P L D 1976 Lahore 537 (PLP)

MUHAMMAD AKRAM, J.‑This is a reference application made by the assessee directly to the High Court under section 66 (1) of the Income‑tax ,Act, 1922 and has arisen under the circumstances stated hereunder.

2. The assessee, Haji Samiuddin is carrying on his business as a commission agent (Arhati) in fruits under the trade name of Messrs Hamiduddin Samiuddin, Old Meva Mandi, Lahore and is being assessed in his‑status as an individual. He closed his books of account for the relevant previous year ending on 31‑3‑1970 and made an investment of Rs. 17,500F in the purchase of Defence Saving Certificates on the 20th of June 1970: He submitted his return for the assessment year 1970‑71 relevant to the previous year ending on 31st of March 1970 and claimed allowance under section 15‑AA of the Income‑tax Act for the aforesaid investment of Rs. 17,500 made in purchase of Defence Saving Certificates on the 20th of' June 1970. On the 3rd of February 1971. Mr. Ahmad Shuja Khan, Assistant Income‑tax Officer, N‑Circle Lahore accepted the net income as per profit and loss account declared at Rs. 50,

165. But in completing the` assessment he disallowed the following expensest‑ (a) Rs. 968 claimed as bad debts. (b) Rs. 5, 000 out of other expenses to tailing Rs. 12,654. (c) Claim for exemption under section 15‑AA for the investment of Rs. 17,500 made to the purchase of Defence Saving Certificates otr the 20th of June 1970.

3. Dissatisfied, the petitioner went up in appeal against the order. In, his Memo. of appeal the assessee raised the only ground against the: disallowance of rebate in the sum of R s. 17,500 claimed under section 15‑AAh of the Act. But the Appellate Assistant Commissioner of Income‑tax,. A‑Range, Lahore dismissed the appeal on the 23rd of March 1971. He agreed with the learned Assistant Income‑tax Officer that the investment in question was made after the expiry of the relevant previous year for which: no exemption could be allowed for the assessment year 1970‑

71. The assessee went up in further appeal against the order before the Income‑tax Appellate Tribunal, Lahore and inter alia raised the following three main grounds in Memo. of appeal:‑ (1) That the learned Appellate Assistant Commissioner of Income‑tax. has erred in disallowing the exemption claimed under section 15‑AA and holding that the investment was required to be made withim the previous year only. (2) that the learned Appellate Assistant Commissioner has erred iD not admitting the additional grounds of appeal regarding the Appellant's, objection to the disallowance of Rs. 968 out of bad debts claimed and Rs. 5,000 in lump sum out of several items of business expenditures.' (3) That the learned Assistant Income‑tax Officer was not properly vested with the jurisdiction to make the assessment.

4. The Income‑tax Appellate Tribunal dismissed the appeal of the: assessee on the 18th of April 1972. At the hearing the Departmental representative raised a preliminary objection to the effect that grounds No. 2 and 3 above were never raised before the Appellate Assistant Commissioner and should not be allowed to be agitated in the appeal before the Tribunal. But in reply the assessee filed an affidavit dated 25th July 1971 asserting: that the second ground was actually raised as an additional ground of appeal mhich was presented before the learned Appellate Assistant Commis‑ sioner across the table during the course of hearing but he wrongly declined to entertain it. The Tribunal called for a report from the Appellate Assistants Commissioner on this precise allegation but the Appellate Assistant Commissioner denied the assertion. In consequence the Tribunal formed the opinion that this ground was never taken by the petitioner before the Appellate Assistant Commissioner and refused to allow the same to be agitated before it' Similarly the Department representative objected to the raising of the objection on behalf of the assessee against the jurisdiction of the Assistant Income‑tax Officer to complete this assessment against him. He argued that the return in this case was filed by the assessee on the 14th of September 1970 to this every officer and the requistions issued by him during the course of the assessment proceedings were duly complied with by the assessee. But this objection as to his jurisdiction was never raised before him. Nor was it taken before the Appellate Assistant Commissioner in appeal. In reply it was argued on behalf of the assessee that the Assistant Income‑tax Offcer had no inherent authority to act as an assessing officer and therefore, he had no jurisdiction to complete this assessment and that the plea could be allowed to be raised even at that late stage before the Tribunal. But the Tribunal refused to entertain this plea for the reason that "(a) the jurisdiction of this officer was never challenged at the assessment stage (b) that the same were not even challenged when an opportunity was available before the Appellate Assistant Commissioner and (c) that m the original grounds of appeal before the Tribunal also this issue was not taken up (d) the adjudication of this objection would also require investigation into certain facts which are not apparent or available from the records themselves", and also because the assessee was not entitled to object to the jurisdiction in view of the pronouncement by their Lordships of the Supreme Court in P L D 1964 S C

829. Moreover, in the opinion of the Tribunal the assessee was not in any manner prejudiced by the assessment made by that officer. In this connection. reliance was placed on P L D 1969 Kar.

