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PETITIONER: COMMISSIONER OF INCOME TAX, KANPUR

       Vs.

RESPONDENT: M/S. J.K. COMMERCIAL CORPORATION LTD. ETC.

DATE OF JUDGMENT03/09/1976

BENCH: UNTWALIA, N.L. BENCH: UNTWALIA, N.L. KHANNA, HANS RAJ SINGH, JASWANT

CITATION:  1977 AIR  459            1977 SCR  (1) 512  1976 SCC  (4) 517

ACT:            Income  Tax Act (11 of 1922), ss. 23A and  35(1)--Whether         income  tax officer has power under s. 35(1) to  rectify  an         order passed under s. 23A.

HEADNOTE:            Section 23A, Income Tax Act,  1922, confers power on  the         Income Tax Officer to assess Companies to super-tax on their         undistributed income in certain cases.             In  the present case, subsequent to the passing  of  the         orders  of assessment, the Income Tax Officer passed  orders         under  s.  23A of the Income Tax Act, 1922, asking  the  re-         spondent-companies  to  pay certain  amounts  of  additional         super-tax on the undistributed profit.  Thereafter, under s.         35(1),   over-ruling the objections of the respondents  that         he had no power to rectify any mistake in an order under  s.         23A of the Act, he rectified some mistakes and increased the         amounts of additional super-tax payable by the  respondents.         The respondents revision applications were dismissed by  the         Commissioner, but the High Court quashed the orders, relying         on  M.M.  Parikh v. Navanagar Transport  &  Industries  Ltd.         [1967] 63 ITR 663 and Sankappa v.I.T.O. Bangalore, [1968] 68         ITR 760.         Allowing the appeal this Court,             HELD:   The  Income  Tax Officer  had  jurisdiction  and         competency  to  rectify under s. 35(1) any mistakes  in  his         previous orders under s. 23A.  The language of s. 35(1)  may         not be wide enough to confer power on the Income Tax Officer         to  amend any order passed by him under the Act, and he  may         not have the wide powers conferred on him under s. 154(1)(a)         of  the 1961-Act.  But it is not so narrow as to cover  only         the order of assessment or of refund in a very restricted or         limited sense; but is wide enough to cover some other orders         including an order under s. 23A.  [518 E-F]            (1) Section 35(1) provides inter alia that the Income Tax         Officer may, at any time within four years from the date  of         any  assessment order or refund order passed by him, on  his         own motion, rectify any mistake apparent  from the record of         assessment or refund as the case may be.  If such rectifica-         tion  has the effect of enhancing an assessment or  reducing         the refund, under the. first proviso, the assessee is  enti-

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       tled  to  notice and reasonable opportunity  to  show  cause         against such enhancement or reduction.  [515 G-H]             (2)  The word ’assessment’ is capable of bearing a  very         comprehensive meaning.  [515 B]             Commissioner of Income-tax v. Khemchand Ramdas [1938]  6         I.T.R. 414 applied.            C.A. Abraham v. Income-tax Officer, Kottayam and  another         [1961]  41 I.T.R. 425 at 429 and Kalawati Devi  Harlalka  v.         Commissioner Of Income-tax [1967] 66 I.T.R. 680 followed.             The  assessment  under s. 23 is the  assessment  of  the         total  income of the assessee, and the determination of  the         sum payable by the assessee including income tax, surcharge,         super tax etc.  Under s. 24, loss is computed and is allowed         to be set off against the income of the same year or carried         forward to the next year.  If one were to go upon the use of         the literal words, then s. 24 is only for computation of the         loss.   Yet, it is a step in the assessment  proceeding  and         will form part of the order of assessment itself.   Similar-         ly,  the  order under s. 23A may not be called an  order  of         assessment,  but it is a part of the  assessment  proceeding         and may be called a supplementary assessment order directing         a company to pay additional amount of supertax on the undis-         tributed balance of the total income as assessed and  deter-         mined in accordance with the provisions of s. 23.  [515 C-D;         F]         513             (3)  Under  s.  35, the Commissioner  in  revision,  the         Appellate Assistant Commissioner and the Tribunal in appeal,         can  rectify a mistake in the record of revision  or  appeal         taken  from  orders under s. 23, s. 24 and s.  23A,  because         such  orders are appealable orders under s.  30.   Therefore         under  the  same section, the Income Tax  Officer  can  also         rectify any  mistake  apparent  from the record  assessment,         which  expression is wide enough not only to cover an  order         of  assessment made under s. 23 but also an order  computing         loss under s. 24 and an order made under s. 23A directing an         assessee-company  to  pay additional super-tax.  [516 D-E]             (4) Further, the first proviso to s. 35(1) and s.  35(3)         shows  that rectification of apparent mistakes in  an  order         computing  loss or an order under s. 23A is permissible  and         may have the effect of enhancing the assessment or  reducing         it.  [516 F]             (5) Also under s. 35(7), on the modification of an order         under  s. 23A in relation to the assessment of a company  in         appeal or revision, power is given to the Income Tax Officer         to make rectification in the computation of the total income         of the shareholders as if it is a mistake apparent from  the         record within the meaning of s. 35 making the provisions  of         sub-s. (1) applicable to such case.  [516 H]             (6) In Parikh’s case it was held that an order under  s.         23A was outside the purview of limitation provided in s.  34         of  the  Act; but the ratio  of  Parikh’s  case  is  neither         applicable  nor should be extended to cover  the  expression         ’Assessment  Order’ occurring in s. 35(1).  The  High  Court         has misunderstood Sankappa’s case.  According to that  deci-         sion, what the Income-tax Officer does in a proceeding under         s.  35(1)  is  to correct errors in  assessment  or  rectify         orders  of assessment made by him, and that either  of  such         orders is a part of the proceedings for assessment.  [517 D;         518 A-B]

