The amendment to Explanation (c) of Section 263(1) of the Income-tax Act, 1961, by the Finance Act of 1988, is retrospective and applies to all appeals filed on or before or after June 1, 1988.

S.S.Sodhi, J.

1. In the context of the provisions of Section 263 of the Income tax J1 Act, 1961 (hereinafter referred to as "the Act"), does the Commissioner, having formed the opinion that the order of the Income tax Officer is prejudicial to the Revenue, lose his jurisdiction thereunder, if, in the meanwhile, the appeal against the assessment framed by the Income-tax Officer is heard and decided by the Appellate Assistant Commissioner 1 In other words, is Section 263 of the Act rendered inapplicable upon the Appellate Assistant Commissioner deciding the assessees appeal under Section 143(3) of the Act ? Herein lies the controversy raised.

2. The matter here pertains to the assessment year 1975-76. On February 23, 1977, the Income-tax Officer completed the assessment of the assessee, the Punjab State Civil Supplies Corporation Limited, under Section 143(3) of the Act. The assessee appealed against this order which was decided by the Appellate Assistant Commissioner on April 6, 1978, whereby the assessment as framed by the Income-tax Officer was modified. Almost a year later, on February 5, 1979, the Commissioner of Income-tax issued a notice to the assessee under Section 263 of the Act, on forming the opinion that the assessment order passed by the Income-tax Officer was prejudicial to the interests of the Revenue. Some of the points mentioned in this notice are those considered and dealt with by the Appellate Assistant Commissioner in his order of April 6, 1978.

3. The assessee, in its reply to the notice under Section 263 of the Act, took the plea that the order of the Income-tax Officer had merged with that of the Appellate Assistant Commissioner and no proceedings could, "therefore, be initiated or taken under Section 263 of the Act. This was negatived both by the Commissioner of Income-tax as also by the Tribunal. The reasoning of the Tribunal being that the order of assessment of the Income-tax Officer merges in the order of the Appellate Assistant Commissioner, only in so far as it relates to items considered and decided by the Appellate Assistant Commissioner, but not in so far as it relates to items not forming the subject-matter of the appellate order which is left untouched by it.

4. The question now referred for the opinion of this court reads :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the setting aside of the assessment made by the Income-tax Officer, by the Commissioner of Income-tax, in exercise of the powers vested in him under Section 263 of the Income-tax Act, 1961?"

5. It will be seen that the matter in issue here pertains to the doctrine of merger. In dealing with this doctrine, the Supreme Court in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144, 149 ; AIR 1967 SC 681, 683, observed as under :

"The doctrine of merger is not a doctrine of rigid and universal application, and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute."

6. Next to note is CIT v. Amritlal Bhogilal and Co. [1958] 34 ITR 130 (SC), where the question posed was, "where the appeal preferred by an assessee against his assessment has been decided by the Appellate Assistant Commissioner, does the order of registration along with subsequent order of assessment merge in the appellate order?" It was held by the Supreme Court that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority would be the operative decision of law. The position would be just the same even if the appellate decision confirms the decision of the Tribunal.

7. Both these decisions of the Supreme Court in Madurai Mills Co. Ltd.s case [1967] 19 STC 144 ; AI