ORDER
Shwanatha Shetty, J.
1. In these petitions filed under Section 55(1) of the Karnataka Agricultural Income Tax Act, 1957 (hereinafter referred to as 'the Act'), the petitioner (hereinafter referred to as 'the assessee') has called in question for correctness of the Order dated 16th October 1995 made in No. AIR SR 1/95/96 by the Commissioner of Agriculture Income Tax, Karnataka, Bangalore, a copy of which has been produced as Annexure-M to these Petitions.
2. Facts in brief may be stated as hereunder:
The assessee is a Company incorporated under the provisions of the Companies Act, 1956 in the State of Tamilnadu and has interalia tea plantation in the district of Chickmagalur in the State of Karnataka. The assessee had filed its return of agricultural income in Form No. 3 under the Act for the assessment years 1981-82, 1982-83, 1983-84 and 1984-85. The Assessing Authority, on consideration of the return filed by the assessee, passed an order of assessment dated 31st May 1989 under Section 19(3) of the Act. The Assessing Authority had granted initial depreciation of Rs. 49, 071/-(Rupees forty nine thousand seventy one only); Rs. 99, 446/- (Rupees ninety nine thousand four hundred forty six only); Rs. 47, 311/- (Rupees forty seven thousand three hundred eleven only) and Rs. 41,482/- (Rupees forty one thousand four hundred eighty two only) on new assets for the Assessment years 1981-82, 1982-83, 1983-84 and 1984-85 respectively. However, the assessee being aggrieved by the part of the assessment order, in so far as the Assessing Authority had refused to accept the computation of income made by the assessee in estimating the income of coffee and to extent the Assessing Authority had disallowed proportionate overhead allocated to coffee and cardamom and disallowed the insurance premium paid on cardamom crop, filed appeals before the Deputy Commissioner of Commercial Taxes (Appeals), Mysore Division, Mysore, (hereinafter referred to as 'the Appellate Authority'). The Appellate Authority, by means of his Order dated 24th August 1991 allowed all the four appeals filed by the assessee and directed the Assessing Authority to consider the overhead expenses incurred by the assessee during the period under appeal in respect of coffee and cardamom, and also directed to exclude the said amounts and the items of cultivation expenditure from the ambit of 'taxable agricultural income' for the periods under appeal. In terms of the direction issued by the Appellate Authority, the Assessing Authority, by its Order dated 11th November 1991, revised the assessments for the years in question, thus giving effect to the Appellate order. The Commissioner, Agricultural Income Tax, Karnataka, Bangalore (hereinafter referred to as 'the Revisional Authority'), having been of the opinion that the Order dated 24th August 1991 passed by the Appellate Authority as well as the Orders dated 11th November 1991 passed by the Assessing Authority were erroneous and prejudicial to the interest of the revenue, in exercise of suo moto power conferred on him under Section 35 of the Act, issued show-cause notice dated 25th July 1995, a copy of which has been produced as Annexure-K to these petitions, directing the assessee as to why the order made by the Assessing Authority allowing depreciation for the assessment years 1981-82 to 1984-85 should not be modified. The assessee filed its objections dated 11th August 1995, a copy of which has been produced as Annexure-L to these petitions, interalia contending, that the suo moto proceedings initiated by the Revisional Authority being beyond the period of four years limitation prescribed under Section 35(2) of the Act, from the date of the order sought to be revised, it was not permissible for the Revisional Authority to revise the Order is question. In other words, it was contended by the assessee that it was not permissible for the Revisional Authority, in the guise of revising the subsequent orders dated 11th November 1991 of the Assessing Authority and the Order dated 24th August 1991 passed by the Appellate Authority, to revise the original order of assessment dated 31st May 1989 after the expiry of four years from the date of the said Order. It was pointed out that the subject matter of the order, which was sought to be revised, did not form part of the subsequent orders of the Appellate Authority and the Assessing Authority. It was also asserted that additional depreciation claim made by the assessee which was allowed by the Assessing Authority was justified in law and does not call for modification by the Revisional Authority in exercise of his suo moto powers under Section 35 of the Act. However, the Revisional Authority negativing the contentions urged by the assessee referred to above, passed Order Annexure-M dated 16th October 1995. As noticed by us earlier, aggrieved by Order Annexure-M dated 16th October 1995, these revision petitions are filed. When these revision petitions came up for consideration before the Division Bench of this Court on 3rd February 1999, the Division Bench (Hon'ble Mr. Justice Ashok Bhan and Hon'ble Mr. Justice K.R. Prasada Rao, as they were then) was of the view that the decision of the Full Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX v. HINDUSTAN AERONAUTICS LTD. 154 ITR 314, wherein the full Bench of this Court has taken the view that the Order of the Assessing Authority merges with the Order of the Appellate Authority, may not have a direct bearing to the suo moto power of revision under the Act as the provisions under the Act are slightly different from the provisions of the Income-tax Act 1961; and in the light of the subsequent decision of the Supreme Court in the case of STATE OF ORISSA v. KRISHNA STORES 104 STC 594, relied upon by the learned Counsel for the petitioners, the question that had arisen for consideration in these Revision Petitions is required to be decided and resolved by a larger bench. Thus, these Revision Petitions are placed before us for our consideration on merits.
