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PETITIONER: M.  K. VENKATACHALAIVI, I. T. O. ANDANOTHER

       Vs.

RESPONDENT: BOMBAY DYEING AND MFG.  CO., LTD.

DATE OF JUDGMENT: 28/04/1958

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. AIYYAR, T.L. VENKATARAMA SARKAR, A.K.

CITATION:  1958 AIR  875            1959 SCR  703

ACT:        Income-tax-Rectification  of order of  assessment--Amendment        of  law with retrospective enforcement-Error resulting  from        such  enforcement, if an error apparent from  the  record-If        such error can be rectified Indian Income-tax Act, 1922  (XI        of 1922), ss. 18-A and 35-Indian Income-tax (Amendment) Act,        1953 (XXV Of 1953), ss. 1 and 13.

HEADNOTE: The Income-tax Officer, by his order dated October 9,  1952, assessed the respondent for the assessment year 1952-53  and gave him credit for Rs. 50,603-15-0 as representing interest on  tax paid in advance under s. 18-A(5) of  the  Income-tax Act.   On  May 24, 1953, the Indian  Income-tax  (Amendment) Act, 1953, came into force adding a proviso to s.18-A(5)  of the  Act  to the effect that the assessee  was  entitled  to interest not on the whole of the advance tax paid by him but only  on  the difference between the payment  made  and  the amount  assessed.  The Amendment Act provided that it  shall be  deemed  to have come into force on April 1,  1952.   The Income-tax Officer, acting under S. 35 of the Act, rectified the assessment order holding that the assessee was  entitled to a credit of only Rs. 21,157-6-0 by way of interest on tax paid  in advance as a result of the retrospective  operation of  the  amendment  in s. 18-A(5), and issued  a  notice  of demand against the assessee for the balance of Rs. 29,446-9- 0.   The  assessee  filed a petition in the  High  Court  of Bombay.  under  Art. 226 of the Constitution praying  for  a writ prohibiting the appellants from enforcing the rectified order and notice of demand.  The High Court issued the  writ holding that s.     35 was not applicable to the case as the mistake mentioned in S.  35  had to be apparent on the  face of  the order and the question could only be judged  in  the light of the law as it stood on the day when the order  was, passed: Held,   that  the  Income-tax  Officer  was   justified   in exercising  his  powers  under  s.  35  and  rectifying  the mistake.   As  a  result of, the  legal  fiction  about  the retrospective   operation   of  the   Amendment   Act,   the subsequently inserted proviso must be read as. forming  part of  s. 18-A(5) of the principal Act as from April  1,  1952,

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and  consequently the order of the income-tax Officer  dated October 9, 1952, was inconsistent with the provisions of the proviso,  and  suffered  from a mistake  apparent  from  the record. Commissioner of Income-tax, Bombay Presidency and Aden v. 704 Khemchand Ramdas, (1938) L.R. 65 I.A. 236 and Moka Venkatap- paiah  v. Additional Income-tax Officer,  Bapatla,  (1957)32 I.T.R. 274, referred to. The order passed by the Income-tax Officer under s. 18-A was not final in the literal sense of the word; it was and  con- tinued to be liable to be modified under s. 35.  It is  also not  correct to say that the retrospective operation of  the amended  s.18-A(5)  was  not intended  to  affect  concluded transactions.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No.122 of 1956. Appeal  from the judgment and order dated March 5, 1954,  of the   Bombay  High  Court  in  Appeal  from   its   Original Jurisdiction Misc.  Application No. 1 of 1954. H.   N. Sanyal, Addl.  Solicitor-General, G. N. Joshi and R. H. Dhebar, for the appellants. N.   A. Palkhivala, S. N. Andley, J. B. Dadachanji, P.   L. Vohra and Rameshwar Nath, for the respondent. 1958.  April 28.  The Judgment of the Court was delivered by GAJENDRAGADKAR  J.-This  is  an  appeal  by  the  Income-tax Officer,  Companies  Circle I (1), Bombay and the  Union  of India and it raises a short question about the  construction of  s. 35 of the Income-tax Act read with s. 1,  sub-s.  (2) and  s.  13 of the Indian Income-tax (Amendment)  Act,  1953 (XXV  of  1953).   It arises in this  way.   The  Income-tax Officer,  by his assessment order made on October  9,  1952, for  the assessment year 1952-53, assessed  the  respondent, the Bombay Dyeing and Manufacturing Co. Ltd., under the Act. In  the  said  assessment order the  respondent,  was  given credit for Rs. 50,603-15-0 as representing interest at 2% on tax  paid in advance under s. 18A of the Act.   This  credit was  given to the respondent in pursuance of the  provisions contained in s. 18A, sub-s. (5) of the Act as it then stood. On May 24, 1953, the Amendment Act came into force.  Section 1,  sub-s. (2) of the Amendment Act provides that "  subject to  any  special  provision  made  in  this  behalf  in  the Amendment Act, it shall be deemed to have come into 705 force  on  the first day of April, 1952 ". By s. 13  of  the Amendment Act, a proviso was added to s. 18A (5) of the Act. The  effect  of the amendment made by the insertion  of  the said  proviso  to  s. 18A (5) was  that  the.  assessee  was entitled  to  get  interest at 2% not on the  whole  of  the advance amount of tax paid by him as before but only on  the difference between the payment made and the amount at  which the   assessee  was  assessed  to  tax  under  the   regular assessment under s. 23 of the Act.  After the Amendment  Act was passed, the first appellant exercised his power under s. 35 of the Act and purported to rectify the mistake  apparent from the record in regard to the credit for Rs.  50,603-15-0 allowed  by him to the assessee.  The first  appellant  held that  the assessee was really entitled to a credit  of  only Rs. 21,157-6-0 by way of interest on tax paid in advance  as a  result  of the retrospective operation of  the  amendment made in s. 18A (5) by the Amendment Act.  In accordance with this  order  a notice of demand under s. 29 of the  Act  was

