M.C.DESAI, J. -
(1.)THE following question has been referred to this court by the Income-tax Appellate Tribunal, Allahabad Bench, at the assessees instance under section 66(1) of the Income-tax Act :
"Whether on a proper construction of rule 27 of the Appellate Tribunal Rules, 1946, the assessee respondent having not appealed against the order of the Appellates appeal before the Tribunal, that the entire profit arising out of the sale of land was not liable to assessmen ?"
(2.)THE facts as given in the statement of the case by the Tribunal are these : THE assessee purchased certain land which was subsequently acquired by the State Government on behalf of the Development Board, Kanpur, for Rs. 10,000 and immediately the Development Board gave a part of it to him on lease for 999 years on a nominal rent after receiving the premium of Rs. 10,000. He was permitted to sell the land to anybody as a freehold property and accordingly he sold a major part of it during the accounting year for Rs. 1,26,870. During his assessment two questions arose, one whether the net receipts from the sale of the land amounted to profits of business, e.g., an adventure in the nature of trade or commerce liable to tax and the other being the quantum of the net receipts. THE Income-tax Officer held that the receipts were profits and fixed the amount at Rs. 1,16,870 by deducting Rs. 10,000 paid as the premium from Rs. 1,26,870, the sale proceeds. THE assessee filed an appeal to the Appellate Assistant Commissioner, who confirmed the Income-tax Officers finding that the receipts from the sale were profits but disagreed with the finding that Rs. 1,16,870 were the profits. THEre was no dispute that the sale of the land yielded to the assessee Rs. 1,26,870 and the real dispute was about the cost of the land to the assessee, which was to be deducted from the sale proceeds in order to determine the net receipts. THE Appellate Assistant Commissioner was of the opinion that the market price of the land should be the cost to the assessee; he did not take Rs. 10,000 paid as the premium to be the cost because it was the amount of premium and was fixed by virtue of a compromise between the assessee and the State Government during the land acquisition proceedings. On receipt of a report from the Income tax Officer that the market price of the land was Rs. 1,12,056 he determined the net receipts at Rs. 14,814 and decided the appeal accordingly. THE assessee accepted this decision, but the department did not and the Commissioner of Income tax filed an appeal before the Tribunal against it. During the hearing of the appeal the assessee filed an application before the Tribunal stating that he had not filed any appeal against the order of the Appellate Assistant Commissioner, that the appeal by the department was confined to the question of the amount of the net receipts and that "under rule 27 of the Income tax Appellate Tribunal Rules, 1946, the respondent is entitled to support the order of the Appellate Assistant Commissioner on any of the grounds decided against him though the respondent has not appealed" and prayed that he be allowed "to support the order... on the ground that the transaction was not an adventure in the nature of trade, this ground having been decided against the respondent". THE assessees counsel also pressed orally that he should be allowed to argue " on the question of assessability also in view of rule 27". THE statement of case shows that the oral submission was to the same effect as the written submission mentioned above. THE Tribunal understood this submission to be one for being permitted to argue that the sale of the land was not an adventure in the nature of trade or commerce and that, consequently, the net receipts were not profits at all and that even the amount of Rs. 14,814 did not form part of his taxable income and observed :
"It would mean that he would be cutting at the very root of the matter and if he is successful would completely destroy the Appellate Assistant Commissioners order and not support it. THE point at issue is only the quantum of profits earned by the sale and in this appeal the assessee cannot be allowed to raise the fundamental issue of the assessability as such."
So it disallowed the counsel to argue the matter. Coming to the question of the quantum of the net receipts it held that the price paid by him for purchasing the land in dispute should be taken to be the cost price and remanded the case for determining it and then arriving at the amount of the net receipts. The assessee applied to the Tribunal for referring the case to this court under section 66(1) and hence this reference.
The following are the relevant provisions of law. Section 30 of the Income tax Act provides for an appeal by an assessee objecting to the amount of the income assessed to the Appellate Assistant Commissioner against the assessment within a certain period of time. The Appellate Assistant Commissioners powers are stated in section 31(3). He can confirm, reduce, enhance or annul the assessment or set it aside and direct the Income tax Officer to make a fresh assessment or set it aside and direct the Income tax Officer to make a fresh assessment but cannot enhance a assessment without giving the assessee appellant a reasonable opportunity of showing cause against it. The Commissioner of Income tax is empowered by section 33(2) to appeal to the Tribunal from any order passed by an Appellated Assistant Commissioner under section 31; this appeal also is to be made within a certain time. The Tribunals power, vide sub-section (4), is to "pass such orders thereon as it thinks fit". Rule 27 of the Income tax Appellated Tribunal Rules is as follows :
"27. The respondent, though he may not have appealed, may support the order of the Appellate Assistant Commissioner on any of the grounds decided against him."
