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Burmah-shell Refineries Ltd. Vs. G.B. Chand, Income-tax Officer, Co. Cir. Ii (1), Bombay and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberMiscellaneous Petition Nos. 70 to 73 of 1965
Judge
Reported in[1968]67ITR653(Bom)
ActsIncome Tax Act, 1961 - Sections 155; Income Tax Act, 1922 - Sections 15C
AppellantBurmah-shell Refineries Ltd.
RespondentG.B. Chand, Income-tax Officer, Co. Cir. Ii (1), Bombay and ors.
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
direct taxation - rectification of error - sections 10 (2) and 15c of income tax act, 1922, sections 154 and 155 of income tax act, 1961 and rules 3 (1) and 2 (5) of income tax rules - income tax officer passed an order under section 154 proposing to rectify mistake in capital computation for purpose of relief under section 15c - department informed assessee that there was arithmetical mistake committed through oversight and could be rectified under section 154 - such an error could not be corrected under section 154 - not open for authorities to make an error constituting 'an error apparent from record' by ignoring any relevant provision of law - section 10 (2) which had a vital bearing upon issue was ignored by authorities - held, such an error cannot be rectified under section 154. .....kotval, c.j.1. all these petitions were originally directed against the notices issued on the 18th january, 1965, with a view to correcting the errors apparent from the record under sections 154 and 155 of the income-tax act, 1961. the notices were issued by the 1st respondent but the proceedings were completed by the 4th respondent. the four petitions are related to the our assessment years 1957-58, 1958-59, 1959-60 and 1960-61 and they are, respectively, petitions nos. 73, 70, 71 and 72 of 1961. 2. the petitions were originally field as soon as the notices were served upon the petitioners and orders for stay were passed by this court. the stay orders were later modified by consent to permit the department to complete the rectification proceedings, as there was a risk of limitation.....
Judgment:

Kotval, C.J.

1. All these petitions were originally directed against the notices issued on the 18th January, 1965, with a view to correcting the errors apparent from the record under sections 154 and 155 of the Income-tax Act, 1961. The notices were issued by the 1st respondent but the proceedings were completed by the 4th respondent. The four petitions are related to the our assessment years 1957-58, 1958-59, 1959-60 and 1960-61 and they are, respectively, Petitions Nos. 73, 70, 71 and 72 of 1961.

2. The petitions were originally field as soon as the notices were served upon the petitioners and orders for stay were passed by this court. The stay orders were later modified by consent to permit the department to complete the rectification proceedings, as there was a risk of limitation expiring, but on the undertaking of the respondents that they would not take any steps in enforcement of their orders, rectifying the assessments. Consequent upon that modification of the stay orders, the department has passed four separate orders for the four years and after these orders were passed the petitioners were allowed to amend the petitions to challenge the said rectification orders also in addition to the notices which were originally challenged.

3. The brief facts upon which the notices came to be issued are as follows. The petitioners are engaged in the business of refining crude oil at Bombay For the four years mentioned, they were assessed to income-tax and the assessment proceedings included the relief granted to the company under the provisions of section 15C of the Indian Income-tax Act. Under that section, a special exemption from tax is granted to newly established industrial under takings, subject to stated conditions in respect of profits or gains derived from the capital employed in the undertakings. After the completion of these assessments, it appears that the department found that the computation of the figure of capital employed in the undertaking was erroneous according to them and that there was a mistake in the computation. Therefore, they issued the present notices on the 18th January, 1965. In the notices all that was mentioned was that the Income-tax Officer, companies Circle, Bombay, proposed to rectify a mistake in the capital computation for the purpose of relief under section 15C, but later on what the department proposed to do was further clarified. The 1st respondent informed the petitioners that in the capital computation the written down value of the assets, on which initial depreciation was allowed, was taken as per the income-tax records without deducting from such written down value the initial depreciation allowed on the assets and that that constituted 'an arithmetical mistake committed through oversight', which was apparent from the record and which should be rectified under section 154. It may be stated here that though the original notices were both under sections 154 and 155, it is now no longer in dispute that only section 154 could be invoked.