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issued against the assessee for the sum of Rs. 29,446-9-0 on the ground that the assessee had been given credit for  this excess amount through mistake.  Aggrieved by this notice  of demand, the respondent filed a petition in the High Court of Bombay   on  January  4,  1954,  under  Art.  226   of   the Constitution praying for a writ against the appellants inter alia  prohibiting  them from, enforcing the  said  rectified order  and the said notice of demand.  It appears that  this petition  was admitted by Tendolkar J. on January  6,  1954, and  a rule issued on it.  Thereafter the said petition  was referred  to  a  Division Bench by  the  Hon’ble  the  Chief Justice  for final disposal.  Accordingly on March 5,  1954, the petition was heard by Chagla C. J. and Tendolkar J.  and a  writ was issued against the appellants.  The  High  Court held  that s. 35 of the Act had no application to the  facts of  the  case because the mistake apparent from  the  record contemplated  by the said section is not a mistake which  is the  result  of  the amendment of the law  even  though  the amending  law may be retrospective in operation.   In  other words, in the opinion of the High Court, the 706 mistake mentioned by s. 35 had to be apparent on the face of the order and it can only be judged in the light of the  law as  it  stood on the day ,When the order  was  passed.   The appellants then applied for and obtained a certificate  from the  High  Court on October 8, 1954; on their behalf  it  is urged  ’-that the High Court of Bombay has erred in  law  in taking the view that the appellant No. I was not entitled to rectify  the  mistake in question under s. 35  of  the  Act. Thus  the  short  question which arises  before  us  in  the present  appeal  is whether an order which  was  proper  and valid  when  it was made can be said to disclose  a  mistake apparent  from  the  record  if  the  said  order  would  be erroneous  in  view of a subsequent amendment  made  by  the Amendment Act when the Amendment Act is intended to  operate retrospectively ? It  is unnecessary to refer to the provisions of s. 18A  (5) as   well  as  the  provision  of  the  proviso  which   was subsequently  added  by s. 13 of the Amendment Act.   It  is common  ground  that,  in the absence  of  the  subsequently inserted proviso, the assessee would be entitled to obtain a credit for Rs. 50,603-15-0.  It is also common ground  that, if the subsequently inserted proviso covered the  assessee’s case, he would be entitled to a credit only of Rs. 21,156-9- 0.   It is thus obvious that the order giving  the  relevant credit  to the assessee was valid when it was made and  that it would be erroneous under the subsequent amendment.  Under these  circumstances, was the first appellant  justified  in exercising his power of rectification under s.    35 of  the Act ? In deciding this question it would be necessary to determine the true legal effect of the retrospective operation of  the Amendment  Act.  Section 1, sub-s. (2) of the Amendment  Act expressly  provides that subject to the  special  provisions made  in the said Act it shall be deemed to have  come  into force  on the first day of April 1952.  The result  of  this provision is that the amendment made in the Act by s, 13  of the Amendment Act must, by legal fiction, be deemed to  have been included in the principal Act as from the first of 707 April,  1952,  and this inevitably means that, at  the  time when  the  Income-tax Officer passed his original  order  on October  9, 1952, allowing to the respondent credit for  Rs. 50,603-15-0, the proviso added by s. 13 of the Amendment Act must  be  deemed  to  have been inserted  in  the  Act.   As

