2003 (12) TMI 27 - HC - Income Tax

Karnataka Agricultural Income Tax Rules 1957 Doctrine of merger - Correctness of the order by the Commissioner of Agricultural Income-tax - Whether the order dated October 16, 1995 passed by the revisional authority is liable to be quashed on the ground that it was passed beyond the period of limitation? and 2. Whether the conclusion reached by the revisional authority that the order passed by the assessing authority allowing initial depreciation in favour of the assessee is erroneous in law and prejudicial to the interests of the Revenue is correct in law? Both questions are required to be answered against the assessee these revision petitions are liable to be rejected.

Summary

Issues Involved:
1. Whether the order passed by the revisional authority is barred by limitation.
2. Whether the revisional authority's conclusion that the initial depreciation allowed by the assessing authority was erroneous and prejudicial to the interests of the Revenue is correct in law.

Issue-wise Detailed Analysis:

Regarding Issue No.1:
The court examined whether the order passed by the revisional authority was beyond the period of limitation. The Full Bench of the Karnataka High Court in the case of *Hindustan Aeronautics Ltd.* [1986] 157 ITR 315, established that the doctrine of merger applies when the appellate authority has the jurisdiction to deal with the issue in question. The court noted that under Section 32(5) of the Karnataka Agricultural Income-tax Act, the appellate authority has wide powers to confirm, reduce, enhance, or annul the assessment. This implies that even if an appeal is filed against a part of the order, the entire order merges with the appellate authority's order.

The court referred to the Supreme Court's decisions in *Madurai Mills* [1967] 19 STC 144 and *Amritlal Bhogilal & Co.* [1958] 34 ITR 130, which held that the application of the doctrine of merger depends on the scope of the appellate or revisional jurisdiction. The court concluded that since the appellate authority has the power to modify the entire assessment order, the original order merges with the appellate order, making the revisional authority's action within the period of limitation.

Regarding Issue No.2:
The court examined whether the revisional authority was correct in concluding that the initial depreciation allowed by the assessing authority was erroneous and prejudicial to the interests of the Revenue. Section 8 of the Act provides that the agricultural income for the purposes of the Act shall be the portion of the income from cultivation, manufacture, and sale computed under the Income-tax Act, 1961, which is excluded from taxation under that Act as being agricultural income.

The revisional authority found that the assessing authority had allowed initial depreciation on assets for which normal depreciation had already been allowed under the Income-tax Act. The revisional authority issued a show cause notice and, after considering the assessee's objections, concluded that the allowance was wrongly claimed and allowed. The revisional authority's finding was based on the fact that there was no claim made for deduction towards initial depreciation, making the deduction towards further depreciation not allowable.

The court upheld the revisional authority's finding, stating that it was based on materials available on record and was a question of fact. The court found no error of law in the revisional authority's conclusion and rejected the assessee's contention.

Conclusion:
The court answered both questions against the assessee, concluding that the revisional authority's order was not barred by limitation and that the revisional authority was correct in disallowing the initial depreciation allowed by the assessing authority. Consequently, the revision petitions were rejected.