Skip to content


J.M. Shah Vs. J.M. Bhatia, Appellate Assistant Commissioner of Wealth-tax and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberMiscellaneous Petition No. 285 of 1972
Judge
Reported in[1974]94ITR519(Bom)
ActsIncome Tax Act, 1961 - Sections 154; Wealth Tax Act, 1957 - Sections 5, 5(1), 17, 18A, 18A(5), 25, 32, 35 and 35(1)
AppellantJ.M. Shah
RespondentJ.M. Bhatia, Appellate Assistant Commissioner of Wealth-tax and ors.
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
(i) direct taxation - rectification - section 35 of wealth tax act, 1957 - whether appellate assistant commissioner had powers to rectify when original assessment made in accordance with law and there was no apparent error - rectification can be made under section 35 only when there was error or mistake which must be apparent and same is discernible from record - an error which was discovered as a result of long drawn argument and on which there might be two opinions cannot be regarded as one apparent from the record - held, power of rectification under section 35 could not be invoked in present case. (ii) retrospective effect - whether amending act applicable to assessments already completed - held, on basis of precedents such amending acts would be applicable to completed.....vimadalal, j.1. this is a petition under article 226 of the constitution seeking a writ in the nature of certiorari to quash and set aside an order of rectification of a wealth-tax assessment passed by the appellate assistant commissioner of wealth-tax (respondent no. 1) on the 22nd of february, 1972, pursuant to the amendment effected in section 5(1)(viii) of the wealth-tax act, 1957 (hereinafter referred to as 'the act'), by the finance (no. 2) act, 1971 (act no. 32 of 1971) as well as for a writ in the nature of prohibition and/or mandamus restraining the respondents from taking any further steps or proceedings for recovery of the tax on jewellery and ornaments in enforcement of the said rectification order dated 22nd february, 1972. 2. the petitioner is a lady who was assessed by the.....
Judgment:

Vimadalal, J.

1. This is a petition under article 226 of the Constitution seeking a writ in the nature of certiorari to quash and set aside an order of rectification of a wealth-tax assessment passed by the Appellate Assistant Commissioner of Wealth-tax (respondent No. 1) on the 22nd of February, 1972, pursuant to the amendment effected in section 5(1)(viii) of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'), by the Finance (No. 2) Act, 1971 (Act No. 32 of 1971) as well as for a writ in the nature of prohibition and/or mandamus restraining the respondents from taking any further steps or proceedings for recovery of the tax on jewellery and ornaments in enforcement of the said rectification order dated 22nd February, 1972.

2. The petitioner is a lady who was assessed by the Wealth-tax Officer for the assessment year 1969-70 to Wealth-tax on the total wealth of Rs. 6,07,690, including jewellery and ornaments of the value of Rs. 4,15,942 by the assessment order dated 11th February, 1970. From that assessment order, the present petitioner preferred an appeal to the Appellate Assistant Commissioner of Wealth-tax contending that jewellery and ornaments intended for the personal use of the petitioner were exempt from wealth-tax by reason of the provisions section 5(1)(viii) of the Act. In support tax of her contention in the said appeal, the petitioner relied upon the decision of the Supreme Court in the case of Commissioner of Wealth-tax v. Arundhati Balkrishna the Appellate Assistant Commissioner of Wealth-tax, by an order dated 26th June, 1970, allowed the appeal of the assessee and excluded from the net wealth of the assessee, jewellery and ornaments of the value of Rs. 4,15,942. No further appeal was filed against that decision of the Appellate Assistant Commissioner by either side, and it is the submission of the petitioner in paragraph 4 of the petition in the present case, that the said order of the Appellate Assistant Commissioner of Wealth-tax dated 26the June, 1970, became final after the period provided for appeal against the same had expired. It may be stated that that period had expired long before the amending Act was enacted.