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observed  by  Lord  Asquith  of  Bishopstone  in  East   End Dwellings Co. Ltd. v. Finsbury Borough Council (1), " if you are  bidden to treat an imaginary state of affairs as  real, you  must  surely,  unless prohibited from  doing  so,  also imagine as real the consequences and incidents which, if the putative  state  of  affairs  had  in  fact  existed,   must inevitably have flowed from or accompanied it.  One of those in  this case is emancipation from the 1939 level of  rents. The  statute says that you must imagine a certain  state  of affairs; it does not say that having done so, you must cause or  permit your imagination to boggle when it comes  to  the inevitable  corollaries  of that state of affairs  ".  Thus, there  can be no doubt that the effect of the  retrospective operation of the Amendment Act is that the proviso  inserted by the said section in s. 18A (5) of the Act would, for  all legal  purposes, have to be deemed to have been included  in the Act as from April 1, 1952. But  it is urged for the respondent that  the  retrospective operation  of  the  relevant provision is  not  intended  to affect  completed assessments.  It is conceded that, if  any assessment  proceedings in respect of the assessee’s  income for  a  period subsequent to the first of  April  1952  were pending  at the time when the Amendment Act was passed,  the proviso inserted by s. 13 would govern the decision in  such assessment  proceedings; but where an assessment  proceeding has  been completed and an assessment order has been  passed by  the  Income-tax  Officer against the  assessee,  such  a completed  assessment  would not be affected and  cannot  be reopened  under  s.  35  by  virtue  of  the   retrospective operation  of  the  Amendment  Act.   In  support  of   this contention,  reliance is placed on the observations  of  the Privy Council in Delhi Cloth and (1) [1952] A. C. 109, 132. 90 708 General Mills Co. Ltd. v. Income-tax Commissioner, Delhi and Anr. (1).  Lord Blanesburg who delivered the judgment of the Board  referred  to  the Board’s earlier   decision  in  the Colonial  Sugar Refining Company v. Irving (2) where it  was in  effect  laid down that, while provisions  of  a  statute dealing  merely  with matters of   procedure  may  properly, unless  that  construction be textually  inadmissible,  have retrospective  effect attributed to them,  provisions  which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of  express enactment  or necessary intendment.  The learned Judge  then added  that  "  Their  Lordships  have  no  doubt  that  the provisions which, if applied retrospectively, would  deprive of  their existing finality orders which, when that  statute came  into  force, were final, are  provisions  which  touch existing rights.  " The argument for the respondent is  that the assessee has obtained a right under the order passed  by the  Income-tax  Officer to claim credit for  the  specified amount  under s. 18A(5) and the said right cannot  be  taken away  by  the  retrospective  operation  of  s.  13  of  the Amendment Act.  The same argument is put in another form  by contending  that  the finality of the order  passed  by  the Incometax  Officer cannot be impaired by  the  retrospective operation  of the relevant provision.  In our opinion,  this argument does not really help the respondent’s case  because the  order passed by the Income-tax Officer under s.  18A(5) cannot be said to be final in the literal sense of the word. This  order  was and continued to be liable to  be  modified under  s.  35 of the Act.  What the Income-tax  Officer  has purported  to  do in the present case is not to  revise  his

