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PETITIONER: THE INCOME-TAX OFFICER, ALWAYE

       Vs.

RESPONDENT: THE ASOK TEXTILES LTD., ALWAYE

DATE OF JUDGMENT: 13/12/1960

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1961 AIR  699            1961 SCR  (3) 236  CITATOR INFO :  E&D        1987 SC 575  (5)

ACT: Income-tax--Rectification, scope of--If can be equated  with review under the Code--Advance Payment of tax-Penal interest due to additional tax on rectification, if could be imposed- Code  of  Civil Procedure (V of 1908), O.  47,  r.  1-Indian Income-tax Act, 1922 (11 of 1922), ss. 18A (8), 35.

HEADNOTE: After  the respondents net assessable income for  the  years ,952-53   was  determined,  it  declared   dividends   which attracted  provisions of the Finance Act, 1952,  and  became liable to the 237 payment of additional income-tax, which fact was  overlooked by the Income-tax Officer, who, after giving notice under s. 35 of the Income-tax Act, rectified the error and imposed an additional  tax  at the rate of one anna in the  rupee.   He later  discovered that this was also erroneous and the  rate should  have  been five anmas in a rupee and  rectified  the error;  by  the  same order the  omission  to  impose  penal interest  under s. 18A(8) was rectified and  penal  interest was  imposed.  The respondent’s case before the  High  Court was  that  s. 35.of the Act did not apply and  that  on  the merits  the additional tax could not be imposed.   The  High Court held that the necessary foundation for the exercise of the  powers under S. 35 bad not been laid and therefore  the Income-tax  Officer had no jurisdiction to make  the  order; and also that the penal interest under s. 18A(8) of the  Act for  failure  to  make  advance  deposit  was  also  without jurisdiction. Held,  that  the language and scope of S. 35 of  the  Indian Income-tax  Act, 1922, could not be equated with that of  O. 47,  r.  1 of the Code of Civil Procedure.   The  Income-tax Officer could under S. 35 of the Act examine the record  and if he discovered that a mistake had been made, could rectify the  error both of law and fact.  The restrictive  operation of the powers of review under 0. 47, r. of the Code of Civil Procedure  was  not applicable in the case of s. 35  of  the Income-tax Act.

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Held,  further, that the s. 18A(8) was a mandatory  one  and the  Income-tax  Officer  was  required  to  calculate   the interest in the manner provided under the provisions of that sub-section and had to add it to the assessment. Maharana  Mills (P.) Ltd. v. Income-tax Officer,  [1959]  36 I.T.R. 350 and M. K. Venkatachalam v. Bombay Dyeing &  Manu- facturing Co. Ltd., [1958] 34 I.T.R. 143, discussed. Commissioner of Income-tax v. Elphinstone Spinning & Weaving Mills Co. Ltd. [1960] 40 I.T.R. 142, Commissioner of Income- tax, Bombay City v. Jalgaon Electric Supply Co. Ltd., [1960] 40 I.T.R. 184 and Commissioner of Income-tax, Bombay City v. Khatau Makanji Spng. & Weavg to.  Ltd., [1960] 40 I.T.R. 189 not applicable.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 311 of 1959. Appeal  from the judgment and order dated October 31,  1955, of the Travancore Cochin High Court, Ernakulam, in  Original Petition No. 75 of 1955. A. N. Kripal and D. Gupta, for the appellant. Sardar Bahadur, for the respondent. 1960.  December 13.  The Judgment of the Court was delivered by 238 KAPUR, J.-This is an appeal pursuant to a certificate of the High Court of Kerala against the judgment and order of  that court and the question for decision is the applicability  of s.  35 of the Indian    Income-tax Act  (hereinafter  termed the ’Act’). The facts which have given rise to the appeal are these: The respondent is a limited company which owns a spinning  mills at Alwaye.  It commenced business in January, 1951, and  its first  accounting year ended on December 31, 1951,  and  the relevant  assessment year is 1952-53.  It filed  its  return showing  an income Rs. 3,21,284 without taking into  account the  amount allowable under s. 15C of the Act.  On  February 2,  1953,  the net assessable income of the  respondent  was determined  at  Rs. 1,47,083 after  deducting  Rs.  1,79,081 under s. 15C.  The respondent however declared a dividend of Rs. 4,72,415 which attracted the application of s. 2 of  the Finance  Act, 1952, read with Part B, proviso (ii) of  First Schedule  and  thus  it  became liable  to  the  payment  of additional  income tax and this fact was overlooked  by  the Income-tax Officer.  After giving notice under s. 35 of  the Act,  the Income-tax Officer by an order dated  January  25, 1954, rectified this error and imposed an additional tax  at the rate of one anna in the rupee.  He later discovered that this  was  also erroneous and the rate should  have  been  5 annas  in  a rupee.  By an order dated August 12,  1954,  he rectified  the error.  Under s. 18A, advance income tax  had to be paid and the respondent company had deposited only Rs. 5,000 and therefore became liable to penal interest under s. 18A(8)  of  the  Act.  By the same order  this  omission  to impose penal interest was’ corrected and this error was thus rectified. Against  this order the respondent company went in  revision under  s. 33A(2) to the Commissioner of Income-tax  but  the revision  was dismissed.  Thereupon the  respondent  company filed a petition in the High Court of Kerala under Art.  226 of the Constitution on the ground that s. 35 of the Act  did not apply and that on the merits additional tax could not be imposed. The High Court by its judgment dated October 31, 239

