A.T.AS. NOS. 123/KB TO 125/0 OF 1978-79, DECIDED ON 5TH MARCH, .1986. Versus A.T.AS. NOS. 123/KB TO 125/0 OF 1978-79, DECIDED ON 5TH MARCH, .1986.

ORDER

GHULAM MURTAZA KHAN (MEMBER). --The appellant is a limited company controlled by the Federal Government. The common objections taken by the appellant-company dispute the learned Inspecting Assistant Commissioner action under section 34-A of the repealed Income-tax Act, through which payments made to the Federal Government were not allowed as deductable in the three years under appeal. The objection taken in the three years is identical and hence the three appeals are being disposed of by a combined order.

2. The appellant-company was incorporated under the Companies Act and entrusted by the Government of Pakistan to make bulk imports of items like iron and steel, other metals, chemicals, edible oil and other items for distribution/ sale to local consumers.

3. Briefly stated the facts giving rise to the objections are these. The Income-tax Officer completed the assessments under section 23(3) of the repealed Act on 17th April, 1975, 14th May, 1977 and June, 1977, respectively. The losses for these three years were assessed at Rs.1,65,77,354, Rs.92,18,6ts7 and Rs.3,79,17.380 respectively. Against these three orders of the Income-tax Officer, the appellant-company preferred appeals before the learned Appellate Assistant Commissioner. In the first two years, the appellant's objection related to the taxability of the Corporation's income as such and, alternatively, it disputed the loss of cargo and fixed assets in East Pakistan due to enemy action. In the charge year 1974-75, the objection related to only levy of additional tax tinder sections l8-A(6) and 15-A etc. T he learned Appellate Assistant Commissioner disposed of the appeal, relating to the charge year 1972-73 on 26th July, 1975, whereas the other two appeals are reported to be still pending.

4. It was in 1978 that the Inspecting Assistant Commissioner of Income-tax Companies Range IV, noted that certain payments made by the appellant-company to the Federal Government were claimed as deduction and the same also stood allowed by the Income-tax Officer in all the three years. These claims in the three years amounted to Rs.2,14,19.494, Rs.1,66,78,545 and Rs.10,96,48,721 respectively. The Inspecting Assistant Commissioner was of the view that the Income-tax Officer should not have allowed the payments made to the Federal Government as deduction against the income and hence he issued show-cause notice to the appellant-company to explain the reasons as to why trio impugned payments made to the Federal Government should not be disallowed as there was no provision under the repealed Income-tax Act to allow such payments. The appellant Corporation submitted its explanation through their counsel's Letter bearing No. 1443/T-121, dated 3rd June, 1978. The appellant-Corporation in its explanation, inter alia, submitted that the entire shares of the corporation were held by the Federal Government, and by virtue of Article 138 of the Memorandum and Articles of Association, the Federal Government could issue any directive to the Corporation, which were to be carried out by it. He, therefore, concluded that nowhere in any of the Articles and Memorandum of Association it could be inferred that a deduction could be claimed in respect of payments made to the Federal Government. According to the learned Inspecting Assistant Commissioner the appellant-Corporation could not go beyond the provisions made in Article 138, which also did not authorise any payment to the Federal Government and for these reasons the explanation of the appellant-Corporation was not accepted.

5. The learned Inspecting Assistant Commissioner thereafter considered the appellant's objection regarding the applicability of section 34-A of the repealed Income-tax Act. He observed that the appellant's case fell squarely within the clutches of section 34-A, and in this regard also found support from a decision of the Lahore High Court in the case of Income-tax Officer, Lahore v. Mr. M. Iqbal Saigal. The High Court under more or less similar circumstances made the following observations in regard to the powers of the Inspecting Assistant Commissioner, as provided under section 34-A of the repealed Act:--

"The revisional jurisdiction thus vested in him is one of the superintendence and Inspectional one of the main functions of the Inspecting Assistant Commissioner for, which he is appointed, is to detect tax evasion,' The Court has further stated that 'there is no express bar imposed on the Inspecting Assistant Commissioner that he cannot interfere unless the mistake in the order under revision is apparent from record. Indeed, under revision is apparent from record. Indeed, under this section, he is vested with a very wide power to call for and examine the record of any proceedings under the Act. After examination of the records 'if he considers that any order passed therein by the Income-tax officer is erroneous and in so far as is prejudicial to the interests of revenue, may take cognizance in revision."

Relying on this decision of the Lahore High Court, the learned Inspecting Assistant Commissioner justified his action under section 34-A of the repealed Income-tax Act.

The claim for deduction being clearly beyond the scope of section 10(2), the learned Inspecting Assistant Commissioner examined at length if the payments made to the Government could in fact tantamount to diversion of income by an overriding charge on income. On behalf of the appellant-Corporation, it was contended before the Inspecting Assistant Commissioner that the payment made to Federal Government was in fact, reimbursement of receipts to the Government, which in the accounts, was shown by deducting the amount by mentioning less profit payable to the Central Government". This, according to the learned Inspecting Assistant Commissioner, clearly indicated that the profit was diverted after its ascertainment. The learned Inspecting Assistant Commissioner thereafter considered the issue in the light of various judicial pronouncements, which could be helpful in resolving the dispute. To be precise, the learned Inspecting Assistant Commissioner discussed the following decisions of the Indian Courts, cited on behalf of the Corporation:-

(a) ??????? Raja Bejoy Dudhuria v. Commissioner of Income-tax Begal 1933 Vol. 1 I T R 33;

(b) ??????? Lala Shanker Shah v. Commissioner of Income-tax I T R 13-500;

(c) ??????? Ratial B. Daftari v. Commissioner of Income-tax Bombay 36 ITR 19;.

(d) ??????? Commissioner of Income-tax, Bombay v. Sitaldas Tirath Das (1961) 41 1 T R 367 (S C);

(e) ??????? 5 I T R 315;

(f) ???????? 14 I. T. R 67;

Out of aforesaid decisions, the one by the Supreme Court of India, reported as 41 I T R 367, laid down a test for the application of rule of diversion of income by an overriding charge. According to the learned Inspecting Assistant Commissioner this rule when applied in the facts of the instant case supported the Department's stand instead that of the assessee appellant's. In this case the assessee ought to deduct amounts paid as maintenance allowance to wife and children under a decree of the Court but no charge was created on the proparty. The Supreme Court observed that the family members received the portion of assessee's income after he had received it as his own and was, therefore, a case of application of a portion of income. In the present case also the entire proceeds were first credited to the appellant's account and thereafter, a portion of profit paid to Federal Government, was deducted and thus the amounts sought to be deducted first, reached the hands of the appellant and thereafter were deducted as a claim and, as such, in the absence of any legal obligation, the payments so claimed could not be considered as a diversion of income by an overriding charge. As against the cases relied upon on behalf of the Corporation, the learned Inspecting Assistant Commissioner took into consideration some other decisions of the superior Court of India and the Privy Council in as mentioned below:--

(ii) ??????? Pondicherry Railway Co. Ltd. v. Commissioner of Income-tax 5 I T R 363;

(ii) ??????? David Session a Co. Ltd. v. Commissioner of Income-tax 26 ITR 27 (S C).

