Since the assessing officer had allowed investment allowance, this issue was not the subject-matter of appeal before the Commissioner(Appeals) and this issue was, therefore, neither considered nor decided by him. So, in view of clause (c) of the existing Explanation to section 263(1), the Commissioner retained jurisdiction to revise the assessment order on the issue relating to the assessee's claim for investment allowance under section 32A.Revision under s. 263--MERGER WITH APPELLATE ORDER--Issue not subject-matter of appeal.
Issue regarding investment allowance was not the subject matter of appeal hence doctrine of merger would not be applicable as the issue was not considered and decided in appeal.
Since the Income Tax Officer had allowed investment allowance, this issue was not the subject-matter of appeal before the Commissioner (Appeals) and this issue was, therefore, neither considered nor decided by him. So, in view of clause (c) of the existing Explanation to section 263(1), the Commissioner retained jurisdiction to revise the assessment order on the issue relating to the assessee's claim for investment allowance under section 32A.Not to current assessment year as regards investment allowance but as regards to applicability of principle of merger it is still applicable.
Since the assessing officer had allowed investment allowance, this issue was not the subject-matter of appeal before the Commissioner(Appeals) and this issue was, therefore, neither considered nor decided by him. So, in view of clause (c) of the existing Explanation to section 263(1), the Commissioner retained jurisdiction to revise the assessment order on the issue relating to the assessee's claim for investment allowance under section 32A.1. This appeal filed by the assessee is directed against the order dated 5-2-1985 passed by the Commissioner of Income-tax, Vidarbha, Nagpur, under Section 263(1) of the Income-tax Act, 1961.
2. For the assessment year 1981-82 the assessee claimed investment allowance under Section 32A amounting to Rs. 76,600 which was allowed by the Income-tax Officer by his order dated 23-9-1983. On a perusal of the case record, it was found by the Commissioner that the investment allowance was claimed by the assessee on plant and machinery installed in the cinema theatre for exhibition of films. He was of the view that the action of the ITO in allowing investment allowance on the said plant and machinery was erroneous and prejudicial to the interests of the revenue as no manufacturing activity or production was undertaken.
A show-cause notice under Section 263(1) was accordingly issued to the assessee calling upon it to explain as to why the assessment should not be set aside or enhanced.
3. Before the Commissioner it? was submitted on behalf of the assessee that it was entitled to investment allowance under Section 32A as exhibition of films amounted to production of a thing as contemplated under that section. The Commissioner rejected the assessee's contention. He was of the view that no new article or thing was produced by the assessee while exhibiting films in the theatre, and, therefore, the condition laid down for allowance under Section 32A was not fulfilled. He accordingly directed that the claim under Section 32A amounting to Rs. 76,600 should be disallowed. Aggrieved, the assessee has come up in appeal before the Tribunal.
4. Shri L.S. Dewani learned counsel for the assessee submitted that investment allowance of Rs. 76,600 was claimed by the assessee on a projector, air-cooling plant and electric equipment and fitting. The assessee was entitled to investment allowance on air-cooling plant and electric equipment and fitting as it manufactured or produced cool air which was supplied to persons who came to the theatre for seeing films projected on the screen with the help of the projector. In this connection reference was made to the decision of the Appellate Tribunal, Madras Bench 'B', in the case of Ega Theatre v. Eighth ITO [1986] 15 ITD 432, wherein it was noted by the Tribunal that Section 32A(2)(&)(iii) specifically excepts from the operation of the section, articles or things mentioned in the Eleventh Schedule. It was submitted on the strength of this decision that the assessee's case also fell under Sub-clause (ii) of Clause (b) of Section 32A(2) as it was small-scale industrial undertaking and was producing cool air which is an article or thing and as articles or things specified in the list in the Eleventh Schedule are not excepted from the operation of this Sub-clause.
5. Shri Dewani then raised a legal plea to the effect that the assessment order having got merged into the order of the Commissioner of Income-tax (Appeals), dated 18-5-1984, passed in appeal the Commissioner had no jurisdiction to revise the assessment order by his order dated 5-2-1985. In support of this contention reliance has been placed on the decision of the Bombay High Court in the case of CIT v, P. Muncherji & Co. [1987] 167 ITR 671, which has been followed by the same High Court in the case of CIT v. Smt. A.S. Narendrakumari [1988] 41 Taxman 226.
