1982 (11) TMI 47 - HC - Income Tax

Authority may decide unraised gratuity claim in tax appeal as an administrative liability adjustment, not barred by finality

HC held that the Tribunal was justified in entertaining an additional ground raised by the assessee concerning a gratuity claim not previously argued ... Scope of the appellate jurisdiction of the Income-tax Appellate Tribunal - question of its own jurisdiction - Precedents - gratuity liability being provided for and duly charged in its profit and loss account and balance-sheet - Whether, the Tribunal was right in admitting the additional ground raised by the assessee relating to a claim which was never in dispute either before the Incometax Officer or before the Appellate Assistant Commissioner? - HELD THAT:- As we earlier observed, the Tribunal was created in 1941 as an independent, non-departmental body, in whose hands 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 I.T. Act. The primary purpose of the statute is to levy and collect the incometax. 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 confined 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. In the Nelliappan's case [1967 (5) TMI 6 - SUPREME COURT] as well as the Mahalakshmi Textile Mills' case [1967 (5) TMI 4 - SUPREME COURT], 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. It seems to us, therefore, that both on principle and on precedent, there is no reason why the Appellate Tribunal must be precluded from handling a point which appertains to 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. Thus, 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. Issues Involved:1. Scope of the appellate jurisdiction of the Income-tax Appellate Tribunal.2. Admissibility of additional grounds raised by the assessee before the Tribunal.3. Interpretation of the Tribunal's power under Section 254(1) of the Income-tax Act.4. Analysis of relevant Supreme Court decisions on the Tribunal's jurisdiction.5. Examination of the Tribunal's discretion to entertain new pleas not raised before lower authorities.Issue-wise Detailed Analysis:1. Scope of the Appellate Jurisdiction of the Income-tax Appellate Tribunal:The judgment primarily addresses the scope of the appellate jurisdiction of the Income-tax Appellate Tribunal. The Tribunal was established in 1941 and has since become a model for other quasi-judicial bodies in India. Its primary function is to hear and determine appeals from orders passed by the Appellate Assistant Commissioner (AAC). The Tribunal has the power to decide whether it has jurisdiction over a matter, and many of its jurisdictional determinations have been reviewed by High Courts and the Supreme Court. The scope of the Tribunal's appellate jurisdiction is defined under Section 254(1) of the Income-tax Act, 1961, which states: '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 term 'thereon' is interpreted to mean 'on the appeal', allowing the Tribunal to pass orders on the appeal as it deems fit.2. Admissibility of Additional Grounds Raised by the Assessee Before the Tribunal:The case at hand involves an assessee who raised an additional ground of appeal before the Tribunal, which was not raised before the Income-tax Officer (ITO) or the AAC. The additional ground pertained to the deductibility of gratuity liability provisions made in the balance sheet. The Tribunal overruled the Department's preliminary objection regarding its jurisdiction to entertain this new plea and directed the case to be sent back to the ITO for further examination. The Department challenged this decision, leading to the present reference. The question for decision was whether the Tribunal was right in admitting the additional ground raised by the assessee, which was not in dispute before the ITO or the AAC.3. Interpretation of the Tribunal's Power Under Section 254(1) of the Income-tax Act:The Tribunal's power under Section 254(1) has been interpreted in various judicial decisions. The Supreme Court, in landmark cases such as Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC), CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), and CIT v. Nelliappan [1967] 66 ITR 722 (SC), has elucidated the scope of the Tribunal's appellate jurisdiction. These decisions establish that the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal can entertain new pleas and adjust the tax liability of the assessee in light of its findings, even if such findings are inconsistent with the case pleaded by the assessee.4. Analysis of Relevant Supreme Court Decisions on the Tribunal's Jurisdiction:- Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC): The Supreme Court held that the Tribunal has the power under Section 33(4) of the Indian Income-tax Act, 1922, to entertain new arguments and remand the case to the ITO for further inquiry.- CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC): The Supreme Court observed that the Tribunal is competent to pass such orders on the appeal as it thinks fit, and it is not restricted to the determination of questions raised before the departmental authorities. The Tribunal can grant relief on any ground justified by the facts, even if it was not raised earlier.- CIT v. Nelliappan [1967] 66 ITR 722 (SC): The Supreme Court held that the Tribunal could allow the assessee to raise new contentions not set forth in the memorandum of appeal, and it is not precluded from adjusting the tax liability based on its findings.5. Examination of the Tribunal's Discretion to Entertain New Pleas Not Raised Before Lower Authorities:The judgment emphasizes that the Tribunal's jurisdiction is wide enough to entertain new pleas, whether consistent or inconsistent with earlier pleas. The Tribunal's role is to ensure the correct adjustment of the taxpayer's liability in accordance with the law. The Tribunal's appellate jurisdiction is not limited by what has been discussed before the departmental authorities. The judgment also distinguishes the Tribunal's function from adversarial proceedings in civil litigation, highlighting that the Tribunal's task is to review and adjust assessments accurately.Conclusion:The judgment concludes that the Tribunal was justified in entertaining the additional ground raised by the assessee, even though it was not raised before the ITO or the AAC. The Tribunal's jurisdiction is broad and includes the authority to consider new contentions to ensure the correct assessment of the taxpayer's liability. The answer to the question referred is in the affirmative, in favor of the assessee, and against the Department. The assessee is entitled to its costs, with counsel's fee set at Rs. 500.