(Per T. D. Sugla, J.)

By this petition under Article 226 of the Constitution of India, the petitioners have challenged the legality of the two notices dated 22nd January, 1987 and 18th March, 1987 issued by the Commissioner of Income-tax, Central, Bombay under section 263 of the Income-tax Act, 1961 for the assessment of the petitioners for assessment years 1982-83 and 1983-84.

The petitioners' assessment for the two years were completed by the Income-tax Officer under section 143(3) read with section 144B of the Income-tax Act, 1961 respectively on 11th February, 1985 and 24th March, 1986. Appeals were filed there-against before the Commissioner of Income-tax (Appeals) on 12th March, 1983 and 4th April, 1986. Those were dismissed. Second appeals there against before the Tribunal are still pending.

At this stage, the Commissioner issued the impugned notices. The reason given for the issue of the notices was stated to be that the petitioners had collected Rs. 12,33,227/- and Rs. 3,14,146/- for the two years from the customers on account of 'Hotel Receipt Tax' which amounts were neither paid to the Government nor refunded to the customers during the relevant previous years. Yet the Income-tax Officer had not treated these receipts as trading receipts and part of the income in these years. The orders of assessment were, thus erroneous and prejudicial to the interest of Revenue.

Shri Rajgopal, the learned counsel for the petitioners, challenged the jurisdiction of the Commissioner to start proceedings under section 263 on the ground that the orders of assessment had merged in those of the Commissioner of Income-tax (Appeals) as held by this Court in the case of Commissioner of Income-tax v. P. Muncherji and Company, 167 ITR 671. It was pointed out that the same view was taken by this Court in a subsequent decision in the case of Commissioner of Income-Tax v. Smt. A. S. Narendrakumari Basaheba, 176 ITR 515.

Shri Jetley, the learned counsel for the Department, on the other hand, submitted that the question whether the assessment order merges wholly or whether only that portion of it merges which was, in fact subject-matter of appeal in that of the appellate order was pending before the Supreme Court, there being conflict of views amongst the High Courts. He fairly admitted that so far as this Court is concerned, the binding decision is that once an appeal is filed against an assessment order and disposed of, the whole of the assessment order merges in the appellate order irrespective of the fact whether a particular aspect of the matter was or was not subject-matter of appeal.

This argument, according to him, was, however, not of much consequence now in view of retrospective amendment of section 263. Explanation C to section 263(1) was inserted with effect from 1st June, 1988. After the insertion of that Explanation, only that part of the order of assessment merges in the appellate order which as a matter of fact has been subject-matter of appeal.

Placing then reliance on the Supreme Court decision in the case of Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax, West Bengal 87 ITR 542 and Sinclair Murray and Co. P. Ltd. v. Commissioner of Income-tax Calcutta, 97 ITR 615, Shri Jetley argued that the amounts collected by the petitioners as 'Hotel Receipts Tax' were trading receipts and as such taxable as income. He fairly admitted that for the purpose of this petition this aspect is not very material as in the event of this Court's upholding the Commissioner's jurisdiction to issue notices under section 263, all these questions will have to and could be decided on merits by the Commissioner.

In view of this Court's judgments in 167 ITR 671 (supra) and 176 ITR 515 (Supra), the legal position is that once an order of assessment is subject-matter of appeal, the whole of it merges in that of the appellate order. Thus, the only question that requires consideration is whether the retrospective amendment of section 263