Jeevan Reddy, J.
1. The question referred to us for our opinion under s. 256(1) of the I.T. Act is :
'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the invocation of section 154 of the Income-tax Act, 1961, is not appropriate for the relevant assessment year 1966-67 ?'
2. It is necessary to state the relevant facts for properly appreciating the question referred. The assessee is a registered firm. For the assessment year 1966-67, the assessee ought to have filed its return of income on or before June 30, 1966, but filed the same only on October 29 1966. For the late submission of return, the ITO levied a penalty of Rs. 24 under s. 271(1)(a) of the Act by his order, date January 30, 1969. Subsequently, the ITO discovered that, while levying the penalty, he had ignored the provisions of sub-s. (2) of s. 271 and accordingly revised the same under s. 154 of the I.T. Act, enhancing the penalty to Rs. 3,674 on the basis of the tax computed in the status of an unregistered firm, as contemplated by sub-s, (2) of s. 271. On appeal, the AAC affirmed the order. On further appeal, the Tribunal allowed the appeal and set aside the penalty on the ground that, as the law then stood, no penalty whatsoever was leviable on the firm for the reason that it had paid more tax under s. 140A than was due from it for the said assessment year. It pointed out that clause (i) of sub-s. (1) of s. 271 at the relevant time provided for levy of penalty in a sum equal to two per cent. of the tax for every month during which the default continued but no exceeding in the aggregate fifty per cent. of the tax. The word 'tax' in the above clause was construed by the Supreme Court in CIT v. Vegetable Products Ltd., : 88ITR192(SC) , as tax due on the date of imposition of the penalty. Following that decision, the Tribunal held that inasmuch as the assessee-firm had paid more tax under s. 140A than was due from it for the said assessment year, no tax was due from it on the date of levy of penalty; and it so, no penalty whatsoever could be levied, Since the very levy of penalty itself was bad, the ITO's order under s. 154 of the I.T. Act enhancing the penalty with reference to sub- s. (2) of s. 271 was set aside.
3. The Tribunal's order is date July 30, 1974. On August 18, 1974, clause (i) of sub-s. (1) of s. 271 was amended, along with certain other provisions, by the Direct Taxes (Amendment) Act, 1974, with retrospective effect from the date of the commencement of the Act. The word 'tax' in the clause was substituted by the words 'assessed tax' and an Explanation was added. The Explanation reads :
'In this clause, 'assessed tax' means tax as reduced by the sum, if any, deducted at source under Chapter XVIIB or paid in advance under Chapter XVIIC.'
4. According to the amended provision, penalty is leviable in a sum equal to two per cent. of the assessed tax for every month during which the default continued; and 'assessed tax' means the tax as reduced by the sum deducted at source or paid by way of advance tax. In other words, the tax, if any, paid under s. 140A is not deductible. The effect of this amendment was that, on the date of the levy of penalty, it must be deemed that 'assessed tax' was due from the firm, and that can form the basis for levy of penalty at the rate prescribed.
5. In view of this amendment, the Department filed a miscellaneous petition being Miscellaneous Application No. 73 (HYD) / 1974-75 before the Tribunal requesting it to modify its order, dated July 30, 1974, under s. 254(2) of the Act in view of the Amendment Act which came into force with retrospective effect. It was contended that, in view of the Amendment Act, the levy of penalty by the ITO by his order, dated June 1, 1972 (in exercise of his powers under s. 154 of the Act) was valid and proper. The assessee too filed miscellaneous application being Miscellaneous Petition No. 1 (HYD) / 1975-76, requesting the Tribunal to record a finding on the contention urged by it before the Tribunal on the earlier occasion to the effect that there were no grounds warranting the ITO to invoked his power of rectification under s. 154 of the Act and to enhance the penalty. The Tribunal disposed of both the miscellaneous applications under a common order, dated July 30, 1975.
