1. These two appeals by the are directed against the orders passed by the Commissioner of Income-tax, Central-II, Madras, under Section 263 of the Income-tax Act, 1961 on 10-3-1987, relating to the assessment years 1982-83 and 1983-84.
2. During the previous years relevant to the two assessment years now before us, the assessee had leased two items of machinery, viz., Centrifugal Machine and Shredder, to M/s Kothari Sugars & Chemicals Ltd. The assessee claimed depreciation on the said items of machinery at the higher rate of 15% on the ground that the machinery in question came into contact with corrosive substances. The ITO allowed the assessee's claim. He also allowed extra-shift allowance and additional depreciation on the same basis.
3. Subsequently, invoking the powers vested in him by and under Section 263 of the Act, the C.I.T. called for and examined the assessment records of the assessee. On such an examination, he found that the I.T.O. had erroneously allowed depreciation at a higher rate of 15% instead of 10%, thereby causing prejudice to the interests of the Revenue. He, therefore, called upon the assessee to show cause why the two assessment orders should not be revised.
4. The assessee's case before the C.I.T. was that the assessment orders had been the subject-matter of appeal before the C.I.T.(A) and the Income-tax Appellate Tribunal; that, consequently, the assessment orders got merged with the orders of the appellate authorities; and that, therefore, recourse to Section 263 could not be taken by the C.I.T.5. None of the aforesaid contentions found favour with the C.I.T., who took the line that the doctrine of merger applies only to that part of the order of the ITO, which has been the subject-matter of appeal. In this regard he referred to and relied upon the Full Bench of the Madhya Pradesh High Court in the case of CIT v. K.L. Rajput [1987] 164 ITR 197 (FB).
6. Turning to the merits of the case, the CIT took the line that the assessee is not entitled to depreciation at the higher rate of 15%. In this regard, he referred to and relied upon the case of M/s Kothari Sugars & Chemicals (the very lessee herein), in which the Income-tax Appellate Tribunal, Madras, by its order dated 16-11-1982 in I.T.A. No.100/Mds/82, relating to the assessment year 1976-77, had held that the machinery used in sugar factories could not be said to come into contact with corrosive substances. The C.I.T. also referred to and relied upon the decision of the Punjab & Haryana High Court in the case of CIT v. Saraswati Industrial Syndicate Ltd. [1982] 136 ITR 758, in which it was held that the machinery used in sugar mills is eligible only for the general rate of depreciation of 10%.
7. In view of the foregoing, therefore, the C.I.T. held that depreciation, additional depreciation, and extra-shift allowance should be calculated at the rate of 10% and not 15% on the two items of machinery in question and directed the ITO to revise the assessments accordingly.
9. Shri V. Jagadisan, the learned counsel for the assessee, took us through the facts and circumstances of the case, and stated that he would be limiting his arguments to the jurisdictional issue alone.
10. The first limb of Mr. Jagadisan's argument was that in the case before us the doctrine of merger would operate to deny the CIT access to Section 263 for two reasons. First, the assessment orders in question got totally merged with those of the appellate authorities.
Secondly, the question relating to depreciation was one of the subject-matters of the appeal.
11. In this regard, he referred to and relied upon the decision of the Income-tax Appellate Tribunal (Madras Bench-D) in the case of Carborundum Universal Ltd. v. ITO 1986] 17 ITD 305. He drew our particular attention to the fact that, in the said case, after considering certain decisions on the is issue of merger, the Tribunal held that Section 263 cannot be invoked, if the appeal is already disposed of. In this connection, the Tribunal distinguished the decisions of the Madras High Court in the cases of (a) CIT v. City Palayacot Co. [1980] 122 ITR 430, (b) Puthuthotam Estates (1943) Ltd. v. State of Tamil Nadu [1981] 125 ITR 41, and (c) CIT v. Eimco K.C.P.Ltd. [1984] 147 ITR 603 (Mad.).