3. Thereafter, by section 32 of the Finance (No. 2) Act, 1971 (32 of 1971), which received the assent of the President on 10th August, 1971, Parliament amended section 5(1)(viii) of the Act providing that the said section, as amended, 'shall be inserted and shall be deemed to have been inserted with effect from the first day of April, 1963', except certain proviso and Explanations Which were deemed to be inserted therein with effect from the 1st day of April 1972. In view of the enactment of the said Finance Act, the petitioner was served with a notice dated 25th January, 3rd February, 1972, to the effect that the Appellate Assistant Commissioner proposed to rectify the wealth-tax assessment of the petitioner under section 35 of the Act, withdrawing the exemption already allowed to the petitioner in respect of jewellery and ornament. The petitioner appeared through her representative in response to the said notice and objected to the proposed rectification of her wealth-tax passed an order on 22nd of February, 1972, withdrawing the exemption granted to the petitioner in respect of jewellery and ornaments, and including an amount of Rs. 4,15,942, being the value of the said jewellery and ornaments, in the net wealth of the petitioner. In the said order the Appellate Assistant Commissioner held that his predecessor had committed a mistake apparent on the record in excluding the said jewellery and ornaments and that he was, therefore, entitled to rectify the order of his predecessor under section 35 of the Wealth-tax Act. The petitioner, thereafter, filed the present petition on the 20th April, 1972, challenging the validity of the rectification order passed by the Appellate Assistant Commissioner and praying for the reliefs already set out above. It will be convenient, at this stage, to refer to the relevant statutory provisions with which the court is concerned in the present case. The material part of section 5 of the Act, as it stood prior to its amendment by the Finance (No. 2) Act, 1971, is in the following terms :

'5. Exemption in respect of certain assets. - (1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee....

(viii) furniture, household utensils, wearing apparel, provisions and other articles intended for the personal or household use of the assessee;....

(xiv) jewellery belonging to the assessee, subject to a maximum of twenty-five thousand rupees in value;....'

Clause (xv) of section 5(1) of the Act was deleted by the Finance Act of 1963 (Act No. 13 of 1963). By section 32 of the Finance (No. 2) Act, 1971, section 5(1) (viii) of the Act was amended so as to read as follows :

'5. (1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee -...

(viii) furniture, household utensils, wearing apparel, provisions and other articles intended for the personal or household use of the assessee, but not including jewellery.'

4. It was further provided by section 32 of the said Finance Act that the words, 'but not including jewellery' in section 5(1)(viii) 'shall be inserted and shall be deemed to have been inserted with effect from the first day of April, 1963'. By section 32 of the said Finance Act certain provisos and Explanations were also inserted at the end of clause (viii) of section 5(1) with which we are not concerned in the present case. It was pursuant to the amendment affected by the Finance (No. 2) Act, 1971, that the rectification proceedings in the present case were initiated, as already stated above.

5. Mr. N. A. Palkhivala, on behalf of the petitioner, formulated the question which arises in the present case in the following terms :

'Had the Appellate Assistant Commissioner the power to rectify in view of the fact that there was no error apparent on the face of the record because, (a) the original assessment when made was in accordance with law; and (b) the question as to whether the amending Act applies to assessments which were already completed was, in any event, as debatable question ?'

6. No other question was argued before us by Mr. Palkhivala. In regard to the first limb of that question, Mr. Palkhivala very frankly stated that as far as the court is concerned, the matter is concluded by the decision of the Supreme Court in the case of M. K. Venkatachalam, Income-tax officer v. Bombay Dyeing and . and therefore, though he did not give up that contention, he did not propose to address any argument to us in regard to the same. I may only state that in its decision in the Bombay Dyeing Company's case the Supreme Court has rejected (at page 150) the precise argument that if the original assessment made was in accordance with the law, as it then stood, it could not be said to suffer from an error apparent on the face of the record. As far as this court is concerned, this point must, therefore, be held to be concluded by the said decision of the Supreme Court, and I do not propose to say anything more about it in this judgment. As far as the second limb of the question formulated by Mr. Palkhivala is concerned, even a cursory perusal of the language of section 35 which confers the power of rectification shows clearly that the error which can give jurisdiction to a revenue authority to initiate rectification proceedings must be 'a mistake apparent from the record'. The plain meaning of the word 'apparent' is that it must be something which appears to be so ex facie and is incapable of argument or debate. That is what the Supreme Court has held in the case of T. S. Balaram, Income-tax Officer v. Volkart Brothers. Hegde J., delivering the judgment of the court in the said case, observe in regard to the corresponding provision for rectification that is to be found in section 154 of the Income-tax Act, 1961 (at page 53) :

'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.'

7. The same view has been taken by this court in the case of Arvind N. Mafatlal v. T. A. Balakrishnan, Deputy Controller of Estate Duty and in the case of Nandlal Mangaram Pamnani v. G. Lakshminarasimhan in which two other earlier decisions of this court have been cited by the learned judge. The legal position is, therefore, well settled that in order to resort to the power of rectification contained in section 35 of the Act, it is necessary that the question which arises is not capable of genuine dispute or argument, though that dispute or argument need not necessarily be such as, in the opinion of the court is acceptable to it. In fact, in the very case of Volkart Brothers, in which that proposition is laid down by the Supreme Court, it was stated by Hedge J. in the judgment of the court (at page 53) that the High Court was not justified in going into the question which arose in that case, viz., whether the original assessments were in accordance with law, as it had done. In deference to that view of the Supreme Court and in consonance with it, I do not, therefore, propose to deal with or express any definite opinion in regard to the question before us, as to whether the amendment effected in section 5(1)(vii) of the Act by the Finance (No. 2) Act, 1971, could, be the basis of rectification proceedings in regard to assessments which were completed by 10th August, 1971. It is sufficient for the purposes of disposing of this petition to take the view, which I do, that the said point is a point which is capable of a genuine argument or debate.