6. The Tribunal noticed in its order that the assessee had urged on the earlier occasion that there was no mistake apparent from the record which warranted the ITO to rectify the order, dated January 30, 1969, under s. 154 of the Act, but that the Tribunal had not expressed its opinion on the contention. The Tribunal accordingly proceeded to deal with that contention on this occasion. It held that the error, if any, in the order, dated January 30, 1969, cannot be said to be a galring or a patent error apparent from the record, warranting it rectification under s. 154. It would be appropriate to set out the reasoning of the Tribunal in its own words :
'The Income-tax Officer sought to rectify the alleged mistake in his order, dated January 30, 1969, on the ground that the assessee was a registered firm and, according to the provisions of section 271(2) of the Income-tax Act, 1961, the quantum of penalty should be calculated by treating it as an unregistered firm. We do not think that the error that is alleged is so glaring or patent from the records. We may mention that even the constitutionality of collecting interest from a registered firm at the prescribed rate on the amount of tax which would have been payable if the firm had been assessed a an unregistered firm, under the provisions of section 139(1) as they stood prior to April 1, 1971, read with section 139(4), came up for consideration before the Karnataka High Court and the said High Court Struck down the said collection as unconstitutional-vide the decision in the case of M Nagappa v. Income-tax Officer, reported in : 99ITR32(KAR) . It is well settled, as seen from the authoritative pronouncement of the Supreme Court in the case of T. S. Balaram, Income-tax Officer v. Volkart Brothers, reported in : 82ITR50(SC) that a mistake, to be rectified under section 154 of the Income-tax Act, 1961, 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 to two opinions, and that a decision on a debatable point of law is not a mistake apparent from the record. For this reason also, we hold that the penalty levied has to be cancelled. In view of our above finding that there is no mistake apparent from the record in the order of the Income-tax Officer passed on January 30, 1969, warranting rectification under section 154 of the Income-tax Act, 1961, it is not necessary for us to consider the legal issue raised by the Revenue in its application.'
7. A parcel of the judgment of the Tribunal shows that the Tribunal was of the opinion that there was no error apparent on the face of the record in the order of the ITO, dated January 30, 1969, because a provision similar to s. 271(2), namely, s. 139(1) read with s. 139(4), was struck down by the Karnataka High Court as unconstitutional. On that basis, the Tribunal held that the error in no taking into account sub-s. (2) of s. 271 cannot be said to be an obvious or patent mistake. According to it, it was a mistake which could be established only by a long drawn process of reasoning on points on which there may conceivably be two opinions and further that it was a debatable point of law. The Tribunal has not expressed any opinion on the question urged by the Department by way of miscellaneous petition, viz., the effect of the Amendment Act with retrospective effect.
8. It is necessary to clarify the legal position first. If we ignore the Direct Taxes (Amendment) Act, 1974, which was enacted with retrospective effect, the position is that no tax being due from the assessee-firm on the date of levy of penalty, no penalty whatsoever could be levied. That is the decision of the Tribunal on July 30, 1974, and no exception can be taken thereto. When once the levy of penalty is itself not warranted in law, it equally follows that the power under s. 154 to rectify such an orders and to enhance the amount of penalty is equally unavailable. But this position has undergone a substantial change by virtue of the aforesaid Amendment Act. The effect of enacting the Amendment Act with retrospective effect is that we must assume that the amended provisions were there at all times. If this amended provision is thus assumed to be there when the ITO passed his order, dated January 30, 1969, there can be little dispute about the proposition that the levy of penalty was valid. Since the order, dated January 30, 1969, levying penalty was made in ignorance of sub-section (2) of s. 271, it was open to the ITO to rectify his order by invoking his power under s. 154 and to enhance the penalty. It is this position in law which the Department sought to bring to the notice of the Tribunal by its miscellaneous application.
