R. C. LAHOTI ( 1 ) THESE are four references under Section 256 (1) of the Income tax Act, 1961 at the instance of the Revenue seeking opinion of the High Court on the following four identical questions arising out of consolidated order of the Tribunal in ITA Nos. 2458 to 2461/74-75:- ( 1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law, in the appeal arising from the rectification proceedings u/s 154 of the Income tax Act, 1961 in giving relief to the assessee on the merits, without there being an error on the face of the record. (2) Whether on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was not Justified in holding that the appeal before him was in competent and superfluous in view of the order of the Commissioner of Income Tax on the same point for the same assessment year? (3) Whether, on the facts and in the circumstances of the case the Appellate Tribunal was justified in holding that the assessee was a manufacturing company and was therefore liable to tax at the lesser rate? (4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee company was to be taxed at the lesser rate under item II of para F of Part I of schedule I to the Finance Act, 1965 as a manufacturing company? ( 2 ) IT would suffice to briefly notice the relevant facts in their chronological order. 2. 1 The four assessment years involved are 1965-66 to 1968-69. The Income Tax Officer completed the assessments under Section 143 (3) of the Act on the dates given hereunder :- Assessment year Date of assessment 1965-66 5. 1. 70 1966-67 5. 1. 70 1967-68 19. 1. 70 1968-69 7. 2. 70 2. 2 For all the four assessment years, the assessee was treated as a non- manufacturing company !iab!e to income tax at higher rate of tax, though such a finding is not specifically mentioned in the orders. 2. 3 For the assessment years 1965-66 and 1966-67 the assessee preferred appeals before the Appellate Assistant Commissioner and the same were disposed of vide order dated 6. 3. 70. 2. 3 For the assessment years 1965-66 and 1966-67 the assessee preferred appeals before the Appellate Assistant Commissioner and the same were disposed of vide order dated 6. 3. 70. The question whether the company was a manufacturing company or not, was neither raised nor agitated before the AAC. 2. 4 For the assessment years 1967-68 and 1968-69 the assessee did not prefer any appeal. 2. 5 On 12. 6. 70 the assessee moved four applications under Section 154 of the Act before the ITO for each of the four assessment years under consideration requesting therein that concessional rate of tax should have been applied on the net taxable income of the Company as it was an industrial company engaged in publishing books and journals. On 21. 12. 70 the ITO rejected all the four applications. 2. 6 On 17. 12. 70, the assessee company filed four revision petitions before the Commissioner of Income Tax under Section 264 of the Act challenging the orders of assessment in respect of these very assessment years. The common contention raised in all the four revision petitions was that the assessee being a manufacturing company it should have been taxed at the concessional rate applicable to a manufacturing company. All the four revision petitions were dismissed by the Commissioner of Income Tax vide his combined order dated 28. 3. 72. The dismissal was on merits. The assessee did not further challenge the orders of the CIT. 2. 7 On 4. 1. 71, the assessee had preferred four appeals before the AAC against the four orders of ITC dated 21. 12. 70 passed under Section 154 of the Act, raising a common plea that the ITO had gone wrong in rejecting the applications under Section 154 and in not treating the company as a manufacturing company. During the course of hearing before the AAC, the assessee company s representative referred to an order dated 14. 2. 72 passed by the predecessor-in-office of the then AAC for the assessment year 1969-70 wherein the claim of th6 company to treat it as a manufacturing company was upheld. The AAC was persuaded to allow the appeals vide his order dated 22. 2. 73, following the AAC s order dated 14. 2. 72 referrable to the assessment year 1969-70. 2. 72 passed by the predecessor-in-office of the then AAC for the assessment year 1969-70 wherein the claim of th6 company to treat it as a manufacturing company was upheld. The AAC was persuaded to allow the appeals vide his order dated 22. 2. 73, following the AAC s order dated 14. 2. 72 referrable to the assessment year 1969-70. Thus the assessee s claim for lower rate of tax rejected by the ITO under Section 154 was allowed by the AAC for the four assessment years in question. It is pertinent to note that in the four appeals before the AAC attention was not invited to the order dated 28. 3. 72 of the CIT dismissing the assessee s revision petitions. 2. 8 The AAC thereafter received a request of the ITO for rectification of his orders dated 22. 2. 73 inviting the latter s attention to the fact that the assessee s revisions having been rejected by CIT and the assessment orders of the ITO having been maintained in revision the AAC could not have exercised his appellate jurisdiction. The AAC having satisfied himself on the provisions of Section 154 being attracted in such circumstances issued notices to the assessee to show cause as to why his orders dated 22. 2. 