RAMANUJAM J.


At the instance of the Revenue, the following question has been referred to this court for its opinion.



"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the Appellate Assistant Commissioner had no jurisdiction to enhance the assessment in the case of the assessee ?" *


The assessee, in this case, is a registered firm doing commission business in fruits, both at Madras and at New Delhi. While computing the income for the year 1970-71, the ITO noticed that there was a claim for deduction of Rs. 12, 585 under the head "Entertainment" both at Madras and New Delhi. As against the said claim, he allowed only a sum of Rs. 5, 000 as admissible and added back the excess sum of Rs. 7, 585 to the income returned by the assessee. The assessee, aggrieved against the disallowance of a portion of the entertainment expenses, filed an appeal before the AAC. The AAC confirmed the finding of the ITO regarding the disallowance of the portion of the claim made under the head "Entertainment". However, he found that the assessee had collected a total sum of Rs. 12, 696 both at Madras and New Delhi under the head "Charity" and the said amount had not been brought to tax by the ITO. He, therefore, issued notice to the assessee to show cause why the said sum of Rs. 12, 696 should not be added to the income of the assessee as a trading receipt. The assessee filed his objection to the inclusion of the said sum of Rs. 12, 696 collected by way of charity in the total income of the assessee. He also objected to the jurisdiction of the AAC to make an enhancement by making an addition of the said sum of Rs. 12, 696 which was not an item of receipt considered by the ITO while making the assessment.


The AAC, however, overruled the objection raised by the assessee both on merits as well as on the total question of jurisdiction and brought to tax the said sum of Rs. 12, 696 by directing the ITO to enhance the income to that extent. Aggrieved by the order of the AAC, the assessee appealed to the Income-tax Appellate Tribunal, both against the disallowance of the part of the entertainment expenses and against the enhancement. The assessee succeeded before the Tribunal both on the question of disallowance and as regards the enhancement. The question of disallowance is not the subject-matter of the reference before us and we are now concerned in this reference only with regard to the jurisdiction of the AAC, namely, whether the AAC can exercise the power of enhancement in respect of a source of income which was not before the assessing authority. On that question, the Tribunal, following the decision of the Supreme Court in CIT v. Rai Bahadur Hardutroy Motilal Chamaria held that since the assessee had not shown the receipts by way of charity in the return and the same not having been considered by the ITO during the assessment, it was not open to the AAC to bring the charity collections as a trading receipt and to include it in the taxable incomeThe decision of the Tribunal, in so far as it relates to the jurisdiction of the AAC to enhance the assessment, has been challenged in this reference by the Revenue. The Tribunal has not, however, gone into the merits of the assessability of the receipts under the head "Charity" and, therefore, that question also does not arise for consideration by us. On the question of jurisdiction of the AAC to enhance the receipts amounting to Rs. 12, 696 collected by the assessee by way of charity, we are of the view that the Tribunal has come to the right conclusion.


It is, no doubt, true, as has been urged by the learned counsel for the Revenue, that the power of the AAC is plenary and co-extensive with that of the ITO. It has been so held in CIT v. Kanpur Coal Syndicate. But, that is not conclusive on the question whether the AAC can bring in a new item or source of income which was not before the ITO, and not considered by him at the stage of the assessment. On this question, it is seen that the cases have uniformly held that the power of the AAC to enhance an assessment can only relate to the items of income which were before the ITO, and considered by him for the purpose of bringing to tax or for the grant of relief to the assessee. The reasons given by the Supreme Court for restricting the power of the AAC to enhance are found in CIT v. Shapoorji Pallonji Mistry. One of the reasons is that if the appellate power extends to matters or items not considered by the ITO, then the assessee will stand deprived of a finding by two Tribunals in respect of the new matter considered by the AAC and one right of appeal. One other reason given by the Supreme Court is that the limit of the power of the AAC to enhance the assessment has been prescribed by the Legislature in ss. 31 and 33B (of the 1922 Act), taking into account the interpretation placed on those sections by the courts, and that if really the Legislature wanted to make a departure, it would have amended s. 31 and specified its intention clearly. In the said case, the Supreme Court has clearly laid down that, in an appeal filed by the assessee, the AAC has no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the ITO in the order appealed against. In CIT v. Rai Bahadur Hardutroy Motilal Chamaria, the Supreme Court has again reiterated its view that the power of enhancement of the AAC is restricted by s. 31(3) of the 1922 Act to the sources of income which have been the subject-matter of consideration by the ITO from the point of view of taxability, that the word "consideration" does not mean incidental or collateral examination of any matter by the ITO in the process of assessment, that the matter should be clear from the assessment order that the ITO considered the said item with a view to its taxability or its non-taxability. In that case, an item of receipt of Rs. 5, 85, 000 by the assessee which had been entered in the accounts of the assessee had been noted by the ITO, but was not considered as to its taxability. The AAC, on appeal filed by the assessee as regards the other matters, sought to invoke the power of enhancement so as to bring in the said receipt of Rs. 5, 85, 000 to charge. When the matter ultimately went before the Supreme Court, the Supreme Court held that as the ITO had not considered the entry of Rs. 5, 85, 000 from the point of view of its taxability and had referred to the remittance of the said amount only with a view to testing the genuineness of the other entries in the account books of the assessee's branch, the appellate authority had no jurisdiction under s. 31 of the Act to enhance the assessment by reference to the said sum of Rs. 5, 85, 000The case before us is an a fortiori one. Even though an item of income was before the ITO and noted by him, the Supreme Court has held that since the ITO had not considered that item with reference to the question of taxability or otherwise, the power of enhancement cannot be invoked by the AAC to bring that item to tax. In the case before us, there is no material to indicate that the ITO was aware of the entry in the accounts with regard to the receipt of the various amounts for charity. Even assuming that there were entries in the account books regarding the said sum as contended by the Revenue, still, so long as such sum has not been subjected to the process of assessment by the ITO, the said item cannot be treated as an item to be considered for enhancement by the AAC.


Learned counsel for the Revenue then contends that if the item which was not considered by the ITO and which is the subject-matter of the proceedings for enhancement by the AAC, relates to the same source which has been subjected to assessment, then there is no restriction on the power of the AAC to enhance, that the amounts received by way of charity are also business income or trading assets

, and that, therefore, there cannot be any restriction on the power of the AAC when he wants to enhance the income coming under the same source. But, it is clear from the decision of this court in CIT v. Coimbatore Cotton Mills Ltd., which has clearly laid down that an amount received as and by way of charity is not a trading receipt. Therefore, the contention of the Revenue that it relates to the same source which has already been subjected to tax, has to be rejected in view of the fact that charity collections do not form trading receipts and, therefore, they are of a different source. In view of the rulings laid down by the Supreme Court in CIT v. Shapoorji Pallonji Mistry and CIT v. Rai Bahadur Hardutroy Motilal Chamaria, we have to answer the questions referred to us in the affirmative and against the Revenue. The assessee will get the costs. Counsel's fee Rs. 500.