3. Sri G. Sarangan, learned Senior Counsel appearing along with Sri S. Parthasarathi, challenging the correctness of the Order Annexure-M dated 16th October 1995, made two submissions. Firstly, he submitted that the conclusion reached by the Revisional Authority that the proceedings initiated by him is not barred by limitation, is totally erroneous in law. Elaborating this submission, the learned Counsel pointed out that the Revisional Authority has seriously erred in law proceeding on the basis that the order passed by the Assessing Authority has merged with the order passed by the Appellate Authority. The learned Counsel pointed out that since it was the assessee who was aggrieved by the part of the order passed by the Assessing Authority and it had carried the matter in appeal to the Appellate Authority and that portion of the Order passed by the Assessing Authority to the extent that the Assessing Authority has allowed initial depreciation, was not called in question and was not appealed against, the principle of merger cannot be applied to the order passed by the Appellate Authority to come to the conclusion that the suo moto proceedings initiated by the Revisional Authority was within the period of limitation, i.e., the period of four years from the order sought to be revised. According to the learned Counsel, there is no complete merger of the order passed by the Assessing Authority; and when an appeal is filed before the Appellate Authority, whether there has been a merger of the original order, or not, has to be considered depending upon the nature of the order appealed against; and if it is so considered, since there was no grievance made with regard to the initial depreciation allowed by the Assessing Authority, the conclusion reached by the Revisional Authority in the order impugned that there has been a merger of the original order passed by the Assessing Authority would be totally erroneous in law. It is also his submission that since the language employed under Section 35(1) of the act which confers suo moto power, requires the Revisional Authority to look into the original order passed by the Assessing Authority which is erroneous and prejudicial to the interest of the revenue, the Revisional Authority has seriously erred in law in proceeding to pass the impugned order on the ground that the Order dated 24th August 1991 passed by the Appellate Authority as well as the Orders dated 11th November 1991 passed by the Assessing Authority are erroneous in law. Secondly, he submitted that the conclusion reached by the Revisional Authority that the depreciation allowed by the Assessing Authority was not sustainable in law, is totally erroneous in law. Elaborating this submission, he pointed out that the Act provides for special deductions and these deductions are available even in respect of tea and one such deduction is, initial depreciation under Rule 3(2) of the Karnataka Agricultural Income -Tax Rules 1957(hereinafter referred to as 'the Rules'). It is his submission that the allowance of depreciation under the Act does not denude the assessee of its right to ask for and to obtain initial depreciation under Rule 3 of the Rules when they do not encompass the same assets or same ratio. According to him, Section 8 of the Act and Rule 6 of the Rules, do not debar such a claim. In support of his submissions, he relied upon the decisions in the case of COMMISSIONER OF INCOME TAX, BOMBAY v. AMRITLAL BHOGILAL AND COMPANY : [1958]34ITR130(SC) , STATE OF TRIPURA v. THE PROVINCE OF EAST BENGAL 19 STR 144, COMMISSIONER OF INCOME TAX, VISAKHAPATNAM v. G. GOPAL RAO AND ORS. 151 ITR 315, COMMISSIONER OF WEALTH-TAX, CALCUTTA v. TUNGABHADRA INDUSTRIES LIMITED 60 ITR 449, COMMISSIONER OF INCOME - TAX v. HINDUSTAN AERONATICS LIMITED 157 ITR 549, COMMISSIONER OF INCOME TAX v. JUGALKISHORE HARGOPAL DAS : [2000]243ITR220(Ker) , KALASA TEA AND PRODUCE CO. LTD v. STATE OF KARNATAKA : [1999]235ITR112(KAR) , SAMPAT RAM BUDHMAL DUGAR v. COMMISSIONER OF WEALTH-TAX 164 ITR 192, COMMISSIONER OF INCOME TAX v. LATE BEGUM NOOR BANU ALLADIN : [1993]204ITR166(AP) , and also referred to the observation made in Pithsaria and Chaturvedi's Income - Tax Law at Page 8228.