6. Shri Dewani then submitted that present Explanation to Section 263(1) was substituted by the Finance Act, 1988, with effect from 1-6-1988 and, therefore, the same could not be applied retrospectively and would not affect the legal position as enunciated in the aforesaid decisions of the Bombay High Court relating to the theory of merger. It was contended that Clause (c) of the Explanation substituted with effect from 1-6-1988 affected the substantive rights of the assessee inasmuch as it has widened the jurisdiction, power and authority of the Commissioner to revise even an assessment order which has merged in the order of the Appellate Authority and thus became final in view of the aforesaid decisions of the Bombay High Court. It was thus contended that Clause (c) of the existing Explanation introduced a substantive amendment and, therefore, even if it was introduced for removal of doubts, it could not operate retrospectively so as to take away the valuable right which has already vested in the assessee. In support of the contention that the intention of the Legislature was not to introduce the new Explanation retrospectively, we were taken through Notes on Clauses in the Finance Bill, 1988, as also through Memorandum explaining provision of that Bill. Shri Dewani invited our attention to Clause (a) and (b) of the Memorandum explaining the provisions of the relevant Clause (a) and (b) of the Finance Bill, 1988, and pointed out that it shows that the Commissioner will be competent to revise an order of assessment passed by an Assessing Officer on all matters except those that have been considered and decided in appeal. The use of the word "will" was emphasised to show that the intention of the Legislature was to introduce the amendment prospectively or with effect from a future date.
7. In support of the contention that the amendment introduced in Section 263(1) substituting the existing Explanation in place of the old Explanation is not retrospective, reliance was also placed on the decision of Jaipur Bench of the Tribunal in case of Vimal Trading Corpn. v. ITO [1988] 41 Taxman 75 (Tax - Mag.). It was, however, candidly stated by Shri Dewani that on similar issue the decision of the Bombay Bench 'C' of the Tribunal in the case of Agro Exports Ltd. v. ITO [1988] 25 ITD 46 is against the assessee. Shri Dewani then referred to the decision of the Madhya Pradesh High Court in the case of CIT v. Vithal Textiles & Wool Traders [1988] 40 Taxman 401 wherein it has been held that the Explanation introduced in Section 263(1) from 1-10-1984 being declaratory was retrospective in operation. Shri Dewani sought to distinguish this authority on the ground that the Explanation inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1-10-1984 related to a procedural matter and, therefore, the decision of the Madhya Pradesh High Court in the said case could not be applied to the instant case for the reason that the existing Explanation, which was substituted with effect from 1-6-1988 introduced an amendment which was substantive in nature. It was next contended that the decision of the Bombay High Court in the case of Smt. A.S. Narendrakumari (supra) was given on 5-10-1988, that is, after the existing Explanation had been brought on the Statute Book. The contention of Shri Dewani was that it has to be presumed that their Lordships, who decided that case, were aware of the Explanation substituted with effect from 1-6-1988 and in spite of that Explanation they upheld the theory of merger and, therefore, in respect of the existing Explanation the said decisions of the Bombay High Court are binding and still hold the field. In this connection reference was made to the decision of the Karnataka High Court in CIT v. Jagadish Jakati & Co. [1979] 119 ITR 19.
8. The assessee has also filed extracts from book on "Principles of Statutory Interpretation" by Justice G.P. Singh, Fourth edn. 1988, running into 19 pages and reliance was placed on various passages from that book in support of the contention that the amendment introduced with effect from 1-6-1988 would not operate retrospectively.
9. Shri D.C. Agrawal, learned Senior Departmental Representative, on the other hand, fully supported the impugned order of the Commissioner.
Regarding the merits of the assessee's claim for investment allowance under Section 32A on projector, Air-Cooling plant and electric equipment & fitting, reliance has been placed on the decisions of the Tribunal in the case of Fida Film & Hotel Co. (P.) Ltd. v. First ITO [1985] 14 ITD 182 (Bom.) and in the case of Ega Theatre v. Eighth ITO (supra).
