V.C. Daga, J.
1. By this reference under Section 256(1) of the IT Act, 1961, the Tribunal has referred the following questions of law for the opinion of this Court :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the CIT(A) expressly or impliedly applied his mind on the issue of the allowance of relief under Section 35B on reassortment charges when the claim for deduction on this account had already been allowed by the ITO in the assessment order and consequently did not figure in the appeal before the CIT(A).
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that after an appeal was decided by the CIT(A) against the assessment order, the assessment order merged in the order of the CIT(A) and thereafter the CIT could not exercise his jurisdiction under Section 263 of the IT Act, 1961, for revising the assessment on the ground of its being erroneous and prejudicial to the interest of the Revenue.'
Facts :
2. The factual matrix reveals that the assessee is a registered firm. The assessment for 1980-81 was made by the ITO by assessment order dt. 23rd Feb., 1981. In the said assessment order, the ITO allowed weighted deduction under Section 35B on Rs. 5,63,350 instead of Rs. 8,90,676 claimed by the assessee.
3. Appeal was preferred against the said assessment order which was decided by the CIT(A) by order dt. 25th Nov., 1981 upholding the order of the ITO.
4. Subsequently, the CIT was of the view that the assessment order dt. 23rd Feb., 1981 was erroneous and prejudicial to the interest of the Revenue inasmuch as weighted deduction under Section 35B was allowed on reassortment charges without going into the details of these charges and enquiry as to whether these charges were justified so as to allow weighted deduction under Section 35B of the Act. The CIT, finding the order erroneous and prejudicial to the interest of the Revenue, in exercise of his powers under Section 263, by an order dt. 11th Jan., 1983, set aside the assessment order dt. 23rd Feb., 1981 with respect to the claim made by the assessee for weighted deduction under Section 35B and remanded the assessment proceeding to the ITO with direction to make the assessment afresh, keeping in view his observations made in the order, after giving sufficient opportunity to the assessee to meet its case before completing the assessment.
5. Being aggrieved by the aforesaid order of the CIT under Section 263, dt. 11th Jan., 1983, the assessee invoked appellate jurisdiction of the Tribunal, contending that the powers under Section 263 could not have been invoked by the CIT since the assessment order with respect to the weighted deduction under Section 35B was a subject-matter of appeal before the CIT(A) as such order in original merged in the order of the appellate authority. The Tribunal came to the conclusion that the CIT(A) having expressed its views impliedly applied its mind to the question of grant of allowance under Section 35B. The Tribunal further held that assessment order passed by the ITO merged in the order of the CIT(A) and, therefore, CIT could not have assumed jurisdiction under Section 263 of the IT Act so as to revise the assessment order, on the ground of it being erroneous and prejudicial to the interest of the Revenue.
6. The Tribunal, on the above findings, cancelled the order of the CIT under Section 263 and allowed the appeal of the assessee-firm.
7. Based on the above facts, questions of law as extracted in the opening part of this order are the subject-matter of this reference made under Section 256(1) at the instance of the Revenue for the opinion of this Court.
Submissions:
8. Learned counsel appearing for the Revenue Shri Kotangale submitted that the assessee could not have preferred appeal against that part of the order which was in favour of the assessee. The assessee could not be said to be aggrieved by that part of the order which was in favour of the assessee. In other words, he submits that weighted deduction which was allowed on Rs. 5,63,350 could not have been the subject-matter of appeal before the CIT(A), the first appellate authority. He submitted that at the most it was open for the assessee to contend before the Tribunal that the weighted deduction under Section 35B of the IT Act ought to have been allowed on the excluded part of the reassortment charges amounting to Rs. 3,27,326 and that disallowance to that extent was erroneous.
9. Shri Kotangale submits that the Tribunal was not justified in invoking doctrine of merger and could not have set aside the order of the CIT passed under Section 263.
10. Per contra, learned Counsel appearing for the assessee submitted that once the opinion is expressed by the CIT(A) on the weighted deduction under Section 35B with respect to the reassortment charges, then the jurisdiction under Section 263 for revising assessment order on the ground of it being erroneous and prejudicial to the interest of the Revenue was not available to the CIT.