9. A fact to be kept in mind in this case is that this is not a case where the ITO has sought to rectify the original order with reference to the Amendment Act. The ITO did not has pass any order whatsoever after coming into force of the Amendment Act. He had rectified his order, before the enactment of the Amendment Act, under s. 154 on the ground that he had ignored sub-s. (2) of s. 271, which order was set aside by the Tribunal by its order, date July 30, 1974. This is also not a case where, on the date of the coming into force of the Amendment Act, any appeal or reference arising directly, from the order of the ITO dated January 30, 1969, was pending.
10. At one stage, we though of sending the matter back to the Tribunal for the reason that it has to expressed any opinion on the effect of the Amendment Act and on the question whether the said amendment with retrospective effect can be deemed to be or can furnish a valid ground for rectification under s. 154. But both the counsel stated before us that it is not really necessary to send the matter back to the Tribunal because the question is a pure question of law upon which this court can itself express its opinion.
11. The real question in this case, according to us, is whether the Direct Taxes (Amendment) Act, 1974, enacted with retrospective effect, warrants or whether it furnishes an error apparent on the face of the record empowering the Tribunal to rectify and revise its order, dated July 30, 1974, under s. 254(2). This would necessarily involve the question whether the ITO could have rectified his order, dated January 30, 1969, after the coming into force of an on the basis of the Direct Taxes (Amendment) Act, 1974, with retrospective effect. If he could do that, then the Tribunal ought to have revised its order, dated July 30, 1974, and sustained the ITO's order, dated January 30, 1969, with reference to, and on the basis of, the Amendment Act. Mr. M. Suryanarayana Murthy, the learned standing counsel for the Department, contends that once the law is enforced with retrospective effect, it is to an ITR to rectify and revise his order already passed--which may have become final-to bring it in accord and in conformity with the Amendment Act. He relies upon the decision of the Supreme Court in M. K. Venkatachalam, ITO v. Bombay Dyeing and ., : 34ITR143(SC) , whereas Mr. Srirama Rao, the learned counsel for the assessee, contends, firstly, that orders which have become final by the date of enforcement of the Amendment Act cannot be reopened merely because the Amendment Act is enacted with retrospective effect and, secondly, that the retrospective amendment in this case cannot be said to constitute or furnish the requisite ground viz., error apparent on the face of the record within the meaning of s. 154 or s. 254, as the case may be, since it is a debatable and arguable question. Strong reliance is placed by the learned counsel upon the decision of the Supreme Court in ITO v. S. K. Habibullah : 44ITR809(SC) , as also on the decision of the Bombay High Court in J. M. Shah, v. J. M. Bhatia, AAC : 94ITR519(Bom) .
12. In Bombay Dyeing Company's case : 34ITR143(SC) , the assessment was completed on the company by an order, dated October 9, 1952, whereunder the ITO gave credit for a sum of Rs. 50,063 being interest at two per cent. on the advance tax paid by the company under s. 18A(5) of the Indian I.T. Act, 1922. This order became final. After the making of this order, Parliament enacted the I.T. (Amend) Act, 1953, with retrospective effect from April 1, 1952. This Amendment Act, inter alia, inserted a proviso to s. 18A(5), the effect of which was that the assessee was entitled to interest not on the whole of the advance tax paid by him, but only on the difference between the advance tax so paid and the amount of tax determined on regular assessment. In view of this retrospective amendment, the ITO, exercising his powers under s. 35 of the 1922 Act, rectified the order of assessment and reduced the amount of interest to which the company was held entitled to, and made a demand in a sum of Rs. 29,446. On a writ of prohibition filed by the company, the Bombay High Court issued the rule whereupon the Revenue went in appeal to the Supreme Court. It was firstly argued before the Supreme Court that the retrospective operation given to the Amendment Act was not intended to affect completed assessments. It was argued that only if any assessment proceedings in respect of the assessee's income for a period subsequent to April 1, 1952, were pending at the time the Amendment Act was passed, then alone the proviso to s. 18A(5) can be invoked but not in a case where the assessment had been completed before the date on which the Amendment Act was passed. This argument was