4. However, Sri B. Anand, learned Government Advocate, strongly repelling both the contentions urged by the learned Counsel for the assessee, pointed out that the conclusion reached by the Revisional Authority that once the order passed by the Assessing Authority is appealed against, the original order merges with the Appellate Authority order is justified. Elaborating this submission, the learned Government Advocate pointed out that even if the portion of the original order was appealed against, since the entire matter was before the Appellate Authority; and Sub-section (2) of Section 35 of the Act empowers the Appellate Authority to modify the order of the Assessing Authority to the extent it is erroneous and prejudicial to the interest of revenue, the order of the original Authority must be held to have merged with the order of the Appellate Authority. It is his further submission that since the Appellate Authority is empowered to modify the original order even when the appeal is preferred against the portion of the order, if the Appellate Authority is satisfied that portion of the Order which is not appealed against is erroneous and prejudicial to the interest of revenue, the Revisional Authority must proceed on the basis that the order passed by the Appellate Authority as well, is erroneous in law and prejudicial to the interest of Revenue, and therefore, for the purpose of limitation, the date of passing of the appellate order alone should be taken into account. He also pointed out that there is no difference between the principle laid down in the decision of the Full Bench of this Court in the case of HINDUSTAN AERONAUTICS LIMITED, (supra) and also the decision of the Supreme Court in the case of KRISHNA STORES (supra) relied upon by the learned Counsel for the assessee. He further submitted that since the decision of the full Bench of this Court in the case of HINDUSTAN AERONAUTICS LIMITED (supra) has been approved by the Supreme Court in the case of HINDUSTAN AERONAUTICS LIMITED v. COMMISSIONER OF INCOME TAX : [2000]243ITR808(SC) , the decision of the Full Bench of this Court in the case of HINDUSTAN AERONAUTICS LIMITED (supra) has to be applied and the Revision petition has to be dismissed. According to him since the State interest is involved and when the Appellate Authority is conferred with the power of modifying the order of the Assessing Authority even in respect of the portion of the order where the appeal is not filed, in exercise of its power under Sub-section (5) of Section 32 of the Act, in the circumstances of the case, it must be held that the entire Order passed by the Assessing Authority gets merged with the Order passed by the Appellate Authority even though the portion of the order passed by the Assessing Authority was not appealed against. It is his submission that the ambit of the power conferred on the Revisional Authority under Sub-section (1) of Section 35 of the Act being very wide, the exercise of the said power should not be curtailed or narrowed down by reading into that provision any order passed by the subordinate authority to him should mean only the order passed by the Assessing Authority in cases where a portion of the Order passed by the Assessing Authority was not appealed against. He also referred to us the judgment of Supreme Court in the case of KUNHAY AHMED AND ORS. v. STATE OF KERALA AND ANR. : [2000]245ITR360(SC) . With regard to the contention of Sri Sarangan that the Revisional Authority has erred in law in disallowing the depreciation is concerned, he pointed out that the finding recorded by the Revisional Authority that the assessee was not entitled for deprecation, being purely a question of fact, the said finding is not liable to be interfered with by this Court in exercise of its revisional jurisdiction. It is his submission that the conclusion reached by the Revisional Authority that the assessee is not entitled for initial depreciation does not suffer from any infirmity involving question of law.
5. In the light of the rival submissions made by the learned Counsel appearing for the parties, the two questions that would emerge for our consideration in these petitions are:
1. Whether the Order Annexure-M dated 16th October 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 interest of revenue, is correct in law?
