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TMI Blog1963 (8) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Income-tax Officer at ₹ 5,69,396. The assessment order was made on March 29, 1957. During the year ended March 31, 1956, it had declared dividends of ₹ 4,32,325. Under the Finance Act of 1956 it was entitled to a gross rebate of four annas per rupee in the computation of the super-tax payable. But this rebate had to be reduced in accordance with the Finance Act taking into account bonus shares or dividends distributed in excess of six per cent. of the paid-up capital. The relevant statutory provisions relating to super- tax rate under the Finance Act of 1956 are as follows: Rate The First Schedule: Part II, D. In the case of every company On the whole of total income Six annas and nine pies in the rupee. Provided that--..... (ii) a rebate at the rate of four annas per rupee of the total income shall be allowed in the case of any company which satisfies condition (a), but not condition (b) of the preceding clause;...... (the assessee company admittedly falls within this clause) Provided further that-- (i) the amount of the rebate under clause (i) or cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly applied in making the assessment for the year in question and that the assessee, therefore, obtained excessive tax relief. Consequently, he issued notice under section 34(1)(b) of the Act with a view to reopen the completed assessment. The assessee contended that section 34(1)(b) was not applicable, that it had not obtained any excessive relief as viewed by the Income-tax Officer and that dividends deemed to have been distributed in pursuance of orders under section 23A in respect of a number of earlier years have merely been adjusted during the year of account in a consolidated manner and that such adjustment could not be caught by the proviso under clause D of the Finance Act, 1956. The officer, however, overruled these objections of the assessee and reduced the rebate of four annas granted at the time of the first assessment by applying the proviso to the Finance Act. This reduction of rebate was applied by the officer in respect of a sum of ₹ 4,32,325 which, according to the officer was the deemed distribution of dividend as per the provisions of section 23A. The assessee preferred an appeal before the Appellate Assistant Commissioner. It raised objections that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent appeal against the adverse finding of the Appellate Assistant Commissioner holding that this provision was applicable. The Tribunal held that it was open to the assessee to raise the point because of rule 27 of the Tribunal Rules to which we shall refer a little later. The Tribunal accepted the plea of the assessee that section 34 was not applicable and consequently dismissed the appeal by the department. Dealing with the objection of the assessee that section 34 was not applicable the Tribunal observed as follows: In our opinion, this is not a case which will fall within any situations for which the provisions of section 34 have been designed. It is clearly not a case where any income has been the subject of excessive relief......The relief originally granted was out of the tax otherwise computable and not from the assessed income, though it was a ratio thereof. Questions Nos. 1 and 2 are really overlapping. The real questions which are raised by the department in this reference are two-fold: (1) whether the Tribunal was right in applying rule 27 of the Tribunal Rules and permitting the assessee to contend that the proceedings under section 34 initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds decided against him. The appellant has no right to urge any ground not set forth in the memorandum of appeal. But it would be open to the Tribunal to grant him leave to raise additional grounds. So far as the Tribunal is concerned, it would not be fettered in its decision by confining to the grounds set forth in the memorandum of appeal or even to those taken by the appellant with the leave of the Tribunal. So long as the principles of natural justice are not violated and the affected person is afforded an opportunity to be heard the Tribunal can dispose of the appeal in its own light. But of course the Tribunal should not act arbitrarily or capriciously but should adopt judicial standards. For example, questions of fact which had not been mooted or discussed or investigated by the Income-tax Officer or by the Appellate Assistant Commissioner should not be gone into at the stage of the appeal before the Tribunal. It would of course be open to the Tribunal to remand the proceedings for fresh ascertainment of facts. The substance of rule 12 is this. The appellant can only urge grounds either set forth in the memorandum of appeal or subsequently taken with the leave of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee disputed it. But then, what is the subject-matter of an appeal? The answer is simple. The subject-matter is that which the Tribunal or the appellate court is called upon to decide and to adjudicate. The subjectmatter cannot be identified with the grounds raised either by the appellant or by the respondent. In the present case the subject-matter of the appeal before the Tribunal was the reduction of tax rebate in respect of ₹ 3,54,716. It is impossible to contend that the subject-matter of the appeal lay within a narrower limit and that it was the question whether the Appellate Assistant Commissioner was right in not allowing reduction of rebate on the ground mentioned by him. The assessee had obtained relief before the Appellate Assistant Commissioner to a particular extent. And this was objected to by the department in the appeal before the Tribunal. The applicability of section 34 of the Act was a general question raised by the assessee even before the Appellate Assistant Commissioner. It cannot be said that it became debarred from raising the question over again before the Tribunal because of the