M.C. Jain, J. - (1.) THE following question of law has been referred to this court for its opinion by the Income-tax Appellate Tribunal, Jaipur Bench, by its decision dated January 28, 1975 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in refusing to entertain the plea of the Department that the income from the lease rent of the cinema building was assessable under the head 'Income from other sources' instead of under the head 'Income from house property' on the grounds : (a) that the Income-tax Officer had not taken this plea at any stage in the past, (b) that if accepted, the direction of the Tribunal might result in enhancement of income ?"
(2.) WE may state a few relevant facts giving rise to the present reference. The assessee is an "association of persons" comprising the following four members: 1. Shri Pratap Singh, 2. Shri Rajendra Singh, 3. Shri Amrao Singh, and Shri Deepak Kumar. 4. Till August 31, 1968, the assessee was carrying on a business in exhibition of films in Minerva Talkies, Jaipur, on its own account but from September 1, 1968, the Minerva Talkies was leased out to M/s. Jiwanmal Surajmal on a monthly rent of Rs. 8,000 (Rs. 4,000 for building and Rs. 4,000 for machinery and furniture, etc.). In the return for the assessment year 1969-70, the assessee did not disclose the income from the lease rent of the cinema building on the plea that it was assessable in the hands of the members of the association of persons. The Income-tax Officer therefore, included a sum Rs. 4,305 in the assessment year 1969-70 and Rs. 20,825 in 1970-71 under the head "Income from property". The assessee went in appeal before the Appellate Assistant Commissioner and contended before him that the Income-tax Officer had taken income from rent of the above property under the head "Income from house property" and as the shares of the co-owners were determinate, the income had to be taxed proportionately in the hands of the co-owners and not in the hands of the "association of persons", vide Section 26 of the Income-tax Act, 1961. This contention found favour with the Appellate Assistant Commissioner and hence this income was deleted from the income of the assessee. The Department took appeals before the Appellate Tribunal and it was submitted that the Appellate Assistant Commissioner has wrongly held that the income from the lease rent of the cinema building was assessable under the head "Property income" as it was clearly assessable under the head "Income from other sources" under Section 56(2)(iii) of the Income-tax Act, 1961. The Tribunal rejected the appeals of the Department and considered the matter as under : "It is, thus, apparent that at no stage in the past, the Department has taken the stand that the income from the lease rent of the cinema building was assessable under the head 'Other sources' as per provisions of Section 56(2)(iii) of the Income-tax Act, 1961. We are, therefore, unable to entertain the above ground at this stage. This apart, any direction or finding about the chargeability of the income from the lease rent of the cinema building under the head 'Other sources' may result in the enhancement of the total income of the assessee for the reason that the various deductions admissible under Section 56 of the Income-tax Act, 1961, are quite different from the various deductions admissible under Sections 22 to 27 of the Income-tax Act, 1961, while computing the income from 'house property'. We are unable to give such a finding or direction since Section 254(1) of the Income-tax Act does not authorise the Tribunal to pass such order which may result in enhancement of the total income of the assessee. It has been held by their Lordships of the Supreme Court in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232, that the words 'pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement), which are conferred upon the Appellate Assistant Commissioner. In view of the above authority and after considering all the facts and circumstances of the case, we are unable to accept the contention of the Department and reject the same. The findings given by the Appellate Assistant Commissioner in respect of both the assessment years under appeal are, accordingly, upheld."
(3.) THE Department then moved Reference Applications Nos. 149 and 150/JP/1974-75. It is on these reference applications, the aforesaid question of law arising out of the order of the Tribunal, has been referred to us for our opinion. The question referred to us raises an important question as to the power or jurisdiction of the Tribunal in entertaining the plea, which has not been taken earlier before the authorities below and which may have been taken for the first time before the Tribunal. A perusal of the order of the Appellate Assistant Commissioner shows that the contention raised by Shri S. Gupta, representative of the assessee, has been recorded and, thereafter, the learned Appellate Assistant Commissioner immediately expressed his opinion that the contention appears to be correct. What was the contention of the Department, it appears, has not been stated and perhaps it is on this basis, it has so gone into the order of the Tribunal that at no stage in the past, the Department has taken the stand that the income from the lease rent of the cinema building was assessable under the head "Other sources" under Section 56(2)(iii) of the Income-tax Act, 1961. The plea was thus found not entertainable at the stage before the Appellate Tribunal and it was also not found entertainable as it may result in the enhancement of the total income of the assessee. For the second reason, reliance has been placed on a decision of the Supreme Court in Hukumchand Mills Ltd.'s case [1967] 63 ITR 232. It is to be seen as to whether the reasons assigned by the Tribunal are valid reasons in law for not entertaining the plea taken by the Department before the Tribunal. For the proper appreciation and adjudication of the controversy, we read Section 254(1) of the Income-tax Act: "Section 254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit." ;