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TMI Blog1993 (7) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer, in the order dated March 19, 1979, and non-inclusion thereof in the order dated September 11, 1979, passed by the Income-tax Officer while giving effect to the directions issued by the Inspecting Assistant Commissioner under section 144B of the Act was an order of the Income-tax Officer or of the Inspecting Assistant Commissioner and whether the provisions of section 263 of the Income-tax Act Eire attracted to this non-inclusion of the aforesaid income in the said order dated September 11, 1979 ? 4. Whether, under the facts and in the circumstances of the case, portion of the order dated March 19, 1979, passed by the Income-tax Officer merged in the order of the Inspecting Assistant Commissioner passed under section 144B of the Act and as such the said merged portion of the order was not open to the provisions of section 263 of the Income-tax Act? 5. Whether, under the facts and in the circumstances of the case, the order dated September 11, 1979, was :- . (a) an order of the Income-tax Officer to the extent of non-inclusion of income attributable to the sale of trees of spontaneous growth was concerned ? (b) erroneous in so far as it is prejudicial to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous years, and directed the sum of Rs. 2.98 lakhs to be deleted from the total income. The Income tax Officer thereupon followed the direction as required by section 144B(5) of the Act and completed the assessment excluding Rs. 2.98 lakhs. The Commissioner of Income-tax, invoking section 263 of the Act, took up the matter in suo motu revision and issued notice to the assessee who preferred objections. The Commissioner ultimately passed an order holding that the assessment order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue, that the direction given by the Inspecting Assistant Commissioner was wrong, that the Income-tax Officer erred in not making necessary enquiries or scrutiny and in not treating the amount as capital gain under section 45, set aside the order of the Income-tax Officer and directed him to make fresh assessment after full enquiry. The appeal preferred before the Tribunal by the assessee was dismissed with a direction that the Income-tax Officer should bring facts on record to show what the cost of acquisition was as well as subsequent acquisition of lands before finalising the assessment. This order has given rise to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the original order. The Income-tax Officer thereupon completed the assessment obeying the direction and deleting Rs. 2.98 lakhs. There can be no doubt that the order prepared by him originally was only a draft order, as contemplated under section 144B(1) of the Act. The question has to be answered in the affirmative, that is, in favour of the Revenue and against the assessee. Questions Nos. 3, 4 and 8 : It is contended for the assessee that the final order of assessment passed by the Income-tax Officer was really not his order but the order of the Inspecting Assistant Commissioner and alternatively the draft order passed by the Income-tax Officer in relation to sale consideration of trees merged in the order of the Inspecting Assistant Commissioner and has to be regarded as an order passed by the Inspecting Assistant Commissioner and, as such, not amenable to the revisional jurisdiction of the Commissioner under section 263 of the Act. It is further contended that the direction issued by the Inspecting Assistant Commissioner cannot be revised by the Commissioner under section 263 of the Act. Section 263, as it stood in the assessment year 1976-77, read as follows: "263. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding or direction of the Appellate Tribunal, the High Court or the Supreme Court, the revisional order may be passed at any time. We may also notice that section 264 confers on the Commissioner revisional power over any order other than an order attracting section 263. This power can be exercised suo motu or on application by the assessee within the time limit. The Commissioner, however, cannot make an order prejudicial to the assessee. As the provision stood at the relevant time, the Commissioner could not revise an order in cases falling under sub-section (4). It has to be borne in mind that the Revenue has no right of appeal against the order of assessment passed by the Income-tax Officer or the Assessing Officer. Section 263 is the only provision by which an erroneous order of the Assessing Officer which is prejudicial to the interests of the Revenue could be corrected, An order of assessment is to be passed under section 143 where a return has been made under section 139. Section 144 provides for best judgment assessment. Section 144A confers on the Inspecting Assistant Commissioner power to issue directions for the guidance of the Income-tax Officer in proceedings pendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Assistant Commissioner finally disposed of the appeal. The order completing the assessment in the present case was passed by the Income-tax Officer, no doubt, on the basis of the direction issued by the Inspecting Assistant Commissioner. The direction, as we have pointed out, was one issued pending completion of assessment and the direction was issued and was required to be issued for the guidance of the Income-tax Officer to enable him to complete the assessment. There was no question of an order or direction of an inferior authority merging in the final order of a superior authority or vice versa. There was no appeal before the Appellate Assistant Commissioner against the order of assessment passed by the Income-tax Officer. The direction of the Inspecting Assistant Commissioner was issued not in appeal or revision. It was issued on a reference by the Income-tax Officer pending assessment. It cannot be said that the order of the