fact that it did not choose to file an appeal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in his favour which has come up on appeal on a ground decided against him by the authority whose decision is challenged. We would like to refer to two decisions of the Bombay High Court on this question of the scope of appellate power of the Tribunal and the right of the respondent to support the decision on grounds decided against him. In J.B. Greaves v. Commissioner of Income-tax [1963] 49 I.T.R. 107 the Bombay High Court held, following two decisions of that court, New India Life Assurance Co. Ltd. v. Commissioner of Income-tax [1957] 31 I.T.R. 844 and Commissioner of Income-tax v. Hazarimal Nagji Co. [1962] 46 I.T.R. 1168, that the subject-matter of an appeal is confined to grounds specifically raised in the memorandum of appeal, the new grounds raised by the appellant with the previous permission of the Tribunal and the grounds urged by the respondent in support of the decree passed in his favour, even though the decision of the court, against which the appeal is filed, is against him. The learned judges of the Bombay High Court observed that this is a general rule and that the position of the Appellate Tribunal is the same as a court of appeal under the Civil Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and 2 raised in this reference will, therefore, be answered against the department and in favour of the assessee. The third question referred raises the applicability of section 34(1)(b) of the Act. In order to apply this provision the department should establish that income, profits or gains chargeable to income-tax have escaped assessment, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or that excessive loss or depreciation allowance has been computed. The department concedes that in the present case there has been no escapement of assessment or under-assessment or that excessive loss or depreciation allowance had been computed at the original assessment. It is however urged that the facts establish either an assessment at too low a rate or that income, profits or gains have been made the subject of excessive relief. The Appellate Assistant Commissioner was inclined to take the view that the assessee obtained excessive relief in the first assessment by reason of the improper application of the provisions of the Finance Act, 1956. The reasoning of the Assistant Commissioner is in these terms: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first instance would not amount to the assessee having been subject to tax at too low a rate . The rate of taxation regarding income-tax and super-tax is prescribed annually by the Finance Act which is a Central enactment. Section 3 of the Income-tax Act provides that: 3. Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year..........in respect of the total income of the previous year of every individual, Hindu undivided family, company, etc. Section 55 deals with the levy of super-tax and that reads as follows: 55. In addition to the income-tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year of any individual, Hindu undivided family, company,........... an additional duty of income-tax (in this Act referred to as super-tax) at the rate or rates laid down for that year by a Central Act. In the present case we are concerned with the levy of super-tax. We have already set out the relevant provision of the Finance Act, 1956. Schedule I, Part II of that Act is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mere refinement. There can however be no question that the rebate of tax rate and a reduction of such rebate is essentially the arithmetic of rate. Reading however the provisions of the Finance Act, 1956, as a whole in the perspective that its chief aim and object is to prescribe the rate of income- tax and super-tax, it seems to us that an assessee escaping some of its provisions and failing to pay the full measure of tax is assessed at too low a rate. The contention urged on behalf of the assessee that the scope of the second proviso is only reduction of rebate and that is increase of tax amount and not increase of tax rate cannot be supported particularly in view of the decision of the Supreme Court in Rajputana Agencies v. Commissioner of Income-tax [1959] 35 I.T.R. 168; [1959] Supp. 1 S.C.R. 142. In that case the assessee company had declared a dividend of ₹ 30,000 out of which ₹ 15,159 was held to be excess dividend. The company's total income was assessed under the Finance Act, 1951, read with section 2 of the Finance Act, 1952. As the company carried on its business in Saurashtra, then a Part B State, it obtained rebate under paragraph 6(iii) of the Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of four annas without suffering reduction as per the terms of the Finance Act, was really assessed at too low a rate. If the provisions of the Finance Act had been properly applied and the necessary reduction in the amount of rebate had been granted, the assessee would have had to bear a greater burden of tax. The difference in the burden of tax between the first assessment, which was regardless of the application of the second proviso to the Finance Act, and the second assessment, which brought to bear the second proviso, is not merely a difference of the amount of tax payable but a difference in the rate of taxation. In this view of the matter we have no doubt that the Tribunal was not right in holding that the proceedings under section 34(1)(b) were not warranted. On the assumption that the grant of rebate without reduction was not proper compliance with the provisions of the Finance Act, 1956, the income, profits and gains of the assessee have been assessed to tax at too low a rate, and sufficient grounds exist to provide jurisdiction for proceedings under section 34(1)(b). This is all that we can say at the present moment. We are not called upon to say whether there should o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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