Regarding Question 1:
6. The Full Bench of this Court in the case of HINDUSTAN AERONAUTICS LIMITED (supra) after referring to the decision of the Supreme Court in the case of MADURAI MILLS (supra) and in the case of AMRUTHLAL BOGILAL AND COMPANY (supra) has taken the view that when the Appellate Authority has in fact dealt with the issue in its order, such matters are covered by the doctrine of merger; but if the Appellate Authority does not have the jurisdiction under law to deal with that issue, the doctrine of merger does not apply in respect of that issue. It is further laid down in the said decision that the application of doctrine of merger will depend upon the scope of statutory provisions conferring the appellate or revisional jurisdiction. In the said case, while considering the scope or width of the power of Commissioner of Income - Tax under Section 263 of the Income - Tax Act, 1961 (hereinafter referred to as 'the Income - Tax Act'), the Court took the view that since the Appellate Assistant Commissioner could look into and adjudicate upon the findings recorded by the Income Tax Officer not only against the assessee, which may expressly be the subject matter of the appeal, but also a matter which has been considered and determined by the Income - tax Officer in the course of Assessment. In other words, the Court took the view that the entire subject matter of the assessment would be within the jurisdiction of the Appellate Assistant Commissioner, and therefore the entire assessment order would merge with the appellate order irrespective of the points urged by the parties or decided by the Appellate Assistant Commissioner. However, as noticed by us earlier, the Division Bench of this Court while referring these petitions to the Full Bench was of the view that the decision in the case of HINDUSTAN AERONAUTICS LIMITED (supra) was rendered by the Full Bench relying upon the decision of the Supreme Court in the MADURAI MILLS (supra) which was rendered with reference to Sections 263 and 264 of the Income - Tax Act and subsequent to the said decision in the light of the observation made by the Supreme Court in the case of KRISHNA STORES (supra) wherein the Supreme Court took the view that unless the Appellate Authority has applied its mind to the original order or any issue arising in appeal while passing the appellate order, one should be careful in applying the doctrine of merger of the appellate order, referred these revision petitions to a larger Bench. To answer the questions that have arisen for consideration in these petitions, it is necessary to examine the scope of the appellate power under Section 32 of the Act. Sub-section (1) of Section 32 of the Act as it stood prior to the amendment of the Act made by means of Act 8 of 1988 with effect from 8th September 1998, provided for right of appeal to an assessee who is aggrieved by an order made by the Assessing Authority to the Appellate Authority in respect of various matters set out in Clauses (a) to (d) of Sub-section (1) of Section 32 of the Act. Sub-section (2) provides for the period of limitation for filing the appeal. Sub-section (3) provides that the appeal should be in the prescribed format. Sub-section (4) confers power on the Appellate Authority to fix the date and place of hearing of appeal and to adjourn the hearing of the appeal and to make such an enquiry as it feels necessary for the disposal of the appeal. Sub-section (5) provides for the nature of the power conferred on the Appellate Authority while disposing of the Appeal. It is useful to refer to the said provision, which reads as hereunder;
'32(5): In disposing of an appeal, the appellate authority may-
(a) in the case of an order of assessment -
(i) confirm, reduce, enhance or annul the assessment;
(ii) set aside the assessment and direct the Assistant Commissioner of Agricultural Income -tax to make a fresh assessment after such further inquiry as may be directed; or
(b) in the case of any other order, confirm, cancel or vary such order;
Provided that no enhancement of an assessment or penalty shall be made under this section unless the appellant has had a reasonable opportunity.'
7. Clause 5(a)(i) of Section 32 referred to above, makes it abundantly clear that while disposing of an appeal, the appellate authority is conferred with the power of either confirming, reducing, enhancing or annulling the assessment. Clause 5(a)(ii) of the said section further confers power on the Appellate Authority to set aside the order of assessment and direct the Assessing Authority to make a fresh assessment, after such further enquiry, as may be directed. Therefore, reading of Sub-section (5) of Section 32 of the Act does not give scope for any doubt that very wide power is conferred on the Appellate Authority and it is competent to modify, confirm, reduce, enhance or annul the order of assessment made by the Assessing Authority in an appeal filed by an assessee. Therefore, as rightly pointed out by Sri Anand, that even if an appeal is filed by the assessee, aggrieved by the part of the order of assessment made which is adverse to his interest, it is open to the appellate authority to nullify the entire order of assessment including the part of the order which is not appealed against or to enhance the tax assessed by the Assessing Authority. There is no limitation or restriction imposed on the Appellate Authority with regard to the amplitude or the extent of power to be exercised by the Appellate Authority. Section 263 of the Income Tax Act, which came to be considered by this Court in the case of HINDUSTAN AERONAUTICS LIMITED (supra), reads as hereunder:
'263. Revision of Orders prejudicial to revenue.
(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.
Explanation: For the removal of doubts it is hereby declared that, for the purposes of this sub-section -
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include -
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income - tax Officer on the basis of the directions issued by the Joint Commissioner under Section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under Section 120;
(b) 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner.
(c) Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner 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.
(2) No order shall be made under Sub-section (1) after the expiry of two years from the end of the financial year and in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in Sub-section (2), an order in revision under this section may be passed at any time in case of an order which has been passed in consequence of , or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation - In computing the period of limitation for the purposes of Sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded.'
