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Omega Sports and Radio Works Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 119 of 1976
Judge
Reported in(1982)28CTR(All)80; [1982]134ITR28(All); [1982]9TAXMAN193(All)
ActsIncome Tax Act, 1961 - Sections 154
AppellantOmega Sports and Radio Works
RespondentCommissioner of Income-tax
Appellant AdvocateR.K. Gulati, Adv.
Respondent AdvocateMarkandey Katju, Adv.
Excerpt:
- - 'the consensus of judicial opinion as well is to the same effect......was legally justified in the case. it was, however, contended that in view of the fact that the question is highly debatable in nature and the punjab and haryana high court has taken a different view on this matter, recourse to section 154 of the act could not be taken. this contention has found favour with the appellate tribunal and it has taken the view that even though, because of the fact that the decisions of this court are binding in uttar pradesh, it was not possible to hold that an order passed by an authority in the state of u.p. contrary to the ratio of the decision of the allahabad high court suffers from a glaring or obvious mistake of law.4. since this question was highly contentious, recourse to section154 of the act was not justifiable.5. now, at the instance of the.....
Judgment:

R.R. Rastogi, J.

1. This is a reference under Section 256(1) of the I.T. Act, 1961 (hereinafter ' the Act '). The brief facts are these, M/s. Omega Sports & Radio Works, Gorakhpure, hereafter ' the assessee ', was a registered firm of three partners. On August 19, 1968, two of the partners retired and with effect from the following date, i.e., August 20, 1968, the surviving partner and one another formed the partnership. For the assessment year 1969, the previous year ended on March 31, 1969, the assessee filed two returns and in respect of the first period claimed renewal of the registration and for the latter period a fresh registration. The ITO being of the opinion that there was a change in the constitution of the firm with effect from August 20, 1968, made one assessment for the entire year in the status of a registered firm. The income of the two periods aforesaid was allocated amongst the partners of the firm as existing during the two periods respectively and allowed renewal of registration under Section 184(7) for the first period and for the second period allowed fresh registration under Section 185(1)(a) of the Act.

2. No appeal was filed against that order. Subsequently, the assessee made an application under Section 154 of the Act, requiring the ITO to pass separate assessment orders for the two periods aforesaid. It was contended that a mistake apparent on the face of the record had occurred, inasmuch as only one assessment had been framed for the entire period and, hence, rectification was sought. The ITO did not accept that contention and rejected the application, vide his order dated May 11, 1973. On appeal, the AAC took a contrary view and directed the ITO to frame separate assessments for the aforesaid two periods. The department then took up the matter in appeal before the I.T. Appellate Tribunal.

3. The revenue conceded before the Appellate Tribunal that in view of the Full Bench decision of this court in Dahi Laxmi Dal Factory v. ITO : [1976]103ITR517(All) , which is binding in the State of Uttar Pradesh, it may not be possible to argue that one assessment for the entire period was legally justified in the case. It was, however, contended that in view of the fact that the question is highly debatable in nature and the Punjab and Haryana High Court has taken a different view on this matter, recourse to Section 154 of the Act could not be taken. This contention has found favour with the Appellate Tribunal and it has taken the view that even though, because of the fact that the decisions of this court are binding in Uttar Pradesh, it was not possible to hold that an order passed by an authority in the State of U.P. contrary to the ratio of the decision of the Allahabad High Court suffers from a glaring or obvious mistake of law.

4. Since this question was highly contentious, recourse to Section154 of the Act was not justifiable.

5. Now, at the instance of the assessee, the Appellate Tribunal has referred the following question of law to this court.

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of Section 154 were not applicable in this case '

6. We have already narrated the facts of the case above and it would be seen that in view of the decisions of this court in Dahi Laxmi Dal Factory : [1976]103ITR517(All) , CIT v. Kunj Behari Shyam Lal : [1977]109ITR154(All) , the controversy stands concluded that in the event of a change taking place in the constitution of a firm during the course of a year, separate assessments should be framed for the two periods. That being so, in the case of the assessee for the two periods aforesaid separate assessments should have been made. The question, which, however, falls for consideration is as to whether there was a mistake apparent on the record which could be rectified under Section 154 of the Act ?

7. It was submitted before us on behalf of the assessee by Sri R. K. Gulati, that there was an obvious and patent mistake which could be rectified under Section 154 of the Act because the framing of the assessment for the entire period was against the decision of this court and there can be no room for any controversy that the decisions of this court are binding on all the I.T. authorities in this state. On the other hand, Sri Markandey Katju, for the department, contended that this mistake could not be treated as a mistake apparent on the record because it is a highly debatable issue as to whether in the circumstances of the case one assessment need be framed for the entire year or separate assessments are required to be framed for the period preceding the change taking place in the constitution of the firm and for the period thereafter. It w'as contended that some other High Courts have taken a view which is contrary to the view taken by this court, and, therefore, it cannot be said that it is a settled and concluded question of law. We are not inclined to agree with Sri Katju. In T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) , of course it has been laid down that 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. A decision on a debatable point of law, is not a mistake apparent from the record. This decision is, however, not applicable to the situation obtaining in the present case because the law, in so far as this State is concerned, stands settled by the decisions of this court in Dahi Laxmi Dal Factory : [1976]103ITR517(All) and Kunj Behari Shyam Lal : [1977]109ITR154(All) . The ITO was, therefore, bound toapply the law declared by this court (see Karam Chand Thapar and Brothers v. State of Utter Pradesh [1975] UPTC 11 and U. P. Agricultural Corporation v. Commr. of Sales Tax [1978] UPTC 414). Apart from this, as has been indicated above, it was conceded by the departmental representative before the Appellate Tribunal that in view of the decision of this court in Dahi Laxmi Dal Factory : [1976]103ITR517(All) , which is binding within the State of U.P., it may not be possible to argue that one assessment for the whole period was legally justified in this case. In our opinion, therefore, the Appellate Tribunal was in error in holding :

