S.K. Desai, J.
1. The original petitioner along with one Balchand Menghraj, Khanchand Jiwandas, Jaikishan Balchand and one Govindibai had been carrying on business in partnership in the firm name and style of J. B. Mangaram & Co., at Gwalior. The present petitioners are the heirs and legal representatives of the original petitioner and were brought on record pursuant to the judge's order dated 23rd August, 1968. By this petition the petitioners seek an appropriate writ quashing and/or setting aside the order dated 21st June, 1966, made by the 2nd respondent herein, as also for quashing and/or setting aside the order dated 24th March, 1966, made by the 1st respondent.
2. The petition relates to the assessment year 1957-58. For the said year the said firm of J. B. Mangaram & Co. was assessed by Shri B. R. Adwalpalkar, Income-tax Officer, Special Investigation Circle A, Nagpur, and the total income of the said firm was computed at Rs. 16,00,419. By an order dated 29th March, 1966, the said firm was duly registered, and by reason of such registration the share of profit of each partner in the firm was duly apportioned to each partner, and in paragraph 4 of the petition is to be found the computation as far as the original petitioner's share is concerned. Thereafter, Shri Adwalpalkar assessed the original petitioner in respect of his share of profit in the said firm as also his other income. A copy of the order of assessment is annexed as exhibit B to the petition. Subsequently, on 26th February, 1966, the 1st respondent issued a notice to the original petitioner under section 154/155 of the Income-tax Act, 1961, a copy of the notice is annexed as exhibit C to the petition. By the said notice it was claimed that there was a mistake apparent on the record pertaining to the assessment of the original petitioner for the assessment year 1957-58 made on 29th March, 1962. According to the 1st respondent, the nature of the mistake proposed to be rectified was as follows :
'Share of tax paid by the registered firm is unearned income under section 14(2) (aa) of the Income-tax Act, 1922, in the hands of the partners, hence it is liable for special surcharge in the case of the partners.'
3. In reply to the said show-cause notice, the original petitioner by his letter dated 14th March, 1966, contended that this was not unearned income in his hands, but the 1st respondent negatived the contention, and on 24th March, 1966, passed an order under section 35 of the Income-tax Act, 1922, purporting to rectify the mistake in calculating the special surcharge. From this order the original petitioner filed a revision application to the 2nd respondent under section 33A(2) of the Indian Income-tax Act, 1922, and this was disposed of by the 2nd respondent by his order dated 21st June, 1966, copies of this revision application and the order made thereon are to be found as exhibits F and G, respectively, to the petition. In this petition the legality of the original order of rectification made on 24th March, 1966, by the 1st respondent and the order on the revision application made by the 2nd respondent on 21st June, 1966, has been challenged.
4. According to the petitioners, there are four grounds on which the aforesaid orders are bad and liable to be set aside. These grounds are summarised in paragraph 9 of the petition. In the first place, according to the petitioners, on a plain reading of section 14(2) (aa) of the Income-tax Act, 1922, it is abundantly clear that under the said provision an assessee has to be given a certain rebate in respect of the tax paid by the registered firm on the firm's income. According to the petitioners, that rebate in the hands of the partner can never be considered as unearned income. Secondly, it was submitted that notice for rectification was given under section 154/155 of the Income-tax Act, 1961, whereas the order was passed under section 35 of the Income-tax Act, 1922. It is submitted that inasmuch as the notice for rectification was given under the new Act, the rectification proceedings could, if at all, be completed only under the new Act. Thirdly, it is submitted that section 14(2) of the Act only enumerates the amounts on which tax is not payable. Under section 14(2) (aa), it is submitted, tax is not payable on the amount of a partner's share of tax payable and paid by the said amount, no special surcharge could be levied thereon, as surcharge is and can only be an addition to tax. According to the petitioners, an amount on which no tax is payable can never be termed as income, and that there can be no question of treating such sum as unearned income. Finally it is submitted that either under section 154 of the 1961 Act or section 35 of the 1922 Act, only an error which is apparent on the face of the record can be rectified. It is submitted that the alleged mistake sought to be rectified by the 1st respondent was not a mistake apparent on the face of the record, being one which can be rectified by the 1st respondent under the provisions of section 35 of the Income-tax Act, 1922.
5. In the affidavit in reply, the rectification is sought to be justified mainly on the basis of the definition of 'earned income' to be found in section 2(6AA) of the Income-tax Act, 1922. It is submitted in the affidavit in reply that by reason of this definition any income which is exempt from tax under section 14(2) of the Act is not to be regarded as earned income and that, therefore, it is deemed to be unearned income and surcharge is leviable thereon. It is further alleged that in the revision application filed by the original petitioner, the petitioner had not raised the contentions raised in this petition and, therefore, estoppel is pleaded.
6. Section 14(2) (aa) is a clause inserted by the Finance Act, 1956. Prior to 1956 neither income-tax nor super-tax was levied on a registered firm but the levy was only on the individual partners. After the amendment of the Act in 1956, income-tax (but not super-tax) was levied at specially low rates even on a registered firm, while the individual partners were liable to both income-tax and super-tax on their shares of the firm's profit in their personal assessment. Simultaneously section 14(2) (aa) was introduced, the object being to grant partial relief to the individual partners in respect of the income-tax paid by the firm. A proper reading of section 2(6AA) does seem on lend support to the department's contention that any income, which is exempt from tax under sub-section (2) of section 14, is to be treated as unearned income. The relevant commentary on this definition is to be found a pages 46 and 47 of Income-tax by Kanga and Palkhivala (fourth edition). According to the learned commentators, however, the result of the definition would be to give to the assessee a further benefit of exemption on the ground of earned income.