8. We do not find any substantial difference in the language employed in Section 263 of the Income Tax Act which was considered by the Full Bench of this Court in the case of HINDUSTAN AERONAUTICS LIMITED (supra) and Sub-section (5) of Section 32 of the Act.
9. In the case of MADURAI MILLS referred to by the Full Bench in the case of HINDUSTAN AERONAUTICS LIMITED (supra), after referring to the decision of AMRUTHLAL AND BOGILAL's case, at pages 149 and 150, the Supreme Court has observed as follows:
'But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior tribunal and the other by a superior tribunal, passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-mater of the appellate or revisional order and the scope of appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction.'
(Emphasis supplied)
10. Further, the Supreme Court in the case of COMMISSIONER OF INCOME TAX v. RAI BAHADUR : [1967]66ITR443(SC) has taken the view that while considering Section 31 of the Income Tax Act 1922, which is similar to Section 263 of Income Tax Act, 1961, the appellate powers are very wide and co-exists with the power of the assessing officer. At page 449, of the judgment, the Supreme Court has observed as follows;
'It would be wholly erroneous to compare the powers of the Appellate Assistant Commissioner with the powers possessed by a Court of appeal, under the Civil Procedure Code. The Appellate Assistant Commissioner is not an ordinary Court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and in view of this peculiar position, the statute has conferred very wide powers upon the Appellate Assistant Commissioner once an appeal is preferred to him by the assessee. It is necessary also to emphasis that the state provides that once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the Income - tax Officer not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the income - tax Officer and determined in the course of assessment.'
11. Further, the decision of the Full Bench in the case of HINDUSTAN AERONAUTICS LIMITED (Supra) was affirmed by the Supreme Court in a decision reported in : [2000]243ITR808(SC) of the judgment, the Supreme Court as observed as follows:
'What becomes merged in the order of the Tribunal is the order made by the Appellate Assistant Commissioner in its entirety and not in part. In deed where the Legislature intended to make a distinction in such circumstances where there will be no merger in such cases it is expressly provided. We may notice that Section 263 of the Act where a revision is permissible in cases of orders which are prejudicial to the interests of the Revenue, in Explanation (c) thereto it has been provided that where any order referred to in this sub-section and passed by the Assessing Officer had been the subject - matter of any appeal, the powers of the Commissioner under this sub-section shall extend to such matters as had not been considered and decided in such appeal. Where the Legislature intended that the scope of revision should extend to a part of the order which had not been considered and decided in an appeal and thereby does not merge it is explicitly provided. When the Legislature does not make such a distinction in the scheme of Section 264 of the Act the view taken by the High Court appears to us to be correct.'
12. Therefore, we find considerable force in the submission of Sri Anand that since the language employed in Section 263 of the Income Act, 1961, being substantially the same or similar or akin to Sub-section (5) of Section 32 of the Act, though the assessee had only made a grievance against the part of the order dated 31st May 1989 passed by the Assessing Authority in the appeal filed before the Appellate Authority, the entire order passed by the Assessing Authority, should be held as having merged with the order dated 24th August 1991 passed by the Appellate Authority. We are unable to accede to the submission of Sri Sarangan that in view of Sub-section (4) of Section 264 of the Income Tax Act, the principle of merger was applied by the Assessing Authority while passing orders under Section 263 of the Income Tax Act and in the absence of such a provision under Section 32 of the Act, the principle of merger cannot be applied. In our view, the observation made in the case of KRISHNA STORES (supra) that 'unless the Appellate Authority has applied its mind to the original order or any issue arising in appeal while passing the appellate order, one should be careful in applying the doctrine of merger of the appellate order' is of no assistance to Sri Sarangan to support his contention that a portion of the Order dated 11th November 1991 passed by the Assessing Authority, which was prejudicial to the interest of the revenue which was not appealed against, had not merged with the appellate order dated 24th August 1991 passed by the Appellate Authority in the appeal filed by the Assessee challenging that portion of the Order passed by the Assessing Authority, which had gone against it. The observation made by the Supreme Court in the said case has to be understood in the backdrop of the facts of that case. The facts of the said case, as set out in the judgment, would indicate that the appeals filed in the said case were rejected at the initial stage of filing the appeal itself as the appeal presented was defective. In that context, the Court took the view that such rejection before the appeal was taken up for consideration on the ground that it was not in the specified format or that of requirements of form were not fully complied with, could not be considered as an appellate order within the meaning of Rule 80 of the Orissa Sales Tax Rules and therefore, such a rejection or dismissal of the appeal cannot be treated as disposing of appeal on merit. This is clear from the observation made by the Supreme Court at page 600 of the judgment, which reads as hereunder:
'The application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or revisional jurisdiction. Basically, therefore, unless the appellate authority has applied its mind to the original order or any issue arising in appeal while passing the appellate order, one should be careful in applying the doctrine of merger to the appellate order.'