8. Mr. Palkhivala contended that it is no doubt open to the legislature to enact an amendment which affects even a completed assessment, or a concluded order or judgment, but, in order to do so, the legislature must use words which, either expressly or by necessary intendment, make that intention clear. He pointed out that it was not unusual fort amending Acts which were intended to have retrospective operation to that extent to start with the words : 'Notwithstanding any order or judgment of....', and the use of such or similar words would make the intention of the legislature in that behalf clear beyond doubt. It was the contention of Mr. Palkhivala that the court should not give to the words used by the legislature any greater retrospective effect than is necessary or is warranted by the clear words of the amending provision. In that connection, reference may be made to passages from Maxwell on the interpretation of statutes, twelfth edition, as well as to Halsbury's Laws of England, 3rd edition, volume 36. In Maxwell it is stated (at page 216) :

'A statute is not to be construed so as to have a greater retrospective operation than its language renders necessary.'

and it is further stated at pages 220-21 :

'when the substantive law is altered during the pendency of an action, the rights of the parties are decided according to the law as it existed when the action was begun, unless the new statute shows a clear intention to vary such rights.'

9. It would follow, a fortiori, that unless a new statute shows a clear intention to that effect, legal proceedings which have already culminated in an assessment order, or other order or judgment, cannot be affected by such statute. To the same effect are passages from Halsbury (at pages 423 to 426). An instance of our legislature making such an intention clear is to be found in the amendment effected by the new sub-section (6) of section 35 of the Indian Income-tax Act, 1922, by section 19 of the Income-tax (Amendment) Act, 1953 (25 of 1953), which has been noticed by the Supreme Court in its judgment in Habibullah's case, to which I will presently refer.

10. As against these arguments of Mr. Palkhivala, Mr. Joshi relied strongly on the decision of the Supreme Court in the case of M. K. Venkatachalam, Income-tax Officer v. Bombay Dying and ., to which I have already referred in another context, and if that decision had stood alone, I might have been disposed to regard the question that arises in the present case as concluded by the Supreme Court, and to decide this petition in favour of Mr. Joshi. As the decision in the said case is the sheet-anchor of Mr. Joshi's argument before us, it will be necessary for me to deal with the same in some detail. In the said case, the Income-tax Officer had, by an assessment order passed on 9th October, 1952, assessed the Bombay Dyeing Company for the assessment year 1952-53, under the Indian Income-tax Act, 1922, giving credit to the said company for a sum of Rs. 50,603-15-0 as representing interest at 2 per cent. on tax paid in advance under section 18A of the Act, pursuant to the provisions of Sub-section (5) thereof, as it then stood. On 24th May, 1953, the Income-tax (Amendment) Act, 1953 (25 of 1953) came into force and, by the said Act, a proviso was added to section 18A(5), the effect of which was that the assessee was entitled to get interest at the rate of 2% not on the whole of the advance tax paid by him, but only on the difference between the payment made and the amount at which the assessee was ultimately assessed to tax under the Act. It was further provided by the said Amending Act that the said amendment was to be 'deemed to have come into force on the 1st day of April 1952'. After the amending Act was passed, the Income-tax Officer exercised his power under section 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 in the original assessment order, and held that the assessee was entitled to a credit of only Rs. 21,157-6-0 by way of interest on the tax paid in advance, as a result of the retrospective operation of the amendment in question in the said case. A notice of demand was served by him in due course on the assessee and the assessee thereupon filed a petition under article 226 of the Constitution of India in this court which held that the mistake mentioned in section 35 of the Act had to be apparent on the face of the order and it could only be judged in the light of the law as it stood on the day when the order was passed, and section 35 had, therefore, no application to the said case. A writ was, therefore, issued by this court against the income-tax authorities, who, thereafter, went in appeal to the Supreme Court. The Supreme Court stated (at page 146) that the short question which arose before it in the said appeal was, whether an order which was proper and valid when it was made, could be said to disclose a mistake apparent from the record, if the said order would be erroneous in view of a subsequent amendment which was intended to operate restrospectively. The Supreme Court took the view that the legal fiction introduced by the words giving retrospective operation to the amendment in the said case inevitably meant that at the time when the Income-tax Officer passed his original assessment order on the 9th of October, 1952, the proviso added by the Amendment Act must be deemed to have already been inserted in the Act, as, for all legal purposes, the same must be deemed to have been included in the Act as from 1st April, 1952 (at page 146-147). The Supreme Court then proceeded to consider the next argument which was urged before it, viz., that the retrospective operation of the relevant provision should not be held to have been intended to affected a completed assessment in the absence of an express enactment or necessary intendment. In regard to that argument, the Supreme Court took the view (at pages 147-148) that the original assessment order passed by the Income-tax Officer could not be said to be final in the literal sense of the word, as it was and continued to be liable to be modified in rectification proceedings under section 35 of the Act. The Supreme Court, therefore, held that the principle of the finality of the orders or the sanctity of existing rights could not be effectively invoked by the respondent in the said case. The Supreme Court also rejected the further argument advanced on behalf of the assessee that the Amendment Act should not be given greater retrospective operation than its language and its general scheme rendered necessary and, in that connection, it considered certain other provisions of the Amending Act also, in which, in connection with the power of revision, express provision was made for affecting earlier orders. The Supreme Court held (at pages 150-151) that if a mistake of fact apparent from the record of the assessment order could be rectified under section 35, there was no reason why a mistake of law which was 'glaring and obvious' could not be similarly rectified, if it was plainly and obviously inconsistent with a specific and clear provision of the statute which was given retrospective operation. The Supreme Court, therefore, allowed the appeal, reversed the decision of this court and set aside its order issuing a writ against the revenue authorities. It is pertinent to note that, in the view which the Supreme Court took in the said case, viz., that the mistake in question was a glaring and obvious mistake and the question which arose could not be said to be debatable or arguable, it did not have occasion to consider the further question as to whether the power of rectification could have been invoked had it come to the conclusion that it was an arguable question. The said decision of the Supreme Court does lay down that a deeming fiction couched in words similar to the words used in the present case should be construed as intending to affect even completed assessments, but Mr. Palkhivala had submitted that :

