This is a writ petition under article 226 of the Constitution directed against the orders dated the 17th July, 1962, under section 35 of the Income-tax Act, 1922 (hereinafter referred to as the Act), withdrawing the super-tax rebate under clause I (c) to the second proviso to paragraph D of Part II of the First Schedule of the Finance Act of 1958.
The material facts leading up this petition are these : The petitioner is a company duly registered with effect from the 31st December, 1953. The relevant assessment years are 1958-59 and 1959-60. For the assessment year 1956-57, when there was a similar provision regarding the rebate of super-tax, the then Income-tax Officer did not make any reduction in the rebate of super-tax on account of excess dividends beyond six per cent of the paid up capital. For the assessment year 1957-58, the same Income-tax Officer reduced the amount of super-tax in terms of the Finance Act of 1957, the relevant provision whereof was in the same terms as that contained in the Finance Act of 1956. For the relevant assessment years 1958-59 and 1959-60 it was claimed by the petitioners before the Income-tax Officer, on the basis of the decision of the Bombay High Court in Khatau Makanji Spinning and Weaving Co. Ltd. v. Commissioner of Income-tax and the decision of the Supreme Court condensed in Taxation of August, 1960, (since reported in 40 ITR 189), that the provisions of the Finance Act of 1958-59 in regard to the reduction of super-tax rebate was on par with the provision of clause (ii) of the proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act of 1951 whereby an additional income-tax was charged in respect of dividends distributed in excess of Rs. 0-9-0 in the rupees. The assessment order passed by the said officer for the assessment year 1958-59 contained no discussion on this point as to whether the relevant provisions of the Finance Acts of 1958-59 are in pari material or analogous to the aforesaid provisions of the Indian Finance Acts of 1951. The orders passed are silent and it was for this reason that the petitioners were obliged to state that they considered that the view put forward by them before the then Income-tax Officer was accepted by him and therefore no super-tax rebate was directed to be reduced because of excess dividends having been declared.
Subsequently, another Income-tax Officer who had succeeded the Income-tax Officer who made the original assessments for 1958-59 and 1959-60 issued two notices for the relevant years of assessment dated the 26th March, 1962, under section 35 of the Act. These notices were as follows :
'It appears that in the calculation of super-tax payable by you the dividends declared by you over and above six per cent. of the share capital for which necessary reduction in the super-tax rebate should have been made has not been properly done due to which the super-tax payable by you has been charged less. It is a mistake apparent from the record and I wish to rectify it under section 35. Please let me know your objections, if any, by March 31, 1962.'
These notices were served on the 27th of March, 1962, and an application was made for extension of time for filing objections and time was given up to the 7th of April, 1962. Prior to the expiry of this time, on the 5th of April, 1962, the petitioners submitted their objections. The main objections were (1) that no withdrawal of super-tax rebate was made in the assessment for 1956-57 and therefore no rectification was called for; (2) that the Supreme Court in the Case Commissioner of Income-tax v. Khatau Makanji Spinning & Weaving Co. Ltd., had upheld the view of the Bombay High Court that the provision in the Finance Act of 1951 in respect of additional income-tax on account of excess dividend was ultra vires and the provisions of the Finance Acts of 1958 and 1959 were analogous to the provision in the Finance Act of 1951 and, therefore, the super-tax rebate could not have been withdrawal and (3) that the matter was a controversial one which could not be decided under section 35 of the Income-tax Act, a provision which deprived the petitioner of its right of appeal. These objections were overruled holding that the decision of the Supreme Court was not relevant to the point at issue here as the two provisions were not at all analogous and that the error committed was an error apparent on the record and, therefore, the provisions of section 35 of the Income-tax Act, 1922, were clearly attracted. The Income-tax Officer, therefore, by his two orders dated the 17th July, 1962, withdrew the super-tax rebate to the extent of Rs. 10,737 and Rs. 24,173 for the assessment years 1959-60 and 1958-59 respectively.