13. The observation made by the Supreme Court in the case of KRISHNA STORES (supra), wherein the Supreme Court has observed that the application of doctrine of merger depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or revisional jurisdiction, will have to be examined in the contest of the statute, is a complete answer to the contention of the learned Counsel for the assessee that it is not an universal rule that in all cases, merely because, where a portion of the order passed by the original authority is only appealed against and the entire order is not appealed against, is not a ground to come to the conclusion that the original order, does not merge with the appellate order . As noticed by us earlier, the Supreme Court in the case of KRISHNA STORES (supra), has observed that each case has to be examined in the light of the statutory provisions which provides for the power of the Appellate or Revisional Authority. If the Appellate or Revisional Authority is given very wide power either to modify or totally nullify the original order which is appealed against in an appeal filed challenging the portion of the order which has gone against the appellant in the appeal, under those circumstances, the entire original order including the portion of the order which is not appealed against and which may be in favour of the appellant who had only challenged the portion of the Order, must be held to have merged with the Appellate order. Further, the High Court of Allahabad in the case of J.K. SYNTHETICS LIMITED v. ADDL. CIT : [1976]105ITR344(All) , the High Court of Madhya Pradesh in the case of CIT v. NARPAT SINGH MAL KHAN SINGH 128 ITR 77 and in the High Court of Calcutta in the case of JEEWANLAL (1929) LTD. v. ADDL. CIT : [1977]108ITR407(Cal) have taken the similar view. As noticed by us earlier, Sub-section (5) of Section 32 of the Act confers very wide power on the Appellate Authority either to modify, confirm, reduce, enhance or nullify the original order appealed against and also to enhance the tax levied by the Assessing Authority. Under these circumstances, we are of the view that the decision rendered by the Full Bench of this Court in the case of HINDUSTAN AERONAUTICS LIMITED (supra) which is affirmed by the Supreme Court, while considering Section 263 of the Income Tax Act, would have a direct bearing and would apply to understand the effect of the order made by the Appellate Authority under Sub-section (5) of Section 32 of the Act. The Tribunal and the Revisional Authority have taken the view that the Order dated 31st May 1989 passed by the original authority, has merged with the order passed by the Appellate Authority. In the light of the said conclusion, the Tribunal has taken the view that the Order Annexure-M dated 16th October 1995 passed by the Revisional Authority in exercise of the power under Section 35 of the Act is within the period of limitation. There is no dispute that if the order dated 24th August 1991 passed by the Appellate Authority is taken as an order sought to be revised, the power exercised by the Revisional Authority is within the period of limitation. Further, one other reason we may also add in support of our above conclusion is that since Sub-section (5) of Section 32 of the Act confers power on the Appellate Authority to modify, confirm, reduce, enhance or annul the entire order appealed against the original authority to make a fresh order of assessment after such further enquiry as the Appellate Authority may direct, in our view, it is open to the Revisional Authority, while exercising the power under Section 35 of the Act, to examine whether the order passed by the Appellate Authority was erroneous and is prejudicial to the interest of the revenue; and on such examination if the Revisional Authority is satisfied that the Appellate Authority has failed to exercise the power conferred on it under Sub-section (5) of Section 32 of the Act either by annulling the order of assessment of enhancing the tax levied by the original authority while considering the appeal filed by the assessee against the part of the order, it is open to the Revisional Authority to nullify the order passed by the Appellate Authority on the ground that the order passed by the Appellate Authority is erroneous and prejudicial to the interest of revenue. When the legislature, keeping in mind, the interest of the revenue and the possibilities of the original authorities committing an error, if power is reserved on the Appellate Authority when the matter is brought to its notice even in an appeal filed by the assessee challenging the portion of the order of the Assessing Authority, fails to exercise the jurisdiction as an Appellate Authority where the law compels it to do so, such an order must be considered as erroneous order and prejudicial to the interest of the revenue. Under those circumstances, in our considered view, apart from the view we have taken above that the original order gets merged with the appellate order for the purpose of period of limitation to exercise the revisional jurisdiction under Section 35 of the Act, the order passed by the Appellate Authority should be treated as one erroneous and prejudicial to the interest of revenue. Under those Circumstances, for the purpose of calculating the period of limitation, the order sought to be revised should be treated as the one made by the Appellate Authority. Therefore, on this ground also, we are of the view, the order dated 16th October 1995 passed by the Revisional Authority is not barred by limitation. Therefore, the first question referred to above is required to be answered against the assessee. Accordingly it is answered.
