1. This is a petition which has come before us as a result of the judgment delivered by us on the 26th June, 1957 in appeal No. 105 of 1956. The facts were briefly stated in the judgment but they may be recaptitualte here.
2. An assessment order was passed on 10th March, 1953, against the petitioner in respect of his income for the assessment year 1948-49. The total income assessed was Rs. 95,928 and on of the items of this income was a one-third share from Bombay Zone Works in respect of which a contract had been taken by the Joint Hindu family of which the assessee wa a coparcener. It appears that the assess had paid advance tax on his own estimate under section 18A and after the assessment order had been sassed, the Income-tax Officer discovered that penal interest amounting to Rs. 7,562-10-0 had not been charged to the assessee. The penal interest was due under section 18A(6) inasmuch as the assessee had not paid any advance tax in respect of the income of Rs. 49,808 shown in the assessment order. On the 14th February, 1956, a notice was issued by the Income-tax Officer calling upon the petitioner to show cause against a rectification order which the Income-tax Officer proposed to pass in respect of the penal interest amounting to Rs. 7,562-10-0, and ultimately the order of rectification was passed on the 9th October 1956, by which the Income-tax Officer rectified the assessment order by adding penal interest in the sum of Rs. 7,562-10-0. On the 11th October, 1956, a notice of demand was issued by the Income-tax Officer and the petitioner filed this petition challenging the order of rectification as being without jurisdiction.
3. In Sidhramappa v. Commissioner of Income-tax, we have pointed out what is the jurisdiction of the authority under section 35 to rectify an order and we have stated in our judgment that the power under section 35 is limited it is not a power of revision or review it is a power of rectification in respect of a mistake which is apparent on the face of the record; and we have further pointed out as to what is the exact significance of the expression 'error apparent on the face of the record' and at page 340 we say :
'A mistake must be patent on the record; it must not be a mistake which can be discovered by a process of elucidation or argument or debate. The mistake being patent on the record rectification must be limited to correcting that mistake only without any further argument or debate.'
4. The contention of the Department is that looking to the provision of section 18A(6) there was a statutory obligation upon the Income-tax Officer to charge penal interest and there was a clear error of law on the face of the record when the Income-tax Officer failed to carry out his statutory obligation and it was open to the Income-tax Officer under section 35 to rectify that error. We do not agree with Mr. Palkhivala that the error contemplated by section 35 must be an error of fact. It is true that in Sidhramappa v. Commissioner of Income-tax we were dealing with an error of fact but there is nothing i the language of section 35 to suggest that the error contemplated by that section must necessarily be an error of fact. It can be an error of law. If all the facts are on the record and no further elucidation or ascertainment is necessary and if on those facts it is clear that the Income-tax Officer has rectified under section 35. Mr. Palkhivala's contention is that inasmuch as the Income-tax Officer has not deletion his contention is that inasmuch as the Income-tax Officer has not dealt in his assessment order with this aspect of the matter at all it is not dealt in his assessment order with this aspect of the matter at all it is not a case of rectification it is rather a case of revision or review. We are unable to accept that argument. An error of law may consist of deciding a particular point contrary to the clear provision of a statute. It maybe equally due to ignorance or overlooking of the clear provisions of the statute. It is difficult to understand why if the Income-tax Officer acts contrary to law and says so in his assessment order that error could be rectified under section 35; but if he overlooks of clear provision of the law and fails to give effect to that provision of the law, it should not be considered as a mistake and it cannot be rectified under section 35. An error of law is an error of law, whether the error consists in the failure to carry out a statutory duty imposed upon the officer or in acting in a manner which is contrary to the mandate of the Legislature; and in this case if the statute required the Income-tax Officer to impose a penal interest upon the assessee and that obligation is clear from the record than the failure to discharge that obligation would be an error which would be susceptible of being correct and rectified under section 35.
5. Mr. Plakhivala has contended that if there is a failure to discharge inquired not before it could be said that there is a failure to discharge a statutory duty then t would not be a case of rectification. We agree and that is exactly what we have stated in Sidhramappa v. Commissioner of Income-tax. But we must consider whether on the record answer have before us in this petition it could be said that any facts had to be ascertained before it could be said that there was a statutory obligation upon the Income-tax Officer to impose the penalty.
