Ajit K. Sengupta, J.@mdashIn this reference u/s 256(2) of the Income Tax Act, 1961, the following questions of law have been referred to this court :
"(i) Whether, on the facts and in the circumstances of the case, in view of the miscellaneous application filed by the assessee, the Income Tax Appellate Tribunal was justified in law in rejecting the admission of an alternate additional ground ?
(ii) Whether, on the facts and in the circumstances of the case, the provision for taxation of Rs. 1,81,00,000 constitutes a fund within the meaning of Clause (ii) of Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?
(iii) Whether, on the facts and in the circumstances of the case and in view of the miscellaneous application filed by the assessee, the Tribunal was justified in law in not holding that if the cost of investment in shares which did not produce any income was excluded from computation of the capital under Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the company should have got the benefit of deduction of provision for taxation from its cost of investment of a fund ?"
2. For a proper appreciation of the points at issue, it is necessary to give a review of Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. Certain items of income are excludible from the total income of a company in the computation of its chargeable profits. A standard deduction is allowed from the chargeable profits at a percentage of the capital of the company computed under Rule 1 of the Second Schedule, but in such computation of capital the aggregate value of the assets shall be diminished by the cost of the assets which fetched excludible income as referred to in Clauses (iii), (vi) and (viii) of Rule 1 of the First Schedule. The idea is that the cost of assets the income from which is not chargeable to surtax should go in diminution of the capital. Otherwise, a double benefit would avail to the assessee-company.
3. But in computing the amount of diminution, it is not that the cost of all such assets producing non-chargeable income are to be aggregated. The diminution would be limited to the excess of the aggregate cost of such assets over the aggregate of specified borrowings and any other amount or any fund in surplus and any such reserve as is not to be taken into account in computing the capital under Rule 1. It is, in this context, that the assessee-company''s grievance can be understood.
4. The assessee-company earned dividend income which is a non-chargeable income referred to in Rule 2. The dividend income arose from some of the shares of which the cost was Rs. 11,08,135 while the total investment in shares of the assessee was Rs. 2,08,56,181. Therefore, the major part of the shares did not yield any dividend income. The assessee, therefore, pleaded at the assessment stage as also before the Commissioner of Income Tax (Appeals) that the diminution in terms of Rule 2 of the Second Schedule should be only of the value of the shares that fetched dividend, i.e., Rs. 11,08,135. But the entire value of the investment in shares, i.e., Rs. 2,08,56,181, was taken as the amount of diminution in the capital under Rule 2 of the Second Schedule.
5. The assessee-company urged before the Tribunal an alternative ground that the provision for taxation as on the first day of the previous year standing at Rs. 1,81,00,000 should be treated as a fund so that it is only the excess of the value of the share investment over such fund represented by provision for taxation that could be the amount by which the capital shall be diminished. The Tribunal, however, accepted the assessee-company''s contention that it is only the value of the shares which yielded the dividend income that should be the amount of diminution and not the total share investment of Rs. 2,08,56,181.
6. But the Tribunal did not admit the assessee''s additional ground that the provision for taxation should be treated as a fund and the excess of the cost of the dividend-yielding shares over such fund could be the amount of diminution. On the basis of the additional ground, no diminution would at all be called for. We find that the second question is covered by two decisions of this court in
7. Therefore, if the answer to the first question centering on the rejection of the prayer for admission of an alternate additional ground is in the negative, then the second question could arise and the answer should also be in the affirmative upholding the assessee''s contention that provision for taxation constitutes a fund within the meaning of Clause (ii) of Rule 2 of the Second Schedule to the Act. But a preliminary difficulty arises with respect to the question. We find from a reading of the appellate order of the Commissioner of Income Tax (Appeals) that the question raised before him was limited to the contention whether assets from which income is exempt are required to be excluded from the capital for the purpose of arriving at the statutory deduction irrespective of the fact that the assets actually yielded income or not. The Commissioner of Income Tax (Appeals) held that it is the nature of the assets that is determinative of its excludability. Thus, according to him, the assets of which income is entitled to exemption, no matter whether they did or did not yield income, are required to be excluded from the capital. There could be no question of treatment of the provision for taxation as a fund before the Commissioner of Income Tax (Appeals). In fact, from the assessment order also it appears that no such claim was pressed at the assessment stage. It is only in the appeal before the Tribunal that the assessee urged, that too at the stage of hearing, the new ground that its provision for taxation should be treated as a fund. Now, the question arises whether an issue which does not arise from the order of the Commissioner of Income Tax (Appeals) could be the subject-matter of appeal before the Tribunal ? We consider that such additional plea which altogether changes the complexion of the case as originally brought before the Commissioner of Income Tax (Appeals) and the Tribunal in second appeal is not permissible to be raised at the stage of hearing. In the first instance, if permitted, such a course would defeat the scheme of the appellate forums conceived by the Legislature. The Tribunal is supposed to decide only issues which were the subject-matter of the first appeal. Otherwise, the Tribunal would be reduced to the first appellate authority. Such a situation was never in contemplation in the scheme of relief by way of appeal. It is a settled principle that such a course goes to abridge the statutory benefit of two adjudications contemplated by the statute. The first appeal would then get telescoped into the second appeal. Secondly, if permitted, the limitation as prescribed by Section 253 for filing second appeal would get defeated, a situation which cannot be countenanced. Thirdly, it is fraught with the risk of being over-indulgent to a party reproachable for laches. Fourthly, where the ground canvassed as additional ground enlarges the claim of relief beyond what was claimed in assessment it would amount to permitting altogether a new case to be made out in appeal to patch up lacunae in the earlier proceeding. Thus, we are of the opinion that the Tribunal very correctly declined to admit the alternative ground here because if the alternative ground is admitted and the assessee is altogether free from any diminution whatsoever from its capital in terms of Clause (ii) of Rule 2 of the Second Schedule, the Tribunal would have to substitute itself for the assessing authority which the Tribunal is not entitled to do.
8. The Tribunal held that if the additional grounds which were pressed before it was in the nature of an alternative ground touching the interpretation of the law resulting in the same relief, the grounds would have been unexceptionable. But where the ground is a ground of additional nature involving a claim of a larger relief than that urged before the lower authorities, the same is impermissible. Though the Tribunal''s order on the miscellaneous petition on the point is not very explicit, yet that is the idea beneath the statement that the ground would have been admissible as an alternative ground but not as an additional ground. The Tribunal found that ground not to be an alternative ground but to be an additional one.
9. We, therefore, answer the first question regarding the admissibility of the additional ground in the affirmative and against the assessee. That being the case, the answer to the second question does not call for any answer as the same does not survive. The third question is virtually superfluous as the Tribunal has already answered the same question in favour of the assessee. Therefore, it does not call for an answer at all. The Tribunal having granted the relief claimed through the question, we decline to answer the third question.
10. There will no order as to costs.
Bhagabati Prasad Banerjee, J.
11. I agree.
