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Commissioner of Income-tax Vs. Satnam Transport Co. (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 41 of 1971
Judge
Reported in[1973]92ITR42(P& H)
ActsIncome Tax Act, 1961 - Sections 155 and 155(5); Income Tax Act, 1922 - Sections 35(2)
AppellantCommissioner of Income-tax
RespondentSatnam Transport Co. (P.) Ltd.
Appellant Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Respondent Advocate S.C. Kapoor and; M.S. Aneja, Advs.
Cases ReferredS. Sankappa v. Income
Excerpt:
.....assessee filed an appeal before the appellate assistant commissioner who reversed the order of the income-tax officer holding that, since the original assessment was made under the old act, the rectification could also be made under the same act and as an order of rectification had been made under the 1961 act, therefore, it was bad. he has very vehemently submitted that the use of the words 'notwithstanding anything contained in this act' clearly shows that sub-section (5) of section 155 overrides the other provisions of the act. 4. the learned counsel for the revenue has also submitted in the alternative that if it is assumed that sub-section (2) of section 35 of the 1922 act was applicable to the present case and rectification could be made of the order of the income-tax officer under..........(3) or sub-section (4) of section 33; or (ii) at any time before the expiry of the eight years referred to in sub-section (3) of section 34, the assessee utilises the amount credited to the reserve account under clause (a) of that sub-section,-- (a) for distribution by way of dividends or profits; or (b) for remittance outside india as profits or for the creation of any asset outside india ; or (c) for any other purpose which is not a purpose of the business of the undertaking; the development rebate originally allowed shall be deemed to have been wrongly allowed, and the income-tax officer may, notwithstanding anything contained in this act, recompute the total income of the assessee, for the relevant previous year and make the necessary amendment; and the provisions of.....
Judgment:

Rajendra Nath Mittal, J.

1. The facts which have given rise to this Income-tax Reference No. 41 of 1971 are as follows:

The assessee-company carries on business as transporters and ply buses. In the assessment year 1959-60, the assessment of the company was completed under Section 23(3) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the 1922 Act'). An amount of Rs. 9,187 was allowed as development rebate to the assessee under Clause (vi) of Sub-section (2) of Section 10 of 1922 Act, regarding bus No. PNR 1601. Subsequently, the assessee sold the bus before the expiry of the statutory period of eight years. The Income-tax Officer issued a notice of rectification and withdrew the development rebate under Section 155 of the Income-tax Act, 1961 (hereinafter referred to as 'the 1961 Act'). The assessee filed an appeal before the Appellate Assistant Commissioner who reversed the order of the Income-tax Officer holding that, since the original assessment was made under the old Act, the rectification could also be made under the same Act and as an order of rectification had been made under the 1961 Act, therefore, it was bad. An appeal was taken by the revenue to the Income-tax Tribunal which also confirmed the order of the Appellate Assistant Commissioner. The Commissioner of Income-tax requested the Tribunal for making reference of this matter to the High Court and the Tribunal referred the following question to this court: 'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in confirming the order of the Appellate Assistant Commissioner of Income-tax cancelling the order made by the Income-tax Officer dated March 7, 1968, rectifying the order of assessment made on June 23, 1960, for the assessment year 1959-60 ?'

2. The relevant assessment year in the present case is 1959-60. The learned counsel for the revenue has submitted that the Income-tax Tribunal and the Appellate Assistant Commissioner have not properly interpreted Sub-section (5) of Section 155 of the 1961 Act. He further submits that the rectification of the order by which the development rebate had been given can be made under Sub-section (5) of Section 155 of the new Act. It will be advantageous to notice Sub-section (5) of Section 155 of the 1961 Act:

'Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant installed after the 31st December, 1957, in any assessment year under Section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922, and subsequently-

(i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in Section 617 of the Companies Act, 1956, or in connection with any amalgamation or succession referred to in Sub-section (3) or Sub-section (4) of Section 33; or

(ii) at any time before the expiry of the eight years referred to in Sub-section (3) of Section 34, the assessee utilises the amount credited to the reserve account under Clause (a) of that sub-section,--

(a) for distribution by way of dividends or profits; or

(b) for remittance outside India as profits or for the creation of any asset outside India ; or

(c) for any other purpose which is not a purpose of the business of the undertaking;

the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee, for the relevant previous year and make the necessary amendment; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the previous year in which the sale or transfer took place or the money was so utilised.'