12. Shri Jagadisan then contended that in the case of Ashok Leyland Ltd. v. Stale of Tamil Nadu 47 STC 155, a Full Bench of the Madras High Court had an occasion to consider the doctrine of merger and held that the assessment order merges in full with the appellate order. According to Shri Jagadisan, a similar view was taken by the Madras High Court in the case of C. Gnanasundara Nayagar v. CIT [1961] 41 ITR 375 also.
13. The second limb of Shri Jagadisan's argument was that the amendments made by the Finance Act, 1988 and the Finance Act, 1989 to Section 263 cannot affect the assessee's rights. According to him, the Explanation introduced by the said amendments would apply only to the orders passed by the CIT after 1 -6-1988. In the case before us both the impugned orders of the CIT were passed on 10-3-1987. Therefore, the Explanation cannot avail the department.
14. In this connection, he referred to and relied upon the following cases :__ 15. In view of the foregoing, contended Shri Jagadisan, the assessee is entitled to succeed.
16. On his part, Shri Natarajan, the learned departmental representative strongly supported the impugned orders of the CIT. He contended that the 1989 amendment to the Explanation to Section 263 put the matter beyond doubt, and that consequently the CIT validly took recourse to Section 263. Drawing a parallel to the retrospective amendments made to Section 43B of the IT Act, 1961, Shri Natarajan vehemently contended that, if anything, the 1989 amendment to the Explanation to Section 263 is on a stronger footing.
17. In view of the foregoing, Shri Natarajan contended that the impugned orders of the CIT do not invite any interference.
18. We have looked into the facts of the case. We have considered the rival submissions. The first limb of Shri Jagadisan's argument, it may be recalled, was that when an assessment order is made the subject-matter of appeal, the entire assessment order merges with the appellate order. It is also Shri Jagadisan's contention that this was the view taken by the Madras High Court in the cases cited by him. It is, therefore, necessary to examine the validity of this contention.
19. Earliest in chronology is the decision of the Madras High Court in the case of C. Gnanasundara Nayagar (supra). In that case, neither at the assessment stage, nor at the appellate stage did the assessee claim deduction under Section 4(3) (xii) of the Income-tax Act, 1922. The assessment orders were the subject-matters of appeal on other issues.
After the disposal of the appeals by the AAC and before preferring appeals to the Tribunal against the orders of the AAC, the petitioner applied to the ITO and the CIT for relief under the said section.
Immediately thereafter the assessee preferred appeals to the Tribunal against the orders of the AAC. The applications for relief were made under Section 33A(2) of the old Act. The Commissioner rejected the petitions on the ground that no evidence was adduced as to the exact date of completion of the buildings in question. The High Court found that the reports submitted by the subordinate officers to the Commissioner contained material which fully supported the claim of the petitioner. Even so, the High Court did not remit the matter back to the file of the Commissioner for fresh consideration and decision. This was because the basic issue in that case was whether the Commissioner had jurisdiction to grant relief claimed by the petitioner. The High Court examined this aspect of the matter in the light of the provisions of Section 33 A(2). The High Court found that Clause (c) of the proviso to Section 33 A(2) prohibited the Commissioner from exercising the powers of revision in cases where the order in question had been made the subject-matter of an appeal to the Appellate Tribunal. In that case, as pointed out earlier, the assessee had filed appeals before the Tribunal, though after filing the applications under Section 33A(2).
Since the two assessment orders were the subject-matter of appeal to the Tribunal within the meaning of Clause (c) of the proviso to Section 33 A(2), the High Court held, the Commissioner did not have jurisdiction to entertain the applications and grant the relief prayed for. In that connection the High Court held that the fact that the relief claimed in the application under Section 33A(2) was not the subject-matter of the appeal to the Tribunal, did not alter the position that the orders of assessment were the subject of appeal.
20. It may be seen from the foregoing that the decision in the case of C. Gnanasundara Nayagar (supra) went on the basis of the interpretation of the provisions of Section 33 A(2). Three points may here be made.
First, there is not even a remote reference to the doctrine of merger in the report. Secondly, involving as it did the construction of Section 33A(2), the case proceeded on the basis of the express embargo placed by the section on the Commissioner's jurisdiction to entertain applications in cases where the assessment orders were the subject-matter of appeal before the Income-tax Appellate Tribunal.