109. On the merit the Tribunal agreed with the Income‑tax authorities below in holding that the assessee was not entitled to claim the rebate in the sum of Rs. 17,500 for the assessment year 1970‑71 on account of the investment made in the Defence Saving Certificates on the 20th of June 1970. under section 15‑AA of the Act. The Tribunal held that under this section the exemption can be allowed in respect ‑of a specific portion of the "total income" within the definition of section 2 (15) and read with subsection (1) of section 4 and computed in the manner laid down under the Act. In this connection, the Tribunal further observed:‑ "Section 3 also lays down that tax shall be charged in respect of the total income of the previous year. Reading these provisions together it is patent that the concept of total income is directly related and inextricately inter‑mingled with the previous year. Without, therefore, the determination of the previous year the total income cannot be determined and without the determination of total income tax payable including the exemption if any cannot be worked out. In the present case therefore the time limit up to which the previous year extends ends on 31‑3‑1970 and the total income which will be subject‑matter under the Act will therefore have to be worked only up to this point of time in accordance with the previous year ending on 31‑3‑70 for the assessment year 1970‑71 although the time to complete same may extend to a later date. Once therefore the total income for this purpose is determined, the investment entitling the appellant to exemption would also become final and should have been made before this determination is arrived at because all the tax problems for the assessment year 1970‑71 in the present case would terminate on 31‑3‑1970 and any income earned or any investment made after this will fall for consideration during the next succeeding year." In conclusion the Tribunal held that the investment in question made by the assessee on or after the expiry of the previous year ending on 31‑3‑70 could not be allowed as an admissible deduction in the relevant assessment year 1970‑71.

5. In these circumstances as already stated above the assessee has applied to the High Court under section 66 (1) of the Income‑tax Act referr ing the following questions of law said to arise out of this appellate order passed by the Tribunal: (1) Whether in the circumstances of the case the learned Income‑tax Appellate Tribunal has acted in accordance with law in declining to admit and adjudicate upon grounds Nos. 2 and 3 taken up before it, relating to the (a) disallowance out of bad debts and business expenses claimed and (b) to the jurisdiction of the assessing officer? (2) In case the answer to the first question is in the negative, further questions arise:‑ (a) Whether the bad debts and expenses claimed were allowable expenses in the circumstances of the case; and (b) Whether the assessing officer had jurisdiction to make the assess ment? (3) Whether the deduction claimed under section 15‑AA of Rs. 17,500 was an allowable deduction in the circumstances of the case?"

6. We shall take up the second question first. It is common ground that the assessee in his Memo. of Appeal before the Appellate Assistant Commissioner did not raise any ground against the disallowances of those bad debts and business expenses by the assessing officer. His case is that it was only on the 21st of March 1971 that at the hearing in appeal he along with his authorised representative had raised this objection by way of additional ground of appeal before the Appellate Assistant Commissioner and presented an application in writing before him across the table which he declined to entertain returning the application back to him. The asseseee filed his own sworn affidavit in support of his allegations to that effect before the Tribunal on further appeal. On this the Tribunal called for a report from the Appellate Assistant Commissioner who in reply denied these allegations. Consequently the Tribunal refused to rely on the version put for ward by the assessee and held that this ground was never taken up before the Appellate Assistant Commissioner and, therefore, refused to allow the same to be raised before it at that late stage on further appeal. This is a pure finding of fact and the Tribunal has refused to exercise its discre. tion in favour of the assessee and grant any latitude in his favour.

7. In this connection under section 30 of the Act the assessee objecting to the assessment is entitled to file an appeal to the Appellate. Assistant Commissioner against the assessment within a period of 30 days. Section 31(2‑A) further lays down that the Appellate Assistant Commissioner may, at the hearing of appeal, allow an appellant to go into any ground of appeal not specified in the grounds of appeal if the Appellate Assistant Commissioner is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable. It is, tkerefore, evident that the Appellate Assistant Commissioner may in his discretion allow any additional ground to be raised by the assessee in the appeal before it. But in the instant case according to the finding by the Tribunal the asseseee did not raise any such additional ground before the Appellate Assistant Commissioner and as such the question of exercise of discretion by him in favour of the assessee did not arise. In turn the Tribunal in the exercise of its own discretion rejected the plea on the ground that this objection was never raised by the assessee in the first appeal before the Appellate Assistant Commissioner. As such no question of law at all arises out of this part of the Tribunal's order.