(1) the said case does not dissent from the well-settled principle that a debatable point of law cannot be the subject of rectification since, ex hypothesi, the error could not possibly be called apparent;

(2) the said case is not an authority for the proposition that a deeming provision giving retrospective effect must necessarily be held to affect completed assessment;

(3) the said case is only an authority on the construction of a particular provision of the Income-tax (Amendment) Act, 1953 and on a construction thereof it was held that the provision applied to assessments completed before the date on which the power was invested by the Amending Act; and

(4) in the said case, there is no discussion as to why the point as to the construction of the relevant provision should not be regarded as debatable when two judges of the High Court had in the lower court taken a contrary view on construction, nor is there a discussion as to why the retrospective effect provided for in the amending Act should extend to assessments completed before the date of the amendment.

11. Mr. Palkhivala, therefore, contended that the decision of the Supreme Court in the Bombay Dyeing Company's case is a binding authority only in regard to the particular provision, and not for other amending statutes in regard to the extend of retroactivity. I have already made my observations in regard to the first comment and part of the last comment of Mr. Palkhivala in respect of the decision of the Supreme Court in the Bombay Dyeing Company's case. His second comment in regard to that case is clearly correct, in so far as the said case cannot be considered to be an authority for the proposition that full retrospective effect must be given to all such deeming provisions. As far as the third proposition is concerned, it is true that what the Supreme Court did in the said case was to construe a particular provision of a particular amending Act, but in so far as there is a great similarity in the language used in the amending Act in the said case and in the present case in regard to the retrospective operation of the amending provision, the said case does undoubtedly support Mr. Joshi's contention before us that such provisions must be held to affect even completed assessments. Mr. Palkhivala was not right when he sought to contend that there is no discussion in the judgment of the Supreme Court in the Bombay Dyeing Company's case as to why the retrospective effect should extend to assessments completed before the date of the amendment. In my opinion, there is considerable discussion in regard to the same.