73 be not be recalled and rectified as there was a mistake apparent from the record. The AAC held that the very same question whether the assessee was entitled to the benefit of a lower rate of tax being a manufacturing company was decided by CIT adverse to the assessee and hence the same question could not have been agitated before the AAC for the same assessment years. The appeals before the AAC were incompetent and superfluous. The appeals should have been rejected as against being allowed. On these findings the AAC exercising Jurisdiction under Section 154 of the Act rectified his appellate orders dated 22. 2. 73 and dismissed the appeals resulting into rejection of assessee s claim for applicability of lower rate of tax. 2. 9 The assessee preferred appeals before the ITAT. The ITAT allowed all the four appeals. During the course of its order, the Tribunal observed inter alia :- In our view there is substance in the pleas put forth by the learned authorised representative of the assessee. 2. 9 The assessee preferred appeals before the ITAT. The ITAT allowed all the four appeals. During the course of its order, the Tribunal observed inter alia :- In our view there is substance in the pleas put forth by the learned authorised representative of the assessee. We have seen that though the assessee had moved an application u/s 264 before the CIT on 17. 12. 70 which was before the passing of the ITO s order under Section 154 on 21. 12. 1970, the C. l. T. had not disposed of the application u/s 264 till as late as 28. 3. 1972. Meanwhile the assessee had filed on 4. 1. 1971 an appeal to the AAC against the ITO s order u/s 154 dated 17. 12. 1970 (Sic - 22. 12. 70 ). In this appeal, therefore, the AAC was concerned with an order of the ITO, which had not merged with the CIT s order. Moreover, before the rectification order of the AAC on the application by the ITO could be passed, the order of the Delhi bench "c" of the Tribunal in ITA Nos. 427, 866 and 867 of years 1969-70 to 1971-72 was already available before him wherein the Tribunal while endorsing the appellate orders of the AAC observed as under:- "although the assesses was not owning a printing press or a binding machine, it was responsible for the production of books right from the point of selling the complete books. All the intermediate professes including the process of printing and binding were undertaken at assessee s risk and cost and responsibility and it was getting the books printed and bound under contracts other than the contracts of purchase. In most cases it was supplying the raw materials and even the stores required for completing the processes, say of binding. It was also responsible for a design of the jackets and also for providing the material for the same. In the circumstances the assessee was clearly engaged in the manufacture of goods and the mere fact that it did not own the printing press or the binding machine did not in any manner derogate from its engagement as such. The orders of the AAC therefore, are in accordance with law and did not call for any interference on our part. " 2. The orders of the AAC therefore, are in accordance with law and did not call for any interference on our part. " 2. 10 In substance, the ITAT while hearing the appeal arising out of the assessment years 1969-70 to 1971-72 had held the assessee to be manufacturing company. In its opinion it was the finding of the ITAT which was binding on the AAC in supersession. of the finding of the CIT holding the assessee not to be a manufacturing company (though the findings recorded by the two authorities were relateable to different sets of years of assessment but the question of law was the same ). Secondly, on the date of filing of the appeals before the AAC, the assessment orders under appeal had not merged in the order of the CIT and therefore the jurisdiction of the AAC to dispose of the appeals was not taken away. Thus the ITAT has proceeded to hold that the appellate orders of the AAC dated 22. 2. 1973 did not suffer with any such infirmity as was required to be rectified by exercising jurisdiction under Section 154 for the theory of the assessment orders having merged into the revisional orders of the CIT was not applicable on that day, and by the time the AAC exercised his jurisdiction under Section 154 of the Income Tax Act, the order of the ITAT holding the assessee company to be a manufacturing company was available which should have been held binding by the AAC and not the finding recorded in the revisional orders of the CIT. Thus both on facts and law the ITAT held the order of the AAC (referred to in para 2. 8 above) liable to be set aside. 2. 11 The appeals preferred by the assessee have been allowed. The present references arise out of this consolidated order of the ITAT. 3. 1 Section 154 of the Income Tax Act, 1961 speaks of "any mistake apparent from the record" being rectified by an income tax authority. It has been held in T. S. Balram ITO Company Circle, vs Volkart Bros and Ors (1971) 82 ITR 50 that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn thrust of reasoning on points on which there may be conceivably two opinions. It has been held in T. S. Balram ITO Company Circle, vs Volkart Bros and Ors (1971) 82 ITR 50 that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn thrust of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point is not a mistake apparent from the record. (Also see K. M. Shanmugam Vs. S. R. V. S. (P) Ltd, AIR 1963 S. C. 1626 and Satyanarayan v. Mallikarjun AIR 1960 SC 137 ). 3. 