Regarding Question 2:
14. Section 8 of the Act provides that in case of cultivation and manufacture of Tea, the agricultural income for the purpose of the Act shall be deemed to be that 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 after deducting from the said portion any allowance authorized by the Act in so far as the same has not been allowed in the computation of the income for the purposes of the Income Tax Act, 1961. It is useful to extract Section 8 of the Act which reads as hereunder:
'8. Assessment of Agricultural income in regard to tea.-In case of cultivation and manufacture of Tea, the agricultural income for the purpose of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale computed under the Income Tax Act, 1961 (Central Act 43 of 1961) which is excluded from taxation under that Act as being agricultural income, after deducting from the said portion any allowance authorized by this Act in so far as the same has not been allowed in the computation of the income for the purposes of the Income Tax Act, 1961, Central Act 43 of 1961.'
15. Section 5 of the Act deals with computation of Agricultural income. It provides that the Agricultural income of a person should be computed after making several deductions provided under Clauses (a) to (n) of the Act. In this case, we are concerned with the depreciation under Section 5(1)(e) of the Act. It is useful to extract the said section which reads as hereunder:
'5. Computation of agricultural income.-(1) The agricultural income of a person shall be computed after making the following deductions, namely:
(a) to (d) xxx xxx xxx
(e) in respect of depreciation of buildings, machinery, plant, fencing materials, hose pipes and furniture which are the property of the assessee and which are required for the purpose of deriving the agricultural income, a sum equivalent to such percentage on the written down value thereof as may in any case or class or cases be prescribed and where the buildings have been newly erected, or the machinery or plant being new has been installed, a further sum subject to such conditions as may be prescribed:
Provided that:
(1) the prescribed particulars have been duly furnished:
(2) where full effect cannot be given to any such allowance in any year owing to there being no agricultural income chargeable for that year, or owing to the agricultural income chargeable being less than the allowance, then subject to the provisions of the second proviso to Section 15, the allowance or part of the allowance to with effect has not been given, as the case may be, shall be added to the amount of the allowance or depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for the next year, and so on for succeeding years; and
(3) the aggregate of all such allowances made under this Act shall, in no case, exceed the original cost to the assessee of the buildings, machinery, plant, or furniture as the case may be.'
16. Rule 3 of the Karnataka Agricultural Income-tax Rules, 1957(hereinafter referred to as 'the Rules') deals with deductions on account of depreciation of capital assets. While Rule 3(1) deals with normal depreciation allowance, Rule 3(2) deals with initial depreciation allowance. Rule 3(2) of the Rules, which is relevant for our purpose, reads as follows:
'3. Deductions on account of depreciation of capital assets.-
(1) xxx xxx xxx(2) In respect of buildings newly erected or new machinery or new plant installed, after 31st day of March, 1956, a further sum equivalent to twenty percent of the value of such buildings, machinery or plant shall be deducted under Clause (e) of Section 5 in respect of the year in which erection of installation was made.'
17. Rule 4 of the Rules deals with mode of determination of capital assets for depreciation allowance. Rule 4(1) of the Rule, which is relevant for our purpose, reads as follows:
'4. Mode of determination of capital assets for depreciation allowance:
(1) In the case of assets acquired before the previous year but after the commencement of the Act, the written down value shall be the actual cost of the assets so acquired less all depreciation actually allowed under Rule 3.'