8. This brings us to the next objection raised by the assessee for the first time in the grounds of further appeal before the Tribunal against the jurisdiction of Mr. Ahmad Shuja Khan, Assistant Income‑tax Officer, N‑Circle, Lahore to complete the assessment on the 3rd of February 1970. Admittedly this ground was never raised at any stage before the assessing officer himself and in appeal before the Appellate Assistant Commissioner of Income‑tax. The Tribunal also refused to entertain this new ground raised before it for the first time for the reason that (a) the jurisdiction of the assessing officer was never challenged at the assessment stage (b) that the same was not even challenged when an opportunity was available before the Appellate Assistant Commissioner and (c) that in the original grounds of appeal before the Tribunal also this ground was not taken up and (d) the adjudication of the objection would also require investigation into certain facts which were not apparent or available on the records. The Tribunal further observed that the assessee (appellant) was not entitled to question the jurisdiction of the: assessing officer in view of the pronounce ment of the Supreme Court in Ghulam Mohy‑uB Din v. Chief Settlement Commissioner (Pakistan) and others (P L D 1964 S C 829). In this connection the Tribunal also relied on the reported case of Hasham Issaq v. Karachi Gas Co. Ltd. (P L D 1969 Kar. 109).

9. Here it may at once be stated that the Tribunal has incorrectly observed in its appellate order that this new ground was not taken up by the assessee in his original grounds of appeal before it. It is amply borne out from a copy of the memo. of appeal (Annex. E) before the Tribunal that in ground No. 3 the assessee did raise the objection that the Assistant Income‑tax Officer was not properly vested with the jurisdiction to make the assessment. This mistake appears to be date to an inadvertent lapse on the part of the Tribunal. Also we find that the observations by the Supreme Court in Ghulam Mohy‑ud Din v. Chief Settlement Commissioner that any objection to the jurisdiction of the Tribunal concerned must be raised before it at the earliest opportunity and that a petitioner was debarred from raising the objection afterwards, were made in the context of the exercise of the extraordinary jurisdiction vested in the superior Courts to issue the writs. The ratio laid down in that case is not directly applicable to the Income‑tax Appellate Tribunal hearing appeals under section 33 of the Income‑tax Act.

10. In spite of this lapse and draw back in the appellate order, we find that in substance and by and large its effect is that the Tribunal in the exercise of the discretion vested in it as the appellate authority, refused to allow this new ground to be raised against the jurisdiction of the assessing officer to complete the assessment. In the Commissioner of Income‑tax, Bombay City v. Hazarimal Nagji & Co. ((1963) 7 Taxation 51) in relying on the analogous provisions of section 33 (4) of the Indian Income‑tax Act and rules 12 and 27 of the Appellate Trlbunal Rules held that the powers of the Income‑tax Tribunal are similar to the powers of the appellate Court under the Civil Procedure Code. This view was also taken in New Indian Life Assurance Co. Ltd. v. Commissioner of Income‑tax ((1957) 31 1 T R 844) wherein it was observed that the position of the Appellate Tribunal is the same as a Court of appeal under the Civil Procedure Code and its powers are "identical" with the power enjoyed by an appellate Court under the Code. At least this is true so far as procedure is concerned. In the first mentioned case it was observed that in appeal before the Tribunal, it has the jurisdiction to entertain a new ground not made out before the authorities below either on behalf of the appellate or the respondent. But these observations were made only in the context that it was discretionary with the Tribunal to permit a new ground to be raised before it for the first time in appeal. Under the Code of Civil Procedure the general rule is that an appellant cannot be allowed to raise in his memorandum of appeal a new case A I R 1946 P C

97. But there are certain recognised exceptions to the general rule also. Ordinarily a pure point of law or jurisdiction not depending upon examina tion of evidence and not requiring fresh investigation of facts, may be allowed to be taken for the first time in second appeal.