Thirdly, Section 33A(2) was analogous to Section 264 of the new Act. We are here, however, concerned with the provisions of Section 263 of the new Act.
21. In the case of City Palayacot Co. (supra), one of the questions referred to the Hon'ble High Court of Judicature at Madras for their esteemed opinion did raise the problem of merger. The Hon'ble High Court approached the matter from two angles. First, it pointed out that the problem of merger did not at all arise because on the day when the Commissioner passed the order under Section 263, there was no order of the AAC and hence the assessment order could not have merged in any view in the order of the AAC. At the time when the impugned order was passed under Section 263, an appeal was pending before the AAC.22. The second line adopted by the High Court was to assume that the assessment order had somehow merged in the order of the AAC and on that basis to examine the question of applicability of the doctrine of merger. In that case, the ITO had failed to levy interest under Section 217. The High Court held that, when there had been an omission on the part of the ITO to levy interest, the order so passed was prejudicial to the interests of the Revenue and consequently the Commissioner would have jurisdiction to exercise his powers under Section 263. After extracting the oft-quoted passage occurring at page 149 of the report in the case of State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 (SC), and after noticing the observations of Bhagwati C.J., as he then was, in the case of Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255 (Guj.), the High Court held that the doctrine of merger will have to be taken into account in the light of what was in controversy before the appellate authority and what could have been considered by the appellate authority. The A.A.C. did not have before him any appeal on the point of levy of interest as none had been levied. The result was that there was no merger of the assessment order in the order of the A.A.C. so as to rule out the exercise of jurisdiction under Section 263.
23. In this case also, it may be seen, there is nothing to indicate that an assessment order gets totally merged with the appellate order.
Secondly, the mere pendency of an appeal before the first appellate authority did not bar the CIT from taking recourse to Section 263. This was because the Act did not impose any such bar or ban. Thirdly, and more significantly, the observations of the High Court on the doctrine of merger support the department rather than the assessee. For a fact, there is a close parallel between the said case and the case before us.
There the ITO failed to levy interest under Section 217. The assessee was naturally not aggrieved by the non-levy of interest and consequently the question of the assessee's agitating this aspect of the matter in appeal before the A.A.C. did not arise. In the case before us, the ITO allowed depreciation etc. at the higher rate of 15%.
The assessee was naturally not aggrieved by the acceptance of its claim and it did not, therefore, agitate this aspect of the matter before the first appellate authority. Again, in the case before the Madras High Court, the CIT held that non-levy of interest under Section 217 was erroneous and prejudicial to the interests of the revenue. In the case before us, the allowance of depreciation at the higher rate of 15% was held to be erroneous and prejudicial to the interests of the revenue.
As in the case before the Madras High Court, so in the case before us the CIT's action must be upheld.24. The doctrine of merger was considered by the Madras High Court in the case of Puthuthotam Estates (1943) Ltd. (supra). That was a case under the Tamil Nadu Agricultural Income-tax Act, 1955. In that case, the assessment order was passed in September, 1971. The assessee's appeal was disposed of by the AAC on 31-1-1972, who held that the assessee was eligible for development allowance on new tea plantings and directed the Agricultural ITO to allow the claim on production of a certificate from the Tea Board. Thereafter, the assessee filed an appeal before the Agricultural Income-tax Appellate Tribunal in respect of other matters and this appeal was disposed of by the Tribunal on 24-8-1972.
25. In March, 1973 the Commissioner took proceedings under Section 34 of the Act and held that the development allowance granted by the AAC was not proper.
26. The assessee's case before the Madras High Court was that the order of the AAC having merged with that of the Agricultural Income-tax Appellate Tribunal, the Commissioner could not have revised the AAC's order by invoking the provisions of Section 34 of the Act.