(iii) ?????? Commissioner of Income-tax v. Imperial Chemical Industries Ltd. (1969) 74 1 T R 17 (S C).

(iv) ?????? Young v. Racecourse Betting Control Board, 39 I T R 566;

(v) ??????? India Radio and Cable Communication Co. Ltd. v. Commissioner of Income-tax 5 I T R 270.

The learned Inspecting Assistant Commissioner, briefly discussed the facts of each case and in the light of their version decided held that the payments made to the Federal Government, could not be deducted as an expense and, therefore, concluded that the orders passed by the Income-tax Officer, wherein the payments made to the Federal Government, were allowed as a deduction, were prejudicial to the interest of revenue, inasmuch as, the profit so allowed in the three years was incorrect and required to be subjected to tax, in addition to the total income as computed in the orders passed by the Income-tax Officer under section 23(3) of the repealed Act.

It is against these orders of the learned Inspecting Assistant Commissioner that the appellant Corporation has come in appeals before the Tribunal. Only the amounts of claim made in the different years are different but the nature of the claim for deduction, as also the facts obtaining in the three years are identical and hence the three appeals are being disposed of by a combined order.

The learned counsel appearing on behalf of the appellant assails the learned Inspecting Assistant Commissioner's order by advancing two-fold arguments, naively, on the legal plane he disputed the legality of the Inspecting Assistant Commissioner's order passed under section 34-A of the repealed Act and secondly, which is also the alternative argument, that the payments made to the Federal Government, were in the nature of diversion of income by an overriding charge and not deductable as an expense under section 10(1) of the repealed Act. The arguments advanced by the parties concerned on these two-fold grounds, are discussed in the paragraphs that follow.

In regard to the legality of the learned Inspecting Assistant Commissioner's order, the learned counsel relied on the rule of merger of fusion of the order of the assessing Officer into that of the learned Appellate Assistant Commissioner. Reliance was placed on the decision reported as (1971) 23 Tax 27 (Trib.) and (1979) 39 Tax 1 (Trib.). In the later decision reported in 1979, it was argued that on filing of the appeals before the learned Appellate Assistant Commissioner and, as such, the orders of the assessing officer did not subsist, which alone could be the subject-matter of learned Inspecting Assistant Commissioner's action under section 34-A of the repealed Act. It was also submitted as we have mentioned in earlier paragraphs of this order, that the appeal relating to the assessment year 1972-73 already stood decided by the Appellate Assistant Commissioner therein the Income-tax Officer's order was confirmed. The appeals relating to the other two charge years were, however, pending. The learned counsel of the appellant further developed the argument that in view of the ratio of decision relied upon by the Tribunal, the Income-tax Officer's order could not be considered as operative since the learned Appellate Assistant Commissioner was seized of the jurisdiction over those cases and hence the learned Inspecting Assistant Commissioner's jurisdiction under section 34 stood ousted for all purposes. The learned counsel further contends that the impugned orders were passed by the Income-tax Officer with the approval of the Inspecting Assistant Commissioner and, as such, there could be no justification for revising those orders by the learned Inspecting Assistant Commissioner under section 34-A. He submits that Inspecting Assistant Commissioner subsequent action under section 34-A tantamounts to a sort of revision, which also does not fall within the purview of section 34-A. Lastly the learned counsel relied on Central Board of Revenue's Circular No. 48(5) of 1959 dated 15th April, 1959. Wherein the Central Board of revenue, on the insertion of section 34-A, issued directions to the assessing officers to the effect that the Inspecting Assistant Commissioner should not take up those cases for enhancement of income etc. where an appeal is pending before the appellate Assistant Commissioner or the Tribunal with these submissions, the learned counsel contends that the orders passed by the learned Inspecting Assistant Commissioner under section 34-A were without jurisdiction.

The learned departmental representative, on the other hand, contends that the facts obtaining in the cases under appeal, were distinguishable from those considered by the Tribunal in regard to the powers of the Inspecting Assistant Commissioner under section 34-A. He contends that in the case under consideration, the learned Appellate Assistant Commissioner did not at all consider the issue regarding the deduction of payments to the Federal Government because this claim stood allowed in the assessment orders and hence the appellant did not raise these objections in its appeal before the learned Appellate Assistant Commissioner. He, therefore, vehemently contends that once it is established that the issue was neither taken before the Appellate Assistant Commissioner, nor was it considered by him and, as such, the orders of the Income-tax Officer in this regard did not get merged with the Appellate Assistant Commissioner's orders and were within the competence of the learned Inspection Assistant Commissioner's orders. Similarly, the appeals of the remaining two years, were still pending before the Appellate Assistant Commissioner and were not adjudicated upon till the learned Inspecting Assistant Commissioner invoked the provisions of section 34-A and in fact are still pending; as such, these two years were on a stronger footing so far as the Inspecting Assistant Commissioner's action was concerned and there could be absolutely no question of the' Income-tax Officer's order being hit by the ratio of decision relied upon by the Tribunal. With these submissions, the learned Departmental Representative supports the orders of the learned Inspecting Assistant Commissioner for all the three years.

So far as the principle of merger of the Income-tax Officer order in the order of the learned Appellate Assistant Commissioner is concerned the factual position, in the assessment year 1972-73 is quite clear. The learned Appellate Assistant Commissioner decided the appeal for this year on 26th July, 1975, whereas the proceedings under section 34-A were initiated and finalised by the learned Inspecting Assistant Commissioner sometime in June, 1978. After the passing of the appellate order, the Income-tax Officer's assessment order stood merged with the order of the learned Appellate Assistant Commissioner and it was the appellate order alone, which was operative when the proceedings under section 34-A were initiated. The learned Inspecting Assistant Commissioner, according to the provisions of section 34-A, could only proceed against the order of the Income-tax Officer and not against that of the learned Appellate Assistant Commissioner. We find support on this issue from the Tribunal's decision reported as (1979) 39-Tax-1 (Trib.). The learned Departmental Representative's contention that because the issue regarding the payment of profit to Federal Government was not considered by the learned Appellate Assistant Commissioner, to this extent the order of the Income-tax Officer was open to action under section 34-A. He submits that the merger could be possible in respect of those matters, which were specifically considered and decided by the learned Appellate Assistant Commissioner. This contention the learned Departmental Representative does not appear to be acceptable for the simple reason that the Income-tax Officer's order as a whole was merged with the Appellate Assistant Commissioner's order which alone was operative and the Income-tax Officer's assessment order did not exist in the eye of law. In holding this view we also find support from the decision of the Supreme Court of India reported as (1958)~, 34-I T R-130, wherein their Lordships made the following observations:-

"If the appellate authority modifies or reverses the decision of the Tribunal it is obvious that it is the appellate decision that is effective and can be enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and is capable of enforcement ''

It is thus clear that so far as the assessment year 1972-73 is concerned the action of the learned Inspecting Assistant Commissioner in modifying the Income-tax Officer, order which did not exist in the eye of law was it without jurisdiction and could not be sustained.

