1. This appeal filed by the assessee is against order of the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act') dated 18-8-1984 for the assessment year 1979-80, for which the previous year ended on 31-3-1979.
2. The assessee is engaged in export of prawns to foreign countries.
According to the Commissioner the assessee had been claiming deduction on account of his liability towards payment of purchase tax every year, that such deduction has been allowed for the assessment years 1977-78 and 1978-79, that by order dated 29-3-1979 the Government of Kerala granted exemption in respect of the tax payable on purchase of marine products during the period 1-4-1977 to 31-3-1979, that the total liability claimed by the assessee and allowed as deduction as purchase tax for the assessment year 1978-79 amounted to Rs. 3,53,398 and that the ITO had not considered the applicability of Section 41(1) of the Act in respect of the remission of this liability. So the Commissioner was of the opinion that the assessment order dated 7-9-1982 for the assessment year 1979-80 was erroneous and prejudicial to the interests of the revenue. He issued notice to the assessee under Section 263 in these circumstances. Before the Commissioner the assessee submitted that the Government's order dated 29-3-1979 was published in the Gazette only in the month of April 1979 and the assessee came to know of this only in April 1979 and, hence, the amount could be considered only for the assessment year 1980-81. Disagreeing with the submissions made by the assessee the Commissioner held that the cessation of the liability took place and the benefit accrued to the assessee as soon as the Government of Kerala passed an order granting exemption and, therefore, the amount was rightly taxable for the assessment year 1979-80. So he directed the ITO to apply the provisions of Section 41(1) in respect of the deduction allowed to the assessee as purchase tax for the assessment year 1978-79 and to add the sum of Rs. 3,53,398 to the income of the assessee for the assessment year 1979-80. Against this order of the Commissioner the assessee preferred the present appeal.
3. At the time of hearing the assessee's counsel filed a paper book of 16 pages including the notification dated 29-3-1979 in G.O.M.S. 54 of 1979-T.D., letter dated 16-4-1979 from the Secretary to the Government of Kerala to the President, Sea Food Exporters' Association of India, Cochin, letter dated 17-4-1979 from the Secretary of the Sea Food Exporters' Association of India, Cochin to all its members and a letter dated 22-11-1986 from the Hon'ble Secretary, Ernakulam Public Library to K. Venkatachalam Aiyar & Co., Cochin stating that the Notification No. G.O.M.S. 54 of 1979-T.D. dated 29-3-1979 was published in the Gazette dated 3-4-1979. Later he filed a certificate dated 27-11-1986 from the Assistant Superintendent, Government Press, Trivandrum to the effect that the said notification was published and made available to the public in the Gazette dated 3-4-1979. His arguments were to the following effect. The Government of Kerala was empowered under Section 10(i) of the Kerala General Sales Tax Act, 1963 to grant exemption and reduction in rate of tax. The relevant wordings in Section 10(i) of the Kerala General Sales Tax Act are as under : (i) The Government may, if they consider it necessary in the public interest, by notification in the Gazette make an exemption or reduction in rate either prospectively or retrospectively in respect of any tax payable under this Act : 'By notification in the Gazette' means by publication of the notification in the Gazette and the expression 'publication' means made known to the public. The Government was pleased to exempt the marine products from sales tax for the years 1977-78 and 1978-79 subject to the condition that there shall be no refund of tax already paid by the dealers. The Government further ordered that the tax already paid will be adjusted towards future tax liabilities. The above exemption was ordered in G.O.M.S. 54 of 1979-T.D. dated 29-3-1979. In the same order the Superintendent, Government Press was requested to publish the notification in a Gazette extraordinary. This order can be seen at page 1 of the paper book. The notification was published in the Gazette dated 3-4-1979 as can be seen from the certificate issued by the Assistant Superintendent, Government Press, Trivandrum dated 27-11-1986. This notification was sent by the Secretary to the Government by his letter No. 2126/B1 of 1979-T.D. dated 10-4-1979 to the President, Sea Food Exporters' Association of India, Cochin as can be seen from page 3 of the paper book. The secretary of the said association, by his letter dated 17-4-1979 circulated the same to its members as can be seen from page 4 of the paper book. As the said notification dated 29-3-1979 was published as an Extraordinary Gazette in Vol. XXIV/225 dated 29-3-1979 and the same was published and made available to the public