27. In this case also, the High Court approached the matter from two angles. First, it examined the relevant provisions of Tamil Nadu Agricultural Income-tax Act, 1955 with a view to ascertaining whether, in the facts and circumstances of the case, recourse under Section 34 of the Act was shut out, as alleged. In particular, it noticed that Section 34 placed three restrictions on the powers of the Commissioner.
None of the restrictions applied to the case before it. The High Court, therefore, rejected the assessee's contention that the Commissioner could not have taken recourse to Section 34.
28. The High Court then examined the matter in the light of the doctrine of merger and held that the doctrine did not apply to the case. In that regard, the Court observed: We have, therefore, to consider the scope of the doctrine of merger in the light of the particular statutory provisions. In the present case, the Commissioner of Agricultural IT having been vested with wide powers of revision subject only to certain restrictions which do not apply here, we consider that the doctrine of merger has no application over the aspects which had not been touched by the Tribunal in its order. The doctrine of merger would operate here only on matters decided by the Tribunal and, therefore, in a case where the particular matter which was the subject-matter of revision had not been placed before the Tribunal for its decision, the matter would be at large so as to be subject to the exercise of the powers of revision. We, therefore, see no substance in the contention of the learned counsel for the assessee that the order ultimately revised is only the order of the Appellate Tribunal. What was actually revised is only the order of the Assistant Commissioner so far as it gave certain reliefs to the assessee.
29. A couple of points may here be made. The High Court has nowhere stated that the A AC's order got merged in its entirety with the order of the Agricultural Income-tax Appellate Tribunal. Secondly, the High Court examined the Commissioner's jurisdiction strictly with reference to the restrictions imposed on such jurisdiction by and under Section 34 of the Act and came to the conclusion that none of the restrictions operated to deny the Commissioner access to Section 34.
30. Thirdly, it should be highlighted that Section 34 of the Tamil Nadu Agricultural I.T. Act, 1955 has collected in one place the Commissioner's powers of revision, both of his own motion and on application by an assessee. This is in marked contrast to the provisions of the I.T. Act, 1961, which has dealt with the revisionary powers of the Commissioner under two sections, viz., Section 263 (suo motu revision) and Section 264 (revision on application by an assessee). Further, under the I.T. Act the restrictions placed by and under Section 264 or. the revisionary powers of the Commissioner on application by an assessee arc not to be found in Section 263 of the Act.
31. The doctrine of merger once again came up for consideration by the Madras High Court in the case of Eimco K.C.P. Ltd. (supra). That was a case under the Income-tax Act, 1961. There, the assessee had claimed revenue deduction in the sum of Rs. 2,35,000. The ITO held that the assessee was entitled to fractional capital allowance equivalent to l/14th part of the said sum of Rs. 2,35,000 under Section 35A of the Act. Aggrieved by the said decision, the assessee preferred an appeal before the AAC.32. While the assessee's appeal was pending before the AAC, the CIT, invoking the provisions of Section 263, held that Section 35A had no application and directed the ITO to add back a sum of Rs. 16,785 for which the ITO had granted a deduction in the original assessment.
33. On his part, the AAC rejected the ITO's view that the amount could be treated as having been expended on capital account for obtaining patent rights. He also rejected the assessee's contention that it represented revenue outgoing. Thus, according to the AAC, no part of the amount of Rs. 2,35,000 was revenue deductible. The assessee then took up the matter in appeal before the Tribunal, which gave two findings. The first was that sum of Rs. 2,35,000 was revenue deductible; the second was that the Commissioner's order in revision was "opposed to all canons of justice and judicial propriety".
34. Now, it was the department's turn to take up the matter in reference before the High Court of Madras. The High Court held first that the sum of Rs. 2,35,000 was not an expenditure on revenue account and consequently was not revenue deductible. Secondly, the doctrine of merger was not applicable to that case. In that connection the High Court observed : "The doctrine of merger in the present state of the authorities, is subject to many ifs and buts. Even otherwise, the merger theory need not detain us in the present reference, for, in this case, the order was passed by the Commissioner before the AAC disposed of the appeal against the very assessment". In this connection, while examining the question whether the Commissioner had validly taken recourse to the provisions of Section 263, the High Court observed: "The theory that the whole order of assessment is before the AAC must be read subject to the provisions of the Act. We, therefore, hold that the order passed by the Commissioner in this case was within his jurisdiction Under Section 263 of the Act. The conclusion of the Tribunal, to the contrary, is wrong, based as it is on a prior reasoning, without regard for the concerned statutory provisions".
[Emphasis supplied] 35. It may thus be seen that in the aforesaid case the Madras High Court did not subscribe to the view of total merger.
36. Yet, according to Shri Jagadisan, in a later Full Bench judgment in the case of Ashok Leyland Ltd. (supra), the Madras High Court has held that the assessment order merges in full with the appellate order. It is, therefore, necessary to examine closely the facts of the said case so as to ascertain the true ratio laid down in the said case.
37. The said case arose under the Tamil Nadu General Sales Tax Act, 1959. The assessing officer had held that four items of turnover were exigible to general sales-tax. The assessee-company preferred an appeal to Appellate Assistant Commissioner (Commercial Tax) who rejected the claim of the assessee-company in respect of one of the four items, and allowed its claim in respect of the remaining three items. Thereafter, the Board of Revenue noticed that the relief granted by the AAC in respect of the three items went counter to the ratio laid down by the Supreme Court in the case of State of Tamil Nadu v. Burmah Shell Oil Storage & Distributing Company of India Ltd. [1973] 31 STC 426. The Board, therefore, proposed to revise the AAC's order and called upon the assessee-company to state its objections. The assessee-company objected to the exercise of revisional jurisdiction by the Board on the ground that it had filed an appeal before the Sales-tax Appellate Tribunal against the order of the AAC (Commercial Taxes). The Board overruled the objection and revised the order of the AAC.38. The matter thereafter reached the Madras High Court. At the time of hearing it was contended that there was apparent conflict between the decisions in the cases of Puthuthotam Estates (1943) Ltd. (supra) and Jeewanlal (1929) Ltd. v. State of Tamil Nadu [1978] 42 STC 263 (Mad.) and it was urged that the matter be placed before the Full Bench. The Full Bench examined the matter and found that there was no conflict at all between the said two decisions. Jeewanlal (1929) Ltd.'s case (supra), which arose under the Tamil Nadu General Sales-tax Act, 1959, was decided on the basis of the provisions of that Act. Puthuthotam Estates (1943) Ltd.'s case (supra) arose under the Tamil Nadu Agricultural Income-tax Act, 1955 and was decided in accordance with the provisions of that Act. The decisions in the two cases came to be rendered with reference to "different statutory provisions containing different languages". There cannot be any analogy between the two languages unless the language is identical in all respects. Therefore, there is no conflict between the two decisions aforesaid. As to the merits of the case, the High Court held that the Board had no jurisdiction to reverse the orders of the AAC, because the AAC's orders had been made the subject-matter of appeal to the Appellate Tribunal.
And, Section 34(2)(b) of the Tamil Nadu General Sales-tax Act, 1959 clearly imposed a restriction on the revisionary jurisdiction of the Board in such cases.
39. It will be clear from the foregoing that the matter was decided with reference to the respective statutory provisions and not with reference to the doctrine of merger, total or partial.
40. It will be seen from the foregoing analysis that the question whether in a given case the revisionary jurisdiction was validly assumed by the authority concerned was examined by the Court from two different angles. The first line of examination was centered on the specific provisions of the Statute. If a particular Statute imposed restriction on the revisionary powers in certain circumstances and if any one of the stated circumstances existed, then the restriction applied and the revisionary jurisdiction was barred. Clearly such a bar or ban, arising as it does out of the specific statutory provisions, is operative de hors the doctrine of merger.
41. The second line of examination is to see whether, even where there is no statutory bar or ban, the assumption of revisionary jurisdiction by the authority concerned is hit by the doctrine of merger. Here the acid test is to see whether the issue, which is the subject-matter of revisionary jurisdiction, was already considered and decided by the appellate authorities. If the issue had been already considered and decided by the appellate authorities, the doctrine of merger would intervene; otherwise not.