JUDGMENT:             CIVIL   APPELLATE  JURISDICTION.:  Civil  Appeal    Nos.

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       15801583/71.             From the Judgment and Order dated 11-3-69 of the Allaha-         bad High Court in Civil Mic. Writ Nos. 3251, 3252, 3253  and         3254/ 68.             S.C.  Manchanda, J. Ramamurthy and S.P. Nayar,  for  the         Appellants.             S.V.  Gupte  and Rameshwar Nath, for the  Respondent  in         C.A. 1580/71.         Rameshwar Nath, for the Respondents in C. As. 1581-1583/71.         The Judgment of the Court was delivered by             UNTWALIA, J.--These four appeals by certificate are from         a common judgment of the Allahabad High Court allowing  four         writ petitions filed by the two respondent companies  namely         J.K.  Commercial Corporation Ltd. and J.K.  Synthetics  Ltd.         In  respect  of  the assessment years  1955-56  and  1956-57         assessment  orders  were passed by the  Income-tax  Officer,         Kanpur   under  section  23(3)  of   the  Income  Tax   Act,         1922--hereinafter referred to as the Act.  Subsequent to the         passing  of  the said orders of  assessment  the  Income-tax         Officer passed four orders in respect of the two  assessment         years against the two companies under section 23A of the Act         on  January  21, 1957 asking the companies  to  pay  certain         amounts of additional super-tax on the undistributed  profit         of the concerned years. In         514         November, 1959 the Income-tax Officer issued a notice  under         section  35(1) of the Act for rectification of  the  mistake         committed in  the previous orders passed under  section  23A         on  21.1.1957.   the assessee companies in response  to  the         notices  objected to the proposed rectification by  the  In-         come-tax  Officer, inter alia, on the ground that he had  no         power  to rectify any mistake in an order under section  23A         of the Act.  The Income-tax Officer over-ruled the objection         raised  by  the  companies, rectified the  mistakes  in  his         previous  orders  and increased the  amounts  of  additional         super-tax payable by  the  companies in relation to the  two         assessment years.  The companies revision applications filed         before the Commissioner of Income Tax, U.P. were  dismissed.         Thereupon,  four  writ applications were filed in  the  High         Court  to  challenge  the orders passed  by  the  Income-tax         Officer  under section 35(1) of the Act as affirmed  by  the         Commissioner  of  Income Tax in revisions.  A Bench  of  the         High Court feeling compelled to follow the decisions of this         Court in M.M. Parikh, IncomeTax Officer, Special  Investiga-         tion  Circle  "B", Ahmedabad  v.   Navanagar  Transport  and         Industries Ltd. and another(1) and in S. Sankappa and others         v.  Income-tax Officer, Central Circle 11, Bangalore(2)  has         allowed  the  writ  applications and  quashed  the  impugned         orders  passed  by the Commissioner of  Income-tax  and  the         Incometax-Officer.   The decision of the High Court  is  re-         ported  in  J. K. Commercial Corporation Ltd. v.  Income-tax         Officer,  District  1, (i), Kanpur  and  another(3).   Hence         these appeals by the Revenue.             In our judgment the High Court was not right in applying         the  ratio  of the two decisions of this Court  referred  to         above to  the facts of these cases.  We shall presently show         that the Income-tax Officer had jurisdiction and  competency         to  rectify the mistakes under section 35 (1) of the Act  in         his previous orders passed under section 23A.             Chapter  IV of the Act is entitled "Deductions  and  As-         sessment". In this chapter occurs various sections  relating         to  assessments  of income, determination of tax  or  super-         tax,  tax  payable on it, payment of  additional  super-tax,         computation of loss, provisions for appeal and revision  and         provisions  for rectification of mistakes   either by    the