in the Gazette dated 3-4-1979 (as certified by the Assistant Superintendent, Government Press, Trivandrum), the notification became effective for the assessee from 3-4-1979 only which fell in the accounting year 1979-80 relevant to the assessment year 1980-81. After coming to know of the said notification from the secretary of the association after 17-4-1979 the assessee credited the said amount of Rs. 3,53,398 to his capital account in the accounting year relevant to the assessment year 1980-81. The assessee has got no objection for assessing the same under Section 41(1) to tax in the assessment year 1980-81. The Commissioner fell into an error in directing the ITO to assess the amount in question in the assessment year 1979-80 based on the date of notification, i.e., 29-3-1979. He should have directed the ITO to assess the said amount in the assessment year 1980-81 based upon the date of publication of the notification in the Gazette dated 3-4-1979. Reliance is placed on the decision of the Madras High Court in the case of Asia Tobacco Co. Ltd. v. Union of India [1985] 155 ITR 568. Further, the assessment order dated 7-9-1982 for the assessment year 1979-80 was the subject-matter of appeal before the Commissioner (Appeals) on some other issues. As the said assessment order got merged with the order of the Commissioner (Appeals) dated 20-10-1983, the Commissioner has got no jurisdiction under Section 263 to revise the order of the ITO. Reliance is placed on the decision of the Special Bench of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. v. ITO [1982] 1 SOT 495 (Bom.) and Himson Textile Engg. Industries v. ITO [1985] 14 ITD 393 (Ahd.) (TM) and the cases cited in Chaturvedi and Pithisaria's Income-tax Law, Third edn., Vol. 5, page 4594. The assessee's claim for deduction of Rs. 3,53,399 in the assessment year 1978-79 was not allowed by the ITO originally when he made the assessment for the assessment year 1978-79. This was allowed by the Tribunal as deduction by its order in S. Ratnam Pillai v. ITO [1984] 9 ITD 376 (Coch.). Section 41(1) speaks of deduction made in the assessment. Here the deduction has been allowed not in the assessment but on appeal. Hence, Section 41(1) has no application here.
Reliance is placed on the decision of the Madhya Pradesh High Court in the case of CIT v. Nathuabhai Desabhai [1981] 130 ITR 238. Further, the final assessment of sales tax for the assessment year 1978-79, relevant to the income-tax assessment year 1979-80 has not so far been completed. So the amount of Rs. 3,53,398 can be brought to income-tax only when the final assessment for sales tax is completed at a later date. Reference may kindly he made to the commentary under the head 'Refund of sales tax' in Chaturvedi and Pithisaria's Income-tax Law, Third edn., Vol. 2, page 1539. The assessee is following the mercantile system of accounting.
4. The arguments of the departmental representative were to the following effect : Here in the present case the date of the notification, i.e., 29-3-1979 is relevant for the purpose of assessment. The date of publication of the notification in the Gazette is not material. The amount under consideration is assessable under Section 41(1) for the assessment of 1979-80 assessment year only.
Reliance is placed on the decisions in Liquidator, Mysore Agencies (P.) Ltd. v. CIT [1978] 114 ITR 853 (Kar.), CIT v. Kabbur Bros. [1981] 128 ITR 43 (Kar.) and CIT v. Manohar Bandhu [1984] 148 ITR 108 (Bom.).
The decision in Asia Tobacco Co. Ltd's case (supra) is not applicable to the facts of the present case. The matter at issue was not the subject-matter of appeal before the Commissioner (Appeals) for the assessment year 1979-80. Hence, the theory of merger of the ITO's order with the order of the Commissioner (Appeals) and the alleged assumption of jurisdiction wrongly by the Commissioner does not arise. Reliance is placed on the decisions quoted in Chaturvedi and Pithisaria's Income-tax Law.. Fifth edn., Vol. 5, page 4594.
5. We have considered the rival submissions. It is seen that the Government's order G.O.M.S 54 of 1979-T.D. to exempt the marine products from sales tax for the years 1977-78 and 1978-79 is dated 29-3-1979. The said order was printed as notification and published in the Kerala Gazette Extraordinary in No. 225 of Vol. XXIV and the same was published in the Kerala Gazette dated 3-4-1979 in Vol. XXIV No. 14 and was made available to the public as can be seen from the certificate dated 27-11-1976 given by the Assistant Superintendent, Government Press, Trivandrum. In the case of Asia Tobacco Co. Ltd. (supra) the facts were as under : The Asia Tobacco Co. manufactured cigarettes in its factory at Hosur for itself and for the I.T.C. Ltd. Cigarettes were subjected to levy of excise duty. There was a partial exemption notification dated 1-3-1979.
The Central Government by a subsequent notification ('withdrawal notification') dated 30-11-1982 rescinded the exemption notification.