12. Mr. Palkhivala has, however, strenuously contended that, as against the decision of the Supreme Court in the Bombay Dyeing Company's case, there is a later decision of the same court in the case of Income-tax Officer v. S. K. Habibullah in which a contrary view has been taken, significantly enough, in regard to another provision of the same amending Act, viz., the Income-tax (Amendment) Act, 1953, which was also given retrospective effect in identical words by section 1(2) of the said Act. It is also significant that, in both the cases the question of the extent of retroactivity arose in regard to rectification proceedings. Mr. Palkhivala contended that the view taken by the Supreme Court in Habibullah's case that the amended provision did not cover assessments completed prior to the date of the amendment, also showed that the earlier judgment of the Supreme Court in the Bombay Dyeing Company's case laid down no general principle of law applicable to all retrospective amendments. Turning to the facts of Habibullah's case, the respondent before the Supreme Court was the son of the original assessee who was a partner in two firms registered under the Indian Income-tax Act, 1922. The assessment of the deceased for the assessment years 1946-47 and 1947-48 was completed by the Income-tax Officer on 20th February, 1950, after adopting the estimates furnished by the assessee in his returns in respect of his losses in the two firms. The assessments of the two firms were then completed by the Income-tax Officer on 31st October, 1950, and 30th June, 1951, respectively, and the Income-tax Officer thereafter issued notices on the deceased assessee to show cause why his assessments which had already been completed should not be rectified under section 35 of the Act. On 27th March, 1954, the Income-tax Officer revised the assessments of the assessee in respect of the said two years, after taking into account his share of the losses as computed in the assessments of the two firms. On application by the deceased assessee's son, the Commissioner held that section 35 had been properly invoked for rectification; of the original assessment and he, therefore, rejected that application. On a petition filed in the High Court at Madras under article 226 of the Constitution by the assessee's son, the orders of the Income-tax Officer were quashed, and the revenue authorities thereafter appealed to the Supreme Court. Section 35(1) empowered the income tax authorities to rectify mistakes apparent from the record within four years from the date of the original assessment order, but it had been held that the said provision would not entitle the revenue authorities to rectify the assessment of a partner on account of a subsequent assessment of the firm, and by section 19 of the Income-tax (Amendment) Act, 1953, the legislature, therefore, added, with effect from 1st April, 1952, a clause, the material portion of which (omitting irrelevant words) was as follows :

'(5) where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm ...... that the share of the partner in the profit or loss of the firm ....... is not correct, ....... the correction thereof ...... shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub-section (1) shall apply thereto accordingly, the period of four years refereed to in that sub-section being computed from the date of the final order passed in the case of the firm.'

13. It was noted in the judgment of the Supreme Court that the assessment of the two firms had been completed a long time before the first of April, 1952, and the Supreme Court stated that the question which arose before it was whether, relying upon clause (5) of section 35, and Income-tax Officer could rectify assessment of a person who was a partner of a firm when the assessment of the firm was completed before the first of April, 1952. The Supreme Court took the view (at page 813) that the legislature had given to clause (5) a partial retrospective operation, that the provision enacted by clause (5) was not procedural in character, that it affected the vested rights of the assessee, and that, therefore, in the absence of compelling reasons, the court would not be justified in giving a greater retrospectivity to the provision than was warranted by the plain words used by the legislature. It further laid down (at page 814) that if by the law prevailing at the time when the assessment of the firm was made, no such result as was contemplated by the new clause (5) arose, to give a larger retrospective operation than was directed, was to ascribe to the legislature an intention different from the one expresses, and 'to make a larger inroad upon the finality of that assessment than is permitted by the legislature'. The Supreme Court pointed out that the new clause (5) conferred an additional power of rectification upon the income-tax authorities and, in the absence of compelling reasons, the court would not be justifies 'in upholding the exercise of the power to assessments of firms which have been completed before the date on which the power was invested'. In connection with the question which arose before it, the Supreme Court referred to the express provision that was to be found in the new sub-clause (6) which was inserted in section 35 by the same amending Act in which the words, 'after the completion of the corresponding assessment for income-tax (whether before or after the commencement of the Income-tax (Amendment) Act, 1953)' occurred in regard to rectification by reason of the modification of the excess profits tax or the business profits tax payable by the assessee. In the opinion of the Supreme Court, from that clause, it would be reasonable to infer that where the legislature intended to affect completed assessments it had provided for the same in express terms, and that, as it had not done so in regard to clause (5) added by the same amending Act, it 'did not intend to grant to the revenue authorities a power to rectify assessments falling within clause (5) where the firm's assessment was completed before April 1, 1952'. The Supreme Court held (at page 815) that the power to rectify the assessment of a partner consequent upon the assessment of the firm of which he was a partner by including or correcting his share of profit or loss could, therefore, be exercised only in the case of the assessment of a firm made on or after 1st April, 1952. It, therefore, dismissed the appeal filed before it by the revenue authorities.