18. The Assessing Authority had adopted 60 percent the net income from the tea which was excluded from taxation under the Income Tax Act, 1961 as being agricultural income in terms of Section 8 of the Act after allowing initial depreciation allowance of Rs. 49,071/-, Rs. 90,446/-, Rs. 47,311/- and Rs. 41,842/- for the assessment years 1981-82, 82-83, 83-84 and 84-85 respectively, calculated at 20 percent of the value of new buildings, plant and machinery and vehicles acquired during the relevant pervious years. It is the case of the Revisional Authority that the order of assessment passed by the Income Tax authorities in which 60 percent of the net income was excluded from tax under the income tax as being agricultural income, the Income-Tax authorities had allowed normal depreciation allowance under Section 32 of the Act on buildings, plant, machinery and vehicles, which the assessee had acquired during the previous year relevant to assessment year 1981-82 to 1984-85; but in the orders of assessment passed under the Act for the assessment years 1981-82 to 1984-85, the assessing authority had allowed initial depreciation on the very same assets on which the Income-Tax authorities had allowed normal depreciation allowance under Section 32 of the Act. The Revisional Authority having been prima facie satisfied that the assessee was not entitled for further depreciation as granted by the Assessing Authority, issued show-cause notice dated 25th July 1995, a copy of which has been produced as Annexure-K to these Petitions. Among several things, it was notified in the Show-cause Notice that the Income-Tax authorities had allowed normal depreciation allowance on the new building, machinery, plant and vehicles acquired during the previous years of assessments and the written down value of the said assets had been worked out after deducting normal depreciation allowance allowed according allowance and therefore, the assessee was not entitled to claim further deduction in the sum of twenty percent as contemplated under Section 5(1)(e) of the Act and Rule 3(2) of the Rules. It was further pointed out in the Show-cause notice that as per proviso (3) of Section 5(1)(e) of the Act, the aggregate of all such allowance made under the Act shall in no case exceed the original cost to the assessee of the building, machinery, plant or furniture as the case may be. It was further pointed out that as per Rule 4(1), the written down value should be the actual cost of the assets so acquired less all depreciation actually allowed under Rule 3. In the reply dated 11th August 1995, a copy of which has been produced as Annexure-L to these petitions, the substantial objection raised by the assessee was that the proceedings initiated by the Revisional Authority was barred by time as the same was initiated beyond the period of four years from the date of the order passed by the Assessing Authority. It was further stated in the reply notice that the additional depreciation claim made by the assessee relates to the fixed assets added during year and as no assets had been used for deriving 60 percent of the agricultural income, the additional depreciation could be allowed. In the impugned order, the Revisional Authority, after considering the explanation offered by the assessee and also the submissions made by the authorised representative who had appeared on behalf of the assessee, has found that the disallowance was wrongly claimed and allowed as the condition to avail the disallowance, i.e., deduction towards the initial depreciation allowance was not forthcoming. In other words, the Revisional Authority has found, as a question of fact, as there was no claim made for deduction towards initial depreciation allowance, deduction towards further depreciation being not allowable, the deduction wrongly allowed as initial depreciation allowance in the assessment order made by the Assessing Authority having not been disallowed in appeal by the Appellate Authority, the same needs to be set right by way of revision of the Appellate order in exercise of its revisional jurisdiction. In this connection, it is useful to refer to the observation made by the Revisional Authority, which reads as hereunder:
'The present case is different, in disallowing the claim of depreciation allowance, nothing is added to the computed (under Income Tax Act) component of 60% of the agricultural income (to be dealt under the Agricultural Income Tax Act) which is proposed to be done in the disallowance, wrongly claimed and allowed since the condition to avail the same i.e., the deduction towards the initial depreciation allowance is not forthcoming.
In view of this the conditions raised are not tenable and liable to be rejected. Therefore, as no claim is made of deduction towards initial depreciation allowance, deduction towards further depreciation being not allowance, the deduction wrongly allowed as initial depreciation allowance in the assessment order, not disallowed in the appeal order, needs to be set right by way of revision of the appeal order.'
19. In our view, the finding recorded by the Revisional Authority that there was no claim made for deduction towards initial depreciation is based on materials available on record and is purely a question of fact. We do not find any error of law in the said conclusion reached by the Revisional Authority. The Counsel for the assessee has not been able to show that the conclusion reached by the Revisional Authority on that question is erroneous in law. He has also not placed any material before us to nullify the said finding. Therefore, in the light of conclusion reached by the Revisional Authority that no claim was made for deduction towards initial depreciation allowance, the deduction towards further depreciation not allowable is fully justified. Since the further depreciation was allowed by the Assessing Authority which was not set right by the Appellate Authority while exercising its power under Section 32 of the Act, we are of the view that the Revisional Authority was fully justified in passing the impugned order in modification of assessment orders made for the assessment years 1981-82 to 1984-85 after disallowing the initial depreciation allowance granted by the Assessing Authority for the said period.
20. Therefore, in the light of the above, the second question is also required to be answered against the assessee.
21. In the light of the above conclusion, these Revision Petitions are liable to be rejected. Accordingly they are rejected. However , no order is made as to costs.