Consideration :
11. Having heard the rival parties, it appears that the main contention of the assessee, which was considered by the CIT(A), was whether or not the assessee was still entitled to claim weighted deduction on the entire amount of Rs. 8,90,676 instead of Rs. 5,63,350. In other words, whether or not the ITO was justified in refusing to allow weighted deduction on Rs. 3,27,326, was the question raised before the first appellate Court. However, in view of the judgment of this Court in the case of CIT v. P. Muncherji & Co. : [1987]167ITR671(Bom) , once the order of assessment is confirmed by the appellate Court or any order with regard to assessment has been made by it, that becomes a final order of assessment and only right the Department has is the right of appeal to the Tribunal. In other words, whether or not the issue is raised, once the assessment order is carried in appeal, the entire order merges with the appellate order. However, this legal position stands abrogated in view of the amendment to Section 263 of the Act, as amended by Finance Act, 1989. It has, thus, become necessary to examine the effect of this amendment to Section 263 of the Act.
12. Amendment to Section 263 of the IT Act, 1989, has been made by Finance Act, 1989, with retrospective effect from 1st June, 1988. Relevant part of the amendment reads as under :
'Explanation : For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,--
(c) Where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after 1st June, 1988, the powers of the CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.'
(Emphasis, italicised in print, supplied)
13. This Court while dealing with scope of amendment to Section 263, in Ritz. Ltd. and Anr. v. Union of India and Ors. : [1990]184ITR599(Bom) ruled that only in cases where action under Section 263 is taken on or after 1st June, 1988, the merger of the assessment order in the appellate order will be treated as confined to the issues actually considered and decided in appeal in terms of Clause (c) of the newly substituted (w.e.f. 1st June, 1988) Explanation to Section 263(1). In that view of the matter, where the action under Section 263 is taken prior to 1st June, 1988, the provisions of said Clause (c) of the Explanation cannot be invoked because irrespective of the language in which the amending provisions are couched, the amendment cannot be retrospective with effect from a date earlier to the date on which the amended provision itself was brought on the statute book. The similar view has been reiterated by this Court in number of cases viz., CIT v. International Computers Indian . : [1991]187ITR580(Bom) , CIT v. Godavari Sugar Mills Ltd. : [1992]198ITR196(Bom) and CIT v. Bombay Burmah Trading Corporation Ltd.
Some of the leading High Courts have taken a contrary view. Let us notice the same.
14. According to the Calcutta High Court, the said Clause (c) has tried to make explicit what was already implicit in the Act [see Hindustan Aluminium Corporation Ltd. v. CIT : [1989]178ITR74(Cal) ]. The very same High Court has further held that the amendment to Clause (c) by the Finance Act, 1989, clarifies that the said Clause (c) must be deemed to have always been in existence [see Hamilton & Co. (P) Ltd. v. CIT : [1991]187ITR568(Cal) ]. Thus, according to Calcutta High Court the doctrine of partial merger has judicial recognition for quite long. This Clause (c) is no innovation of Parliament [see CIT v. Techno Electric & Engg. Co. (1994) 76 Taxman 212 (Cal)].
15. According to Delhi High Court, such amendment to Section 263 clarifies the law and brings the statutory law in conformity with the judicial opinion noticed in the judgment of the Calcutta High Court. [see CIT v. Printers House : [1998]233ITR666(Delhi) ].
16. According to Patna High Court, Clause (c) is retrospective in nature. It also includes an appeal filed on or before or after 1st June, 1998 [see CIT v. Maqbool Alam & Co. : [1998]231ITR77(Patna) ].
17. At this juncture, it will be useful to refer to the portion of the Departmental Circular No. 550, dt. 1st Jan., 1990, which reads as under :
'The above Explanation was incorporated in the Finance Act, 1998, to clarify this legal position to have always been in existence. Some appellate authorities have, however, decided that the Explanation will apply only prospectively, i.e., only to those orders which are passed by the Commissioner after 1st June, 1988. Such an interpretation is against the legislative intent and Section 263 of the IT Act has been amended so as to clarify that the provisions of the Explanation shall be deemed to have always been in existence.'
18. In the case of CIT v. Shri Arbuda Mills Ltd. : [1998]231ITR50(SC) , the apex Court also had an occasion to consider the above issue. The relevant facts reveal that the assessment year in that case was 1975-76 ending on 31st Dec., 1974. The assessment was completed under Section 143(3) read with Section 144B, on 31st March, 1978, in which net business loss was computed at Rs. 3,61,086 and the income under the head 'Capital gains' at Rs. 38,874. The ITO had made certain additions and disallowances while computing the loss and income as above and had also accepted, Inter alia, the following three claims :
(i) Deduction of a sum of Rs. 23,82,621 by way of provision for gratuity.