14. Mr. Joshi sought to distinguish the decision of the Supreme Court in Habibullah's case on two grounds, viz., (1) that the said case dealt with the further retrospective operation of the amending Act beyond the deemed date of 1st April, 1952; and (2) that the said case dealt with the particular language of section 35(5). On these two grounds Mr. Joshi submitted that Habibullah's case was 'miles and miles away' from our case. In support of that contention, Mr. Joshi cited before us two later decisions of the Supreme Court in which Habibullah's case has been explained. The first of them in chronological order is the decision of a Bench of five judges of the Supreme Court in the case of Income-tax Officer v. T. S. Devinatha Nadar. It is not necessary for me to deal with the facts of that case, or with the actual decision therein, as the said case was cited by Mr. Joshi only for the purpose of bringing home the way in which Habibullah's case should be understood by the court. Before referring to the said case, the Supreme Court in Devinatha Nadar observed (at pages 257-258) that on a plain reading of the new sub-section (5) of section 35 of the Indian Income-tax Act, 1922, it was clear that the subject-matter of rectification was the completed assessment of a partner in a firm, and that there was nothing in the section to show that such completed assessment must take place after the provisions of section 35(5) were brought on the statute book. It was further observed that what was to take place to give rise to the power of rectification was the finding on the assessment or reassessment of the firm, which finding alone must be made after the section came into force, and that finding was to be given effect to or made operative on the completed assessment of a partner. Referring to Habibullah's case (at pages 258-259), the Supreme Court in Devinatha Nadar's case quoted a passage from the concluding portion of the judgment in Habibullah's case in which it was stated that the power to rectify the assessment of a partner consequent on the assessment of the firm of which he was a partner by including or correcting his share of profit or loss could be exercised only in the case of the assessment of a firm made on or after 1st April, 1952, from which date the retrospective operation of the amending Act started. It was observed (at page 259) that, therefore, the decision in Habibullah's case was in no way in conflict with the view which apart from that decision, the Supreme Court took in regard to section 35(5) of the Indian Income-tax Act, 1922. The second decision; of the Supreme Court cited by Mr. Joshi for the purpose of explaining the judgment in Habibullah's case was that in the case of Commissioner of Income-tax v. K. S. Rashid in which it was stated (at page 120) that the amendment effected by the addition of section 35(5) of the Indian Income-tax Act, 1922, had no greater retrospective effect than that has been expressly granted to it and the power conferred by the said clause to rectify the assessment of a partner of a firm by including or correcting the share of the profit or loss of the firm could, therefore, be exercised only in the case of an assessment of a firm made on or after that 1st of April, 1952, and the Income-tax Officer had no jurisdiction under the said clause to rectify the assessment of a partner consequent on the assessment of the firm, in a case where the firm's assessment was completed before 1st April, 1952. I do not think that these two later decisions of the Supreme Court cited by Mr. Joshi for the purpose of explaining the decision of the Supreme Court in Habibullah's case are of any particular assistance to explain the same, because they merely reiterate what appears from the judgment in Habibullah's case itself. The ratio of the judgment in Habibullah's case is that, though the Income-tax Officer in the said case was within the time-limit prescribed by the new sub-section (5) of section 35 (viz., four years from the date of the assessment order passed against the firm), the power of rectification conferred by sub-section (5), which was to be deemed to have come into force on 1st April, 1952, did not confer jurisdiction on the Income-tax Officer to rectify assessment orders passes against a partner of the firm consequent on the assessment of the firm made prior to the 1st April, 1952. As Mr. Palkhivala has pointed out, there was no dispute in Habibullah's case that assessments made against the partners prior to the 1st April, 1952, could be rectified and the retrospective operation of the new sub-section (5) beyond the 1st of April, 1952, was in that respect not in question. The question in Habibullah's case, however, was whether the power of rectification which came into existence on the 1st of April, 1952, could be exercised with regard to assessment of the firm already completed prior to that date so as to affect the 'vested rights' which had accrued to the assessee's as partners of that firm. It is true that Habibullah's case does not hold that the assessments of the partners completed prior to the first of April, 1952, could not be rectified. In fact, as was pointed out in Devinatha Nadar's case (at page 258), under the amendment in question effected by the addition of section 35(5), the subject-matter of the rectification was the completed assessment of a partner in a firm. Habibullah's case does, however, hold that power to rectify which was conferred as from the 1st of April, 1952, could not be used so as to affect the partners of a firm, the assessment of which had already been completed by that date. The said decision is not based on the later terminus for the computation of the period of four years provided in the newly-added sub-section (5) but, on a construction of the amending Act, the Supreme Court drew the line, as far as the extent of retroactivity was concerned, as the date of completion of the assessment of the firm. It, therefore, held unmistakably that on the completion of an assessment, certain rights accrued which could only be abrogated or curtailed by express words in the amending Act or by the necessary intendment of the words used therein. Mr. Palkhivala has submitted that the expression 'completed assessment' means, completed by the Wealth-tax Officer and that it did not have to be final in the sense that further proceedings were barred. That submission appears to be in consonance with the view taken by the Supreme Court in Habibullah's case, but is contrary to the view taken by the same court in Bombay Dyeing Company's case. It was observed in Habibullah's case (at page 814) that assessment orders were, subject to the provisions relating to appeals, revisions, reassessment and rectification, final; whereas in the Bombay Dyeing Company's case the view taken was (at page 148) that assessment orders being liable to be rectified under section 35 of the Indian Income-tax Act, 1922, 'the principle of the finality of the orders or the sanctity of the existing rights cannot be effectively invoked'. There is, therefore, a clear divergence of views on a point which arose in these cases, and directly arises in the present case also. Not only am I not called upon to express my own opinion as to which of these two views is correct, but, in view of the observations of Hegde J. in Volkart Brothers' case, this court would not be justified in going into that question. Suffice it to say, that I am not prepared to hold that a view contrary to that which the revenue authorities have taken in the present case is unarguable, as Mr. Joshi would have us to hold. In my opinion, it is a debatable point of law as to whether the amending provision applies to a completed assessment against which no further proceedings were pending at the date of enactment of the amending provision in the case before us. Following the view taken in Volkart Brothers' case, already cited above, I must, therefore, hold that the Appellate Assistant Commissioner had no jurisdiction to rectify his original order dated the 26th of June, 1970.

