K.K. Desai, J.
1. In this petition under article 226 or the Constitution, the petitioner company, which is a private limited company, has challenged the legality of the orders dated August 27, 1965, and September 23, 1965, made by the Income-tax Officer under section 35 of the Income-tax Act, 1922, whereby he rectified in respect of the assessment years 1960-61 and 1961-62 two previous orders made under section 23A of the Act on June 26, 1963.
2. The only and main contention made on behalf of the petitioner-company to challenge the legality of the orders is that, having regard to the facts involved and the record before him, the Income-tax Officer had no authority, power and jurisdiction under section 35 of the Act to rectify the previous orders made under section 23A. In connection with this contention the facts which require to be noticed are as follows :
3. The assessment of income-tax of the petitioner-company in respect of the assessment years 1960-61 and 1961-62 was completed respectively on November 23, 1960, and December 11, 1961. The distributable balance left in the hands of the petitioner-company for these two respective years was respectively Rs. 49,113 and Rs. 53,438. Having regard to the failure of the petitioner-company to distribute the above distributable balance byway of dividend amongst shareholders, the Income-tax Officer decided that action was liable to be taken against the petitioner-company under section 23A of the Act. He, therefore, served two different show-cause notices dated November 7, 1962, for each of these two years and after the petitioner-company had shown cause, he by his two separate orders, both dated July 23, 1963, made under section 23A of the Act, held that having regard to the above failure the petitioner-company was liable to pay super-tax, in respect of the above undistributed balances, of 37% of the undistributed balance and directed recovery thereof from the petitioner-company. He recorded that the orders were made with previous approval of the Inspecting Assistant Commissioner.
4. Section 23A provided for charging super-tax at two respective rates of 37% and 50 in the following manner :
'.... be liable to pay super-tax at the rate of fifty per cent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirty-seven per cent. in the case of any other company...'
5. Apparently by the above two orders made for the above respective years super-tax at the rate of 37% was directed to be charged and recovered on the footing of a finding that the petitioner-company was not a company whose business consisted wholly or mainly in the dealing in or holding of investments.
6. Relevant part of section 35, under which the above impugned orders dated August 27 and September 23, 1965, were passed by the Income-tax Officer, runs as follows :
'... 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... assessment or refund... and shall within the like period rectify any such mistake which has been brought to his notice by an assessee...'
7. For the purpose of taking action against the petitioner-company under the above section the Income-tax Officer served the petitioner-company with two separate undated notices for the above assessment years. In the notices he stated that the assessment orders previously made under section 23A of the Act required to be amended as there was 'a mistake apparent from the record'. He mentioned the details of the mistake in the portion below the main part of the notice in the following words :
'Being an investment company the super-tax should have been charged at the rate of 50% instead of 37%. This is a mistake apparent from the record and sought to be rectified under section 154.'
8. By a letter dated July 21, 1965, the petitioner-company pointed out certain relevant facts and denied its liability to be reassessed in the manner suggested in the above notices to show cause. By the two impugned orders respectively dated August 27, 1965, and September 23, 1965, for each of the above respective assessment years, the Income-tax Officer rejected the contentions made by the petitioner-company and passed the rectification orders. In the first order he recorded the following reasons :
'... for the assessment year 1960-61 the investment of the company in shares, house property, loans and advances and call deposits amounted to Rs. 14,69,050. These investments were more than 50% of the total assets of the company. It is, therefore, apparent that the company is an investment company.'
9. In the second order the reason he recorded was :
'For the assessment year 1961-62, the investment of the company in shares, house property, loans and advances and call deposits amounted to Rs. 15,73,007. These investments were more than 50% of the total assets of the company. It is, therefore, apparent that the company is an investment company.'
10. On the basis of the above findings, he rectified the previous order sand directed that the petitioner-company was liable to pay super-tax at the rate of 50% and not at the rate of 37%. The attempt of the petitioner-company to have the above impugned orders set aside in appeals before the Appellate Assistant Commissioner and, thereafter, before the Income-tax Tribunal did not succeed because these authorities held that the orders made were not appealable.
11. As already recorded the main contention of the petitioner-company in challenging the legality and validity of the above orders is that having regard to the facts on the record and necessarily after applying his mind to all the relevant facts, originally the Income-tax Officer, A. N. Gupta, had by the two original orders each dated July 23, 1963, made under section 23A(1) of the Act decided that super-tax at the rate of 37% was chargeable to the petitioner-company. This finding must be held to have been based directly on a finding of the Income-tax Officer that the petitioner-company was not liable to pay super-tax at the rate of 50% because it did not carry on any business which consisted wholly or mainly in the dealing in or holding of investments. Unless he had arrived at such a finding, he could not have held that the petitioner-company was liable to pay super-tax at the rate of 37% on the basis that it fell in the class of 'any other company' mentioned in section 23A of the Act. This finding was a finding of law and or inference of law on the facts on record. An incorrect and/or a wrong finding of law made by one officer at an earlier date could not be a valid basis for exercising jurisdiction and power of rectification under section 35 of the Act. In that connection it was emphasised that the Income-tax Officer who purported to exercise jurisdiction and power under section 35 was Y. D. Borwankar, and not the same officer, A. N. Gupta, who made the original orders under section 23A(1) of the Act.
12. It was argued, with great emphasis, that the true effect of the phrase 'any mistake apparent from the record' as contained in section 35 was questions of law involved did not constitute 'a mistake' enabling exercise of jurisdiction under section 35.
13. connection with this contention it requires to be noticed that the real question which arises on the contention made on behalf of the petitioner-company in the matter of the action to be taken under section 35 was that the petitioner-company's assets which constituted of loans and advances and call deposits could in law never be held to be 'holding of investment' as was necessary for the imposition of super-tax at the rate of 50% under section 23A. This question must be held to have arisen for decision when the original orders were made under section 23A. The decision made for imposition of super-tax related to the question of law, namely, that the loans, advances and call deposits made by the petitioner-company could not be held to be a business 'in the dealing in or holding of investments'. It is apparent to me that in purporting to exercise powers under section 35 and making impugned rectification orders directing recovery of super-tax at the rate of 50% instead of the previously decided rate of 37%, the Income-tax Officer, Y. D. Borwankar, acted as if he had appellate jurisdiction. He made the impugned orders by changing the findings of law made in the original orders under section 23A. In other words, he negatived the findings that the loans, advances and call deposits made by the petitioner-company were not evidence of any business of 'dealing in or holding of investments.' The mistake of law, if any, in making first orders imposing super-tax at the rate of 37% was not liable to be corrected under section 35 of the Act. The above finding is supported by the following observations of the Supreme Court in the case of T. S. Balaram, Income-tax Officer, Company Circle IV, Bombay v. Volkart Brothers :
'Therefore, the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the Income-tax Act. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions... A decision on a debatable point of law is not a mistake apparent from the record-see Sidhramappa Andannappa Manvi v. Commissioner of Income-tax.'
14. The position of law as enunciated in the above decision has not been disputed on behalf of the respondents.
15. Having regard to the above discussion, it must be held that the two impugned orders of rectification dated August 27, 1965, and September 23, 1969, made under section 35 of the Act were made in this case with out any justification and in matters in which the Income-tax Officer had no jurisdiction under section 35. The orders are liable to be set aside. The two orders are accordingly quashed and set aside. Rule made absolute as above. Respondents to pay costs.