4. We may here mention that, in the orders for the years 1958-59, 1959-60 and 1960-61, another rectification was also made as regards the depreciation allowed in respect of an amount paid to the Government of the then State of Bombay in respect of housing for the company staff under a certain agreement with the State Government. The amendments made to the petition were directed also against that item which was added in computing the capital employed. At the hearing, however, Mr. Joshi on behalf of the department conceded that that item could not have been corrected and has agreed to restore the original order so far as that item is concerned. Therefore, we are only concerned in all the four years with the first item which was, as we have said, the computation of the capital employed in the undertaking under section 15C of the Indian Income-tax Act. The dispute as to this item is whether the initial depreciation, which was taken into account in making the original assessments in allowing the relief under section 15C, should not have been taken into account. The rectification order has recomputed the written down value of the capital employed in the undertaking after deducting the initial depreciation in each year. To take a concrete instance, for the assessment year 1957-58 in which the main order in these cases has been passed the amount of initial depreciation of Rs. 61,90,385, which was taken into account in arriving at the written down value, has now been ordered to be deducted. The figure of capital employed has thus been decreased resulting in lesser relief to the assessee under section 15C.

5. The reasoning adopted by the Income-tax Officer in making this rectification is clear from paragraph 2 of his order passed in Miscellaneous Petition No. 70 of 1965. According to that order, the Income-tax Officer applied rule 3 (1) (a) of the Rules for capital computation for the purpose of section 15C of the Indian Income-tax Act. He pointed out that under that rule read with section 15C the 'written down value' of the assets is to be included in the computation of the capital employed. The written down value is defined in rule 2 (v) of the said Rules and that written down value was liable to be included under the provisions of section 10 (5). He treated the inclusion of the initial depreciation in the computation of the written down value of the capital employed as an arithmetical error apparent from the record. Similar computations have been made in regard to the other years. There was no reference whatsoever in the order of the Income-tax Officer to section 10 (2) (xvi).

6. Now before we go into the point of controversy between the parties it is necessary to refer to some of the relevant provisions of the law. Section 15C runs as follows :

'15C. (1) Save as otherwise hereinafter provided, the tax shall not be payable by an assessee no so much of the profits or gains derived from any industrial undertaking to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking, computed in accordance with such rule as may be made in this behalf by the Central Board of Revenue......

(3) The profits or gains of an industrial undertaking to which this section applies shall be computed in accordance with the provisions of section 10......

(6) There provisions of this section shall apply to the assessment for the financial year next following the previous year in which the assessee begins to manufacture or produce articles and for the four assessments immediately succeeding'.

7. Thus, under sub-section (1) of section 15C the exemption granted is up to six per cent. per annum 'on the capital employed in the undertaking'. According to the department, the initial depreciation, which was not deducted in arriving at the written down value, ought to have been deducted. Now sub-section (1) says that 'the capital employed in the undertaking shall be computed in accordance with such rules as may be made in this behalf by the Central Board of revenue'. These rules are the Indian Income-tax (Computation of Capital of Industrial Undertakings) Rules, 1949. In those Rules 'depreciation' is defined in rule 2 (iv) to mean the allowance admissible under clauses (vi) and (via) of sub-section (2) of section 10 of the Act and 'written down value' is defined in rule 2 (v) to mean the written down value computed under sub-section (5) of section 10 of the Act as if for the words 'previous year' the words 'computation period' were substituted. Rule 3 (1) is the relevant rule and it provides :

'For the purpose of section 15C of the Act, the capital employed in an undertaking to which the said section applies shall be taken to be -

(a) in the case of assets acquired by purchase and entitled to depreciation -

(i) if they have been acquired before the computation period, their written down value on the commencing date of the said period'.

8. It will be noticed that the opening words of rule 3 (1) (a) speak of 'assets..... entitled to depreciation'. If they have been acquired before the computation period, the capital employed would be 'their written-down value on the commencing date of the said period'. Though the Rules purport to defined 'depreciation' and 'written-down value', they do not carry the definition much further, because the two definitions of 'depreciation' and 'written-down value' merely refer back to section 10 (2), clauses (vi) and (via), and section 10 (5) and so we turn to a consideration of those provisions of the Act.

9. Section 10 (1) of the Act lays down the incidence of the tax which is payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. Sub-section (2), which contains as many as 15 separate clauses, provides for allowances to be made. We are concerned with only the allowance mentioned in clause (vi). We shall refer to the other clauses only in so far as they are relevant for the interpretation of section 10 (2) (vi). Section 10 (2) (vi) runs as follows :

'10. (2) Such profits or gains shall be computed after making the following allowances, namely :....

