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His Highness Sir Rama Varma Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Judge
Reported in(1982)2ITD491(Coch.)
AppellantHis Highness Sir Rama Varma
Respondentincome-tax Officer
Excerpt:
.....rectified by dismissing the departmental appeal. it is contended for the revenue that there is no mistake apparent from the record because at the time of passing the order it was a good order in conformity with the law as settled by the kerala high court in varghese (supra) and the supreme court had not then declared that section 52(2) is inapplicable in such cases and it is only thereafter the supreme court declared so. the mistake discovered as a result of the subsequent judgment of the supreme court, it is argued, cannot be a mistake apparent from the record.4. section 254(2) empowers the tribunal to rectify any mistake in its order provided the mistake is apparent from the record. the provision is analogous to that in the corresponding section 154 relating to an assessment order......
Judgment:
1. This miscellaneous petition is filed by the assessee under Section 254(2) of the Income-tax Act, 1961 ('the Act'), seeking amendment of the order of the Tribunal dated 21-3-1978 in IT Appeal No. 340 (Coch.) of 1976-77 for the assessment year 1971-72, by rectifying a mistake stated to be apparent from the records.

2. The short facts which form the background of this petition are these. The assessee sold his place known as 'Sundaravilasom Palace' on 27-3-1971 for Rs. 1,50,000. The value of this asset as on 31-3-1971 was shown in the wealth-tax assessment as Rs. 3,93,000. The ITO invoked Section 52(2) of the Act, on the basis that the fair market value of the property as on the date of transfer exceeded by more than 15 per cent of the full value of the consideration declared by the assessee and levied tax on capital gains substituting the full value of the consideration as Rs. 3,93,000. The contention of the assessee was that Section 52(2) has no application to the case when the declared consideration is the real consideration. The ITO had never disputed the fact that there had been no understatement of consideration. He held that the fair market value exceeded by more than 15 per cent of the consideration declared and, therefore, Section 52(2) applied. The AAC allowed the appeal filed by the assessee against the levy of such capital gains tax, holding that the market value of the property is the consideration declared by the assessee. In further appeal by the revenue, the Tribunal fixed the fair market value at Rs. 3,00,000 and held that Section 52(2) is attracted. The Tribunal negatived the contention of the assessee that Section 52(2) cannot be applied. The Tribunal upheld the levy, applying the decision of the Kerala High Court in ITO v. K.P. Varghese [1973] 91 ITR 49 (FB). Subsequently, the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597 reversed the Kerala High Court's view and held that Section 52(2) has no application in the case of an honest and bonafide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, that Section 52(2) can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee or, in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee, and the burden of proving such understatement or concealment is on the revenue.

3. The assessee, therefore, claims that the order of the Tribunal is contrary to the true legal position and the effect of the decision of the Supreme Court is to render the order bad in law and the error of law apparent from the records is to be rectified by dismissing the departmental appeal. It is contended for the revenue that there is no mistake apparent from the record because at the time of passing the order it was a good order in conformity with the law as settled by the Kerala High Court in Varghese (supra) and the Supreme Court had not then declared that Section 52(2) is inapplicable in such cases and it is only thereafter the Supreme Court declared so. The mistake discovered as a result of the subsequent judgment of the Supreme Court, it is argued, cannot be a mistake apparent from the record.

4. Section 254(2) empowers the Tribunal to rectify any mistake in its order provided the mistake is apparent from the record. The provision is analogous to that in the corresponding Section 154 relating to an assessment order. The mistake apparent from the record within the meaning of Section 254(2) is not only a mistake of fact but a mistake of law as well.M.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 that a glaring and obvious mistake of law can be rectified as much as a mistake of fact apparent from the record. An error of law may consist in deciding a particular point contrary to the true legal position applicable at the time when the order sought to be rectified was passed. The order passed in accordance with law may become erroneous due to an amendment made with retrospective operation and in such cases recourse may be had to the section. Reference may be made in this regard to the decision in Bombay Dyeing (supra). This principle extends to a declaration of law in a subsequent decision of the Supreme Court. Being the highest court of the land the decision of the Supreme Court amounts to declaration of law as contemplated by Article 141 of the Constitution. The declaration has a retrospective effect in that the law so declared is the law applicable not only at the time when the judgment is pronounced but from the very inception. Therefore, an order passed in accordance with the settled position of law at the time when it was passed may become erroneous due to the declaration of the true legal position in a subsequent decision of the Supreme Court. The mistake arising as a result of subsequent interpretation of law by the Supreme Court may constitute a mistake apparent from the record and the rectification action is in order. In this connection, we refer to the decision in Walchand Nagar Industries Ltd. v. N.S. Gaitonde, ITO [1962] 44 ITR 260 (Bom.), Karamchand Premchand (P.) Ltd. v. CIT [1975] 101 ITR 46 (Guj.) and Chokshi & Co. v. CIT {1980] 121 ITR 249 (Cal.). It has been held in these decisions that an assessment becoming invalid due to error of law on account of a subsequent decision of the Supreme Court can be rectified.

6. It is, therefore, clear that in order to bring the mistake apparent from the record it is not necessary for the assessee to establish that there was a mistake at the time of making the order. If the order is inconsistent with the true legal position as subsequently declared, the order is bad at its inception, i.e., on the date it was made and amounts to an apparent mistake, for it is the law that is so declared which must be held to have been in force at the time the order sought to be rectified was passed.

7. In the present case, the order of the Tribunal upholding the levy of capital gains tax invoking Section 52(2) contains an apparent mistake.

The order is inconsistent with the law. It was the result of the wrong view that Section 52(2) applied to the case. Since the revenue had no case at any time that there has been understatement of consideration by the assessee, the provisions of Section 52(2) could not be applied to the case simply because the fair market value exceeded by 15 per cent of the consideration declared. The levy of tax to capital gains is, therefore, illegal. The assessment order has merged in the order of the Tribunal and in upholding the levy, the Tribunal's order suffers from an error of law. The Supreme Court decision has thus rendered the order erroneous and bad at the very inception. The error of law is patent and does not require any elucidation or debate. The error brought out by the Supreme Court decision being so glaring and obvious, requires to be rectified by amending the order.

8. The miscellaneous petition has been filed on 1-2-1982 within four years of the date of the order of the Tribunal. It is pointed out for the revenue that the prescribed period of four years has now expired and, therefore, no rectification can be allowed. We are unable to agree. The proposal for amendment has commenced within the statutory period and the assessee had done what was necessary for rectifying the apparent mistake, by bringing it to the notice of the Tribunal. In such a case, expiry of the prescribed period of four years cannot be a bar for rectification. We may refer to the decision of the Allahabad High Court in Vithaldas v. ITO [1969] 71 ITR 204 where the assessee made an application for rectification within the prescribed period and no order of rectification was passed within the date, the High Court issued a writ directing the rectification after the expiry of four years. We, therefore, reject the contention of the revenue.

9. The departmental representative also submitted that even if the error is found apparent from record, an opportunity has to be given to the revenue to prove understatement of consideration. At no stage of the proceedings, the revenue had the case that the consideration declared by the assessee is not the actual consideration. It is, therefore, not necessary to go into the question at this stage. We hold that the order of the Tribunal suffers from an apparent error of law in upholding the levy of capital gains tax and allowing the departmental appeal. We, therefore, allow this miscellaneous petition, recall the order and dismiss the appeal.


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