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order in the light of the retrospective amendment made by s. 13  of  the Amendment Act alone, but to exercise  his  power under  s. 35 of the Act; and so the question which falls  to be  considered  in  the present appeal.  centres  round  the construction  of the expression "mistake apparent  from  the record " used in s. 35.  That is why we think the  principle of the finality of the orders or the sanctity of (1)[1927] L.R. 54 I.A. 421. (2)[1905] A.C. 369. 709 the  existing  rights cannot be effectively invoked  by  the respondent in the present case. The respondent then urged that the Amendment Act should  not be  given greater retrospective operation than its  language and its general scheme render necessary.  This convention is based  on the provisions of s. 3, sub-s. (2), s.  7,  sub-s. (2)  and s. 30, sub-s. (2) of the Amendment Act.  Where  the Amendment  Act  intended that its provisions  should  affect even  concluded  orders  of assessment it  is  expressly  so provided.   Since s. 13 does not specifically authorise  the reopening  of concluded assessments it should be  held  that its  retrospective operation is not intended to  cover  such concluded  assessments.  That in brief is the argument.   We are,   however,   not  satisfied  that  this   argument   is wellfounded.   Let us examine the three provisions  of,  the Amendment Act on which the argument rests.  Section 3,  sub- s.  (1)  of the Amendment Act makes  several  additions  and modifications in s. 4 of the principal Act.  Section 3, sub- s.  (2) then provides that, the amendments made  by  sub-cl. (3) of cl. (b) of sub-s. (1) shall be deemed to be operative in  relation  to all assessments for any year  whether  such assessments have or have not been concluded before the  com- mencement of the Amendment Act of 1953.  It would be noticed that  the main object of this sub-section is to  extend  the retrospective  operation of the relevant provisions  of  the Amendment Act beyond the first of April 1952 mentioned by s. 1,  sub-s. (2) of the Amendment Act.  Since it was  intended to  provide for such further retrospective operation of  the relevant  provision the legislature thought it advisable  to clarify  the  position  by saying  that  the  said  extended retrospective operation would cover all assessments  whether they  had been completed or not before the  commencement  of the Amendment Act.  Section 7, sub-s. (1) adds two  provisos to  s.  9 of the principal Act by cls. (a)  and  (b).   Sub- section (2) of s. 7 then lays down that the amendments  made in cl. (a) of sub-s. (1) shall be deemed to be operative for any  assessment for the year ending the 31st day  of  March, 1952, whether made before or after the commencement of  this Act and, where any such 710 assessment  has  been  made  before  such  commencement,  he Income-tax  Officer  concerned  shall  revise  it   whenever necessary  to give effect to this amendment.   The  position under   s.   30,  sub-s.  (2)  of  the  Amendment   Act   is substantially  similar.   By  sub-s.  (1)  of  this  section certain additions and amendments are made in the schedule to the principal Act by cls. (a), (b), (c) and (d). sub-s.  (2) then  provides  for  the  retrospective  operation  of   the amendment made by sub-s. (1) in terms similar to those  used in s. 7, sub-s. (2).  It is clear that the Provisions in ss. 7  and 30 are intended for the benefit of the assessees  and so  the legislature may have thought it necessary to  confer on  the  Income-tax Officer specific and  express  power  to revise  his  orders in respect of the  relevant  assessments wherever  necessary  to  give effect to  the  amendments  in

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question.   The  effect  of this provision  is  to  make  it obligatory  on he Income-tax Officer to revise his  original orders  in he light of the amendments and also to confer  on the  assessee right to claim such revision.  It may be  con- ceded that in respect of the other retrospective  provisions of  the  Amendment Act such a power to  revise  the  earlier orders  cannot  be claimed or exercised  by  the  Income-tax Officer.  In other words, a distinction can be drawn between there  two provisions of the Amendment Act and the  rest  in respect  of  the  power which  the  Income-tax  Officer  can purport to exercise to give effect to the amendments made by the  Amendment Act.  Whereas, in respect of  the  amendments made by s. 7 and s. 30 of the Amendment Act, the  Income-tax Officer can and must revise his earlier orders covered by s. 7,  sub-s.  (2)  and  s. 30, sub-s. (2),  such  a  power  of revision  has  not been conferred on him in  the  matter  of giving effect to the other amendments made in the  Amendment Act.   Even  so, we do not think it would be  legitimate  or reasonable  to  hold that the provisions of s. 7(2)  and  s. 30(2)   lead  to  the  infference  that  the   retrospective operation  of the other provisions of the Amendment  Act  is not  intended to affect concluded assessments in any  manner whatever.   In  this connection, it would  be  pertinent  to remember  that the power to revise which has been  conferred on 711 the  Income-tax  Officer  by s. 7(2) and  s.  30(2)  of  the Amendment  Act is distinct and independent of the  power  to rectify  mistakes which the Income-tax Officer can  exercise under s. 35 of the Act. It  is in the light of this position that the extent of  the Income-tax Officer’s power under s. 35 to rectify:  mistakes apparent  from the record must be determined; and  in  doing so,  the  scope  and  effect of  the  expression  "  mistake apparent  from the record " has to be ascertained.   At  the time  when  the Income-tax Officer applied his mind  to  the question of rectifying the alleged mistake, there can be  no doubt  that he had to read the principal Act  as  containing the inserted proviso as from April 1, 1952.  If that be  the true position then the order which he made giving credit  to the respondent for Rs. 50,603-15-0 is plainly and  obviously inconsistent  with  a specific and clear  provision  of  the statute and that must inevitably be treated as a mistake  of law apparent from the record.  If a mistake of fact apparent from  the  record of the assessment order can  be  rectified under s. 35, we see no reason why a mistake of law which  is glaring  and obvious cannot be similarly  rectified.   Prima facie it may appear somewhat strange that an order which was good  and  valid  when  it was made  should  be  treated  as patently  invalid and ’wrong by virtue of the  retrospective operation  of  the  Amendment Act.  But  such  a  result  is necessarily   involved  in  the  legal  fiction  about   the retrospective  operation  of the Amendment Act.   If,  as  a result  of  the said fiction we must read  the  subsequently inserted  proviso  as  forming  part of  s.  18A(5)  of  the principal  Act  as  from April 1, 1952,  the  conclusion  is inescapable that the order in question is inconsistent  with the  provisions  of the said proviso and must be  deemed  to suffer from a mistake apparent from the record.  That is why we  think that the Income-tax Officer was justified  in  the present  case  in  exercising  his power  under  s.  35  and rectifying  the said mistakes.  Incidentally we may  mention that in Moka Venkatappaiah v. Additional Income-Tax Officer, Bapatla  (1),  the High Court of Andhra has taken  the  same view.