7. It is an admitted position at the Bar that on the respective rival contentions there is no decided case either of the Supreme Court or any High Court or any observations by a recognised commentator supporting either stand. On a technical interpretation of the provisions it is possible to take a view in favour of the department, viz., that this part of the income of the firm on which the assessee is given an exemption and, therefore, partial relief, is to be treated as unearned income in his hands for the purpose of computing surcharge. From the commonsense point of view much can be said in favour of what is submitted by the counsel for the assessee in this petition and in the other petitions filed by the other partners of J. B. Mangaram & Co.
8. Ultimately, it has been submitted very strenuously by the counsel for the petitioners that the position is not absolutely clear, and is one which is arguable. It was then submitted that if there are two views, and the question arises of preferring one view to another, then the matter is not one calling for the application of section 35. In this connection the learned counsel for the petitioners cited a number of authorities. A brief reference may be made to three of them.
9. The first of these authorities was National Rayon Corporation Ltd. v. G. R. Bahmani, Income-tax Officer, Companies Circle I(3), Bombay. The relevant headnote of this decision reads as follows :
'The jurisdiction of the Income-tax Officer to make an order for rectification under section 35 of the Indian Income-tax Act, 1922, depends upon the existence of a mistake apparent from the record. That mistake need not be a clerical or mathematical mistake. It may be a mistake of fact as well as a mistake of law. A mistake becomes a mistake apparent from the record 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.'
10. The relevant observations are to be found at page 125 of the report.
11. The second of the authorities was Volkart Bros. v. Income-tax Officer, Companies Circle IV(4), Bombay. The headnote of this judgment reads as follows :
'The power of the Income-tax Officer under section 35 of the Indian Income-tax Act, 1922, or the corresponding section 154 of the Income-tax Act, 1961, is limited to rectification of mistakes which are apparent from the record. An error apparent from the record is not only confined to an error of the fact but may also include errors of law. But it is necessary that the error must be apparent on the examination of the record itself without entering into any fresh or additional investigation. It must be obvious and patent from the record an error which is not obvious or patent and can only be discovered as a result of an argument cannot be an error apparent from the record.
The petitioner-firm, which was non-resident, was granted registration under the Income-tax Act and assessments for 1958-59, 1960-61, 1961-62 and 1962-63 were completed on such basis. Subsequently, the Income-tax Officer rectified the assessment on the ground that as the firm had not been charged at the maximum rate there was a mistake apparent from the record.
Held that the non-application of section 17(1) in the original assessments cannot be treated a mistake apparent from the record and the orders of rectification were therefore illegal and without jurisdiction and liable to be set aside.'
12. At page 186 of the report, the Division Bench observes :
'... there cannot be any doubt whatsoever that the non-application of the provision of section 17(1) in the original assessment of the petitioner cannot be treated as a mistake apparent from the record so as to enable the respondent to invoke his jurisdiction under section 35 the Act of 1922 or section 154 of the Act of 1961.'
13. My attention was also drawn to Burmah-Shell Refineries Ltd. v. G. B. Chand, Income-tax Officer, Companies Circle II(1), Bombay. The relevant portion of the headnote is at page 654 and reads as follows :
'(2) At any rate, the question whether initial depreciation was to be deducted was a question of substance and complexity and it could not be said that there was an error apparent from the record' which could rectified under section 154 of the Income-tax Act, 1961.
The mere fact that the Income-tax Officer had ignored a section of the Act does not constitute, 'an error apparent from the record'.'
14. There is considerable force in the contentions raised on behalf of the petitioners as to the interpretation of section 14(2) (aa) and section 2(6AA). It is not possible for me to say that the views canvassed on behalf of the petitioners cannot conceivably be taken. If this be so, then I am bound by the observation in the National Rayon Corporation's case and must hold that this was not a mistake apparent from the record, and the Income-tax Officer, therefore, acted without jurisdiction in making the impugned order of rectification. It is true that an error apparent on the face of the record is more than a mere clerical or mathematical error. But as the authorities stand, the failure to apply a section of the Income-tax Act, permitting higher taxation, particularly where the application is itself open to argument and debare, can never be an error apparent on the face of the record-one which can be rectified under section 35 of the Income-tax Act. It is unnecessary for me to express a final opinion on the sections concerned and on the rival contentions. Arguments are possible and if the position is debatable and not patent and clear, then resort to section 35 of the Act does not appear to be justified and called for.
15. There is no substance, in my opinion, in the contention that the petitioners could not be allowed to raise the points which they did not raise in their revision application. That submission made on behalf of the respondents must be rejected. That submission made on behalf of the respondents must be rejected. The petitioners, however, have mainly succeeded on the submissions based on the scope of rectification proceedings under section 35. No such plea, it appears, was taken in the revision application filed before the Commissioner of Income-tax and disposed of by the 2nd respondent by his order dated 21st June, 1966. This must have a bearing on the question of costs.
16. In the result, the rule is made absolute, but the parties will bear their own costs.