10. Regarding the legal plea raised on behalf of the assessee, Shri Agrawal placed reliance on the decision of the Madhya Pradesh High Court in the case of Vithal Textiles & Wool Traders (supra), and submitted that in the absence of any other decision to the contrary on the point, the aforesaid decision is binding on the Tribunal. In support of this contention, reliance has been placed on the well known decision of the Bombay High Court in the case of CIT v. Smt.
Godavaridevi Saraf [1978] 113 ITR 589. Shri Agrawal then submitted that the use of the words "for the removal of doubts, it is hereby declared that, for the purposes of this sub-section,..." in the Explanation substituted with effect from 1-6-1988, clearly indicated that the new Explanation was introduced simply to clarify the legislative intent which was there from the very beginning when Section 263 was enacted and to declare the law to make the intention of the Legislature clear.
According to Shri Agrawal, the amendment being declaratory, will operate retrospectively despite the fact that it was introduced with effect from 1-6-1988. Shri Agrawal further submitted that the date of commencement or introduction of the amendment in the instant case was not material since the legislative intent was operative even prior to that date though the amendment was introduced with effect from 1-6-1988. It was further contended that the amendment being declaratory or clarificatory in nature, no new law was being introduced in Section 263(1) and that the amendment became necessary to remove the cloud of doubt regarding the legislative intent. Reliance was placed on the decisions of the Supreme Court in Ahmedabad Mfg. & Calico Printing Co.
Ltd. v. S.G. Mehta, ITO [1963] 48 ITU 154, Keshavlal Jethalal Shah v.Mohanlal Bhagwandas AIRChhanan Singh v. Smt. Jai Kaur AIR 1970 SC 349. Reliance was also placed on the decision of the Bombay High Court in 1984 Mh. L. J. 1031 in support of the contention that even if a declaratory amendment is introduced with effect from a certain date, it will act retrospectively as it merely clarifies the intention of the Legislature which was there from the very beginning.
11. We have carefully considered the submissions made on behalf of the parties and have perused the various authorities cited before us on behalf of the parties, as also the extracts from "Principles of Statutory Interpretation" by Justice G.P. Singh. The legal issue debated before us may first be discussed. By the Finance Act, 1988, in Section 263 of the Income-tax Act, 1961, in Sub-section (1) for the Explanation, the following Explanation was substituted with effect from 1-6-1988 : 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 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.
Explanation (a) to Section 263(1) was inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1-10-1984. That Explanation was as under : Explanation: For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, an order passed by the Income-tax Officer shall include (a) an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under Section 144A or Section 144B ; and. . . . .
12. It was held by Their Lordships of the Madhya Pradesh High Court in the case of Vithal Taxtites &' Wool Traders (supra), that the Explanation introduced with effect from 1-10-1984 made it clear that it was enacted to remove doubts. It was further held that though the Explanation came into force from 1-10-1984, the Amending Act being declaratory, must be held to be retrospective. While taking this view, Their Lordships drew support from the decision of the Supreme Court in the case of Central Bank of India v. Their Workmen AIR 1960 SC 12 and the decision of the Supreme Court in Chhanan Singh's case (supra). Shri Dewani sought to distinguish the decision of the Madhya Pradesh High Court on two counts. It was submitted that even before insertion of the Explanation with effect from 1-10-1984, the Madhya Pradesh High Court had taken the view that an order passed by the ITO in accordance with the directions of the IAC under Section 144A or 144B could be revised by the Commissioner in exercise of his powers under Section 263(1).
Secondly, according to Shri Dewani, the Explanation introduced with effect from 1-10-1984 related to procedural matters whereas in the instant case the Explanation substituted with effect from 1-6-1988, introduced a substantive amendment inasmuch as it affected the rights of the assessee which are already vested in him because of the finality attached to the assessment order which got merged in the order of the CIT (Appeals) and which, in view of the decisions of the Bombay High Court, could not be revised by the Commissioner under Section 263(1).
