http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

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]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

             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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

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