The Superintendent of Central Exise, Hosur wrote on 6-12-1982 to Asia Tobacco Co. about withdrawal notification. This letter was received by the assessee on 7-12-1982. On enquiry by the I.T.C. Ltd., the Assistant Controller (periodicals), for Controller of Publications, Government of India, mentioned in his letter dated 23-4-1983 that the Gazette dated 30-11-1982 was placed on sale for public on 8-12-1982. The contention of the assessee was that the effective date of the withdrawal notification could be only 8-12-1982, i.e., when the notification was made available to the public even though the notification was dated 30-11-1982. In those circumstances, the Madras High Court held that the notification became effective only on the date on which the Gazette containing the notification was released and that the notification was effective from 7-12-1982 as far as the assessee was concerned because it had the information about the withdrawal notification on 7-12-1982 itself. The Court further held as under : The intendment of a notification in the Official Gazette is that in the case of either grant or withdrawal of exemption, the public must come to know of the same. 'Notify', even according to ordinary dictionary meaning, would be 'to take note of, observe, to make known, publish, proclaim, to announce, to give notice to, to inform'. It would be a mockery to state that it would suffice the purpose of notification if the notification is merely printed in the Official Gazette, without making the same available for circulation to the public or putting it on sale to the public. Neither the date of the notification nor the date of printing, nor the date of the Gazette counts for 'notification' within the meaning of the rule, but only the date when the public gets notified in the sense, the concerned Gazette is made available to the public. The date of release of the publication is the decisive date to make the notification effective. Printing the Official Gazette and stacking them without releasing to the public would not amount to notification at all." (p. 568) In the case on hand also the notification dated 29-3-1979 was published and made available to the public in the Gazette dated 3-4-1979 as per the certificate given by the Assistant Superintendent, Government Press, Trivandrum. Hence, the decision of the Madras High Court squarely applies to the facts of this case. Respectfully, following the said decision we hold that the notification dated 29-3-1979 is effective for the assessee as well as the Income-tax Department or for that matter the public in general from 3-4-1979 only. In fact in this case the Secretary to the Government of Kerala informed the President of the Sea Food Exporters' Association of India, about this exemption notification only by his letter dated 10-4-1979 and the President of the Sea Food Exporters' Association of India in turn informed all its members by his letter dated 17-4-1979 but these dates are later to 3-4-1979, i.e., when the notification was made available to the public.
Thus, it would be seen that the earliest point of time for bringing the amount of Rs. 3,53,398 to tax was only 3-4-1979 which fell within the accounting year 1979-80 relevant to the assessment year 1980-81. So, the Commissioner was not justified in directing the ITO to tax this amount in the assessment year 1979-80 based on the date of the notification.
6. The assessee's appeal has to be allowed on the other ground also, namely, the theory of merger. We have seen the decisions on this point relied on by the assessee's counsel as well as the departmental representative in Chaturvedi and Pithisaria's Income-tax Law Third edn.. Vol. 5. One view is that the doctrine of merger would operate only on matters which were the subject-matter of decision by the first appellate authority and has no application to matters which have not been touched by that authority, and such untouched matters may be subjected to an order under Section 263. The other view is that the entire order passed by the ITO merges in the first appellate order and no part of it can be subjected to an order under Section 263 irrespective of the points urged by the party or decided by the appellate authority. In the Special Bench decision of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. (supra) it was held that the Commissioner had no jurisdiction under Section 263 to revise an assessment order which has been the subject-matter of appeal before the AAC, even qua issues within the AAC's jurisdiction but neither examined nor decided by him. This decision of the Special Bench is in consonance with the view taken by the following High Courts in the following cases-J.K. Synthetics Ltd. v. Addl. CIT [1916] 105 ITR 344 (All.), CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412 (Bom.), Addl. CIT. v.Vijayalakshmi Lorry Service [1986] 157 ITR 327 (Kar.) approved in CIT v. Hindustan Aeronautics Ltd. [1986] 157 ITR 315 (Kar.) (FB), Ashok Leyland Ltd. v. State of Tamil Nadu 1981 Tax LR 2907 (Mad.) (FB) and Jeewanlal(1929) Ltd. v. Addl. CIT [1977] 108 ITR 407 (Cal.).
In these circumstances and in the absence of any decision of the Kerala High Court to the contrary, we prefer to follow the view taken by the abovesaid High Courts and the Special Bench in favour of the assessee.
Accordingly we hold that the Commissioner had no jurisdiction to pass the order under Section 263 which is under appeal before us. In view of our findings above we are not going into the other contentions of the assessee's counsel raised before us.