The position in regard to the assessment years 1973-74 and 1974-75 is different because the appeals before the Appellate Assistant Commissioner for these two years were still pending when the learned Inspecting Assistant Commissioner initiated proceedings under section 34-A. The contention of the learned counsel of the appellant that once the Appellate Assistant Commissioner is seized of the jurisdiction, the Inspecting Assistant Commissioner cannot exercise his powers in regard to those orders under section 34-A , where the appeals are pending, appears to be without any basis. The theory of merger of orders pre-supposes the passing of an order as provided under the law by superior or appellate authority and unless this authority passes an order there could be no merger with the result that the order of the officer having original jurisdiction would subsist. The learned counsel is not in a position to cite any decision by the superior Courts of Pakistan or India wherein the subsistence of the, order of the Income-tax Officer was disputed on the mere ground that appeals were filed before the Appellate Assistant Commissioner even though the same were pending. On the contrary, in the decision of the Indian Supreme Court, relied upon by the learned Authorised Representative himself, a view against the assessee has been taken in so far as the appeals pending before the appellate authority are concerned the Supreme Court of India in that decision made the following observation: ?

"The case in regard to the subsequent year 1949-50 presents no difficulty. The appeal preferred by the respondent against the Income-tax Officer's assessment order instead of this year was pending at the material time before the Appellate Assistant Commissioner and so no question of merger arises in respect of the order granting renewal of registration for this period. There can be no doubt that even on the theory of merger the pendency of an appeal may put the order under appeal in jeopardy, but to the appeal is finally disposed of the said order subsists and is` effective in law. It cannot be urged that the mere pendency of an appeal has the effect of suspending the operation of the order under appeal."'

These observations of the Supreme Court of India clearly lend support to the department's case that the Income-tax Officer's orders relating to assessment years 1973-74 and 1974-75 were operative and, as such, fell within the purview of section 34-A and it was within the competence of the learned Inspecting Assistant Commissioner to modify the assessment orders.

We now take up the second leg of the learned counsel's argument that payments to the Federal Government in the three years were not in the nature of diversion or application of income. The learned counsel's contention is that the amounts paid to the Federal Government did not at all accrue to the appellant-company as these amounts, in fact, already stood passed on the Federal Government. These amounts related to the transactions undertaken by the appellant-Corporation under instructions of the Federal Government, on which it received only certain percentage of commission etc., which was retained by it and the balance amounts were transferred to the accounts of the Federal Government. Explaining the nature of the transactions of the appellant-Corporation it is submitted that it is engaged in the import and sale on, major raw materials on behalf of the Federal Government and that according to Article 138 of the Articles of Association, the Corporation was bound to carry out the instructions of the Federal Government as has also been discussed by the Inspecting Assistant Commissioner in his order under section 34-A. In regard to the amounts paid to the Federal Government. It is further contended that it will be a case of application of income when the income first becomes that of the assessee and then a diversion takes place. In the instance case, after the sales have been made the proceeds were to be passed on to the Federal Government after deducting the commission at the prescribed rate and the major expenses. To substantiate his stand the learned counsel makes a reference to same letters issued by the Pakistan Tea Board and the i Ministries of Commerce and Finance to suggest that the appellant-?Corporation was simply acting as an agent of the Government of Pakistan and was only in receipt of certain commission because the net balance amount was passed on to the Government. Such payments were clearly covered by provisions of section 10(1) which was a sort of direct charge on the appellant's income before it could accrue or arise to the Corporation. In support of his contention the learned counsel relies on a decision of the Supreme Court of India reported as (1973) 88 I T R 1, which laid down guidelines to distinguish, in a given set of circumstances, between application of income and diversion by an overriding charge on the income of an assessee. Reliance is also placed by the learned counsel on decisions reported as (1933) I T R Vol. V, page 135 and 1967 15 Tax 205. These cases also lay down tests to determine whether there was a simple diversion of income or payment by way of overriding title.

The learned Departmental Representative in his preliminary submissions supporting the order of the learned Inspecting Assistant Commissioner, submits that in view of certain constitutional difficulties the Government does not indulge in trading activity and, as such, Government controlled corporations are formed to regulate the trade. Once such corporations or companies are registered under the Companies Act, they become independent juristic persons for all practical purposes. The Government no doubt, can exercise control over their activities but the income earned by them will be their own income and subsequent payments made to the Government can only be by way of diversion of their income. He thus submits that in the instant case, the gross income was, in fact, first determined/ worked out and thereafter a deduction was made showing payments to the Federal Government. In support of this contention, he makes a reference to the copy of the audited profit and loss account of the relevant years whereafter determining the gross margin, the Corporation deducted the profit payable to the Federal Government. The learned Department Representative also agitates the altogether a new argument being adopted before the Tribunal to justify the deduction by resorting to the provisions of section 10(1) of the repealed Income-tax Act. His grievance this plea was being taken for the first time and could not be taken into consideration at this stage. Lastly, he places reliance on the decisions of the Indian Superior Courts reported as (1974) 93 I T R 93 and (1977) 109 I T R 434. He contends that the ratio of decisions in these two cases, when applied on the facts of the appellant-Company's case clearly bring out the fact that the payments cannot be considered as having been made on account of any overriding title of the Federal Government.

The preliminary objection of the learned Departmental Representative appears to be without any substance because the appellant could certainly take shelter within any of the legal provisions, which could help its case. Although in the earlier stages of proceedings the appellant did not particularly refer to the provision of section 10(1) but the case law relied upon by it did have a bearing on section 10(1) when it took the stand that the payments made to the Federal Government could not be considered as its income and as such, it could not be subjected to tax in- its hand. We will, therefore, have to consider the appellant's case on merits keeping in view the principles laid down by the superior Courts, whether the payments made to the Federal Government could be considered as diversion of income by an overriding charge.