(vi) in respect of depreciation of such buildings, machinery, plant, or furniture being the property of the assessee, a sum equivalent, where the assets are ships other than ships ordinarily plying on inland waters, to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed;

and where the buildings have been newly erected, or the machinery or plant being new, not being machinery or plant entitled to the development rebate under clause (vib), has been installed, after the 31st day of March, 1945, and before the 1st day of April, 1956, a further sum (which shall however not be deductible in determining the written down value for the purposes of this clause) in respect of the year of erection or installation equivalent, -....

(c) in the case of machinery or plant, to twenty per cent. of the cost thereof to the assessee :

Provided that -....

(c) the aggregate of all allowances in respect of depreciation made under this clause and clause (via) or under any Act repealed hereby, or under the Indian Income-tax Act, 1886 (II of 1886), shall, in no case, exceed the original cost to the assessee of the buildings, machinery, plant or furniture, as the case may be;

(via) in respect of depreciation of building newly erected, or of machinery or plant being new which has been installed, after the 31st day of March, 1948, a further sum (which shall be deductible in determining the written own value) equal to the amount admissible under clause (vi) (exclusive of the extra allowance for double or multiple shift working of the machinery or plant and the initial depreciation allowance admissible under that clause for the first year of erection of the building or the installation of the machinery or plant) in not more than five successive assessments for the financial years next following the previous year in which such buildings are erected and such machinery and plant installed and falling within the period commencing on the 1st day of April, 1949, and ending on the 31st day of March, 1959;

(vib) in respect of a new ship acquired or new machinery or plant installed after the 31st day of March, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of acquisition of the ship or of the installation of the machinery or plant, equivalent to, -

(i) in the case of a ship acquired after the 31st day of December, 1957, forty per cent, of the actual cost of the ship to the assessee; and

(ii) in the case of a ship acquired before the 1st day of January, 1958, and in the case of any machinery or plant, twenty-five per cent, of the actual cost of the ship or machinery or plant to the assessee.....

(vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value :.....

Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place'.

10. It will be noticed that the expression used in clause (vi) of section 10 (2) is 'written down value' and 'written down value' is defined in sub-section (5) of section 10 as follows : (We quote only that portion of the definition which applies to the present case).

'(5) In sub-section (2).....'written down value' means -....

(b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act, or any Act repealed thereby, or under executive orders issued when the Indian Income-tax Act, 1886 (II of 1886) was in force'.

11. Now the department relied upon clause (b) of section 10 (5) and the Income-tax Officer has held that the 'written down value', for purposes of computing the capital employed under section 15C, would be 'less all depreciation'. Therefore, the initial depreciation granted under section 10 (2) (vi) should not have been taken into account. On behalf of the assessee, however, reliance is placed upon the second part of section 10 (2) (vi) and especially upon the words in brackets in that clause 'which shall however not be deductible in determining the written down value for the purpose of this clause'. It is urged that initial depreciation is not depreciation at all in the true sense of that terms and, therefore, section 10 (5) would not be attracted. According to the department, section 10 (2) (vi) did not apply at all, and therefore, the computation upon rectification, made only under section 10 (5) without reference to the provisions of section 10 (2) (vi), is correct.

12. Mr. Palkhivala has in addition urged that, in the first place, whatever may be the view which the department took as to the dispute as to what constituted 'written-down value', the Income-tax Officer had once made a final assessment in each of the four years and he had no jurisdiction under section 154 of the Income-tax Act of 1961, to rectify such an error without the grounds upon which section 154 can apply being made out. In no case can such an error be said to be an error apparent from the record. That is a condition precedent to the application of section 154 and that condition has not been fulfilled in the present case. He urged that it is only by a process of specious reasoning and a highly debatable view of the law such as the Income-tax Officer has taken that the error is brought out at all. It is, therefore, not an error apparent from the record and not an error which can be rectified under section 154. Alternatively of course, he urged that on the merits the original assessment was correctly made, and that there was no error in that assessment; that the view taken by the Income-tax Officer in rectifying the assessment was wrong, and, so interference under section 154 was unjustified.