15. A large number of cases were cited before us which, Mr. Palkhivala submitted, fell into four well-defined categories as follows :

(1) Cases where the question was, does the amending law affect or cover past transactions An instance of this category was, according to Mr. Palkhivala, the case of Ahmedabad . v. S. G. Mehta, Income-tax Officer;

(2) Cases in which the question was, whether the amending law covered cases where proceedings were barred before the amendment, an instance of the same being, according to Mr. Palkhivala, the case of S.S. Gadgil v. Lal and Co.;

(3) Cases, like the present one, in which the question was, whether the amending law extended to completed assessments against which no further proceedings were pending at the date of the amendment. According to Mr. Palkhivala, other instances of this category were the cases of Bombay Dyeing and Mfg. Co. v. M. K. Venkatachalam, on an appeal Bombay Dyeing and Mfg. Co. case, Commissioner of Income-tax V. Bai Navajbai N. Gamadia, Regina v. General Commissioners of Income-tax for Wallington, Income-tax Officer v. S. K. Habibullah, S. C. Prashar v. Vasantsen Dwarkadas and Income-tax Officer v. T. S. Devinatha Nadar; and

(4) Cases in which the question was, whether the amending law applied to completed assessments which further proceedings were pending; at the date of the amendment. According to Mr. Palkhivala, instances of this category were the cases of Commissioner of Income-tax v. Dewan Bahadur Ramgopal Mills Ltd., State of U. P. v. Raja Syed Mohammad Saadat Ali Khan and Commissioner of Income-tax v. Straw Products Ltd.

I do not think it necessary to deal with all these cases. Ironically enough, Mr. Joshi had to debate before as to whether a completed assessment was intended to be affected by the amendment in question in the present case, was not debatable at all. As observed by Hegde J. in Volkart Brothers' case (at page 53), a mistake apparent on the record must not be something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. I must, therefore, hold that the power of rectification under section 35 of the Act could not be invoked in the present case and the rectification order passed by the Appellate Assistant Commissioner on the 22nd of February, 1972, must be quashed and he should be restrained from enforcing the same.

S.K. Desai, J.

16. I would like to add a few words. The power of rectification of mistakes under the Wealth-tax Act, 1957, is to be found in section 35. Under sub-section (1) the five authorities under the Act specified thereunder are given the power to rectify mistakes apparent from the record. To paraphrase that sub-section, it is necessary before a valid exercise of such power that there must be an error or mistake, that the same is discernible from the record and finally that such error or mistake must be apparent. Whilst considering the power of rectification, it appears to me to have been the consistent view of the High Court that the mistake can be regarded as apparent only when it is a 'glaring, obvious or self-evident mistake' (see National Rayon Corporation Ltd. v. G. R. Bahmani, Income-tax Officer). It also appears to have been the view of this court that the mistake must be obvious and patent and an error which can only be discovered as a result of a long-drawn argument cannot be regarded as one apparent from the record. Observations to this effect were made in Volkart Brothers v. Income-tax Officer, which was affirmed by the Supreme Court in T. S. Balaram, Income-tax Officer v. Volkart Brothers. In the latter case, Hegde J., speaking for the Bench, approved of the principal that something which can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions cannot be regarded as obvious and patent and that to be a mistake apparent on the record the mistake must be one which is obvious and patent.