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       Income-tax  Officer  or by the Appellate or  the  Revisional         authorities.  In one of the earliest decisions of the  Privy         Council in Commissioner Income-tax v. Khemchand Ramdas(4) at         page 416 it was said:               "One  of the peculiarities of most Income-tax Acts  is         that the word ’assessment’ is used as meaning sometimes  the         computation of income, sometimes the determination  of   the         amount of tax payable and sometimes the whole procedure laid         down  in the Act for imposing liability upon  the  taxpayer.         The   Indian  Income-tax  Act  is  no  exception   in   this         respect  ..........  "         (1)  [1967] 63 I.T.R. 663.       (2) [1968] 68  I.T.R.  760.         (3) [1969] 73 I.T.R. 464.        (4) [1938] 6 I.T.R. 414.         515         The  above dictum of the Privy Council was quoted  with  ap-         proval  by this Court in C.A. Abraham  v.  Income-tax  Offi-         cer,  Kottayam and another(1).  In Sankappa’s  case  (supra)         the  same  Bench  which had decided the  Parikh’s  case  and         delivered-the  judgment  through Shah, J. as  he  then  was,         speaking  through  Bhargava,  J.  followed  Abraham’s   case         (supra)  and  the decision of this Court  in  Kalawati  Devi         Harlalka  v.  Commissioner of Income-tax(") wherein  it  has         been stated that the word "assessment" is capable of bearing         a very comprehensive meaning; in the context it can  compre-         hend  the  whole  procedure for  ascertaining  and  imposing         liability  on the tax payer.  It is to  be noticed that  the         marginal note of section 23 is "Assessment"  and sub-section         (3)  says  "the Income-tax Officer  ........  shall,  by  an         order in writing, assess the total income of the  assessee"’         and   then  adds "determine the sum payable by  him  on  the         basis  of such assessment."  Literally speaking,  therefore,         the  assessment is of the total income of the  assessee  and         then  in the same order the sam payable by the  assessee  is         determined   which  would  include  income-tax,   surcharge,         super-tax etc.  Under section 24 of the Act, loss is comput-         ed  and is allowed to be set off against the income  of  the         same year  or carried forward to the next year.  If one were         to go upon the use of the literal words, then section 24  is         for  computation of the loss.  Yet it is a step in  the  as-         sessment  proceeding  and  will form part of  the  order  of         assessment  itself. Section 23A as the marginal  note  indi-         cates  is  the "Power to assess Companies  to  super-tax  on         undistributed income in certain cases".  The relevant  words         of sub-section (1)  of section 23A are the following: "Where         the Income-tax Officer  is satisfied  ........  the  Income-         tax  Officer shall unless he is satisfied. make an order  in         writing  that the company shall, apart from the  sum  deter-         mined as payable by it on the basis of the assessment  under         section 23, be liable to pay super-tax" at the rates  speci-         fied  "on  the undistributed balance of the total income  of         the  previous  year  ......  " It would thus  be  seen  that         although  in a narrow sense an order under section  23A  may         not be called an order of assessment, surely it is a part of         the assessment proceeding and may be called a  supplementary         assessment  order  directing  a company  to  pay  additional         amount   of  super-tax on the undistributed balance  of  the         total  income as assessed and determined in accordance  with         the provisions of section 23.         We shall now read section 35(1):                         "The  Commissioner  or  Appellate  Assistant                  Commissioner  may,  at any time within  four  years                  from the date of any order passed by him in  appeal                  or,  in the case of the Commissioner,  in  revision                  under section 33A and the Incometax Officer may, at                  any  time  within four years from the date  of  any