2 The original orders of assessment - all the four - were dealt with in revision by the Commissioner and the questions - whether the petitioner was a manufacturing company or not and hence entitled to a lower rate of tax or not were adjudicated upon and decided adversely to the petitioner by the order of the Commissioner dated 28. 3. 72. The assessment orders stood merged in the revisional order of the Commissioner to the extent of that issue. The AAC could not have thereafter passed any such order (whether original or appellate) which would have had the effect of rectifying the orders of assessment passed by the ITO which had ceased to exist as per theory of merger. ( 4 ) WE may deal with the first contention relating to applicability of Section 154 Income Tax Act to the facts of the case at hand. 4. 1 In M. K. Venkatachalam ITO vs Bombay Dying and Manufacturing Co Ltd, (1958) 34 ITR 143 SC their Lordships of the Supreme Court have held that a glaring and obvious mistake of law or of fact being apparent from the record can be rectified. 4 2 In CIT Vs. Indian Institute of Public Opinion Company (P) Ltd. 134 (1982) ITR 23 a Division Bench of Delhi High Court has held : "it is well settled that the provisions of Section 154 cannot be resorted to in order to make a rectification in a matter in which there could be two plausible interpretations. " 4. 3 In ACIT Vs. Moters and General Finance Co. " 4. 3 In ACIT Vs. Moters and General Finance Co. Ltd. , 142 (1983) ITR 424 another Division Bench of this High Court has held :- "section 154 of the I. T. Act, 1961 has a very limited application and enables the rectification of any mistake apparent from the record. The power could be exercised by the ITO to correct obvious errors of law and those mistakes which are apparent from the record. A decision on a debatable point of fact and the failure to apply the law to a set of facts which remain to be investigated cannot be corrected by way of rectification. " 4. 4 It cannot, therefore, be doubted that whenever there is a debatable point of fact which needs to be investigated or whenever there is an arguable question of law on which a final opinion is capable of being formed either way, a finding of fact or law recorded one way or the other even if found to be erroneous either by a probe into the facts or on account of law having been settled subsequently would not be available for change by exercising jurisdiction for rectification of mistakes under Section 154 of the Income-tax Act, 1961. ( 5 ) IN the 60s and early 70 s wherein fall the assessment years 1965-66 to 1968- 69, the years relevant for the purpose of the case at hand, and when the ITO and AAC passed their initial orders, it was a highly debatable question of law as to whether a company not owning its own printing press and binding machine and having processual activities performed elsewhere though for and on behalf of itself could be called a manufacturing company. The opinion on this aspect of law came to be settled much thereafter by the Tribunal deciding appeal relevant to some subsequent years of assessment i. e. 1969-70 to 1971-72. An order of assessment which had already achieved a finality (and where the plea that the assessee was liable to tax at a lower rate being a manufacturing company was not even raised) could not have been rectified by exercising jurisdiction under Section 154 of the Act so as to grant a relief on merits by upholding a claim based on subsequent change or development of judicial opinion. ( 6 ) BY way of abundant caution it may be placed on record that the AAC rightly entertained the application of the department under Section 154 of the Act and recalled his earlier order at the instance of the department inasmuch as the AAC had committed an obvious error of law in allowing the assessee s appeal earlier by overlooking the fact that the assessment orders of the ITO wherein rectification was sought had ceased to exist, having merged into the revisional order of the CIT (Appeals ). ( 7 ) TAKING up the second contention, we may proceed to notice and state the relevant principles on the doctrine of merger which have come to be well settled by this time. Where an appeal is preferred and the appellate court disposes of the appeal after a contested hearing, the order or decree of the original court merges into the appellate order or decree. For all practical purposes, thereafter it is the appellate order or decree which exists and has to be seen as effective and binding between the parties including the purposes execution, limitation and res judicata. (For general principles see Gajer Bros. v. Ratan Lal, AIR 1974 SC 1380 , Jokhan Rai v. Baikunth Singh AIR 1987 PATNA 133 (FB), Nanikutty Amma v. Triyandrum Permanent Bank AIR 1987 Karela 163. ). The proposition has been well stated in the decision or Karela High Court in the following words: "the jurisprudential justifiction for the the application of the of merger seems to be that there can not be stone same time one operative order or decree governing the same matter a Judgment of an inferior Court if subjected to an examination by the superior Court and the superior Court disposes of that matter, the judgment of the inferior Court ceases to have existence as an operative judgment in the eye of law. " ( 8 ) THERE is no difference between an appellate and revisional order, so far as the applicability of the doctrine of merger is concerned to an order, judgment or decree having been subjected to scrutiny of the appellate or revisional jurisdiction exercised