13. The latter question turns upon a correct interpretation of the relevant provisions of the law which we have quoted above. The interpretation must be guided and controlled by the provisions of section 15C under which the relevant Rules were made. What section 15C requires to be computed is the capital employed in the undertaking. The 'capital employed' has to be computed 'in accordance with such rules as may be made in this behalf by the Central Board of Revenue'. Now Rule 3 (1) (a) says that the capital employed in an undertaking to which section 15C of the Act applies hall be taken to be in the case of assets acquired by purchase and entitled to depreciation, the written down value on the commencing date of the 'said period'. The expression 'said period' refers to the computation period. The rule requires, first of all, that there must be assets entitled to depreciation and in that case, it is the written down value on the commencing date of the said period which becomes the capital employed. Both the expressions 'depreciation' and 'written-down value' are attempted to be defined in rules 2 (iv) and 2 (v), but, as we have pointed out, these Rules hardly define anything. They refer back to the relevant provisions of the Act. 'Depreciation' is defined to mean the allowance admissible under section 10 (2) (vi) and (via) and the 'written-down value' is defined to mean the written down value computed under sub-section (5) of section 10 of the Act, with only this variation that for the words 'previous year' the words 'computation period' should be substituted.

14. In order, therefore, to grasp the true significance of rule 3 (1) (a), it is necessary to turn to these provisions of the Act. We have already reproduced the provisions of section 10 (5) (b). It provides that, in the case of the assets acquired before the computation period, the written-down value shall be 'The actual cost to the assessee less all depreciation actually allowed to him under this Act'. According to the department, the words which we have just quoted conclude the matter and that indeed was the argument which Mr. Joshi on behalf of the department also advanced before us. He urged that the written down value has been defined to include the actual cost less all depreciation actually allowed to the assessee under the Act and the initial depreciation by its very name was one such depreciation. Therefore, the initial depreciation must be taken into account in computing the written down value. On behalf of the assessee, however, Mr. Palkhivala has relied upon the provisions of clause (vi) of section 10 (2) to show that the initial depreciation is not deductible in determining the written down value for the purposes of clause (vi). He particularly relied upon the words in the brackets in the second part of clause (vi) of section 10 (2) 'which shall however not be deductible in determining the written down value for the purposes of this clause'.

15. Mr. Palkhivala's contention is substantial. If one considers the provisions of clauses (vi), (via) and (vib) of section 10 (2), one finds that there are four categories of allowances permitted by this clause. The first part of clause (vi) of section 10 (2) provides for what we may call the normal depreciation which is, in all cases, a percentage of the written down value of the buildings, machinery, plant or furniture, which is the property of the assessee, except in the case of ships other than ships ordinarily plying on inland water with which we are not here concerned. In the second part of clause (vi), however, there is an allowance prescribed for buildings newly erected, or machinery or plant which is new and in the case of such capital assets the allowance is 'a further sum' as prescribed 'which shall, however, not be deductible in determining the written down value for the purposes of this clause'. In other words, in the case of new machinery or plant, the allowance prescribed by this clause is not to be taken into account in determining the written down value for the purpose of this clause. This is referred to the initial depreciation. The third category of allowance contemplated is in clause (via) in respect of depreciation of building newly erected or of machinery or plant which is newly installed after a certain date, i.e., 31st March, 1948, where a further sum equal to the amount admissible under clause (vi) is allowable. But her, contrary to the provisions of the second part of clause (vi) is section 10 (2), the express provision is that the further sum 'shall be deductible in determining the written down value'. The allowance in this clause is referred to as the additional depreciation. A further allowance is now granted by clause (vib) after the Act was amended by the Finance Act of 1955, which is called 'development rebate', but as we shall show a little later, that is substantially a substitute for what is called initial depreciation. The words which we have used to describe these four categories of allowances are to be found used by the very nature itself. If one turns to the Forms prescribed under rule 19 of the Indian Income-tax Rules, 1922, Part V, under the heading 'depreciation', one finds columns for initial depreciation, normal depreciation and additional depreciation and the fourth category, which has been recently added, is 'Extra shift allowance'. 'Development rebate' does not partake of the true nature of depreciation and, therefore, is not referred to in this part.