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1955 held that the orders made were without jurisdiction and therefore  granted a writ of certiorari quashing the  orders and the Income-tax Officer has brought this appeal  pursuant to a certificate of that High Court. According  to  the  High  Court, s. 35  of  the  Act  was  a provision  for  rectification of "mistakes apparent  on  the record"  and  in  the opinion of the High  Court  it  was  a mistake  analogous  to  O. 47, r. 1 of  the  Code  of  Civil Procedure  for grant of review on the ground of  mistake  or error apparent on the face of the record and it construed it in the following words:-               "i.e. an evident error which does not  require               any    extraneous   matter   to    show    its               incorrectness.   The error may be one of  fact               but  is  not limited to matters  of  fact  and               include also errors of law.  But the law  must               be  definite and capable of ascertainment.  An               erroneous view of law on a debatable point  or               a  wrong  exposition  of the law  or  a  wrong               application  of the law or a failure to  apply               the  appropriate  law cannot be  considered  a               mistake  or error apparent on the face of  the               record.   See Chitaley’s C.P.C. Col.  III  pp.               3549-50, 5th edition." On the ground that the applicability of proviso (ii) of Part B  of  the First Schedule of the Finance Act was  a  complex question which could not be said to be "apparent on the face of  the  record",  the High Court held  that  the  necessary foundation  for the exercise of the powers under s.  35  had not  been laid and therefore the Income-tax Officer  had  no jurisdiction to make the order that he did.  The High  Court also held that the levy of penal interest under s. 18A(8) of the Act for failure to make advance deposit under s.  18A(3) was also without jurisdiction. The  learned  Judges of the High Court seem to  have  fallen into an error in equating the language and scope of s. 35 of the Act with that of O. 47, r. 1, Civil Procedure Code.  The language of the two is different because according to s.  35 of the Act which provides for rectification of mistakes  the power is given to the various income-tax authorities  within four years from the date of any assessment passed by them to rectify 240 any  mistake  "apparent from the record" and  in  the  Civil Procedure Code the words are "an error apparent on the  face of  the record" and the two provisions do not mean the  same thing.   This  court in Maharana  Mills  (Private)  Ltd.  v. Income-tax Officer, Porbandar (1) has laid down the scope of s. 35 at p. 358 in the following words:-               "The  power  under  section  35  is  no  doubt               limited to rectification of mistakes which are               apparent   from   the   record.    A   mistake               contemplated by this section is not one  which               is to be discovered as a result of an argument               but  it is open to the Income-tax  Officer  to               examine the record including the evidence  and               if he discovers any mistake he is entitled  to               rectify the error provided that if the  result               is  enhancement of assessment or reducing  the               refund  then notice has to be  given  to  the               assessee and he should be allowed a reasonable               opportunity of being heard." In  that case the error arose because of an initial  mistake in determining the written down value which was subsequently rectified.  In an earlier case M. K. Venkatachalam v. Bombay