by the superior authority or Court over the subordinate authority or court. " ( 8 ) THERE is no difference between an appellate and revisional order, so far as the applicability of the doctrine of merger is concerned to an order, judgment or decree having been subjected to scrutiny of the appellate or revisional jurisdiction exercised by the superior authority or Court over the subordinate authority or court. In Amrit vs. Sudesh, AIR 1970 S. C. 1 their Lordships have held that the right of appeal is one of entering a superior court and invoking its aid and interposition to redress the error of the court below. Two things are required to constitute the appellate jurisdiction- (i) the existence of relation of superior and inferior court and (ii) the power on the part of the former to review the decision of the latter. When the power of revision is conferred on such superior court, then the jurisdiction which is being exercised is a part of the general appellate jurisdiction of the superior court. It is only one of the modes of the exercising power conferred by the statute; basically and fundamentally it is the appellate jurisdiction which is being invoked in exercise in a wider and larger sense. Their Lordships have held that the order of the court below having merged into the order of the High Court passed in exercise of revisional jurisdiction conferred by Section 115 of the Civil Procedure Code, the writ jurisdiction of the High Court could not be invoked to challenge the order of the court below. ( 9 ) IT is true that the revisional order in the case at hand was passed by the Commissioner of Income-tax which is not a court. However, the distinction between court and tribunal or the Departmental authorities exercising appellate or revisional jurisdictions has been lost so far as the applicability of doctrine of merger is concerned. In S. S. Rathor vs. State of Madhya Pradesh, AIR 1990 SC ( 10 ) THEIR Lordships have held while overruling an earlier decision of the Supreme Court in the case of Sita Ram Goel v. Municipal Board Kanpur, 1958 S. C. 1036: "the distinction made between courts and tribunals as regards applicability of doctrine of merger is without any legal Justification. Power of adjudication ordinarily vested in courts are being exercised under the law by tribunals and other constituted authorities. Power of adjudication ordinarily vested in courts are being exercised under the law by tribunals and other constituted authorities. In fact, in respect of many disputes the jurisdiction of the Courts is now barred and there is a vesting of jurisdiction in tribunals and authorities. "their lordships have held that when the Conduct Rules for Government servants provide for departmental remedies by way of appeal or revision, against the order of punishment passed, it is the appellate or revisional order in which the original order of punishment would merge. We see no reason to hold why the same principle should not apply to the appellate or revisional orders passed under the tax laws inasmuch as the appellate or revisional jurisdiction conferred on such superior authorities is by statute and well recognised. ( 10 ) WE have an illuminating judgment on the doctrine of merger delivered by a Division Bench of Andhra Pradesh High Court in Mirza Muzamdar Hussain vs. D. Bhaskara Reddy AIR 1988 AP 13 . Jeevan Reddy J (as His Lordship then was) spoke for the Division Bench having taken into consideration all the available Supreme Court decisions on the point as also the decisions by High Courts. The following principles emerge : (I) the application of the doctrine of merger cannot be rendered inapplicable by drawing a distinction between an application for revision and an appeal; (ii) the application of the doctrine of merger depends on the nature of the appellate or revisional order in each case and on the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The doctrine of merger is not a doctrine of rigid and universal application. The doctrine of merger is not a doctrine of rigid and universal application. Whether there is fusion or merger of the order of the inferior Tribunal into an order by a superior Tribunal shall have to be determined by finding out the subject matter of appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute; (iii) ordinarily, a judgment pronounced in appellate or revisional jurisdiction after issuing a notice of hearing to both the parties would replace the judgment of the lower court thus constituting the appellate or revisional judgment as the only final Judgment; (iv) the doctrine of merger does not apply where an appeal is dismissed (i) for default, (ii) as having abated by reason of the omission of the appellant to implead the LRs of a deceased respondent; (iii) as barred by limitation; (v) An appeal dismissed in limine on the ground of bar of limitation may still be an order in appeal for the purpose of determining whether a right of further appeal would be available or not but that does not amount to saying that the order appealed against merges into appellate order dismissing the appeal in limine as barred by time. ( 11 ) SECTION 264 of the Income-tax Act 1961 which confers revisional jurisdiction on the Commissioner over the orders passed by an authority subordinate to him is wide in its terms. The Commissioner is empowered to make such inquiry or cause such inquiry to be made after calling for the record of any proceedings under this Act as he thinks fit and