16. A strenuous attempt was made by Mr. Joshi to disconnect or disassociate the provisions of section 10 (2) (vi) second part, from the provisions of section 10 (5), his contention being that out of the words in the second part of clause (vi) 'which shall however not be deductible in determining the written down value for the purposes of this clause', the key words are 'for the purposes of this clause' and these words are plenary, therefore their effect is to limit the non-deductibility in determining the written down value only to that clause and nothing else. He contended, therefore, that section 10 (2) (vi) makes a special provision which is peculiar only to that clause and in the matter of the computation of the written down value the provisions of section 10 (5) will operate untrammelled by the provisions of section 10 (2) (vi).

17. Prima facie, and we deliberately say that whatever we are deciding here is, only prima facie, for we are not called upon to decide it, the contention cannot be upheld. Section 10 (5) begins with the words 'In sub-section (2)..... 'written down value' means'. We cannot overlook the plain import of these words. After describing all the allowance in section 10 (2), the legislature intended to define 'written down value' for the purposes of the section. Of course, the words do not occur in sub-section (1) but only in the subsequent clause. Therefore, it was with specific reference to sub-section (2) that the definition was made and we do not suppose that, if clause (vi) of sub-section (2) of section 10 was intended to be excluded, section 10 (5) would have been so generally worded as to apply to sub-section (2) as a whole, nor do we thing because the words in the brackets 'which shall, however, not be deductible in determining the 'written down value' in section 10 (5) is excluded. Nowhere is that exclusion indicated either expressly or by implication and it is a cardinal rule of interpretation of statutes that every part of a statute must be given a meaning if possible. Considering the two provisions, we can see no difficulty in giving effect to both the provisions.

18. In this connection, the legislative history of this section was also stressed. Clause (b) of section 10 (5) was included in the Indian Income-tax Act by the Indian Income-tax Amendment Act 23 of 1941. The provision of section 10 (5) (b), which includes within the meaning of 'written down value' the depreciation allowed to an assessee, was already there, long before the various categories of allowances contemplated in the second part of clause (vi) and clauses (via), (vib) and (vii) were even contemplated. All these new forms of allowances came into force later and particularly the allowance of initial depreciation was introduced by the Indian Income-tax Amendment Act 8 of 1946, but the words in section 10 (5) defining 'written down value' to include in the case of assets acquired before the previous year, all depreciation actually allowed to an assessee continued to operate throughout. Notwithstanding that provision of law, express provision was made in the second part of clause (vi) of section 10 (2) not permitting deduction of the allowance on initial depreciation in determining the written down value for the purposes of that clause. Therefore, it is clear that the legislation made a specific provision not permitting the initial depreciation to be deducted in determining the written down value. Mr. Palkhivala urged that there was a specific reason for doing this, because the initial depreciation was really a sort of a concession granted to an assessee who undertook the erection of new machinery or plant and in order to encourage the investment of new capital and that really this allowance hardly partook of the nature of 'depreciation'. He also pointed to the fact that this initial depreciation was discontinued by the provisions of the act itself from the very next year after the development rebate was introduced by clause (vib). The fact that initial depreciation was substituted by its equivalent, 'the development rebate', is significant. It highlights the true nature of initial depreciation. He urged, therefore, that really initial depreciation was in the nature of a development rebate, and did not partake of the nature of depreciation at all. In fact, the amendment of the legislation shows that 'development rebate' substituted 'initial depreciation'. In this respect, he referred us to a passage from the Budget Speech of the Finance Minister for the year 1955-56.

19. Be that as it may, it is not necessary to go into the history genesis of these provisions. Suffice it to say that, prima facie, the provisions of sub-section (5) of section 10 expressly provide that the definition of 'written down value' contained in that sub-section shall be read into sub-section (2). The provisions of section 10 (2) (vi), second part, must be read along with those provisions and so far as the initial depreciation is concerned, it is clearly not to be deducted in determining the written down value for the purposes of clause (vi). Therefore, to that extent the provisions of section 10 (5) must be deemed not to apply to initial depreciation.

20. Mr. Palkhivala also pointed to another fact, that the expression 'written down value' in clause (vi) is not throughout used in the same sense. As we have already indicated, the first part of clause (vi) provides for the allowance of normal depreciation, whereas the second part provides for an allowance, which is not really in the nature of depreciation but is in the nature of a rebate of taxes given as an incentive. Nonetheless, the words 'written down value' are used in both the clauses.