We will now examine whether on the facts of this case it could be held that the instructions of the Government, could create an obligation of the type which could render the payment to the Government, as having been made before the income reached the hands of the appellant assessee, as diversion by virtue of an overriding title or these were to be considered as payments out of income which had already reached the hands of the -assesses. For this purpose assistance could be taken from the test laid down by the Supreme Court of India in case of Commissioner of Income-tax v. Sitaldas Tirathdas (1961) 41 I T R 367 which was relied upon both by the learned assessee as well as the learned Departmental Representative. The test laid down is based upon the principles, which have been relied upon by almost all superior Courts of the Indian Sub-continent. For the sake of convenience we reproduce hereunder the excerpt from this judgment.

"The true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations no doubt there are in every case, but it is the nature of obligation, which is the decisive fact. There is no difference between an amount, which a person is obliged to apply out of his income and as amount, which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assesses, it is deductible; but where the income is required to be applied to discharge ors charge on obligation after such income reaches the assessee in the same consequence, in law, can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it does so, not as part of his income but for and on behalf of the person to whom it is payable."

When judged in the light of this decision and two other decisions of the Supreme Court of India, Commissioner of Income-tax v. Travancore Sugar and Chemicals Ltd. (173) 88 I T R and Poona Electric Supply Co. v. Commissioner of Income-tax (1965) 57 I T R 521 Annexures 'A' and 'B', the facts as they emerge from the submissions made by the parties and the material available on record, are these. The appellate is a company registered under the Companies Act and like any other, company it is governed by the Companies Act and its Memorandum of j Association etc. The mere fact that it is a Government controlled Corporation and has to carry out the directions of the Federal Government cannot have the effect of changing its character as an independent juristic person. In the absence of any Articles of Association) etc. indicative of an overriding charge of the Federal Government one the Income of the appellant or any statutory obligation or agreements between the Federal Government on the corporation, it functioned as any other company, under the policy directives of the Government. It imported and sold some essential goods and earned income. This income,) in the absence of contractual obligations, appears to be free from any' overriding charge of the Federal Government. The profits earned, or losses incurred in its business operations, although conducted under' the directives of the Government, will be considered to be on its own) account. The Government, in the case of this company, by virtue of, holding the entire share capital, was entitled to appropriate some or all of its profits but the basic fact would remain that it first earns income) and then parts with it as per the directives of the Government. It', appears that since the very inception of the company there does not appear to be any obligation created either by statute or through an, agreement so as to entitle the Federal Government to have an overriding' title on the corporations income. The simple fact that now and then the Corporation acts on the directives of the Government to make imports of specified items does not bereft it from earning profit. If at a later' date certain payments on some basis are to be made to the Government, then, in the circumstances mentioned above, the payments will be out of the profits made by it and it will be in the nature of an application of income but it cannot be said that such portion of the income belonged to the Government before it accrued to the Corporation. The Income-tax Officer, in fact, before finalising the action under section 34-A, gave a specific opportunity to the corporation to show cause as to why the payments made to the Government should hot be treated as its own income and subjected to tax. The relevant portion of the corporations reply is incorporated in the Inspecting Assistant Commissioner's order. The whole explanation of the corporation revolves around the fact that it was a Corporation owned and controlled by the Government and that under Article 138 of the Articles of Association it was bound to carry out the directions of the Government. In support of its contention that by acting as an agent of the Government the Corporation was entitled to receive a specified amount of commission or service charges and the balance surplus belonged to the Federal Government, the appellant-?Corporation has filed copies of 4 or 5 letters from the Ministeries of Commerce and Finance directing the Corporation to deduct commission etc., and deposit the difference in the Government account. The payments so made to the Government in compliance with the directions cannot tantamount to saying that the income belonged to the Government by virtue of a legal or contractual obligation, creating an overriding title.

Similarly, in compliance to a directive if the corporation paid to the Government certain amounts realized by it as "price enhancement ", it could not be said that the Government had an overriding title for appropriating such amounts when in fact, the price, enhancement on import and save first accrued to the company thereafter, it was passed on to the Government. In order to have a prior claim on such profits, there should have been a prostatutory ' or contractual obligation which is absent in the instant case.

As has been stated in an earlier paragraph the Corporation in order to establish its case, filed copies of certain letters etc., which are being attached and form a part of the order, appearing as Annexures 'E', 'F', 'G?, 'H', 'I' and 'J'. Except for these documents the appellant-Corporation did not file any other documents either before the learned Inspecting Assistant Commissioner or before us. As briefly discussed below, these documents do not support to appellant's case. On the contrary, they establish the Department's case that the payments made to the Federal Government were oat oaf the profits earned by the appellant-Corporation. ?

The Letter dated 13th September, 1968 (Annexure 'E') from Ministry of 'commerce Government of Pakistan, refers to certain imports and sales already made by the Corporation in some earlier years on which it was to retain commission @ 5% on sale proceeds and the balance was to be deposited in Government account. Is. is evident that this arrangement appears to have been made after the transactions had been finalized and income already accrued to the Corporation. Similarly, the letter, dated 17th January, 1969 (Annexure 'F') also from the Ministry of Commerce is a simple directive to deposit amounts already realized as 'price enhancement' to Government Treasury. This directive cannot have the effect of an obligation created by a statute or an agreement already entered to show that two amounts paid were not the appellants own income letters, dated 18th October, and 23rd October, 1971, (Annexure 'G.P.') are also simple directives to the appellant Corporation to deposit net sale proceeds after deducting commission and Export Duty etc. These letters also show that income had already been earned by than Corporation before its diversion. The note, dated 30th August, 1974 (Annexure '1') clearly relates to the payment of commission on rice exported by the Corporation on its own account to Sri Lanka and Maldip in 1072-73. In the absence of any statutory or contractual obligation, the income from these exports had also been earned by the Corporation arid the Government desired that the profits earned in 1973-74 may be credited to the Government account. The letter, dated 30th September (Annexure 'J') aims at obtaining a confirmation from the Corporation that the profit earned by it to the tune of Rs.9 crores has been credited to the Government account.

The facts discussed above and the contents of the copies of the documents on record as mentioned above, clearly indicate that the payments were made to the Government, after the income had reached the appellant. At best it could be said that there was an obligation on the appellant to pay to the Government a portion of its own income but it cannot be said that there existed any obligation of the nature by which such income did not belong to the appellant and was 'passed on by way of an overriding charge. The learned Inspecting Assistant Commissioner was, therefore, justified in his action but in view of the application of the merger theory his order relating to the charge year 1972-73, being without jurisdiction is cancelled. His orders for the charge years 1973-74 and 1974-75 are, however, confirmed.

In the result the three appeal are disposed of as indicated above.