may pass such order thereon as he thinks fit subject to the provisions of the Act. The Commissioner is governed by rules of limitation. The function discharged by the commissioner is judicial in nature. ( 12 ) WE are therefore clearly of the opinion that the order forming subject matter of revision would merge into revisional order of the commissioner to the extent of the controversies or issues forming subject matter of revision and decided thereby expressly or by necessary implication. ( 13 ) WE can usefully borrow on the principles too well settled by a series of pronouncements on Section 152 of the Code of Civil Procedure 1908 which speaks of amendment of judgment, decree or orders. ( 13 ) WE can usefully borrow on the principles too well settled by a series of pronouncements on Section 152 of the Code of Civil Procedure 1908 which speaks of amendment of judgment, decree or orders. Unless and until a decree is superseded in appeal or revision, the Court which passed it is entitled to amend it under this Section. Where an appeal or revision has been preferred from the decree, the power of the Court of first instance to amend the decree depends on the question whether the decree has been superseded by the appellate decree or is left intact. Where the decree of the lower Court is confirmed, reversed or varied, it is superseded by the decree of the Appellate Court, and the only Court that can amend the decree thereafter is the Appellate Court. But where the decree of the lower Court is left intact, as for instance, where an appeal or revision is dismissed in limine or for default, or where the amendment relates to a portion of the decree which is outside the scope of the appeal or where the appeal is withdrawn, the lower Court is entitled to amend the decree. [see Civil Procedure Code by Chitaley Vol. 2, P. 607,10th edition]. ( 14 ) IT is true that on the date on which the assessee had filed appeals before the AAC, the revisions before the CIT were pending and therefore the orders of the ITO had not merged into the order of the CIT. However, AAC came to decide the appeals on 22. 2. 1973 by which time the revisions had stood decided by the Commissioner of Income Tax on 28. 3. 72 on merits. Therefore, the assessment orders of the ITO under revision had merged into the order of the CIT and consequently lost their identity. The same issue which was agitated in appeal before the AAC had stood decided by the CIT. The AAC could not have therefore decided the appeals re-adjudicating upon the same issue and taking a different view. Therefore, the assessment orders of the ITO under revision had merged into the order of the CIT and consequently lost their identity. The same issue which was agitated in appeal before the AAC had stood decided by the CIT. The AAC could not have therefore decided the appeals re-adjudicating upon the same issue and taking a different view. We may note with advantage the observations of their Lordships of the Supreme Court in CIT Bombay vs Amrit Lal Bhogi Lal 1958 (34) ITC 130 at page 140 wherein their Lordships have held that pendency of an appeal may put an order under appeal in dispute but until the appeal is finally disposed of the said order subsists and is effective in law. Mere pendency of an appeal does not have the effect of suspending the operation of the order under appeal. In our opinion, the pendency of the revision before the CIT did not suspend or render ineffective the order under revision but with the decision of the Commissioner of the Income- tax in revision, the order of the ITO had ceased to exist having merged into the revisional order of the CIT. ( 15 ) IN the light of the abovesaid discussion, the questions are answered as under :- (1) The proceedings under Section 154 of the Income Tax Act 1961 initiated by the assessee were misconceived and unsustainable in law and hence the Tribunal was not justified in giving the relief to the assessee on merits in an appeal arising from the rectification proceedings as there was no error apparent from the record. The question is, therefore, answered in the negative i. e. in favour of the Revenue and against the assessee. (2) The date on which the Appellate Assistant Commissioner came to decide the appeals, revisions against the orders of assessment were confirmed by the CIT and in view of the orders of the CIT, the appeals before the AAC were rendered incompetent. The question No. 2 is, therefore, answered by holding that the appeals before the AAC were incompetent and superfluous in view of the order of the CIT on the same point for the same assessment year. The question No. 2 is, therefore, answered by holding that the appeals before the AAC were incompetent and superfluous in view of the order of the CIT on the same point for the same assessment year. (3) On the facts and in the circumstances of the case, the Appellate Tribunal was not justified in holding that the assessee was a manufacturing company and was, therefore, liable to tax at the lower rate (for the assessment years which were subject matter of appeal before the Tribunal ). (4) On the facts and circumstances of the case, the appellate Tribunal was not justified in holding that the assessee company was to be taxed at the lesser rate being a manufacturing company (for the assessment year forming subject matter of appeals before the ITAT ). The question is answered in the negative i. e. in favour of the Revenue and against the assessee. For order see ITR 52/80.