(3.)THIS provision reminds on of Order 41, rule 22(1), Civil Procedure Code, to the effect that "any respondent, though he may not have appealed from any part of the decree, may not only support the decree on any of the grounds decided against him in the court below but take any cross objection to the decree which he could have taken by way of appeal, provided he has filed such abjection in the Appellate Court within one month from the date of service on him or his pleader" and it is in the form of a memorandum of appeal.
When a trial court decrees or dismisses a suit entirely, no difficulty arises about the respondents rights in the appellate court. In such a case the appeal, whether it is by the plaintiffs or by the defendant, is in respect of the whole subject matter of the suit (unless he gives up a portion of it and it is therefore out of consideration). Whatever is the judgment of trial court, whether accepting the plaintiffs case, or rejecting it, in toto, it may be based upon one ground or more than one ground. A plaintiff may have one, or more than one, ground of defence. To simplify the discussion I would confine myself to one ground and two grounds of attack and one ground and two grounds of defence. When both grounds of attack are accepted by the trial court, it cannot be doubted that the defendant-respondent has a right to urge that both of them are wrong. Actually in order to succeed in the appeal he must show that both are wrong. When both grounds of attack are rejected the plaintiff has right to urge that both or either of them is valid and in order to succeed he must show at least that either of them is valid. When both grounds of defence are accepted the plaintiff has a right to, and must, urge that both of them are untenable. When both grounds of defence are rejected the defendant has a right to urge that both or either of them is valid and cannot succeed unless he shows that at least either of them is valid. Complications arise when one ground of attack is accepted and the other rejected or one ground of defence is accepted and the other is rejected. When one ground of attack is accepted the appeal must of necessity be by the defendant because on either ground being accepted the judgment is in the plaintiffs favour and he cannot file an appeal merely against the finding rejecting the other ground of attack. An appeal lies from the operative judgment and not from the reasons in support of it or the findings given on the issues whether of fact or law on which the operative part of the judgment is based. A successful party cannot appeal merely to have a finding given adversely to him corrected; as notwithstanding the adverse finding the operative judgment is in his favour he is not aggrieved by it and cannot gain anything by appealing against the adverse finding. Similarly, when one of the two grounds of defence is accepted and the other is rejected, the appeal must be by the plaintiff and there can be no appeal by the defendant since the operative judgment is in his favour. When a defendant appeals he appeals from the acceptance of one ground of attack and if he succeeds the appeal must be allowed and the suit must be dismissed. But if the rejection of the other ground of attack is wrong, justice requires that the suit must not be dismissed because if there is one valid ground of attack the plaintiff must succeed. Consequently he must have an opportunity of urging in the appeal that the rejection by the trial court of the other ground of attack was wrong. Since he could not appeal against the rejection of the other ground of attack there is no question of his being barred by res judicata or estoppel from contending that it was wrongly rejected. This is the reason behind rule 22(1) of Order 41, Civil Procedure Code. This result also follows from the doctrine that an appeal is a continuation of the suit and that in the absence of provisions to the contrary an appellate court has all the powers of the trial court in respect of the subject-matter of the suit and the whole suit is laid open before it (barring, of course, what has been given up in appeal). Both grounds of attack are again for consideration before the appellate court, the one accepted by the trial court and brought before the appellate court, the one accepted by the rejected by it and brought before it by the defendant-appellant and the other rejected by it and brought before it by the plaintiff-respondent in his oral argument. It is not necessary for the plaintiff even to file a cross-objection against the rejection of the ground of attack. If he could not file an appeal, he cannot file a cross-objection, which is merely a substitute for an appeal. In the same way when one ground of defence is accepted and the other rejected the defendant-respondent in the appeal filed by the plaintiff has a right to urge that the trial court had wrongly rejected the other ground; if he succeeds the appeal will fail even though the plaintiff succeeds in showing that one ground was wrongly accepted. So far I have been dealing with decreeing or dismissing a suit in toto.