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                assessment  order or refund order passed by him  on                  his  own motion rectify any mistake  apparent  from                  the  record of the appeal, revision, assessment  or                  refund  as  the case may be, and shall  within  the                  like period rectify any such mistake which has been                  brought to his notice by  an assessee:                  (1) [1961] 41 I.T.R. 425. at 429.                  (2) (1967) 66 I.T.R. 680.                  516                        Provided that no such rectification shall  be                  made, having the effect of enhancing an  assessment                  or  reducing a refund unless the Commissioner,  the                  Appellate Assistant Commissioner or the  Income-tax                  Officer,  as the case  may be, has given notice  to                  the  assessee  of his intention so to  do  and  has                  allowed him a reasonable opportunity of being heard                  :"         The Commissioner or the Appellate Assistant Commissioner can         rectify  any mistake apparent from the record of the  appeal         or revision. In the like manner, as provided in  sub-section         (2),   the  Appellate Tribunal has been given the  power  of         rectification  of mistakes apparent from the record  of  the         appeal.  The marginal note of section 30 is "Appeal  against         assessment under this Act".  Various types  of orders passed         under  the  various sections in Chapter IV of the  Act  have         been  enumerated as being appealable orders.  The  list  in-         cludes an order by which the amount of loss may be  computed         under  section 24 or the amount of tax has  been  determined         under section 23 and an order made by the Income-tax Officer         under  sub-section  (1) of section 23A.  It  is,  therefore,         plain  that  the  Commissioner in  revision,  the  Appellate         Assistant Commissioner and the Tribunal in appeal can recti-         fy a mistake in the record of the revision or the appeal, as         the  case may be, taken from the order of  assessment  under         section   23, the order computing loss under section 24,  or         an  order made under section 23A by the Income-tax  Officer.         Viewed in that light it follows as a matter of  construction         that the Income-tax Officer can rectify any mistake apparent         from  the  record  of assessment which  expression  is  wide         enough  not only to cover an order of assessment made  under         section 23 but also an order computing loss under section 24         and  an order made under section 23A directing the  assessee         company to pay additional super-tax.  It is neither  advisa-         ble nor necessary in  these appeals to give a complete  list         of  the types of orders, apparent mistakes in which  can  be         rectified  by the Income-tax Officer under section 35(1)  of         the  Act.   Obviously the first proviso to  sub-section  (1)         of section 35 and sub-section (3)  lends support to the view         that rectification of apparent mistakes in an order  comput-         ing  loss or an order under section 23A is  permissible  and         may have the effect  of enhancing the assessment or reducing         it.  The provisions of sub-section (7) of section 35 of  the         Act  also give an indication that the opinion which we  have         recorded  above as to the power of the Incometax Officer  to         rectify  a  mistake in an order made under  section  23A  is         correct.   By  a  deeming provision  sub-section  (5)  gives         powers  to  the Income-tax Officer  to  make   consequential         correction  in  the assessment of a partner of firm  on  the         modification  of the assessment of the income of  the  firm.         Similarly  by a deeming provision engrafted  in  sub-section         (7)  on  the modification of an order under section  23A  in         relation  to the assessment of a company in appeal or  revi-         sion, power has been given to the Income-tax Officer to make         rectification in the computation of the total income of  the         shareholders as if it is a mistake apparent from the  record