6. Mr. Palkhivala says that before section 18A(6) can be applied it has to be ascertained that the income was not assessable under section 18 and also that the failure to pay the requisite advance tax was not due to increased rate of taxation brought about by the Finance Act. When we look at the assessment order which is part of the record and when we see that the penal interest is sought to be imposed in respect of business income, it is clear that section 18 has no application. This cannot be a case of tax being deducted at source. With regard to increased rate of taxation, the Finance Act is part of the law of the land and it does not require ascertainment of facts in] order to determine whether the Finance Act had changed the rates of taxation. Therefore, in our opinion, there is no force in this contention either.
7. In our opinion, therefore, if it is clear that under section 18A(6) it was incumbent upon the Income-tax Officer to impose upon the petitioner penal interest then his failure to do so was an error apparent on the face of the record capable of being rectified by him under section 35.
8. The only question therefore that we have now to consider is whether in law the position was what Mr. Joshi says it was viz., that under the terms of section 18A(6), it was obligatory upon the Income-tax Officer to levy this penal interst. If section 18A(6) stood by itself there cannot be any doubt that there is a statutory obligation upon the assessee to pay this penal interest, and if there is a statutory obligation upon the assessee, there is equally a corresponding obligation or duty upon the Income-tax Officer to assess the assessee in that manner. But the difficulty is caused by the fifth proviso to this sub-section and that proviso is to this effect : 'Provided further that in such case and under such circumstances as may be prescribed the Income-tax Officer may reduce or waive the in interest payable by the assessee.' The history of this proviso is that it was enacted by Act XXV of 1953, which Act received the assent of the President on the 24th May, 1953, but it came into force retrospectively from the 1st April 1952. Rules have been framed under this proviso and the relevant rule is rule 48 and that rule states : 'The Income-tax Officer may reduce or waive the interest payable under section 18A in the cases and under the circumstances mentioned below,' and the two relevant circumstances to which we may draw attention are : '(1) when the relevant assessment is completed more than one year after the submission of the return the delay in assessment not being attributable to the assessee.....and (5) any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 18A(6) is justified.' Mr. Palkhivala has drawn our attention to the fact that in this case the assessment order was completed on the 10th March 1953, much more than a year after the submission of the return.
9. Now, let us first of all consider what the position would have been if this proviso was in for neon the 10th March 1953. In fact it came into force on the 24th May, 1953, but for the purpose of testing the argument advance before us by Mr. Palkhivala we must first consider what the effect of this proviso being inforce at the date the assessment order was would be. If this proviso was in force it is clear that the Income-tax Officer had the discretion to reduce or waive the interest payable by the assessee. Therefore looking at the record and looking at] the assessment order it could not be said that the Income-tax Officer had failed to disaccharide his statutory obligation. A discretion having been vested in the Income-tax Officer by proviso it was open to the Income-tax Officer not to impose the penalty and there is nothing on the record to show that the failure to impose the penalty was due to a failure to discharge his obligation under section 18A(6) and not to the exercise of the discretion under the proviso. If particular position s arrived at which can be explained by one or other action being taken by the Income-tax Officer, it is impossible to contend that for the purpose of section 35 we must assume that that position was arrived at by the Income-tax Officer having taken one particular action and that that Income Officer acted accordance with law rather than contrary to law. The assumption should also be that the Income-tax Officer knew the law and not that he was ignorant of the law. Therefore, if the proviso was in force and the Income-tax Officer did not impose a penalty, the court would rather lean in favour of the view that the Income-tax Officer had exercised his discretion under the proviso rather than the view that he had overlooked the law. Therefore it would be impossble to suggest that the absence of any mention in the assessment order with regard to the levying of penal interest must necessarily be ascribed to an error of law on the part of the Income-tax Officer. In our opinion therefore there does not seem to be much difficulty in holding that if the proviso was in force the power of rectification could not have been exercised under section 35 because there was no error apparent on the face of the record.
