The main legal point established in the judgment is the principle of merger of original and appellate orders and the scope of revisional jurisdiction under s. 263 of the IT Act, 1961.

G.C. Bharuka, J.

1. The assessee, which is a private limited company, was carrying on hotel business during the assessment years in question namely, 1982-83, 1983-84 and 1984-85. During the first two assessment years, the assessee had claimed depreciation on the banquet hall of the hotel building at the rate of 10 per cent for the asst. yr. 1982-83 and for the succeeding two years 1983-84 and 1984-85 at the rate of 15 per cent. The said claim was allowed by the ITO in the assessment made under s. 143(3) of the IT Act, 1961 (in short 'the Act'). The said orders were passed on 24th January, 1985.

2. The assessee went in appeal before the CIT(A) against the said assessment orders on certain issues which was ultimately disposed of on 27th March, 1986. Subsequently, on 17th February, 1987, the CIT invoked his suo motu revisional jurisdiction under s. 263 of the Act against the said assessment orders on the ground that those were prejudicial to the interest of the Revenue in as much as the assessee was entitled to the depreciation on the building only at the rate of 2.5 per cent.

The above order of the CIT was subjected to appeal before the Tribunal which set aside the same by holding that, (i) the order was without jurisdiction in as much as the original assessment order had already merged with the appellate order much before the suo motu revisional jurisdiction was invoked, and (ii) ITO was right in holding that assessee was entitled to the depreciation on hotel building at the rates applicable to plants since the hotel building was the tool of trade of the assessee.

3. In the backdrop of the said facts, at the instance of the CIT, a statement of case was called from the Tribunal under s. 256(2) of the Act by this Court, on the following questions of law :

"(1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in coming to the conclusion that the order of the CIT under s. 263 is without jurisdiction ?

(2) Whether in the facts and circumstances of the case, the Tribunal is right in law in holding that even on merits the view of CIT that depreciation on banquet hall in the hotel building should have been allowed at 2.5 per cent (for asst. yrs. 1982-83 and 1983-84) and 5 per cent (for asst. yr. 1984-85) does not stand ?"

4. SO far as the first question is concerned, it requires a little detailed deliberations on principles of merger or fusion of original and appellate orders and the consequent amendment in the Act to overcome certain aspects thereof for empowering the CIT to initiate suo motu revisional proceedings under s. 263 of the Act to safeguard the interest of the Revenue.

In the case of CIT vs. Amritlal Bhogilal, the Supreme Court delved into various aspects of merger of orders. In this case, a composite order of assessment as well as registration was passed by the ITO against the assessee-firm. The assessee went in appeal before the AAC questioning the assessment which was partly allowed. The CIT, despite the said appellate order, initiated revisional proceedings in respect of the order granting registration. On these facts, the question which arose before the Supreme Court was as to whether the order passed by the ITO granting registration to the assessee-firm continued to be order passed by the ITO even after the assessee's appeal against the assessment made by the ITO on the basis that the assessee was a registered firm, had been disposed by the AAC. The assessee, in order to dispute the jurisdiction of the CIT, invoked the principle of merger. The Supreme Court, after elaborately considering the provisions of the Act, took the view that the order granting registration to an assessee-firm is an order separate and independent of the assessment order and not even appealable, so as to become the subject-matter on an appeal before the AAC. Accordingly, it was held that the order of registration had not merged with the appellate order which was passed in respect of order of assessment