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       within  the meaning of section 35 making the  provisions  of         sub-section, (1) applicable to such a case.         517             Some  difficulty  is presented, as  we  shall  presently         show, in view of Parikh’s ease (supra) from the provision of         time  limit  of 4 years provided in section  35(1)  for  the         exercise  of  the  power by the incometax  Officer  for  the         rectification  of the mistakes apparent from the  record  of         assessment; the starting point of the period being "date  of         any assessment order".  In Parikh’s case this Court was con-         cerned  with the interpretation of the expression "order  of         assessment",  occurring in sub-section (3) of section 34  of         the Act.  In that connection, Shah, J as he then was, deliv-         ering  the  judgment on behalf of a Division Bench  of  this         Court said at page 670 of 63 I.T.R.:                      "In each of these cases there is computation of                  income, determination of tax payable and  procedure                  is  prescribed  for  imposing  liability  upon  the                  taxpayer.   But still these are not orders  of  as-                  sessment  within  the meaning of  section  23.  The                  salient  feature of these and other orders is  that                  the liability to pay tax arises not from the charge                  created   by  statute  but from the  order  of  the                  Income-tax Officer."          On the above principle an order under section 23A was  held         to be outside the purview of limitation provided in  section         34  of the Act as in the opinion of the Court it was not  an         order of assessment. Doubt about the correctness of the view         taken in the above case has been expressed during the course         of  hearing.   We  need not say anything about  that  as  we         constitute a Bench of equal strength.  But we are clear  and         definite  in our mind that the ratio of Parikh’s   case   is         neither  applicable  nor  should be extended  to  cover  the         expression "Assessment Order" occurring in section 35(1)  of         the Act.   In the context the said expression would  include         an  order  made under section 23A also, as,  such  an  order         undoubtedly  forms  part of the record of  assessment.   Mr.         Gupte,  learned  counsel for the respondents  in  his  usual         fairness conceded, and rightly, that the power of rectifica-         tion  of mistake conferred on the Income-tax  Officer  under         section 35(1) of the Act cannot be confined within the  very         narrow limit of an order of assessment made under section 23         only.   Counsel  submitted that it does embrace  some  other         kinds of order relating  to assessment. Having conceded   so         far  Mr.  Gupte  endeavoured  in vain to take an order  made         under  section  23A of the Act outside the  purview  of  the         power  of the income-tax Officer for rectification  of  mis-         takes.             In  Sankappa’s  case, as we have said  above,  the  same         Bench  which  decided Parikh’s case, after  stating  on  the         basis of certain  earlier authorities that the word ’assess-         ment’  under certain circumstances in a given context has  a         more  comprehensive meaning finally said at page 764  of  68         I.T.R. thus:                        "It is clear that, when proceedings are taken                  for rectification of assessment to tax either under                  section 35(1) or section 35(5) of the Act of  1922,                  those  proceedings must be held to  be  proceedings                  for  assessment.  In proceeding under those  provi-                  sions,  what  the  Income-tax Officer  does  is  to                  correct errors in, or rectify orders of  assessment                  made by him, and orders making such corrections  or                  rectifications are, therefore, clearly part of  the                  proceedings for assessment."         518

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       The  High Court in the judgment under appeal  has  extracted         the above passage from Sankappa’s case but allowed itself to         be  misled by it. Correctly appreciated, the  passage  means         that what the Income-tax Officer does in a proceeding  under         section  35(1)  is  to  correct  errors  in  assessment   or         rectify-orders  of assessment made by him.  Either  of  such         orders  is a part of the proceeding of assessment.   In  our         considered opinion correcting an apparent error in an  order         made under section 23A of the Act is rectifying a mistake in         the record of assessment and clearly falls within the  ambit         of  the  power conferred upon the Income-tax  Officer  under         section 35(1) of the Act.             Although in the appeals before us we are concerned  with         the  Income-tax  Act of 1922 only, in passing  we  may  make         reference to the corresponding provisions in the Income  Tax         Act of 1961. Corresponding to section 23A of the 1922 Act is         section  104 in the 1961 Act.  Section 154(1) of the  latter         Act corresponds to section 35(1) of the former Act.   Clause         (a) of section 154(1) says:               "With  a view to rectifying any mistake apparent  from         the record--                      (a) the Income-tax Officer may amend any  order                  of  assessment  or  of refund or  any  other  order                  passed by him;"         The  provision so made is very precise and  definite  giving         power  to  the Income-tax Officer to amend any  other  order         passed by him apart from the order of assessment or  refund.         The  language of section 35(1) of the 1922 Act, perhaps,  is         not  wide enough conferring power on the Income-tax  Officer         to am.end any order passed by him under the Act and may  not         be  at par with the wide powers conferred on him under  sec-         tion 154(1)(a)’of the 1961 Act.  Yet it is not too narrow to         cover  only the order of assessment or of refund in  a  very         restricted  or  limited sense.  It is wide  enough  to  take         within  its sweep some other orders made under the  Act  in-         cluding an order under section 23A.             For the reasons stated above, we allow these appeals and         set  aside  the judgment and order of the High  Court.   The         writ petitions filed by the respondents are dismissed.  Each         of the two respondent companies must pay one set of costs in         this Court in its respective appeals.         V.P.S.                                     Appeals allowed.         519