(ii) Depreciation on Rs. 4,21,000 which was paid by the assessee to United Textile Industries as consideration for transfer of installed property of 17,480 spindles and 400 looms of Old Manek Chowk Mills.
(iii) Loss on account of difference in exchange rate which was referable to the purchase of machinery, etc., as revenue expenditure. For the purposes of the present matter, it is only these three items of claim which are relevant.
In the appeals filed by the assessee, the items in respect of which the decision was in its favour were not the subject-matter of appeals. In respect of above three items, the Commissioner exercised its power under Section 263 of the IT Act.
The main contention of the assessee considered by the Tribunal was whether or not the order of the ITO regarding the said three items in respect of which the assessee had no occasion to prefer an appeal had merged in that of the CIT(A) so as to exclude the jurisdiction of the CIT under Section 263 of the Act. The apex Court on reference under Section 257 of the IT Act, 1961, was required to deal with the following question referred to it :
'Whether, on the facts and in the circumstances of the case, the order of assessment passed by the ITO under Section 143(3) read with Section 144B on 31st July, 1978, had merged with that of the CIT(A) dt. 15th Dec., 1979, in respect of the three items in dispute so as to exclude the jurisdiction of the CIT under Section 263 ?'
The apex Court while dealing with the above question applied the amended provision, of Section 263(1) of the Act to the aforesaid three items which were not the subject-matter of appeal and held as under:
'The consequence of the said amendment made with retrospective effect is that the powers under Section 263 of the CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the CIT under Section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee.'
19. Learned counsel appearing for the assessee tried to canvas, since there is no discussion in the aforesaid judgment of the apex Court with respect to the length of the retrospectivity of the amendment to Section 263, it need not be followed. We do not agree with this submission made. The submission made is liable to be rejected outrightly. The Courts including High Court have to treat a decision of the Supreme Court as an authority not only for what it declares or decides by express enunciation but also what follows from such declaration by clear implication by way of logical deduction. So far as the case of Shri Arbuda Mills Ltd. (supra), is concerned, the pronouncement is clear on a point and suffers from no ambiguity. Needless to mention that once the point is finally decided by the Supreme Court it becomes binding precedent. The binding effect of a decision does not depend upon whether a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided. Merely because, there is no discussion in the judgment that does not mean that the issue in question was not considered by the apex Court and that it has no binding force. On the contrary, earlier views of this Court referred to in para 13 (supra) have lost their binding force. They are no longer good law.
20. The consequence of the aforesaid Clause (c) introduced with retrospective effect, is that the powers under Section 263 of the CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in the order passed in appeal on or before or after 1st June, 1988. The very fact that Expln. (c) was given retrospective effect by using the words 'on or before or after' itself denotes that the intention of legislature is to embrace all orders whether passed on or after or before 1st June, 1988. The use of the phrase 'on or before or after' is no doubt little uncommon. The phrase 'on or before' denotes immediately at or at any time before. The phrase 'on or before or after' to our mind means either immediately at or in the past or future. It means at any time during the continuance of the Act, if it is to be understood in the context of the legislation.
21. Having said so, turning to the facts of this case, so far as allowance under Section 35B to the extent it was allowed by the ITO is concerned, the powers of the CIT under Section 263 shall extend and shall be deemed always to have extended to such matter because the same had not been considered and decided in the appeal filed by the assessee. At the instance of the assessee, the allowance on the sum of Rs. 5,63,350 could not have been the subject-matter of appeal before the CIT(A) as the assessee was never aggrieved with that part of the order. In other words, so far as weighted deduction under Section 35B in the sum of Rs. 5,63,350 is concerned, the same was not a subject-matter of the appeal before the CIT(A). Factually, in this case, the doctrine of merger could not have been applied by the Tribunal to that part of the order which was not a subject-matter of appeal as indicated, so as to exclude revisional jurisdiction of the CIT under Section 263 of the Act.
22. In the above view of the matter, both the questions referred for our opinion are liable to be answered in the negative, i.e., against the assessee and in favour of Revenue.
Reference in terms of this order stands answered and matter stands remitted back to the Tribunal for decision in accordance with law. No order as to costs.