10. There is a further aspect of the matter which is also of some importance because if the Income-tax Officer had imposed penalty that order could have been challenged in appeal on the ground that the penalty should have been reduced or waived under rule 48. If the Income-tax Officer passes an order in proceedings under section 35 imposing a penalty no appeal lies against that order. That further strengthens our view that rectification proceedings are not intended to the making of an order which if made by the Income-tax Officer originally could have been challenged in appeal. The Legislature did not intend that the rectification order should act to the prejudice of the assessee in this sense that he should be deprived of a right of appeal by resorting to rectification proceedings because a particular order was not made in the original assessment.
11. But let us now deal with the situation as existed as far as the facts of this petition are concerned. When the assessment order was made Act XXV of 1953 had not come into force, and Mr. Joshi says that what ever might be the case if the proviso was in force on the 10th March, 1953, in this particular case in the absence of the proviso there was a clear duty upon the Income-tax Officer, which duty he has failed to discharge. Now, bringing this Act into force on the 24th May, 1953, and making the proviso come into force from the 1st April 1952, the Legislature has introduced a legal fiction and that legal fiction is that for all purposes the law must be considered to be that from the 1st April 1952, section 18A(6) had incorported in it the fifth proviso. When a legal fiction is introduced its implications must be worked out in full. The court must not stop at a particular stage and say 'I will go so far and no further.' Whetever the consequences, out of respect for the Legislature which has introduced the legal fiction the fiction must be allowed to have its full sway, and therefore if on the 24th May, 1953, the legal fiction came into play it was obligatory upon the Income-tax Officer who made the rectification order to give effect to that legal fiction. Therefore, the position as far as the Income-tax Officer was concerned who passed the order of rectification on the 9th October 1956, was that at the date when the Income-tax Officer made the order on the 10th March 1953. By reason of the fiction the fiction is equated with the actuality and the fiction does not permit the court to make any distinction between the position on the 10th March 1953, if the proviso was actually inforce and the position when the proviso was in force by legal fiction.
12. The effect of the legal fiction has been considered by the Supreme Court in State of Bombay v. Pandurang Vinayak and Others. Mr. Justice Mahajan says : 'When a statute enacts that something shall be to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purpose and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion.' Now, if we were to ascertain for what purpose this legal fiction was introduced it is clear that the purpose was to give relief to the assessee against the payment of penal interest and that relief was to be given from the 1st April, 1952. If that was the purpose how is it possible for the Income-tax Officer rectifying the order to ovberlook that purpose We must assume that it was open to the Income-tax Officer making the assessment order to give that relief and that there was nothing on the record to show that he had not given that relief. The Supreme Court also quotes with approval on the same page an observation of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council, which very forcefully brings out the full effect of a legal fiction :
'If you are bidden to treat an imaginary state of affairs as real, you must surely unless prohibited from doing so also imagine as real the consequences and incidents which if the putative state of affairs had n fact existed must inevitably have flowed from or accompanied it....The statute says that you must imagine a certain state of affairs; it does not say that having done so you must cause or permit you imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'
13. Mr. Joshi wants our imagination to boggle at a point which according to him must not be crossed and that point is the fact that on the 10th March 1953 the fifth proviso was not in force.
14. Reference may be made to a judgment in Meka Venkatappaiah v. Additional Income-tax Officer,Bapatla, which may seem to have taken a different view from the one that we are taking. A similar question was considered by the Andhra Pradesh High Court in that case and the High Court decided against the assessee holding that the Income-tax Officer had the power to rectify. But we find that the particular argument on which the assessee is succeeding before us was never advanced before that court. What was advanced was that the court must assume that the Income-tax Officer had waived the penal tax because under the proviso he had the power to do so. Mr. Palkhivala has not put his case on that basis. He does not say that a case of waiver has been made out on the record. The argument which has found acceptance with us is an entirely different argument that on the record as it stands it cannot be clearly predicated of the action of the Income-tax Officer than it constituted a violation of a statutory duty or obligation.
15. The result is that the petitioner must succeed and the rule will be made absolute with costs. There will be an order in terms of prayers (a) and (b) of the petition. Respondent to pay the costs of the petition. With regard to the costs of the appeal we have already ordered that the costs of the appeal will be costs in the petitioner had succeeded he will also be entitled to the costs of the appeal.
16. Petition allowed.