Income-tax Officer merged in the order of the Inspecting Assistant Commissioner giving directions. The doctrine of merger is not attracted in a case like the present one. It is true that, in exercising revisional power, the Commissioner will have to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation (c) was added extending the revisional power of the Commissioner in respect of orders passed by the Assessing Officer subject to any appeal filed on or before or after June 1, 1988, We do not think these changes have any relevance in considering the matter in dispute in this case. We, therefore, hold that the order sought to be revised by the Commissioner was the order of the Income-tax Officer completing the assessment and not an order of the Inspecting Assistant Commissioner, that the order of the Income-tax Officer did not merge in the order of the Inspecting Assistant Commissioner and the order of the Income-tax Officer passed following the directions issued by the Inspecting Assistant Commissioner is amenable to the revisional jurisdiction of the Commissioner under section 263 of the Act. Questions Nos. 3, 4 and 8 have to be answered in favour of the Revenue and against the assessee. Question No. 3 has to be answered in the affirmative, question No. 4 in the negative and question No. 8 in the affirmative. Questions Nos. 1, 5, 6, 7 and 9: It is necessary to advert to the facts and circumstances referred to by the various statutory authorities. The company acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleted, work shall be taken up for further extension of the tea area as, by that time, sufficient plants shall be available for the extension. In the draft order, the Income-tax Officer referred to the acquisition of land prior to 1949 and in 1962 and 1963, acquisition of land with plantation and jungle land, the fact that acquisition was made for consolidated price including the cost of the jungle in the total consideration treating the sale price of trees in 1959, 1963 and 1964 as revenue receipts and the fact that trees were sold in 1972 to 1975. He drew the inference that the assessee had been obtaining regular receipts in an organised manner from sales of trees of spontaneous growth to its sister concerns. He also stated that it cannot be said that the trees did not cost anything to the assessee though some of the trees might have grown spontaneously on the land subsequent to the acquisition, that the consideration paid for the land would include the price of the trees also and that the cost originally paid would cover the growth of new spontaneous trees. He estimated the cost of acquisition at Rs. 2,000. On these grounds, he was of the opinion that the consideration receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the terms of the sale deed under which land was acquired. He found from the directors' report that the Income-tax Officer (sic) was to clear the land of old trees for the purpose of cultivation and also to raise adequate funds for new plantation. He did not give any reason for his conclusion that section 45 of the Act was attracted. It is contended by learned counsel for the assessee that, unless the revisional authority is satisfied that the order of the Income-tax Officer is erroneous and on account of such error prejudicial to the interests of the Revenue, revisional power cannot be exercised. The Commissioner did indicate that the order of the Income-tax Officer ignoring the sale consideration was erroneous. If any part of the sale consideration was liable to be included in the total income of the assessee, the exclusion of that income on account of an erroneous view would certainly be prejudicial to the interests of the Revenue. Therefore, we are unable to agree that the Commissioner committed any error of jurisdiction. The Commissioner as well as the Tribunal directed the Income-tax Officer to conduct proper and full enquiry into the question before arriving at his dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. " After considering sections 48, 49 and 50, the court observed (at Page 300) : " None of the provisions pertaining to the head 'Capital gains' suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded." The Supreme Court held that, in the case of goodwill, there was no identifiable cost element and, in the case of goodwill generated in a new business, it was not possible to determine the date on which it came into existence and, therefore, section 45 is not attracted. It is true that the effect of this decision regarding "goodwill" has been overcome by the Finance Act, 1987, amending section 55 so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o trees of spontaneous growth under the sale deed relating to the land. Consideration was paid for the sale deed. It must ordinarily follow that the consideration was not only for the land but also for everything which was conveyed in the sale deed including trees and other things attached to the earth. It may perhaps be open in a given case for the parties to the transaction to allege and prove that consideration related only to land and it was not intended that the price should take in the trees also. It is, therefore, erroneous to hold that merely because a sale deed did not specify that a part of the consideration was towards the price of trees of spontaneous growth, there was no cost of acquisition for those trees. It is not quite certain whether the trees sold in the previous year relevant to the assessment year were trees standing at the time of acquisition or trees which grew on roots and trunk existing on the date of acquisition or on roots and trunks of trees existing at the time of acquisition and cut subsequently. This is a matter which should be investigated by the Income-tax Officer after calling upon the assessee to furnish relevant data. The Inspecting Assistant C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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