To complete the narration of facts the petitioner had appealed against the order of assessment for the assessment year 1959-60 to the Appellate Assistant Commissioner who had partly allowed the appeal. As a result a refund became due to the petitioners in the sum of Rs. 23,989.05. A refund voucher was however issued on the 3rd of April, 1962, for Rs. 13,252.05 only; the refund, therefore, was short by Rs. 10,737 which was the precise amount subsequently reduced under the section 35 order passed by the Income-tax Officer for the assessment year 1959-60.
On the basis of the said refund voucher the petitioner contends that the Income-tax Officer had already made up his mind on the 3rd April, 1962, and therefore, the notice issued to him on the 26th of March, 1962, under section 35 of the Act was merely a farce and as such no effective opportunity as required by section 35 can be said to have been given to it. It is also contended in this writ petition that the provisions of section 35 of the Act are not attracted and the correct section under which action ought to have been taken was section 34 of the Act.
As regards the first contention, the mere fact that in the refund voucher the Income-tax Officer, on the 3rd April, 1962, had held back the sum of Rs. 10,737 would not necessarily go to show that he had already made up his mind although notice to show cause had been issued. When notice to show cause is issued it is inevitable that some kind of tentative view must have been formed; otherwise there would be no point in issuing a notice. If a tentative view has been formed there can be no serious objection to the Income-tax Officer holding back the amount which he considers to be in dispute, while issuing the refund voucher to the petitioner. The objections to the proposed rectification were, in fact, filed and each of the objections having been met by the Income-tax Officer it cannot be said that the Income-tax Officer had prejudged the issue and that the notice to show cause was a mere farce. In facts and circumstances of the case it must be held that an effective opportunity was given to the petitioner. In this view of the matter the decisions relied upon by Mr. Kakkar, the learned counsel for the petitioners, in Arulanandam v. Income-tax Officer, Tuticorin and in Chockalingam v. Commissioner of Income-tax are of no avail. In those cases the finding of fact was that no effective opportunity of being heard was given.
On the second question, whether the provisions of section 35 are attracted to a case of this nature, Mr. Kakkar has relied on Shantilal Rawji v. M. C. Nair, where it was laid down that :
'Rectification proceedings are not intended for the making of an order which if made by the Income-tax Officer in the original assessment could have been challenged on 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. This very case of the Bombay High Court, however, lays down that there is nothing in the language of section 35 to suggest that the error contemplated by the section must necessarily be an error of fact; it can be error of law and if all the facts are on the record and no further elucidation or ascertainment is necessary and if on these facts it is clear that the Income-tax Officer had made an error of law, that error can be rectified under section 35.'
The facts of that case, however, were that the fifth proviso to section 18A (6) was inserted in May, 1953, with retrospective effect from April, 1952, whereby the Income-tax Officer was given a discretion to add interest on unpaid advance tax under section 18A (6). The Income-tax Officer had not added such interest and the question arose whether rectification under section 35 was possible. It not being obligatory under the law to add interest in every case, it could not be said that the omission to charge interest in this particular case was necessary due to an error of law on the part of the Income-tax Officer.
That was a case, therefore, where the statute had given the Income-tax Officer a discretion to charge interest or not and his failure to charge interest could not be said to be an error of law apparent on the record.
It was next contended that resort to section 35 should not be had merely to deprive the assessee of the right of appeal. The Bombay case relied upon by Mr. Kakkar is not of any real assistance. This court in Nanhai Ram Ganga Ram v. Commissioner of Income-tax (Special Appeal No. 186 of 1962 decided on November 14, 1962 has laid down that if in a given case the requirements both section 34 and section 35 of the Income-tax Act are satisfied, the application of neither can be ruled out. If the requirements of section 35 are satisfied the assessee cannot claim as a right that he should be dealt with only under section 34 to the exclusion of the liability imposed by section 35 (1) to have the assessment reopened merely because the application of section 34 would be more favourable to him. The same view has already been taken by the Madras High Court in Arulanandam v. Income-tax Officer, Tuticorin.