negatived by the Supreme Court holding that, in view of the retrospective operation given to the enactment, the principle of finality of the orders or the sanctity of the existing rights cannot be effectively invoked by the asessee. The next argument urged by the assessee was based upon the distinction in the language between s. 13 of the Amendment Act and ss. 3(2), 7(2) and 30(2) of the Amendment Act. It was argued that the latter provisions expressly empowered the ITO to revise and rectify the order already passed by him whereas s. 13, which introduced the aforesaid proviso, does not so require or empower the ITO to rectify his orders. This argument was met by the Supreme Court by pointing out that the latter set of provisions of the Amending Act were intended for the benefit of the assessee and hence the Legislature may have though it necessary to confer on the ITO specific and express power to revise his order to give effect to the amendments in question. But, it was pointed out, the distinction in the language of both the provisions is not available to hold that the retrospective operation given to the provisions in question was not intended to affect concluded assessments. Then the Supreme Court addressed itself to the scope and effect of the expression 'mistake apparent from the record', in the context of the effect and meaning of retrospectively of a statute. It observed at pp. 149 and 150 :
'At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he has to read the principal Act as containing the inserted proviso as from April 1, 1952. 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 consistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie it may appear somewhat strange that an order which was good wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record. That is why we think that the Income-tax Officer was justified in the present case in exercising his power under section 35 and rectifying the said mistakes.'
13. This decision, therefore, clearly supports the argument of Shri M Suryanarayana Murthy that an order which is inconsistent with the provisions of a subsequently made provision with retrospective effect, must be deemed to suffer from a mistake apparent from the record and is liable to be rectified under s. 154 of the Act. That this decision clearly supports the Revenue's case is also conceded by Shri Srirama Rao, but what he contends is that the principle of this decision must be deemed to have been qualified by the subsequent decision of the Supreme Court in Habibullah's case : 44ITR809(SC) . He also brings to our notice how the Bombay High Court has understood both these decisions in J. M. Shah's case : 94ITR519(Bom) . It is, therefore, necessary to examine the principle of the decision in Habibullah's case : 44ITR809(SC) . The amendment considered in this decision was made by the Indian I.T. (Amend.) Act, 1953, being Act No. XXV of 1953, the same Act as was considered in Bombay Dyeing Companies case : 34ITR143(SC) . The amendment became a law on May 24, 1953. But the provisions with which we are concerned herein, viz., the amendments to s. 35 of the Indian I.T. Act, 1922, were made with retrospective effect from April 1, 1952. Section 19 of the Amendment Act introduced sub-ss. (5), (6) and (7) in s. 35 of the principal Act. It would be appropriate to set out sub-ss. (5) and (6) of the Amendment Act.
'(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 or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the shares of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the shares in the assessment or the correction thereof, as the case may be, 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 referred to in that sub-section being computed from the date of the final order passed in the case of the firm.
(6) Where the excess profits tax or the business profits tax payable by an assessee has been modified in appeal, revision or any other proceeding, or where any excess profits tax or business profits tax has been assessed after the completion of the corresponding assessment for income-tax (whether before or after the commencement of the Indian Income-tax (Amendment) Act, 1953), and in consequence thereof it is necessary to recompute the total income of the assessee chargeable to income-tax, such recomputation 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 accordingly, the period of four years, referred to in that sub-section being computed from the date of the order making or modifying the assessments of such excess profits tax or business profits tax.
Explanation-For the purposes of sub-section (6), where the assessee is a firm, the provisions of sub-section (5) shall also apply as they apply to the rectification of the assessment of the partners of the firm.'