11. In the instant case before us the Tribunal in the exercise of its discre tion did not allow the objection against the jurisdiction of the assessing officer to be raised before it for the first time in the second appeal and gave its own reasons for exercise of its own discretion against the appellant (assessee). It was inter olia of the opinion that any adjudication on this new objection would entail investigation into certain facts not apparent or available on the records before it. But the learned counsel for the assessee relied on the provisions of section 33 (3‑A) of the Income‑tax Act to contend that the Appellate Tribunal had ample power to admit additional evidence even at that last stage and copijd have invoked the same. Also rule 29 of the Income‑tax Appellate Tribunal Rules provides for the admission of the additional oral and documentary evidence if the Tribunal requires the same to enable it to pass its order. Conversely the Tribunal cannot be compelled to admit additional evidence if it does not require the same. In Commissioner of Income‑tax,' West Bengal v. Sarat Chandra Bose ((1950) 18 1 T R 669) the High Court on reference to the provisions contained in rule 29 of the Appellate Tribunal Rules held that the power of the Tribunal to admit additional evidence are strictly limited and that it is well‑settled that the Tribunal should not consider fresh facts which were not placed before the Income‑tax Officer or the Appellate Assistant Commissioner.

12. According to section 2(7) of the Income‑tax Act "Income‑tax Officer" means a person appointed to be an Income‑tax Officer and includes a person appointed to be a Special Officer, an Assistant Income‑tax Officer and Examining Officer. Under section 5 (1) are listed together the classes of Income‑tax authorities and Assistant Income‑tax Officer is also one of these authorities for purposes of this Act. Section 5 (3‑A) lays down that an Income‑tax Authority may appoint Assistant Income‑tax Officer as may be necessary. In this connection, section 5 (5‑A) further lays down that Assistant Income‑tax Officer shall perform such functions in the execu tion of this Act as may be assigned to them by the Income‑tax Authority under whom they are appointed to work and shall be subordinate to such authority.

13. Now the initial onus to establish that there was no proper assignment of this work to Mr. Ahmad Shuja Khan, Assistant Income‑tax Officer, N‑Circle, Lahore, was on the assessee. But there is nothing on d.he record to discharge this burden. According to the Tribunal the adjudica tion of this objection would require investigation into certain facts which were not apparent on the record. In the circumstances the Tribunal was not persuaded to exercise its discretion in favour of the assessee to admit .additional evidence. This objection against the jurisdiction of the assessing Officer raises a mixed question of law and fact. The assesses failed to raise the objection at the earliest stage. In the circumstances, it cannot be held that the Tribunal exercised the discretion against the assesses capriciously, or that its order was arbitrary and perverse. In these proceeding this Court cannot sit in appeal over the discretion thus exercised by the Tribunal against the assessee. In our opinion no question of law at alu .arises out of this part of the order thus passed by the Tribunal in the exercise .of its discretion, and question No. 1 above is concluded by these findings. ,On this conclusion question No. 2 also does not arise out of the Tribunal's ‑order.