ABRAR HUSSAIN NAQVI (MEMBER) .--I have gone through the judgment of my learned brother, the Accountant Member. After careful consideration I could not persuade myself to agree with the view on the merged theory affecting the assessment year 1972-73. I do not consider that the order of the learned Inspecting Assistant Commissioner for the assessment year 1972-73 was without jurisdiction or liable to be cancelled. My reasons for arriving at this conclusion are as follows:-

Under section 34-A of the repealed Income-tax Act an Inspecting Assistant Commissioner is empowered to supervise the work of the Income-tax Officer. Such powers can be exercised in the giver circumstances mentioned in the said section. The powers gives by that section are wide and only limitation imposed on this power is that it can be exercised within a period of four years from the date of the order of Income-tax Officer. The Inspecting Assistant Commissioner being the executive incharge is empowered to ensure that an Income-tax officer under him should pass correct and legal orders. The theory' that original order is merged into the appellate order has only a limited application. An aggrieved party may not necessarily challenge the entire order of the original authority and an appeal may be filed against some of the points on which the assessee feels aggrieved. In such cases the appellate authority a-plies its find only on the points, which agitated before it. The issues, which are not raised and on which an appellate authority neither applied its mind nor gives any finding cannot be called the subject-matter of appeal and thus can never merge in the: appellate order. Therefore, the original order merges into the appellate authority's order only to the extent on which the appellate authority' has applied its mind and has given its decision. For instance an assessee has two sources of income but the Income-tax Officer only makes an assessment in respect of one source but omits the other source. Against this assessment an appeal is filed by the assessee to the appellate authority who decides the appeal one way or the other. The Income-tax officer under section 34-A wants to re-open the case on the ground that one source of income of the assessee had escaped assessment. Is he debarred to re-open the case for the reason that the original order of the Income-tax Officer has ceased to exist as his order has merged with the order of the appellate authority' The obvious answer is nod because the appellate authority has not considered this issue at all and, therefore, there is no question of application of the merger theory. Two things merle only when they exist. If they do not exist there is no question of merger. In this instance neither there is any order of the assessing officer nor of the appellate authority on the issue of income from another source, which has been left out of consideration. Therefore, the merger theory is applicable only to the extent to which both the Income-tax Officer as well as the appellate authority have given a decision. It, therefore, follows that the original order merges into the appellate order only to the extent of the issues decided by them. An appellate authority is empowered to confirm, modify or cancel the impugned order. Where the impugned order is confirmed, it continues to be operative in its entirety. If it is modified, it is to be read alongwith the appellate order but still continues as modified by the appellate order in none of these two situations it ceases to exist. However, when the original order is cancelled or the assessment is annulled by the appellate authority only then it ceases to exist and that too if the appellate authority's order has become final. It is obvious that all the three situations cannot be equated and it is not in all the three cases that the order of the Income-tax Officer cases to exist. The original order is a base on which superstructure of the appellate order is built. It is unthinkable to build a superstructure without a base.

2. Another aspect of the case is that sections 34 and 34-A of the repealed Income-tax Act empowers the Income-tax Officer and the Inspecting Assistant Commissioner to re-open the assessment in the given circumstances. As stated above, the only limitation placed on the powers of the Inspecting Assistant Commissioner under section 34-A is the period of limitation, No other limitation can be read into that section.' The view that on the decision of an appeal the Income-tax Officer's orders ceases to exist as it merges into the appellate authority's order and, therefore, the Inspecting Assistant Commissioner cannot re-open j the assessment, would lead to the conclusion that exercise of powers under section 34-A are entirely on the mercy of the assessee inasmuch as once an appeal is filed then the assessee takes away the powers of the Inspecting Assistant Commissioner under section 34-A. This interpretation leads to absurdity. The powers given by section 34-A can thus always be taken away by an assessee by filing an appeal before the appellate authority. The paramount rule of interpretation is that a statute is to be interpreted according to its manifest or express intention. The object of section 34-A is to supervise the work of the Income-tax Officer and it is to this object that he had been empowered to call for the record of any proceedings under the act and to pass necessary orders specified therein. By no rule of interpretation the limitation in the garb of merger theory can be read into section 34-A. Reading this limitation into section 34-A would be doing violation to that provision and would defeat the very object of the provision made by the Legislature. It may be noted- that the powers given to the Commissioner of Income-tax under section- 33-A are similar to those given to an Inspecting Assistant Commissioner under section 34-A. However, a number of limitations have been imposed on his powers under that section. One such limitation is that where an appeal is filed to the- Appellate Assistant Commissioner or to the appellate Tribunal and tree appeal is pending before such an appellate authority, the Commissioner of income-tax is debarred from exercising powers under section 33-A. But no corresponding limitation has been imposed on the powers of the Inspecting Assistant Commissioner under section 34-A. These two sections bring into focus sharp contrast between the powers of the Commissioner of Income-tax and the Inspecting Assistant Commissioner under the two different sections which means that the legislature consciously omitted to impose such limitations on the powers of the Inspecting Assistant Commissioner as have been imposed on the powers' of the Commissioner .of Income-tax. It is a settled rule of interpretation that where the legislature makes specific provision at one place and omits it at another, it would be assumed that Legislature consciously and deliberately intended it.

3. Looking it from another angle we notice that under the scheme of the act it is the assessee alone who has been given the right of appeal against the order of the Income-tax Officer and the department has not been given the corresponding right of appeal. Therefore, it is obvious that any omission made by the Income-tax Officer or a wrong order prejudicial to the revenue passed by him cannot be challenged, by the department before any appellate authority and thus grievance of the department can never become the subject-matter of appeal before the appellate authority. Thus, any commission or omission of the Income-tax officer, which is prejudicial to the revenue cannot merge in the order of the appellate authority because it is not the subject--matter of appeal. It is to cover such a situation that certain income-tax authorities have been empowered to take necessary action to correct the orders of the Income-tax officer under sections 34, 35 and 34-A as the circumstances may require. To say that decision made by an appellate authority closes all the doors against the department would nullify the specific provisions provided by law, which obviously cannot be the intention of the Legislature. In Commissioner of income-tax v. Amritlall reported as (1958) 34 I T R 130 (which has also been referred to by my learned brother) the Supreme Court of India took a similar view. In that case registration was granted to a firm by the Income-tax Officer under section 26- A of Income-tax Act. The assessee appealed only against the regular assessment before the Appellate Assistant Commissioner. The question of registration was, therefore, not in issue. During the pendency of this appeal, the Commissioner of Income-tax exercised the powers under section 33-A and directed the Income-tax Officer to cancel the registration. The High Court held that the Commissioner of Income-tax was not competent to pass such order in view of the pendency of appeal before the appellate authority. The Supreme Court reversed the order of the High Court and held as under:-

"Even if appeal is decided and in consequence the appellate order is the only order which is valid and enforceable under law, what merges in the appellate order is the Income-tax Officer's order under appeal and not this order of registration which was not and can never become subject-matter of appeal before appellate authority. The theory that the order of the Tribunal merges in the order of the appellate authority cannot apply to the order of registration passed by the Income-tax Officer in the present case."