14. In the case before the Supreme Court, i.e., Habibullah's case : 44ITR809(SC) , the assessee submitted returns of his income and incorporated therein the estimated share of his losses in two firms in which he was a partner. The ITO completed the assessment on February 20, 1950, after adopting he estimates furnished by the assessee, but with a note that the losses accepted were subject to revision on ascertainment of correct particulars. The assessment of the two firms in which the assessee was a partner was completed on October 31, 1950, and the losses computed were at a substantially low figure than the estimates submitted by the assessee. On receipt of this information, the ITO issues a notice to assessee calling upon him to show cause why the order of assessment should not be rectified under s. 35 of the Act. This notice was issued on May 4, 1953. The assessee replied by saying that he has no objection for completing the assessments in accordance with law whereafter, by his order dated March 27, 1954, the ITO revised the assessment taking into account the share of thelosses as computed in the assessment of the two firms.Soon thereafter the assessee died and his son applied to the Commissioner for revising the order of the ITO which was refused, whereupon he approached the High Court of Madras by way of a writ petition. The High Court issued the writ of certiorari quashing the rectification orders. The Revenue brought the matter up to the Supreme Court. The question arising for consideration was posed by the Supreme Court in the following words (p. 813) :
'The question which falls to be considered is whether relying upon clause (5) of section 35 an Income-tax Officer may rectify the assessment of a person who is a partner of a firm when the assessment of the firm is completed before the 1st of April, 1952.'
15. The Supreme Court observed (p. 813) :
'The legislature has given to clause (5) a partial retrospective operation. The provision enacted by clause (5) is not procedural in character; it affects vested rights of the assessee. Therefore, in the absence of compelling reasons, the court would not be justified in giving a greater retrospectivity to the provision than is warranted by the plain words used by the Legislature.'
16. It was observed that the orders which the ITO rectified on March 27, 1954, were passed long prior to April 1, 1952, to which date alone the retrospective operation of sub-s. (5) of s. 35 was limited by Parliament. It was held that the orders which have become final before April 1, 1952, could not have been revised or rectified under s. 35 because that would amount to giving the provision a greater retroactivity than was expressly provided by Parliament. In this context, they contrasted the language of sub-s. (5) with the language of sub-s. (6) which provided that where excess profits tax or business profits tax payable by an assessee has been modified or where the same has been assessed after the completion of the corresponding assessment of the income of the assessee chargeable to income-tax in consequence of the orders relating to excess profits of business profits, such recomputation shall be deemed to be a rectification of a mistake apparent from the record within the meaning of sub- s. (6). It was observed (p. 815) :
'Under sub-section (6), Parliament had expressly authorised rectification in the circumstances mentioned therein even if the assessment has been completed before the commencement of the Indian Income-tax (Amendment) Act, 1953, but made no such provision in sub-section (5) and it would be reasonable to infer that the Legislature did not intends to grant to the Revenue authorities a power to rectify the assessments falling within sub-section (5) where the firm's assessment was completed before April 1, 1952.'
17. In our opinion, the words 'before the commencement of the Indian I.T. (Amend.) Act, 1953', means and signify the first day of April, 1952, and not the date on which the amendment became a law. Any other under-standing would make the above observation wholly meaningless and unintelligible. There is no reference in this decision - it may be noted-to the earlier decision of the Supreme Court in Bombay Dyeing Company's case : 34ITR143(SC) . And we see no conflict between these two decisions. What the Supreme Court said in Habibullah's case : 44ITR809(SC) , is that an order passed prior to April 1, 1952, is not available to be rectified under sub-s. (5) of s. 35, which was given retrospective effect only with effect from April 1, 1952. It is clear that had the assessment order in Habibullah's case been passed after April 1, 1952, the court would have upheld the power of rectification. We have carefully gone through the decision in Habibullah's case and we find no principle which is incompatible with the principle enunciated in Bombay Dyeing Company's case. In Bombay Dyeing Company's case, it may be recalled, the amendment concerned therein was also given retrospective effect from April 1,1952, but the factual difference in both the cases is that the assessment order in Bombay Dyeing Company's case : 34ITR143(SC) , was passed on October 9, 1952, i.e., after April 1, 1952, and, therefore, was held amenable to rectification, whereas in Habibullah's case : 44ITR809(SC) , the assessment order was passed earlier to April 1, 1952, and, therefore, was held no amenable to rectification. The decision in Habibullah's case cannot be understood as saying that any order passed prior to the making of the Amendment Act cannot be rectified even though the order is covered by the retroactivity, that is to say, is passed on a date on which the Amendment Act must be deemed to have been in force. Any such principle would not only run counter to the principle enunciated in Bombay Dyeing Company's case but also to the well-established principle underlying the effect of the retrospective operation given to a statute. Some of the decisions affirming the said principle were referred to and affirmed in Bombay Dyeing Company's case.