17. In connection with this aspect of the matter, the learned counsel for the respondent relied very strongly on T. S. Rajam v. Controller of Estate Duty, where a Division Bench of the Madras High Court has observed as follows :

'On a fair conspectus of the ratio of the various decisions of this court and the Supreme Court, it is now clear that for a rectification of an error which is said to be apparent from the face of the record, the mere complexity of the problem or that genuine argument is necessary to discover the same may not by themselves be sufficient to oust the jurisdiction of a Tribunal to rectify such a mistake.'

18. The Division Bench derived support from the observations of the Supreme Court in K. M. Shanmugam v. S. R. V. S. (P) Ltd. where an earlier observation of Das Gupta J. of the Supreme Court in Satyanarayan Laxminarayan Hegde v. Mallikarjum Bhavanappa Tirumale was considered and explained (see page 1630). Mr. Joshi submitted that the approach indicated by the Division Bench in the Madras case was the proper approach, and not the one indicated earlier in the Bombay decisions which decisions were followed by me (sitting singly) in Nandlal Mangaram Pamnani's case One of the cases relied on by me in Pamnani's case was National Rayon Corporation Ltd. v. Income-tax Officer, and the decision of the Division Bench of the Bombay High Court therein has been confirmed by the Supreme Court. With respect, therefore, I am unable to agree that a mistake, which can be ascertained after discussion and debate and sustained argument necessary in order to resolve a complex problem, can be properly regarded as one apparent from the record.

19. The powers of rectifications, therefore, to be found under section 35 of the Wealth-tax Act will have to be distinguished from powers of the Wealth-tax Officer under section 17 and of the Commissioner under section 35 of the said Act. In exercising the latter powers the mere fact that the problem is a complex one, that the issue is debatable, that two opinions can conceivably be held, would be consideration which are immaterial. Indeed, in exercising the powers under section 17 and 25, a decision would have to be given on complicated points which may have to be given after long-drawn arguments, but this, is my opinion, would be impermissible in the exercise of the powers of rectification under section 35 of the Wealth-tax Act.

20. Mr. Joshi then argued that in the instant case also the mistake is one which must properly be regarded as glaring and obvious in view of the clear decision of the Supreme Court in Bombay Dyeing Company's case. If, as indicated in the main judgment, that decision had stood alone, then, perhaps, it would have been impossible to demur to Mr. Joshi's submission in this regard. As indicated in the main judgment this is not the position. The observations in Bombay Dyeing Company' case have to be considered along with the observations and approach of the Supreme Court; in the following case, viz., Habibullah's case, Atmala Nagaraj case Ahmedabad Manufacturing and Calico Printing Company' case, T. S. Devinatha Nadar's case and finally K. S. Rashid's case. After a perusal of all these cases, it is impossible to hold that the submissions made by Mr. Palkhivala are unarguable and must be deemed to be totally concluded by the Supreme Court against the assessee by reason of its decision in Bombay Dyeing Company' case. In this view of the matter, it must be held that the Appellate Assistant Commissioner was not competent to exercise powers of rectification under section 35(1) of the Wealth-tax Act which he purported to do by his order dated 22nd February, 1972.

By The Court

21. We order that the rule be made absolute in the following terms :

(a) We issue a writ in the nature of certiorari and a writ, direction and order under article 226 of the Constitution quashing and setting aside the rectification order passed by the first respondent on the 22nd of February 1972.

(b) We also issue a writ in the nature of mandamus and a writ, direction and order under article 226 of the Constitution restraining the respondents, the successors in office of respondents Nos. 1 and 2 and the servants and agents of the respondents, from taking any further steps or proceedings, including proceedings for the recovery of the tax on the jewellery and ornaments in question, in enforcement, pursuance, furtherance; or implementation of the said rectification order dated 22nd February, 1972, passed by the first respondent. As this case is in the nature of a test case on the decision of which a large number of other cases depend, we think that the fair order to make in regard to costs is that each party should bear its own costs of the petition.

22. At this stage, Mr. Joshi applies for a certificate under article 133(a) and (b) of the Constitution for appealing to the Supreme Court. Mr. B. A. Palkhivala opposed that application on the ground that all that we have decided in the present case is that the question is debatable question, and that cannot be said to be a matter of public importance. We do not accept Mr. Palkhivala's contention as, though that is the only question which we have decided in this judgment, the consequences of the decision given by us are of considerable importance and involve a substantial question of law which needs to be decided by the Supreme Court. Under the circumstances, we grant the necessary certificate under article 133(a) and (b) of the Constitution applied for by Mr. Joshi.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //