HINDUSTAN AERONAUTICS LTD.versusCOMMISSIONER OF INCOME TAX KARNATAKA-I, BANGALORE

A                       HINDUSTAN AERONAUTICS LTD.
                                           v.
                       COMMISSIONER OF INCOME TAX
                         KARNATAKA-I, BANGALORE

                                   MAY 11, 2000
B
              [S. RAJENDRA BABU AND Y.K. SABHARWAL, JJ.]


          Income Tax Act 1961-Section 264-Revision by assessee before ClT-
    in respect ofpart of an order made by AAC-Appea/ in respect ofpart of the
C   order under challenge by Revenue before Tribunal-Whether revision before
    CIT in respect of part of the order maintainable-Held No-what becomes
    merged in the order of the Tribunal is the order made by AAC in its entirety
    and not in part.

          Practice and Procedure·-lncome tax Act 1961-Section 119-Circulars
D   issued by CBDT-Held, are not binding when there is a contrary declaration
    of law by the Supreme Court or High Court.

          For the assessment year 1970-71, the assessee filed its return before
    the ITO who disallowed certain deductions claimed by the appellant on various
E   grounds. Against the assessm1mt order of the ITO, the assessee filed an appeal
    before the Appellate Assistant Commissioner which was partly allowed. Both
    the Revenue and the assessee preferred second appeals before the Income
    Tax Appellate Tribunal, to the extent each one of them was aggrieved. The
    assessee withdrew its appeal before the Tribunal with liberty reserved to it to
    approach the Commissioner of Income Tax in a revision under Section 264 of
F   the Act. The Tribunal, dismissed. the appeal filed by the Revenue on merits.

          The assessee filed revision petition under section 264 of the Alit before
    the Tribunal The Commissioner dismissed the revision petition on the ground
    that he has no power to revise any order under Section 264 as the order had
G   been made the subject to appeal to the Appellate Tribunal.

          Assessee filed a Writ Petition challenging the order made by the
    Commissioner. The Single Judge, who considered the matter, directed the
    Commissioner to entertain the Revision Petition filed by the assessee in terms
    of Circular No. XVl/11/69 issued by the Central Board of Direct Taxes and
    examine its case on merits. An appeal was preferred by the Revenue before
H                                        no                                           ·-
                           HINDUSTAN AERONAUTICS LTD. v. C.l.T.                      231
         the Division Bench.                                                                A
               The Division Bench following a decision in C.l.T. v. Hindustan
         Aeronautics, 157 ITR 315, of the Full Bench of the High Court held that the
         Revision filed by the appellant could not be maintained and the Commissioner
         was justified in dismissing the same. The Division Bench held that the
         Commissioner of Income Tax cannot entertain assessee's Revision Petition           B
         under Section 264 preferred from a part of the order of the Appellate Assistant
         Commissioner against which the assessee is aggrieved, during the pendency
         or after the disposal, as the case may be, of the Department's Second appeal
         before the Income Tax Appellate Tribunal preferred against another part of
         the order where the subject matter of the appellate and revisional proceedings     C
         are not the same but relates to distinct matters.

               In appeal to this Court it was contended by the assessee that the
         circulars issued by the Board under Section 119 of the Act is binding on the
         Commissioner in terms of which he was bound to examine the revision of the
         appellant on merits and the order of the Single Judge merely gives effect to       D
         such a course. Revenue contended that the circulars or instructions given by
         the Board are no doubt binding in law on the authorities under the Act but
         when the Supreme Court or the High Court had declared the law on the
         question arising for consideration it will not be open to a Court to direct that
         a circular should be given effect to and not the view expressed in a decision      E
         of the Supreme Court or the High Court.

                HELD: 1. Section 264(4) of the Income Tax Act, 1961 provides that the
         Commissioner shall not revise any order under this Section in a case where
         the order has been made the subject of an appeal to the Appellate Tribunal.
         What becomes final in such a proceeding is the order made by the Appellate         F
         Tribunal which is a superior forum than that of the Commissioner and the
         order which is the subject matter of an appeal cannot be divided into two parts,
         one which is the subject matter of the appeal and the other which was not in
         issue in the appeal before the TribunaL What becomes merged in the order
         of the Tribunal is the order made by the Appellate Assistant Commissioner          G
         in its entirety and not in part. Indeed wherever the legislature intended to
         make a distinction in such circumstances where there will be no merger in
         such cases is expressly provided. Section 263 of the Act where a revision is
         permissible in cases of orders which are prejudicial to the interest of the
         Revenue, in Explanation (c) thereof it has been provided where any order
,.   .   referred to in this sub-section and passed by the Assessing Officer had been       H
     232                       SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A   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 pa11 of the order which had not been considered
    and decided.in an appeal and thereby does not merge is explicitly provided.
    When the legislature does not make such a distinction in the scheme of
B   Section 264 of the Act the view taken by the High Court appears to be correct.
     (234-8-F)

          Vijayalakshmi Lorry Service v. CIT, ITRC 37 of 1973 and CWT v.
    Kasturbai, 177 ITR, 188, relied on.
c         2. The contention of the Revenue that the circulars or instructions given
    by the Board are no doubt binding in law on the authorities under the Act but
    when the Supreme Court or the High Court had declared the law on the
    question arising for consideration it will not be open to a Court to direct that
    a circular should be given effect to and not the view expressed in a· decision of
D   the Supreme Court or the High Court is upheld. [234-G-H; 235-A)

            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9104 of
    1995.

         From the Judgment and Order dated 24.7.85 of the Kamataka High Court
    in W.A. No. 721 of the 1981.
E
            Arvind Minocha, for the Appellant.

            Dr. V. Gaurishankar, S. Rajappa aitd Ms. Sushma Suri for the Respondent.

            The Judgment of the Court was delivered by
F
          RAJENDRA BABU, J. The appellant before us is Mis Hindustan
    Aeronautics Ltd., which is a wholly centrally owned Government Company
    engaged in the manufacture of aeroplanes and its parts. For the assessment
    year 1970-71, the appellant filed its return before the concerned ITO who by
    an order made on March 15, 1973 completed the assessment by disallowing
G
    certain deductions claimed by the appellant on various grounds. Against the
    assessment order of the ITO, the assessee filed an appeal before the Appellate
    Assistant Commissioner who by an order made on October 27, 1976 partly
    allowed the same. By the order of the Appellate Assistant Commissioner, both
    the Revenue and the assessee preferred second appeals before the Income
H   Tax Appellate Tribunal, Bangalore to the extent each one of them was                ....
         HINDUSTAN AERONAUTICS LTD. v. C.l.T. [RAJENDRA BABU, J.]            233
. aggrieved. However, on May 9, 1977, the assessee withdrew its appeal before        A
  the Tribunal with liberty reserved to it to approach the Commissioner of
  Income Tax (Commissioner) in a revision under Section 264 of the Income Tax
  Act, 1961 [hereinafter referred to as 'the Act']. On May 20, 1978, the Tribunal,
  however, dismissed the appeal filed by the Revenue on merits.

       The assessee filed revision petition on May 19, 1977 under Section 264        B
 of the Act to the extent of the grievance projected before the Tribunal earlier.
 On 22.12.78 the Commissioner dismissed the revision petition on the ground
 that he has no power to revise any order under Section 264 as the order had
 been made the subject to an appeal to the Appellate Tribunal.

       A writ petition [No. 4803179] was filed challenging this order made by
                                                                                     c
 the Commissioner. The learned Single Judge, who considered the matter,
 directed the Commissioner to entertain the revision petition filed by the
 assessee in terms of Circular No. XVI/l 1/69 issued by the Central Board of
 Direct Taxes [hereinafter referred to as 'the Board'], and examine its case on
 merits. Aggrieved by that order, an appeal was preferred by the Commissioner        D
 before the Division Bench.

       The Division Bench following a decision in CIT v. Hindustan
 Aeronautics, l 57 ITR 315, of the Full Bench of the High Court held that the
 revision petition filed by the appellant could not be maintained and the            E
 Commissioner was justified in dismissing the same. The question considered
 by the Full Bench was as follows :

        "Can the Commissioner of Income Tax entertain assessee' s revision
        petition under Section 264 of the Income Tax Act, 1961, preferred from
        a part of order of the Appellate Commissioner against which the              F
        assessee is aggrieved during the pendency or after the disposal, as
        the case may be, of the Department's Second appeal before the Income
        - Tax Appellate Tribunal preferred against another part of the same
        order where the subject matter of the appellate and revisional
        proceedings are not the same but relates to distinct matters."
                                                                                     G
       The said question was answered in the negative.

      This view is a reiteration of earlier view stated in Vijaya/akshmi Lorry
Service case, ITRC 37 of 1973. The Commissioner had in fact followed the
decision of the High Court in Vijaya/akshmi Lorry Service case. It is not
necessary for us to dilate on this aspect of the matter any further because          H
    234                       SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A   this Court in CWT v. Kasturbai, 177 ITR 188, has held that the Commissioner
    has no power to revise any order under Section 264 if the order "has been
     made subject to an appeal to the Appellate Tribunal, even if the relief claimed
     in the revision is different from tlhe relief claimed in the appeal and irrespective
    of the fact whether the appeal is by the assessee or by the Department". That
B    is because Section 264(4) provides that the Commissioner shall not revise any
    order under this section in a case where the order has been made the subject
    of an appeal to the Appellate Tribunal. What becomes final in such a
    proceeding is the order made by the Appellate Tribunal which is a superior
    forum than that of the Commissioner and the order which is the subject l)latter
    of an appeal cannot be divided into two parts - one which is the subject
C   matter of the appeal and the other which was not in issue in the appeal before
    the Tribunal. 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.
    Indeed where the legislature intended to make a distinction in such
    circumstances where there will be no merger in such cases is expressly
    provided. We may notice that Section 263 of the Act where a revision is
D   permissible in cases of orders which are prejudicial to the interest of the
    Revenue, in the Explanation (c) thereof it has been provided 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
E   decided in such appeal. Wher'e 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 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.
F
           However, the learned counsel for the appellant relied on the decisions
    in Navnitlal C. Javeri v. K.K. Sen, AAC oflncome Tax, 56 !TR 198, Ellerman
    Lines Ltd. v. C.J.T, 82 !TR 913 and K.P. Varghese v. ITO. 131!TR597, to
    contend that the circular issued by the Board under Section 119 of the Act
G   is binding on the Commissioner in terms of which he was bound to examine
    the revision of the appellant on merits and the order of the learned Single
    Judge merely gives effect to such a course. Dr. Gauri Shankar, learned senior
    advocate for the Revenue, however, pointed out by referring to several
    decisions of this Court to the effect that the circulars or instructions given
    by the Board are no doubt binding in law on the authorities under the Act
H   but when the Supreme Court or the High Court has declared the law on the
       HINDUSTAN AERONAUTICS LTD. v. C.l.T. [RAJENDRA BABU, J.]          235
question arising for consideration it will not be open to a Court to direct that A
a circular should be given effect to and not the view expressed in a decision
of the Supreme Court or the High Court. We find great force in this submission
made by the learned senior advocate for the Revenue and find absolutely no
merit in this appeal and the same stands dismissed, but in the circumstances
of the case, there shall be no orders as to costs.
                                                                               B
VM                                                        Appeal dismissed.