4. I am not oblivious of the Full Bench judgment of this Tribunal reported as 1971 P T D (Trib.) 53 in which contrary view was taken. However, the Tribunal does not appear to have taken into consideration the various aspects of the case, which I have discussed above nor the decision of High Court in Wahiduddin v. Income-tax Officer reported as (1967) 15 Tax 252 was brought to its notice. In that case regular assessment was made for the assessment year 1954-55 against which the assessee filed an appeal' before the appellate authority. The Appellate Assistant Commissioner modified the order of the income-tax officer and granted some relief to the assessee. Both the assessee as well as the department went into appeal before the Tribunal, which were dismissed. After the conclusion of the Tribunal's proceedings the Income-tax Officer issued notice under section 34 for the re-opening of the case. These notices were challenged by the assessee before the High Court on the ground that assessment for the assessment year 1954-55 having been subject-matter of appeal upto the level of Tribunal, section 34 had no application and the notices issue by the Income-tax Officer were without jurisdiction. The High Court repelling this argument observed as follows:-

"In the present case the impugned notices show that the petitioner assessee had escaped assessment/ under assessed /assessed too low a rate/had been subject to excessive relief, thereupon notices were issued under section 34 of the Act. There is nothing under the Income-tax Act to show that Income-tax. Officer was debarred from acting under section 34 of the Act if an assessment of a particular year has been subject-matter of appeal."

5. I should not have taken a contrary view to the one taken by the earlier decision of the Full Bench of this Tribunal but I am taking this liberty on the strength of the High Court's decision quoted above. It has been the rule of practice that when there are two conflicting decisions, the one, which has been taken by a superior Court is to be followed. Since the High Court had taken a different view, which obviously was not brought to the notice of the tribunal, I am following the rule laid down by the High Court.

6. Before parting with this judgment I would like to deal with the argument, which found favour with the Full Bench. In the Full Bench case, the argument was that the appellate authority has the power of enhancement. If an Income-tax Officer or an Inspecting Assistant Commissioner feels that the income should be enhanced, it should approach the appellate authority for the enhancement of the income. There are two aspects of the case, which escaped the notice of the Bench. Firstly the law has empowered the Income-tax Officer and the Inspecting Assistant Commissioner to make re-assessments themselves. Such a power cannot be taken away and they cannot be deprived of this power and to be forced to move another authority instead of exercising their own powers. Secondly, this argument is available only" when the appeals are still pending. If the appellate authority has already: passed an order, the Income-tax authorities cannot move for enhancement, of the income. In case where an illegality or impropriety of the kind mentioned in section 34 or section 34-A is detected after the finalization of the appeals, the Income-tax authorities concerned are left without any remedy despite the powers provided by law. Therefore, such an interpretation of law would lead to absurdity. The principle of interpretation is that when two seemingly inconsistent provisions are to be interpreted the effort of the Court should be to give effect to both, of them. P L D 1965 Lah. 503 may be referred. It was laid down in that case that various provision on the same subject should be so read as to avoid conflict and contradiction. The theory of merger as has been envisaged by my learned brother would nullify the provisions of sections 34 and 34-A. This theory of merger cannot be stretched to the extent, which would nullify some of the provisions of law depriving the specific powers 'of certain Income-tax authorities. In the case of Central Indian Insurance Co. v. Income-tax officer reported as (1963) 47 I T ft 895 it was laid down that the point which was not considered or decided by the Tribunal nor was the subject-matter of appeal, the principle of merger does not apply and the appellate authority was competent to rectify his order to that extent.

7. In the light of the above discussion while agreeing with my learned brother on all other issues I would dismiss the appeal for the assessment year 1972-73 as well.

ORDER OF THE BENCH

Appeals for the assessment years 1972-73, 1973-74 and 1974-75 were under consideration of the Tribunal. There is no difference of opinion on any issue in respect of the charge years 1973-74 and 1974-75 but there is a difference of opinion in the assessment year 1972-73 inasmuch as the Accountant Member in the operative part of his order in regard to the legality of action under section 34-A gave the following finding:

"It is thus clear that so far as the assessment year 1972-73 is concerned the action of the Inspecting 'Assistant Commissioner in modifying the Income-tax Officer's order which did not exist in the eyes of law was without jurisdiction. and could not be sustained. "

The learned Judicial Member (II) Lahore, however, took a contrary view because in his opinion the theory of merger would not apply as the learned Appellate Assistant Commissioner did not consider the issue involved since no such ground was taken before him and as such he upheld the order of the learned Inspecting Assistant Commissioner passed under section 34-A of the Income-tax Act and dismissed the assessee-?company's appeal.

In order to resolve the issue in dispute the learned Chairman is requested to refer the matter for the opinion of the third Member tinder section 133(7) of the Income-tax Ordinance, 1979.

ORDER OF THE COURT ??

This appeal has been placed before me on difference of opinion having been arisen between learned Accountant and Judicial Members. However, the controversy is very much confined to assessment year 1972-73. The learned Accountant Member has elaborately discussed all the facts in his order but the facts relevant for my purposes, briefly stated, are that the assessment for charge year 1972-73 was completed on .17-4-1975 and then an appeal was filed which was disposed of by learned Appellate Assistant Commissioner on 26th July, 1975. But sometimes in 1978 the Inspecting Assistant Commissioner detected that certain payments made by the assessee Company to the Federal Government were claimed as a deduction and the same also stood allowed by the Income-tax Officer in all the three years. He was of the view that the Income-tax Officer should not have allowed the payment made to the Federal Government as a deduction against the income as it was inadmissible hence he issued show-cause notice to the appellant Company to explain as to why the impugned payments made to the Federal Government should not be disallowed as there was no provision under the repealed Income-tax Act to allow them. The assessee Corporation submitted its explanation through its counsel's letter, dated 3rd June, 1978. Consequently, a question arose as to whether the Inspecting Assistant Commissioner had jurisdiction to exercise his powers under section 34-A of the repealed Income-tax Act when the order of Income-tax Officer stood merged in the order of Appellate Assistant Commissioner. A plethora of case-law was discussed and the learned Accountant Member, if I may say so, displaying his forensic capabilities and legal acumen answered the question in the negative. He put his reliance on two decisions of this Tribunal/ reported as 1971 P T D (Trib) 53 and (1979) 39-Tax=1 (Trib) together with a decision of Indian Supreme Court reported as (1958) 34 I T R 130. The learned Judicial Member, on the other hand, answered aforesaid question in the affirmative. He did not rely upon the Full Bench decision of the Tribunal because, in his view, the Lahore High Court decision reported as (1967) 15-Tax-252 was not considered by the Tribunal but, which was, in any case, to be followed by him. Strangely enough he also relied upon the same authority coming from Indian Supreme Court, which the learned Accountant Member had also pressed into service in order to fortify his stand.