The only real question to be considered is whether the provisions of section 35 of the Act are attracted on the facts and circumstances of the present case. It must be accepted that the Income-tax Officer who made the assessment for the year 1958-59 and 1959-60 did not consider it necessary, whatever the reason may have been, to reduce the super-tax rebate under the relevant provisions of the Finance Acts of 1958-59. This probably was a deliberate act on his part, though no mention of it is made in the assessment orders passed. There is, however, no reason to disbelieve the affidavit of the petitioner that the question was agitated before that Income-tax Officer who appeared to be satisfied that the provisions of the Finance Acts of 1958-59 were on par with the Finance Act of 1951, which the Supreme Court had declared to be ultra vires. Assuming that the omission to reduce the super-tax rebate was deliberate, but if that view was manifestly erroneous in law, can it be said that the provisions of section 35 would be ruled out and the only course open to the department was to have invoked the provisions of section 34 of the Act
The words used in section 35 'mistake apparent from the record' have come in for consideration by the Supreme Court in Venkatachalam v. Bombay Dyeing and . v. Income-tax Officer, Porbandar. In it, it has been laid down that these words have not the same meaning as in Order XLVII of the Civil Procedure Code and they cannot be ready to mean an error on the 'face of the record' but must be read to mean, as was held in Income-tax Officer, Alwaye v. Asok Textiles Ltd., that the Income-tax Officer has the power under section 35 of the Act to examine the whole record and if he discovers that he has made a mistake he can rectify the error and the error which can corrected might be an error of fact or of law. The error of law, however, must be one which is patent, in other words, which does not require elucidation or debate.
The error in the present case in an error of law which is patent on the record. So far as the Income-tax Officer was concerned he had no jurisdiction to go into the vires of the relevant provisions of the Finance Acts of 1958 and 1959. It was beyond his province to seek an analogy between the provisions of the Finance Act of 1958 with the relevant provisions of the Finance Act of 1951, which the Supreme Court had struck down. The provisions of the two Finance Acts were, admittedly, not in pari materia. The former dealt with the charge of additional income-tax on excess dividends declared whereas the latter dealt with the withdrawal of a concession or the reduction of rebate in super-tax given in the event of excess dividend being declared. If the two provisions had been in pari materia there may have been something to be said for the Income-tax Officer who omitted to reduce the super-tax as required by the Finance Acts of 1958-59. But, as already observed, the provisions were totally different and, therefore, there was no alternative for the Income-tax Officer but to give effect to the relevant mandatory provisions of the Finance Acts of 1958-59. His failure to do so can be ascribed only to an error of law which is patent on the record.
This question was attempted to be argued before the Madras High Court in Papanasam Mills Co. (Private) Ltd. v. Commissioner of Income-tax, where it was pointed out that the provisions of the First Schedule, Part II, paragraph D of the Finance Act of 1956, which is in pari materia with the relevant Finance Acts of 1958-59, was not at all analogous to the provisions of the Finance Act of 1951 which their Lordships of the Supreme Court were called upon to consider in Commissioner of Income-tax v. Khatau Makanji Spinning & Weaving Mills. Their Lordships of the Madras High Court, therefore, had no difficulty in repelling the contention of the petitioners before them that the relevant provision of the Finance Act of 1956 was ultra vires. In the present petition the vires of the provisions of Schedule I, Part II, paragraph D of the Finance Acts of 1958-59 have not even been challenged. The challenge has been confined, and properly so, to the question whether the provisions of section 35 of the Act could be said to be attracted in the facts and circumstances of this case. In my judgment the provisions of section 35 were rightly attracted as there was an error of law in order of the income-tax department which was apparent on the record. In this view of the matter and the relevant provisions of the Finance Acts of 1958-59 being mandatory, the Income-tax Officer, under the provisions of section 35 of the Act, had only done what he was obliged to do under the Act. Therefore, even if it could be said that the provisions of section 35 were wrongly invoked, I would not be justified in exercising the extraordinary writ jurisdiction of this court as no manifest injustice can be said to have been caused.
For these reasons the writ petition is dismissed. In the circumstances of the case the parties are left to bear their own costs.