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Dyeing & Manufacturing Co.  Ltd. (2) where as a  consequence of  a subsequent amendment of the law  having  retrospective effect,  the  Income-tax  Officer  reduced  the  amount   of interest  under  s.  18A(5)  of the  Act  and  the  assessee obtained  from the High Court a writ of prohibition  against the  Income-tax  Officer  on the  ground  that  the  mistake contemplated had to be apparent on the face of the order and not  a mistake resulting from an amendment of the  law  even though it was retrospective in its effect, it was held  that it   was  a  case  of  error  apparent  from   the   record. Gajendragadkar, J. in his judgment said:-               "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." Thus this court has held that discovery of an error on (1) [1959] 36 I.T.R. 350. (2) [1958] 34 I.T.R. 143. 241 the  basis  of  assessment  due to  an  initial  mistake  in determining  the  written down value is a mistake  from  the record and so is a misapplication of the law even though the law  came  into operation retrospectively.   The  Income-tax Officer, can, under s. 35 of the Act, examine the record and if  he discovers that he has made a mistake he  can  rectify the  error  and the error which can be corrected may  be  an error  of fact or of law.  The restrictive operation of  the power  of review under 0. 47 R. 1, Civil Procedure  Code  is not  applicable in the case of s. 35 of the Act and  in  our opinion  it cannot be said that the order of the  Income-tax Officer  in  regard  to assessment in  dispute  was  without jurisdiction. In  regard  to  s.  18A (8) also  the  learned  Judges  have misdirected  themselves because that section  is  mandatory. It provides:-               S.    18A(8)  "Where,  on making  the  regular               assessment, the Income-tax Officer finds  that               no payment of tax has been made in  accordance               with the foregoing provisions of this section,               interest calculated in the manner laid down in               sub-section  (6) shall be added to the tax  as               determined   on  the  basis  of  the   regular               assessment." Therefore  the Income-tax Officer was required to  calculate the interest in the manner provided under the provisions  of that sub-section and had to add it to the assessment. Counsel  for the respondent sought to raise the question  as to  the  applicability of proviso (ii) of Part  B  of  First Schedule  of  the  Finance  Act 1952  and  relied  upon  the judgments  of  this Court in Commissioner of  Income-tax  v. Elphinstone  Spinning  &  Weaving Mills Co.   Ltd.  (1)  and similar cases reported as Commissioner of Income-tax, Bombay City   v.   Jalgaon  Electric  Supply   Co.    Ltd.(1)   and Commissioner  of Income-tax, Bombay City v.  Khatau  Makanji Spinning  and Weaving Co. Ltd. (3); but the facts  of  those cases were different.  In the first case there was no  total income and the (1) [1960] 40 I.T.R. 142.      (2) [1960] 40 I.T.R. 184. (3) [1960] 40 I.T.A. 189. 31 242 Finance Act was not applicable in that case.  In the  second there was no profit in any preceding year and therefore  the

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fiction  failed because it postulates that there  should  be undistributed  profits  of  one or  more  years  immediately preceding  the  previous year.  In the third case  also  the Finance Act was inapplicable because the additional tax  was not  properly  laid  upon  the total  income  and  what  was actually  taxed was never a part of the total income of  the previous year. In  our opinion the order of the High Court  was  erroneous. We  therefore allow this appeal and set aside  the  judgment and order of the High Court with costs in this court and  in the High Court.                                    Appeal allowed.                  __________________