14. This brings us to the last question No. 3 relating to the merits of the exemption in the sum of Rs. 17,500 claimed by the assessee under see tion 15‑AA of the Act. Admittedly the assessee made the investment of Rs. 17, 500 by the purchase of Defence Saving Certificates only on 20th of June 1970, after the close of the previous year ending 31st of March 1970, ‑relevant to the assessment year 1970‑71 in question. In this connection ‑subsection (1) of section 15‑AA lays down that inter alla subject to the provisions of subsection (3) of the section, the tax shall not be payable by an assessee, not being a company, on so much of his "total income" as is invested by him in the purchase of Post Office Savings Certificates and in the purchase of Government Securities etc. This subsection expressly exempts from payment of the tax so much of the "total income" as has been invested in the approved Government securities. In turn subsection (3) of this section expressly provides that no exemption under this section shall be allowed on so much of the amount invested as aforesaid as does not exceed ,the sale proceeds, if any, or the original cost to the assessee, whichever is the greater, or the Government Securities disposed of by him in the "previous year" by sale, transfer or in any other manner. This subsection indirectly ,mattes a mention of the previous year. But according to the assessee this provision does not shed sufficient light to control and limit the scope of ‑the exemption allowed under subsection (1) to the investment made in the ,course of the relevant previous year only. We find that in general there is mo such specification of the previous year in the case of exemptions allowed ‑in the case of life insurance under section 15, portion of earned income 'under section 15‑A, amount invested in the acquisition of stcoks or shares under section 15‑C, donations for charitable purposes under section 15‑D and educational expenses of children under section 15‑E. In the context of section 15‑C the learned counsel for the assessee laid great emphasis before us on the fact that in this section for the words "subscribed and paid by him in the previous year for the acquisition of any part of the share .capital of a company as described in this section", the words "invested by 'shim in the acquisition of any stocks or shares of a company as described in ,this section "were substituted by section 6 (14) of the Finance Ordinance XVI of 1969 with effect from lst July 1970. He argued that it is a matter of no small significance that the words "previous year" were expressly dropped by virtue of this amendment introduced into section 15‑C. But in, our opinion no adverse conclusion can be drawn from this amendment. Is appears to us that it did not introduce any change in the existing law and was introduced with a view to bring the phraseology employed more in line with the other similar sections providing for exemptions of portions of the "total income"of an assessee from tax. In this connection section 16 provides for the computation of the total income. Section 16(1)(a) expressly labs down that in computing the total income of an assessee any sums exempted under the first and third proviso to section 8, subsection (2) of section 14, section 15. sec tion 15‑A, section 15‑AA, section 15‑B, section 15‑C, section 15~CC, sec tion 15‑D and section 15‑F shall be included. It is notewothy that under sec tion 15‑C and all these other cognate sections the exemptions are allowed to "so much of total income" or portion of total income" specified in each of them. The term "total income" is defined in section 2(14) of the Act to mean total amount of the income, profits and gains referred to in subsection (1), of section 4 computed in the manner laid down in the Act. In turn subsection (1) of section 4 lays down that the total income of any "previous year" of any person, includes all income, profits and gains from whatever source derived. Under section 3 Income‑tax is charged year by year in respect of the "total income" of each "previous year". Indeed under the scheme of this Act each "previous year". is a distinct separate and self‑contained unit of time for the purpofies of computation of the income and assessment. On a cambined reading of these provisions we are clear in our minds that these exemption of portions of the "total income" from tax are necessarily confined to respective previous year only. In The Luipaard's Wei Estate and Gold Mining Co., Ltd. v. The Commissioner of Inland Revenue (15 Tax Cas. 573) Rowlatt, J. observed: ‑ 41 . . the income‑tax is, of course, an annual tax, not only in; the sense that it is annually imposed by the Finance Act, but in the sense that it is annual in its structure and organization . . . . . . . . . . . . As regards the profits upon which it was to be levied, they were strictly of an annual basis . . . . . . . . . . . : ' Similarly Lord Russell in delivering the judgment of the Board in C. I. T. v. S. M. Chitnavis (AIR 1932 P C 178) held that what are chargeable to Income‑tax are the profits and gains of a year and for the purpose of computing yearly profits, and gains, each year is a separate self‑contained period of time, in regard to, which profits earned or losses sustained before its commencement arel irrelevant. The Privy Council nhserved;‑ "What are chargeable to Income‑tax in respect of a business are the profits and gains of a year; and in assessing the amount of the: profits and gains of a year account must necessarily be taken of all losses incurred. But the losses must be losses incurred in that year. One cannot when setting out to ascertain the . profits and gains of* one year, deduct a loss which had in fact been incurred before the commencement of that year. Otherwise one would not arrive at: the true profits and gains of the year. For the purpose of computing' yearlw profits and gains, each year is a separate self‑contained: period of time, in regard to which profits earned or losses sustained. before its cornmeacement are irrelevant. It thus follows that a debt, which had in fact become a bad debt before the commencement of a particular year, could not properly be deducted in ascertaining the profit of that year, because the loss had not been sustained in that year." ILn another reported case of the Commissioner of Income‑tax, U. P. v. Basant Rat, Takhat Singh (1933 1 T R 197) their Lordships of the Privy Council observed:‑ "Under subsection (2) of section 12 of the Indian Income‑tax Act, 1922, the allowance for any expenditure incurred must be an allowance for expenditure incurred in the year in respect of which the income, profits and gains forming the basis of the assessment arose. There can be no justification for deducting from the profits and gains something in respect of expenditure, whether it be regarded as capital expenditure or not, which occurred years before." In Sir Kikabhal Premchand v. Commissioner of Income‑tax (Central),. Bombay ((1953) 24 1 T R 506) the Supreme Court of India observed that for Income‑tax purposes each year is a self‑contained accounting period and the Income‑tax authorities can only take into consideration income, profits and gains made in that year.

15. In our opinion, therefore, the Tribunal was justified in holding that the investment of Rs. 17,500 made by the assessee in the purchase o Defence Saving Certificates on the 20th of June 1970, after the end of the previous year relevant to the assessment year 1970‑71 in question, ‑could not be allowed as an admissible dedpction in that assessment year. Accordingly our answer to question No. 3 above is returned in the negative.

16. This reference is disposed of accordingly, but there shall be no order as to costs in the circums tances of the case. S. Q. Order accordingly.