2. I have read both the orders of the learned Accountant Member as well as learned Judicial Member with due care and have also gone through the authorities referred to. With profound respect I am of the view that the learned Judicial Member has not perhaps or properly appreciated the legal position before answering the question involved in the matter.

3. I start my discussion with the peculiar nature of Income-tax law and the proceedings conducted therein including those of Inspecting Assistant Commissioner, Appellate Assistant Commissioner and Commissioner of Income-tax. First of all, let me point out that ordinarily the Income-tax machinery is set in motion when a return is filed by an assessee. The assessee has all the information in his possession regarding all possible sources of his income and expenditure. Whatever information he passes on to Income-tax Officer, he has to rely upon it and then frame the assessment accordingly. Now the assessee has a right of appeal. When he goes up in appeal the first appellate Court is not confined to his grounds of appeal only, rather he can decide any issue, which arises from the assessment order. There is plethora of case law available in any standard text book on interpretation of power of Appellate Assistant Commissioner. In my humble judgment it-is settled law that the powers of Appellate Assistant Commissioner are different than those of any other appellate Court. I would like to fortify my view by citing a case coming from Bombay High Court and reported as 1968 P T D 165, Narrandas Manordass v. Commissioner of Income-tax. The learned Division Bench consisted of such eminent Judges like Chagla, C.J. and Tandolkar, J. Interpreting the provisions of section 31(3) of the repeated Indian Income-tax Act, Chagla C.J. observed:-

"It will be immediately noticed that in giving the power of enhancing the assessment, the Legislature has strikingly deviated from the ordinary principles that govern the Court of appeal. Although the Department cannot appeal against the order of the Income-tax Officer and although the appeal is only by the assessee, even so the Legislature confers upon the Appellate Assistant Commissioner the power to make an order, which is obviously to the prejudice of the appellant. Therefore, although the appellant may only complain of particular points in the assessment and he may be satisfied with regard to the rest of the assessment, the Appellate Assistant Commissioner's powers are not confined to consider only, these points about which the assessee has a grievance but he may consider those points about which the assessee is satisfied and order the enhancement of the assessment."

It is pertinent to note that in the aforesaid case the precise question which was before the learned Division Bench of Bombay High Court was as to whether the Appellate Assistant Commissioner could decide a question which was not raised by the assessee in his grounds of appeal under section 31(3) of the Indian I.-T. Act. It was argued that the Appellate Assistant Commissioner had no jurisdiction to go beyond the decision of the Income-tax Officer because the assessee was only complaining against the receipt, which was brought to tax. Repelling this argument the learned Division Bench made the following observation: -

"Such an interpretation of section 31(3) would not only completely clip the powers of the Appellate Assistant Commissioner but would fail to give effect to the object that the Legislature had in conferring this rather extraordinary power upon the Appellate Assistant Commissioner. It is clear that the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Income-tax Officer; a revising authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revising those matters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer but he can revise every process which led to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount which is liable to tax, but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer."

Now if the powers of Inspecting Assistant Commissioner as contained in section 34-A of the repealed Income-tax Act are looked into, it would appear that the Legislature, if on the one hand gave vast powers to appellate Assistant Commissioner as discussed above, on the other hand it again vested the Inspecting Assistant Commissioner with the power revising Income-tax Officer's orders.--- Section 34-A is reproduced as under:-

Section 34-A. Power of Inspecting Assistant Commissioner to revise Income-tax Officer's orders. (1) The Inspecting Assistant Commissioner may call for and examine the record of any proceeding under the Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment to be made.

(2) No order shall be made under subsection (1) after the expiry of four years from the date of the order sought to be revised."

From perusal of this section it appears that if Inspecting Assistant Commissioner comes across any assessment record within four years of the date of assessment order he can examine it and if he finds it erroneous in so far as it is prejudicial to the interest of the revenue he may, after due enquiry, make necessary orders himself including an order of enhancing or modifying the assessment. At the same time the legislature has also enacted section 34 whereby an Income-tax Officer has been given power to frame additional assessment under certain circumstances.

4. Thus, it appears that firstly the Income-tax Officer has to act upon the information divulged to him by an assessee and frame assessment accordingly. The assessee has been given the power of going in appeal and the Appellate Assistant Commissioner has entire assessment open before him. Nevertheless, since the action of the Income-tax Officer was based on the information divulged by an assessee, the legislature took two-fold precautions. Firstly it gave power to Inspecting Assistant Commissioner to proceed under section 34-A, if he finds an order of Income-tax Officer erroneous in so far as it is prejudicial to the interest of the revenue. Secondly, in case of appeal filed by the assessee the precaution was taken by the legislature to expose the entire assessment before Appellate Assistant Commissioner without confining his powers to any particular matter taken before him by the assessee. The Legislature gave these two types of power to both Inspecting Assistant Commissioner and Appellate Assistant Commissioner who are the officers of equal rank appointed under section 5(1)(c) of the repealed Income-tax Act to exercise them within the scope of their authority. The Inspecting Assistant Commissioner's scope of authority was confined to the Income-tax Officer's order if it was erroneous and prejudicial to the, revenue interest. Likewise the Appellate Assistant Commissioner's scope, of authority was determined by section 31 of the repealed Income-tax Act. In both cases, the interest of the revenue was kept upper most but at the same time precaution was taken to avoid any conflict of jurisdiction between two officers of equal rank by evolving the theory of merger of the order of Income-tax Officer in the order of Appellate Assistant Commissioner. Thus, the revenue interest has not been abandoned at any stage, but the Income-tax Officer has further been invested with the powers of re-opening the assessment if he comes to the conclusion that any income had escape assessment in any year or was under-assessed or assessed at too low a rate, or excessive relief was given. This power is an unfettered power subject to the limitations and checks and balances provided by its own subsections and clauses. The questions whether an appeal has been filed, or if it was filed whether it went right upto the Tribunal and then the matter was taken up to Supreme Court, become wholly immaterial. The Income-tax Officer who had acted upon the information supplied to him by the assessee has been given powers under this section so that the principle that no body can take advantage of his van wrong could be given effect in Income-tax Laws as well.