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(1)(1957) 32 I. T. R. 274. 712 In  this  connection  it would be useful  to  refer  to  the decision  of  the  Privy  Council  in  the  Commissioner  of [Income-Tax, Bombay Presidency and Aden v. Khemchand  Ramdas (1).  In Khemchand’s case, the assessees were registered  as a firm and they were assessed under s. 23(4) on an income of Rs.  1,25,000 at the maximum rate.  Being a registered  firm no  super-tax was levied.  A notice of demand was also  made before March 1927.  On February 13, 1928, the  Commissioner, in  exercise of his powers under s. 33, cancelled the  order registering the assessee as a firm and directed the  Income- tax  Officer  to  take  necessary  action.   The  Income-tax Officer accordingly assessed the firm to super-tax on May 4, 1929.   The Privy Council held that the assessment  made  on January  17, 1927, was final both in respect of the  income- tax and super-tax.  The fresh action taken by the Income-tax Officer  on May 4, 1929, was out of time though it had  been taken in pursuance of the directions of the Commissioner and that the order of May 4, 1929, was one which the Income-tax- Officer  had  no power to make.  One of  the  points  raised before  the  Privy Council was whether, under  the  relevant circumstances  the Income-tax Officer had power to make  the impugned order in view of the provisions of ss. 34 and 35 of the Act.  The Privy Council dealt with this question on  the footing   that  the  Commissioner’s  order  cancelling   the registration  had been properly made.  On this  basis  their Lordships  thought  that  it  was  unnecessary  to  consider whether  the. case would attract the provisions of s.  34  " inasmuch  as  in Their Lordships’ opinion the  case  clearly would  have  fallen within the provisions of s. 35  had  the Income-tax  Officer exercised his powers under  the  section within  one year from the date on which the  earlier  demand was  served upon the respondents ". The judgment shows  that Their Lordships took the view that looking at the record  of the assessments made upon the respondents as it stood  after the  cancellation of the respondents’ registration  and  the order  effecting the cancellation would have formed part  of the record-it would be apparent that a mistake (1)(1938) L.R. 65 I.A. 236. 713 had  been  made in stating that no super-tax  was  leviable. This decision clearly shows that the subsequent cancellation of  the assessees’ registration was held by Their  Lordships of   the   Privy  Council  to  form  part  of   the   record retrospectively  in the light of the said subsequent  event, and  the order was deemed to suffer from a mistake  apparent from  the  record  so  as to justify  the  exercise  of  the rectification powers under s. 35 of the Act.  It is  because Their  Lordships thought that s. 35 would have been  clearly applicable  that  they  did not decide the  question  as  to whether  s. 34 could also have been invoked.  This  decision lends considerable support to the view which we are disposed to take about the true meaning and scope of the expression " the mistake apparent from the record " occurring in s. 35. We  must accordingly hold that the High Court of Bombay  was in error in coming to the conclusion that the notice  issued by the Income-tax Officer calling upon the respondent to pay 9the  sum of Rs. 29,446-9-0 was not warranted by  law.   The result is the order passed by the High Court issuing a  writ against the appellant is set aside and the appeal is allowed with costs throughout. Appeal allowed.

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