21. We do not think that the provisions of section 10 (2) (vi) can be read so that section 10 (5) would override or control its provisions. On the other hand, it seems to us that a specific provision was made in section 10 (2) because of the special nature of the allowance granted by that clause and the bracketed words are not limited only to that sub-section.

22. Having considered the provisions of the section, we may now turn back to the Rules and the definitions of 'depreciation' and 'written down value' given in rule 2 (iv) and (v), respectively, show that section 10 (2) is not isolated nor are its provisions contained to only that sub-section but have to be read as part of the entire section and in conjunction with the other provisions of the section. Though no doubt, therefore, 'written down value' is defined in rule 2 (v) to mean the written down value computed under sub-section (5) of section 10 of the act, that definition must be read in its turn subject to the provisions of section 10 (2) (vi) second part, where initial depreciation is concerned. We may also point out that additional depreciation, which was made allowable by the introduction of clause (via), is again expressly stated to be deductible in determining the written down value and this express provisions is made not permitting deduction from written down value, we can hardly hold upon the provisions of section 10 (5) that, notwithstanding that provisions, it must be included in the written down value.

23. Reference was made to three cases, two of Division Benches of this court. In Motor House (Gujarat) Ltd. v. Commissioner of Income-tax, the Division Bench, to which my learned brother was a party, held that considering the provisions of clause (vii) of section 10 (2) the initial depreciation would, for the purposes of clause (vii), be included in the written down value. When the provisions of clause (vi) were pointed out, the division Bench observed : 'We have not to determine the written down value under clause (vi), but we have to determine the quantum of written down value under the second proviso to clause (vii) of sub-section (2) of section 10', and, therefore, the decision cannot be taken to be an authority in favour of the inclusion of the allowance under clause (vi) in determining the written down value. At page 427, the division bench remarked : 'It is clear that the provision made for not deducting initial depreciation in determining the written down value under clause (vi) is to safeguard the interest of the assessee in the matter of his getting normal depreciation in the subsequent years and it is for that reason that it has been provided that it should not be deductible in determining the written down value under clause (vi). It is also clear that the scheme under clause (vii) appears to be that when a building, plant and machinery are sold, the revenue seeks to recover back tax on the amount of depreciation allowed in the event the price obtained by the assessee on sale allows it'. Thus a clear distinction is drawn between the provisions of clause (vi) and clause (vii) and the reasons given as to why initial depreciation is taken into account when a capital asset is sold. So long, however, as the asset continues in the ownership of the assessee, re-emphasises the point which we have made in drawing a distinction between clause (vii) and clause (vii) of section 10 (2).

24. Popular Ltd. v. Commissioner of Income-tax was a case, where the question was of computing capital gains assessable to tax under section 12B of the Indian Income-tax Act and it was held that the initial depreciation allowed under section 10 (2) (vi) could be deducted in arriving at the written down value. The question of capital gains can only arise when an asset is transferred or sold and that would bring in considerations analogous to the provisions of clause (vii). This decision, therefore, does not affect the question of interpretation of clause (vi) of section 10 (2) which arises in the present case.

25. The decision in Asoka Mills Co. Ltd. v. Commissioner of Income-tax clarifies the nature of the allowance under section 10 (2) (vi). Though no doubt it is depreciation, its effect in arriving at the written down value of an asset is very nearly the same as of normal depreciation. It was held in that case that, although initial depreciation is not taken into account for the purpose of determining the written down value of an asset for any year, for the purposes of proviso (c) to section 10 (2) (vi) of the Indian Income-tax Act, initial depreciation should be taken into account to ascertain whether the aggregate of all allowances in respect of depreciation exceeds the original cost to the assessee of the asset. The proviso (c) to section 10 (2) (vi) merely says that the aggregate of all allowances in respect of depreciation made under this clause (clause (vi)) and clause (via) shall in no case exceed the original cost to the assessee of the buildings, machinery, plant or furniture, as the case may be. Here again, the question can only arise where the assets are disposed of or sold and the same principle would apply as in the case of clause (vii). At page 381, after quoting the words in brackets in the second part of section 10 (2) (vi), the Division Bench observed :

'The normal rule for calculating written down value is to be found in section 10, sub-section (5), and that rule in effect provides that the written down value is the actual cost to the assessee in the first year, and in subsequent years the actual cost less the aggregate of all depreciation actually allowed to him; but by virtue of the provision made in regard to initial depreciation, the initial depreciation is not to be taken into account in determining the written own value. The result, therefore, is that the written down value of an asset in a given year does not take into account initial depreciation....'