We are unable to accept the contention advanced by Shri Dewani for the simple reason that the decision of the Madhya Pradesh High Court is not based on a consideration whether the Explanation introduced from 1-10-1984 in Section 263(1) was procedural and substantive. The decision of the Madhya Pradesh High Court proceeded on the footing that even though the Explanation came into effect from 1-10-1984 since it was enacted to remove doubts, it was declaratory and hence it must be held to be retrospective. So, it was because of the declaratory nature of the amendment introduced in Section 263(1) by way of the Explanation that Their Lordships of the Madhya Pradesh High Court held that it is retrospective even though it came into force from 1-10-1984. In view of the ratio laid down by the Madhya Pradesh High Court, it has to be held that the existing Explanation which was substituted with effect from 1-6-1988 will apply retrospectively even though it came into force from 1-6-1988. No other decision of any other High Court, including the Bombay High Court which is the jurisdictional High Court for the present case, has been brought to our notice and, therefore, in view of the decision of the Bombay High Court in the case of Smt. Godavaridevi Saraf (supra) we are bound to follow the aforesaid decision of the Madhya Pradesh High Court. In this view of the matter it has become unnecessary for us to discuss various authorities cited before us on behalf of the department.
13. The argument advanced on behalf of the assessee, on the strength of the decision of the Bombay High Court in the case of Smt. A.S.Narendrakumari (supra), is untenable. In that case Their Lordships of the Bombay High Court were not called upon to consider the effect of the Explanation substituted with effect from 1-6-1988. We are clearly of the view that there is no substance in the contention that the said decision lays down the proposition that in spite of the Explanation introduced with effect from 1-6-1988, the Commissioner will not have jurisdiction to revise an order passed by an Assessing Officer which had been the subject-matter of an appeal, even on matters which had not been considered and decided in such appeal. The said decision of the Bombay High Court does not lay down such a proposition either expressly or by implication. In the instant case, since the ITO had allowed investment allowance, this issue was not the subject-matter of appeal before the CIT (Appeals) and this issue was, therefore, neither considered nor decided by him. So, in view of Clause (c) of the existing Explanation to Section 263(1), the Commissioner retained jurisdiction to revise the assessment order on the issue relating to the assessee's claim for investment allowance under Section 32A. The decisions of the Bombay High Court, in view of the Explanation, can no longer be relied upon in support of the contention that the entire order of the ITO merged in the order of the CIT (Appeals) and, therefore, the Commissioner had no jurisdiction to revise the assessment order on the aforesaid issue which was neither considered nor decided by the CIT (Appeals). So, the legal plea raised on behalf of the assessee has to be repelled.
14. On merit the assessee has no case. We are not impressed by the argument that Air-Cooling Plant installed in the theatre used by the assessee for exhibiting films is manufacturing or producing any article or thing. Air-Cooling Plant is installed to enable the persons who come to the theatre, to see films in a cool and comfortable atmosphere. We are clearly of the view that the assessee's case does not fall under any of the sub-clauses of Clause (b) of Section 32A(2). Since the assessee is not manufacturing or producing any article or thing, the assessee's case does not fall under Sub-clause (ii) or Sub-clause (in) of Clause (b) of Section 32A(2). In our opinion, on the basis of the decision of the Tribunal in the case of Ega Theatre (supra), the assessee cannot claim that its case falls under Sub-Clause (ii) of Clause (6) "of Section 32A(2). The decisions -of the Tribunal in Ega Theatre's case (supra) and Fida Film & Hotel Co. (P.) Ltd.'s case (supra), clearly negative the assessee's claim for investment allowance in respect of projector, Air-Cooling Plant and Electrical Equipment & Fitting, etc. Following these authorities, we hold that the assessee is not entitled to investment allowance under Section 32A on Projector, Air-Cooling Plant and Electric Equipment & Fitting. In this view of the matter, we further hold that the Commissioner was justified in revising the assessment order under Section 263(1) as the order of the ITO on the point was erroneous and prejudicial to the interests of the revenue.
15. In view of what has been stated above, the appeal of the assessee fails and is hereby dismissed.