1993 (3) TMI 133 - AT - Income Tax

Tax Revision Jurisdiction Expanded by Amendment: Partial Merger Doctrine Applies

The Third Member agreed with the Accountant Member, holding that the Commissioner of Income-tax (CIT) had jurisdiction to pass the order under section 263 ... Revision, Of Orders Prejudicial To Interests Of Revenue Issues Involved:1. Jurisdiction of the Commissioner of Income-tax (CIT) under section 263.2. Effect of the amendment to section 263 by the Finance Acts of 1988 and 1989.3. Doctrine of merger in the context of appellate and revisional orders.Detailed Analysis:1. Jurisdiction of the Commissioner of Income-tax (CIT) under section 263:The primary issue was whether the CIT had jurisdiction to pass an order under section 263 on 13th March 1989, given that the CIT (Appeals) had rendered a decision on 31st July 1987 on different points. The Judicial Member held in favor of the assessee, applying the decision of the Bombay High Court in the case of International Computers Indian Manufacture Ltd. The Accountant Member dissented, following the earlier decision of the Bombay High Court in Ritz Ltd., and concluded that the CIT had the jurisdiction to pass the order under section 263.The Third Member agreed with the Accountant Member, emphasizing that the CIT's power to revise under section 263 extends to matters not considered and decided in the appeal, irrespective of the date when the CIT (Appeals) passed the order. The Third Member clarified that the CIT could exercise jurisdiction under section 263 for matters not decided in the appeal, even if the appellate order was passed before 1-6-1988, as long as the revisional action was taken after 1-6-1988.2. Effect of the amendment to section 263 by the Finance Acts of 1988 and 1989:The amendment to section 263 by the Finance Acts of 1988 and 1989 introduced Explanation (c), which had retrospective effect from 1-6-1988. The Judicial Member interpreted the amendment to mean that it would only cover orders that became the subject matter of appeal after that date. However, the Accountant Member, supported by the Third Member, held that the amendment allowed the CIT to revise matters not considered in the appeal, regardless of when the appellate order was passed, as long as the revisional action was taken after 1-6-1988.The Third Member highlighted that the amendment aimed to address the issue of complete merger by allowing partial merger, thereby enabling the CIT to revise matters not considered in the appeal. This interpretation was consistent with the legislative intent and the decisions in Ritz Ltd. and International Computers Indian Manufacture Ltd.3. Doctrine of merger in the context of appellate and revisional orders:The doctrine of merger was a significant point of contention. The Judicial Member argued that the appellate order and the assessment order had fully merged, thus divesting the CIT of jurisdiction under section 263. The Accountant Member and the Third Member, however, concluded that the doctrine of partial merger applied, allowing the CIT to revise matters not considered in the appeal.The Third Member explained that the amendment to section 263 by the Finance Act of 1989 with retrospective effect from 1-6-1988 clarified that the CIT's revisional powers extended to matters not considered and decided in the appeal. This interpretation was in line with the decisions in Ritz Ltd. and International Computers Indian Manufacture Ltd., which both supported the view that the CIT's jurisdiction under section 263 was valid for matters not considered in the appeal, even if the appellate order was passed before 1-6-1988.Conclusion:The Third Member agreed with the Accountant Member, holding that the CIT had jurisdiction to pass the order under section 263 on 13th March 1989, even though the CIT (Appeals) had rendered a decision on 31st July 1987 on different points. The appeal was to be disposed of on merits in accordance with the majority opinion.