18. Shri Srirama Rao, however, commended to us the reasoning of the Bombay High Court in J M Shah's case : 94ITR519(Bom) where the learned judges opined that there is a clear divergence of opinion between these two decisions. We may briefly refer to the facts and reasoning of the Bombay High Court by which they came to the aforesaid conclusion. The case arose under the W.T. Act. The AAC allowed the assessee's appeal on June 26, 1970, holding that the value of the jewellery was not liable to be included in the wealth of the assessee, in the light of s. 5(1)(viii) of the Act, as it then stood and as it was interpreted by the Supreme Court in CWT v. Arundhati Balkrishna : 77ITR505(SC) , this order became final. On August 10, 1971, Parliament enacted the Finance (NO. 2) Act, 1971, s. 32 whereof amended s. 5(1)(viii), with retrospective effect from April 1, 1963. By virtue of this amendment, jewellery was excluded from the scope of the words 'other articles intended for the personal or household use of the assessee'. In pursuance of this amendment, the AAC rectified his order, dated June 26, 1970, and included the value of the jewellery in the net wealth of the assessee, which order was questioned by way of a writ petition in the Bombay High Court on the ground that he had no power to rectify his earlier order, inasmuch as 'there was no error apparent on the fact of record because, (a) the original assessment when made was in accordance with law; and (b) the question as to whether the Amendment Act applies to assessments which were already complete was, in any event, a debatable question ?' The first ground of attack was not pressed by Mr. Palkhivala, who appeared for the assessee, in view of the judgment of the Supreme Court in Bombay Dyeing Company's case : 34ITR143(SC) . He urged only the second ground of attack and it found acceptance at the hands of the High Court. The learned judges deduced the divergene on the following reasoning (p. 532) :
'It was observed in Habibullah's case : 44ITR809(SC) , the assessment orders were, subject to the provisions relating to appeals, revisions, reassessment and recitification, final; whereas in the Bombay Dyeing Company's case : 34ITR143(SC) , 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 these cases, and directly arises in the present case also.'
19. While refusing to go into the correctness of either view, the learned judges held that it being an arguable and debatable point, the power of rectification is not available. With great respect to the learned judge, we are not able to see any conflict between the two decisions of the Supreme Court. We have already recorded our reasons for saying so. We also think that the period and that the Supreme Court did not treat this circumstances as a ground of its decision in either case. We may incidentally mention that the subsequent decisions of the Supreme Court in Devinatha Nadar's case : 68ITR252(SC) and K S Rashid's case : 85ITR118(SC) , do not lay down any principle different from Habibullah's case : 44ITR809(SC) , as indeed observed by the learned judges of the Bombay High Court also. They have also not been relied on before us by the learned counsel for the assessee.
20. Now, coming back to the facts of the present case, it would be noticed that the amendment concerned herein was given retrospective effect right from the date of the commencement of the 1961 Act. It must, put in by the said Amendment Act were always there at all points of time. If so, the order of the ITO, dated January 30, 1969, levying penalty was valid and competent. Once that order is valid and competent, then its rectification by the ITO on the ground that he had ignored the provisions of sub-s. (2) of s. 271 must be held to be competent and valid. The Tribunal, therefore, ought to have revised its order date July 30, 1974, and upheld the ITO's order, dated June 1, 1972. It ought to have allowed the miscellaneous application filed by the Department before it.
21. For the above reasons, the question referred to us is answered in the negative, i.e., in favour of the Department and against the assessee. In the circumstances, however, there shall be no order as costs.