' While, there can be no dispute that the decisions of the hon'ble High Court are binding in the State of U.P., it is not possible to hold that an order passed by an authority in the State of U.P. contrary to the ratio of the decision of the Allahabad High Court suffers from a glaring or obvious mistake of law. '

The consensus of judicial opinion as well is to the same effect. In Devendra Prakash v. ITO : [1969]72ITR151(All) . ' It is clear, therefore, that the Income-tax Officer does not have to shut his eyes completely to all extraneous matters when judging whether a particular assessment record reveals a ' mistake aparent from the record '. He can take into account statutory provisions and pronouncements of the Supreme Court. We see no reason why this principle should not also apply to a case where a High Court has given a decision that shows an existing assessment order to be erroneous ; and if the argument is taken to its logical extreme, the Income-tax Officer should be able to take note of any judicial pronouncement by any court or tribunal, when considering whether there is a ' mistake apparent from the record ' of a prior assessment.'

8. The Gujarat High Court in CIT v. Ramjibhai Hirjibhai & Sons : [1977]110ITR411(Guj) did not approve of the view taken by the Tribunal that in view of the divergence of judicial opinion between some High Courts it could not be said that the provisions of Section 154 would be applicable on the facts of the case and held that one of the reasons for that was that there was no scope for debate on the question involved in view of the decision of that court in Dalwadi & Co. v. CIT (Income-tax Reference No. 54 of 1972 decided on December 17, 1973). In other words if there is a decision on a particular point by a High Court it is binding on the I.T. authorities in that State and merely because there is some judicial divergence of opinion on that point between that court and some other High Courts, it cannot be said that there is scope for debate so that Section 154 cannot be attracted.

9. We may also refer to a decision of the Punjab and Haryana High Court in CIT v. Mohan Lal Kansal [1978] 114 ITR 583, where it has been laid down that the I.T. authorities situated within the jurisdiction of aparticular High Court are bound by its decision. So long as the decision stood, the I.T. authorities were bound to follow the rule laid down therein. In that case the assessee-firm did contract work for the Government. In its assessment for the year 1970-71, the receipts did not include the value of materials supplied by the Government. The ITO in view of the judgment of that court in Brij Bushan Lal v. CIT , rectified this assessment and included in the total income a further sum representing the value of the materials supplied by the Government. The AAC reversed that order and the Tribunal affirmed it. The Tribunal took the view that since there was a conflict of opinion on this question among the courts there was no mistake apparent on the record to justify the rectification and also refused to state a case for a reference to the High Court. On an application to the High Court under Section 256(2) of the Act, it was held that the I.T. authorities, so long as the decision in Brij Bushan Lal stood, were bound to follow the rule laid down therein. It was observed (p. 586 of 114 ITR):

' As the point in issue was no more debatable, the Tribunal was not justified in refusing to refer the question noted above on the basis of the decision of the Supreme Court in T. S. Balaram's case : [1971]82ITR50(SC) .'

10. It would appear, therefore, that the I.T. authorities situated within the jurisdiction of a particular High Court are bound by its decisions and simply because some other courts have taken a different view, it would not be correct to say that that issue was debatable in so far as that court was concerned.

11. Learned counsel for the department drew our attention to a Division Bench decision of this court in CIT v. Vindeshwari Trading Corporation [1978] 113 ITR 791. We do not think that this decision helps the revenue in any way. That was a decision given on an application under Section 256(2) of the Act and the question for which reference was sought was as to whether separate assessments are to be framed when a change takes place in the constitution of a firm. Their Lordships took the view that in view of the decisions of this court in Dahi Laxmi Dal Factory and Kunj Behari Shyam Lal : [1977]109ITR154(All) this question stands concluded. But, in view of the fact that a Full Bench of the Andhra Pradesh High Court, in the case of Addl. CIT v. Visakha Flour Mills [1977] 108 ITR 466, after considering one of the aforesaid Full Bench decisions of this court, took a view contrary to that taken by this court, and this controversy has not been settled by the Supreme Court, took the view that it could not be said that no statable question of law arose from out of the appellate order Of the Tribunal. This decision does not say that in so far as the I.T. authorities of this State are concerned, they can take the view that this question is of a debatable nature because some of the High Courts have taken a different view, and so, recourse cannot be taken to Section 154 of the Act. On thisview the Appellate Tribunal was not right in holding that Section 154 of the Act would not be invoked in this case.

12. We, therefore, answer the question in the negative, in favour of the assessee and against the department. The assessee in entitled to costs which we assess at Rs. 250.


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