42. We may now examine the extent of application of the doctrine of merger in the light of the provisions of Section 263 of the Income-tax Act, 1961. This aspect of the matter was examined by the Madras High Court in the case of Eimco K.C.P. Ltd. (supra). To recapitulate the facts of this case briefly : The assessee had claimed revenue deduction in a sum of Rs. 2,35,000. The ITO held that the assessee was entitled to fractional capital allowance equivalent to l/14th part of the said sum under Section 35A of the Act. Aggrieved by the said decision, the assessee preferred an appeal before the AAC. While the appeal was pending, the CIT, invoking the provisions of Section 263, held that Section 35A had no application and directed the ITO to add back the sum of Rs. 16,785, which had been allowed as a deduction to the original assessment. Accepting the assessee's contention that the CIT was barred from exercising his revisional power to set aside or modify an assessment order when the order of assessment was pending in appeal at that time, the Tribunal set aside the impugned order of the CIT, characterising it as "opposed to all canons of justice and judicial propriety". The said order of the Tribunal was taken in reference by the department to "the High Court. In that connection the High Court examined the appellate procedure and powers and held that the impugned order of the CIT did not suffer from any infirmity. In this regard, the High Court made the following points :- (a) The power vested with the CIT under Section 263 is a revisional power and it is exercisable in cases where the order of the ITO appears to be prejudicial to the interests of the revenue. The last condition for its exercise makes it a one way traffic. The CIT cannot act under that section to set right an assessment order which he is convinced is prejudicial to the interests of the tax-payer.
(b) Section 263, which confers as well as delimits the revisional power of the CIT, contemplates not merely a power but a duty on the CIT's power to set right an order passed by the ITO "insofar as it is prejudicial to the interests of the revenue".
(c) If the assessee feels that he is prejudiced by any part of the ITO's order, he may file an appeal before the first appellate authority.
(d) While disposing of the appeal, the first appellate authority has wide powers. He can even enhance the assessment but this is a matter within his discretion and he must first give notice to the assessee of his intention to enhance.
(e) This power of the first appellate authority enhance the assessment while disposing of the appeal is in a certain sense akin to the CIT's powers under Section 263 to revise the order of the assessing officer if it is prejudicial to the interests of the revenue.
(f) In the hierarchy of the authorities under the Income-tax Act, the Income-tax Appellate Tribunal is an Institution apart; but the AAC as much as the CIT is a custodian of the interest of the revenue, even though he is meant only to hear and dispose of the appeals by the assessee. In this sense, both the CIT and the AAC do not have to work for cross purposes. Ordinarily, therefore, the AAC deals with those aspects of the order of the ITO which are prejudicial to the assessee, whereas the CIT will invariably has to concentrate only on those aspects of the ITO's order which are to the revenue's prejudice.
The High Court concluded the matter by observing: "In this statutory milieu, we do not see any implied curb on the revisional powers of the Commissioner under Section 263, which might be thought to exist merely on the accident of the quite different aspects of the officer's order having been carried in appeal before the AAC....The theory that the whole order of assessment is before the AAC must be read subject to the provisions of the Act. (Emphasis supplied) 43. Thus, according to the High Court, the scheme of the Act relating to appellate powers and procedures does not have any room for the theory of total merger. The scheme contemplates only partial merger, that is to say, merger only on those points considered and decided by the first appellate authority.
It is well worthwhile to note here that, Shri Jagadisan's assertions to the contrary, notwithstanding, even prior to the 1988 and 1989 clarificatory amendments to Section 263, the view taken by the Madras High Court was in accord with the legislative intent which was clarified by the 1988 amendment, and which was put beyond the pale of any doubt by the still more clarificatory 1989 amendment. It should, therefore, follow that, even de horsthc said amendments, the plea based on total merger should be rejected.
44. The extent to which the doctrine of merger is applicable to income-tax proceedings was considered by a Five-member Full Bench of the Madhya Pradesh High Court in the case of K.L. Rajput (supra). The Court observed :- The doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority.
