wealth-tax (Appeals) since the particular matter which was the subject-matter of revision was not the subject-matter of appeal. In consequence, we hold that the revisional order passed by the Commissioner of Wealth-tax is legal.

The reference is answered as above.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Income Tax Appellate Tribunal, Cochin Bench.