5 Before reverting to the views of learned Judicial Member I feel very much tempted to refer to the principle of constructive res judicata contained in Explanation 4 of section 11 of civil Procedure Code. It says that any matter which might and ought to have been made ground of defence or attack in a former suit shall be deemed to have been a matter directly and substantially in issue in any such suit and consequently would be hit by the principle of res judicata. I think that the same is the position of an appellate order recorded by Appellate Assistant Commissioner. Even if an appeal before him is taken to agitate a certain disallowance from profit and loss account only yet, under the law, the entire assessment order remains open. Therefore, it is to be presumed that he has looked into all the issues involved in or arising out of the assessment order though he has confined himself to that very ground which was canvassed before him by the appellant. Thus, on the analogy of the constructive res judicata those issues which do arise out of the assessment order and which have not been considered by the Appellate Assistant Commissioner would be deemed to have been decided by him. As such, I feel that the entire assessment order with all its points, whether adjudicated upon by. Appellate Assistant Commissioner or not, would stand merged in his order. If this legal principle is kept in mind, various reasons as discussed by learned Judicial Member with due respect appear to be of no consequence. Now turning to certain apprehensions of the learned Judicial Member I would like to start with his observation. Discussing the position where a certain issue is not raised before an appellate authority and is consequently not decided by it, the learned Judicial Member poses the question whether it would stand merged in the appellate order Quoting an example the learned Judicial Member observes:-

"For instance an assessee has two sources of income but the Income-tax Officer only makes an assessment in respect of one source but omits the other source. Against this assessment an appeal is filed by the assessee to the appellate authority who decides the appeal one way or the other. The Income-tax Officer under section 34-A wants to re-open the case on the ground that one source of income had escaped assessment. Is he debarred to re-open the case for the reason that the original order of Income-tax Officer has ceased to exist as his order has merged with the order of the appellate authority?"

With due respect to him, firstly he has taken a purely hypothetical illustration which generally does not take place and if it does then it would earn an adverse entry to such an Income-tax Officer. Secondly, whenever an assessee discloses two sources of income, he would have to declare them in his return. Now when the appeal would be taken before learned Appellate Assistant Commissioner the entire issue of both the sources of income would come up before him in shape of return irrespective of the fact that Income-tax Officer has assessed only one source of income. Under the circumstances he has been given power to send the matter back to Income-tax Officer with the direction that he should frame the assessment regarding other source of income as well. But supposingly he does not do so, I think even then the analogy of doctrine of constructive res judicata would come into play to l avoid possible embarrassment to both Appellate Assistant Commissioner and Inspecting Assistant Commissioner if the latter is allowed to exercise powers under section 34-A. The better policy of law, therefore, would be to leave such type of problem to Income-tax officer himself as he could initiate proceedings under section 34 of the repealed Act, either of his own accord or at the instance of his Inspecting Assistant Commissioner for the reason that the income from other source escaped assessment. The Income-tax Officer could exercise this power himself on receiving some definite information either from his Inspecting Assistant Commissioner or from his' Commissioner or from any other source. The interest of the revenue would not suffer in any case and yet the principle of merger of the order of Income-tax Officer in the appellate order would stand intact. Let me also mention here that whenever an appeal is filed the I.-T. O. is not only informed about it but his comments are also sought. He can avail even this opportunity to rectify his blunder if he has committed any as suggested by the learned Judicial Member.

6. The second apprehension of learned Judicial Member is that an unscrupulous assessee could defeat the powers of Inspecting Assistant, Commissioner given to him under section 34-A by filing an appeal on any unimportant point. With due respect to him, the power of Inspecting Assistant Commissioner is restricted only when the Income-tax Officer's order stands merged in the appellate order and even then section 34 is always available. As such, by merely filing an appeal an assessee cannot defeat the provisions of section 34-A. Thirdly, the learned Judicial Member has put his reliance on the power of Commissioner of Income-tax (.A) as contained in section 33-A while comparing them with the powers of Inspecting Assistant Commissioner under section 34-A. With due respect I think that the Inspecting Assistant Commissioner and Appellate Assistant Commissioner are officers of equal rank, whereas both of them are subordinate to their Commissioner of Income-tax. Moreover, in section 33-A it has been specifically laid down that the order of the Commissioner would be subject to the provisions of the Act and section 34 is such a provision of the Act to which the Commissioner of Income-tax may take resort while ordering any inquiry of any matter. I do not think that any principle of interpretation of law has been violated. Lastly, the learned Judicial Member has, deliberately refused to follow the Full Bench's decision of the Tribunal' reported as 1971 P T D (Trib) 53 on the ground that the Lahore High Court decision reported as (1967) 15--Tax-52 was laying down the law to the contrary. But with due respect to him, the facts of Lahore case are totally different. There interpretation of section 34 was involved. It was argued in that case that if a matter was taken in appeal section 34 would not be applicable. Rejecting the submission the Lahore High Court observed:

"In the present case the impugned notices show that the petitioner assessee had escaped assessment/under-assessed/assessed at too low a rate/had been subject to excessive relief, thereupon notices were issued under section 34 of the Act. There is nothing under the Income-tax Act to show that the Income-tax Officer was debarred from acting under section 34 of the Act if an assessment of a particular year has been subject-matter of appeal."

In my humble opinion, this Lahore High Court case has nothing to do with the powers of Inspecting Assistant Commissioner under section 34-A. As far as the reliance of learned Judicial Member on Indian Supreme Court case of Amritlal (supra) is concerned. I am afraid, it was not perhaps properly read over to him. In that case registration was granted to a firm by the Income-tax Officer under section 26-A of the Income-tax Act. The assessee appealed only against the regular assessment before the Appellate Assistant Commissioner. The question of registration was, therefore, not in issue in appeal. During the pendency of appeal the Commissioner of Income-tax exercised the powers under section 331 and directed the Income-tax Officer to cancel the registration. The High Court held that the Commissioner of Income-tax was not competent to pass such order in view of the pendency of appeal before the appellate authority. The Supreme Court reversed the order of the High Court on the ground that the question regarding cancellation was an independent question against which separate appeal was proved hence it could not have been subject-matter that appeal in which the question regarding registration of the firm was not directly in issue. In my humble opinion, the learned Accountant Member has properly appreciated the aforesaid Indian Supreme Court authority and has -correctly applied its principle in the instant case.

7. I am, therefore, of the considered view that the finding of learned Accountant Member that Inspecting Assistant Commissioner had no jurisdiction, under section 34-A regarding assessment year 1972-73 as the assessment order stood merged in the order of the Appellate Assistant Commissioner, is correct and is well supported by law as discussed above.

8. In view of the majority decision the appeal stands disposed of accordingly.

M. Y. H. ???????????????????????????????????????????????????????????????????????????????????????????? Order accordingly.