Where an appeal has been preferred by the assessee to the Appellate Assistant Commissioner from an order of assessment made by the Income-tax Officer in respect of only some of the items covered by the Income-tax Officer's order and the remaining items, forming part of the Income-tax Officer's assessment order, were not agitated or the Appellate Assistant Commissioner did not consider them suo motu and no decision of the Appellate Assistant Commissioner is, therefore, made in respect of the remaining items, the Income-tax Officer's order merges with the appellate order of the Appellate Assistant Commissioner only to the extent it was considered and decided by the Appellate Assistant Commissioner, but the matters which are not covered by the appellate order of the Appellate Assistant Commissioner, are left untouched and to that extent, the Income-tax Officer's assessment order survives permitting exercise of revisional jurisdiction by the Commissioner under Section 263 of the Income-tax Act, 1961.
45. Again in the recent decision in the case of East Coast Marine Products (P.) Ltd., the Andhra Pradesh High Court followed the aforesaid Full Bench decision of the Madhya Pradesh.
46. The question that then arises for consideration is whether, in the case before us, the issue relating to the rate of depreciation applicable to the plant and machinery in question was the subject-matter of appeal by the assessee before the first appellate authority, and, if so, whether it was considered and decided by that authority. In this case, as pointed out supra, the ITO had allowed depreciation in the plant and machinery in question at the higher rate of 15%. Naturally, therefore, there was no question of the assessee's considering that part of the ITO's order as being prejudicial to it and consequently there was no question of the assessee's filing any appeal before the first appellate authority on this issue. It should, therefore, follow that it was open to the CIT to interfere with the aspect of the matter by invoking the provisions of Section 263.
47. Yet, Shri Jagadisan contends that the matter relating to depreciation was agitated before the first appellate authority and hence the CIT could not have taken recourse to Section 263. From the copies of the grounds of appeal filed by the assessee before the CIT(A) for the assessment years 1982-83 and 1983-84, we find that the question of depreciation as such was not one of the points at issue. It indirectly arose in connection with the disallowance by the ITO of the entirety of motor car maintenance expenses including depreciation on the ground that the car was wholly used for the personal purposes of Mr. H.C. Kothari.
48. Simply because the issue relating to the disallowance made by the ITO was the subject-matter of appeal before the first appellate authority and simply because the amount disallowed included depreciation on the car also, it cannot be said that the depreciation question as such was the point at issue. We, therefore, reject this contention of Shri Jagadisan. In view of the foregoing, therefore, we hold that the doctrine of merger cannot and does not stand in the way of the Commissioner's invoking the provisions of Section 263 in this case.
49. The effect of the 1988 and 1989 amendments to Section 263 may be considered next. Shri Jagadisan's contention is that, as has been laid down by the Bom bay High Court in the case of Ritz Ltd. (supra), the amended provisions will apply only to cases where action under Section 263 is taken after 1-6-1988.
50. We find that the decision in the said Bombay case was rendered by a single Judge. We further find in the case of East Coast Marine Products (P.) Ltd. (supra), a Division Bench of the Andhra Pradesh High Court held that even the 1988 amendment is really clarificatory in nature in the sense that it manifest the legislative intent. The Court further observed that even without such an explanatory clause, the position is the same.
51. With respect, we prefer to follow the aforesaid decision of the Division Bench of the Andhra Pradesh High Court. What is more, if the 1988 amendment itself was clarificatory in nature and even without such an explanatory clause, the position is the same, then the 1989 amendment must necessarily be held to be still more clarificatory in nature, introduced only with a view to removing any vestiges of doubt that might have remained even after the introduction of the 1988 amendment.
52. In view of the foregoing, therefore, we hold that the impugned orders of the Commissioner of Income-tax are saved by the said amendments also.
53. In this case we are dealing with the jurisdiction of the CIT. When jurisdictional issues are involved, one should prefer that construction which gives jurisdiction rather than the one that takes away the jurisdiction. This is yet another reason why we consider that the impugned orders of the CIT do not invite any interference.