26. We cannot, therefore, hold upon the authority of any of these decisions that the construction of either clause 10 (2) (vi) or of section 10 (5) is any different from the one which we have shown on the words of those sections prima facie. We say prima facie expressly because we are not called upon to determine all the questions of interpretation or construction which have been pressed upon us, for the petitioner shave come before us against notices under section 154 of the Income-tax Act, 1961.

27. The order passed after the consent order of this court shows that the Income-tax Officer found that there was a mistake apparent from the record within the meaning of section 154. We have already discussed prima facie the question which arise upon the dispute between the parties and the least that we can say about those questions is that they are not easy of a solution nor is the construction so clear that we can possibly say that there was any question arising 'apparent from the record'. Indeed, the foregoing discussion will show that the questions are questions of great substance and complexity.

28. The grounds upon which interference is permissible under the provisions of section 154 of the Income-tax Act, 1961, are in pari material with the grounds under the old section 35 of the Indian Income-tax Act, 1922, particularly the words 'with a view to rectifying any mistakes apparent from the record'. The meaning of the words 'apparent from the record' is now fixed by the construction put on them in several of the decided cases. A Division Bench of this court in National Rayon Corporation Ltd. v. G. R. Bahmani, Income-tax Officer, indicated that the jurisdiction of the Income-tax Officer to make an order for rectification under section 35 of the Indian Income-tax Act, 1922, depend upon the existence of a mistake apparent from the record. Undoubtedly, that mistake need not be only a clerical or an arithmetical mistake. It may also be a mistake of fact as well as a mistake of law, but the cardinal word in the phrase is the word 'apparent' and with reference to that word it was pointed out that' a mistake becomes a mistake apparent from the record only when it is a glaring, obvious or self-evident mistake. A mistake which has to be discovered by a long drawn process of reasoning or examining arguments on points where there may conceivably be two opinions cannot be said to be a mistake or error which is apparent from the record'. The same view was taken in Venkatachalam v. Bombay Dyeing and Mfg. Co. Ltd., though rectification was permitted in that case. In that case, the provisions of the statute which was being considered by the Supreme Court in terms made the amendment of section 18A retrospective in operation and it was in view of that retrospectivity which was imported in that section that the reopening took place. The Supreme Court held in those circumstances what was done was nothing more than giving effect to the words of the statute. Nonetheless, at page 150, the Supreme Court observed :

'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'.

29. In other words, the Supreme Court also indicated that the mistake must be a plain and obvious mistake. To the same effect is the decision in Subbaraja Mudaliar v. Commissioner of Income-tax of a Division Bench of the Madras High Court :

'...... a mistake capable of being rectified under section 35 is not confined to clerical or arithmetical mistakes; on the other hand, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof'.

30. In the earlier portions of this judgment, we think we have said enough to show that the error which the Income-tax Officer purported to correct as an arithmetical error was not an error apparent from the record. As we have said, the error sought to be corrected prima facie did not exist, but even assuming that upon prima facie examination we are wrong, we are completely satisfied that such an error cannot be corrected under section 154 of the Income-tax Act, 1961. We may also add here that it is not open to the authorities to make an error 'an error apparent from the record' by ignoring any relevant provision of the law. In the present case we have shown that section 10 (2) (vi) had a vital bearing upon the question but in the order of the Income-tax Officer that section was totally ignored, thereby making it appear that the error was a patent and clear error apparent from the record. If the provisions of section 10 (2) (vi) are taken into account, questions of a complicated nature would arise in the present case. Such questions cannot be determined under the jurisdiction given to the Income-tax Officer to correct errors apparent from the record.

31. In the result, therefore, we quash the notice dated 18th January, 1965, issued against the petitioners in each one of these cases for the respective assessment years and the orders dated 11th February, 1966, in Miscellaneous Petitions Nos. 70, 71 and 72 and the order dated 24th August, 1965, in Miscellaneous Petition No. 73 of 1965. The respondents shall pay the costs of the petitioners.


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