3. He has drawn our attention especially to the words 'under the corresponding provisions of the Indian Income-tax Act, 1922', which have been underlined, of the above section and also the words 'notwithstanding anything contained in this Act' which have also been underlined. On the basis of the above phraseology he contends that in case any allowance for development rebate has been made wholly or partly to the assessee in respect of any machinery installed after 31st December, 1957, in any assessment year under Section 33 of the 1961 Act or under the provisions of the Indian Income-tax Act, 1922, that could be rectified under the aforesaid provision. According to him the words 'development rebate made under the corresponding provisions of the Indian Income-tax Act, 1922', make it clear that even if the development rebate had been allowed under the 1922 Act, the rectification can be made under the 1961 Act, if the machinery was installed after December 31, 1957. He has drawn our attention to the other sub-section of the said Section 155 of the 1961 Act, wherein the said phraseology has not been used by the legislature. He has then argued that the development rebate originally allowed on account of any machinery, etc., shall be deemed to be wrongly allowed in case the assessee sells that machinery, etc., at any time before the expiry of 8 years from the end of the previous year in which the ship was acquired or the machinery or plant was installed. In such eventuality it is submitted that the Income-tax Officer may reassess the total income of the assessee for the relevant previous year and make necessary amendments. He has very vehemently submitted that the use of the words 'notwithstanding anything contained in this Act' clearly shows that Sub-section (5) of Section 155 overrides the other provisions of the Act. He has referred to Section 297 of the 1961 Act, wherein Sub-clause (a) of Sub-section (2) provides that where return of income has been filed before the commencement of this Act by any person for any assessment year proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed. The learned counsel for the revenue submits that provisions of Clause (a) of Sub-section (2) of Section 297 of the 1961 Act will not apply in the matter of the rectification of the orders by which development rebate was allowed if such case was covered by Sub-section (5) of Section 155 of the 1961 Act. The learned counsel for the assessee-respondent has not been able to give any reply to this contention of the learned counsel for the revenue. We find great force in the arguments of the learned counsel for the revenue. In the circumstances, we hold that the rectification which has been made by the Income-tax Officer under Sub-section (5) of Section 155 of the 1961 Act is correct and he has taken recourse to a correct provision of law. The rectifications in regard to the order by which development rebate has been allowed wholly or partly in respect of machinery installed after December 31, 1957, can be made under Section 155(5) of the 1961 Act.

4. The learned counsel for the revenue has also submitted in the alternative that if it is assumed that Sub-section (2) of Section 35 of the 1922 Act was applicable to the present case and rectification could be made of the order of the Income-tax Officer under that provision, even then the order is good, as the citation of a wrong section in the order will not make it invalid, if the Income-tax Officer has jurisdiction to rectify the same. He has taken support for this proposition from L. Hazari Mal Kuthiala v. Income-tax Officer, Special Circle, Ambala Cantt, [1961) 41 I.T.R. 12, 15; [1961] 1 S.C.R. 892 (S.C.). In the said case the Commissioner of Income-tax purporting to act under Sections 5(5) and 5(7A) of the Indian Income-tax Act, 1922, made an order on November 4, 1953, that the assessment of the assessee-firm would be done by the Income-tax Officer, Special Circle, Ambala, and not by the Income-tax Officer at Patiala, who was the competent authority under Section 34 of the 1922 Act to assess the firm. In 1955 the Income-tax Officer, Special Circle, Ambala, issued a notice under Section 34 of the Patiala Income-tax Act, 2001, to the assessee-firm to reopen the firm's assessment for the accounting year 1945-46. The assessee contested the notice on the ground that the officer at Ambala had no jurisdiction as it was not issued under the Patiala Income-tax Act, 2001, which applied to assessment year 1946-47, by virtue of the Act of 1950. The Supreme Court, in the above said circumstances, observed as follows :

'The Patiala Income-tax Act contained provisions almost similar to Sections 5(5) and 5(7A) of the Indian Income-tax Act. Sub-section (5) differed in this that the Commissioner of Income-tax was required to consult the Minister-in-charge before taking action under that sub-section. The only substantial difference in the latter sub-section was that the Explanation which was added to Section 5(7A) of the Indian Income-tax Act as a result of the decision of this court in Bidi Supply Co. v. Union of India, [1956] 29 I.T.R. 717; [1956] S.C.R. 267 (S.C.) did not find place in the Patiala Act. The Commissioner, when he transferred this case, referred not to the Patiala Income-tax Act, but to the Indian Income-tax Act, and it is contended that if the Patiala Income-tax Act was in force for purposes of reassessment, action should have been taken under that Act and not the Indian Income-tax Act. This argument, however, loses point, because the exercise of a power will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory. This principle is well-settled by Pitamber Vajirshet v. Dhondu Navlapa, [1887] I.L.R. 12 Bom. 486.'

5. Their Lordships of the Supreme Court upheld the order of the Commissioner on the ground that if the Commissioner had the jurisdiction to pass that order, then mere reference to a wrong section of a wrong Act, will not take it away. The main question for determination is whether the officer concerned had the jurisdiction to pass the order under some provision of law or not. If he had, the order is good. The learned counsel has then referred to P.M. Bharucha & Co. v. G. S. Venkatesan, Income-tax Officer, Circle I, Ward A, Bhavnagar, [1969] 74 I.T.R. 513 (Guj.). In this case the Gujarat High Court has made similar observations following Hazari Mal Kuthiala's case. The Income-tax Officer had made an order of rectification under Section 154 of the 1961 Act regarding the order which had been passed under Section 23(3) read with Section 34(1 )(a) of the 1922 Act. The learned Bench observed as follows :

'Though the order of rectification could not be made by the officer under Section 154 of the new Act, it cannot be said that he had no power to make it as he had power to make an order of rectification under Section 35 of the old Act, and the order of rectification would not, therefore, be regarded as having been made without jurisdiction. A wrong reference to the power under which an order is made does not per se vitiate the order, if there is some other power under which the order could lawfully be made. '

6. The learned counsel for the revenue had also referred to Giridharilal Jhajharia v. Commissioner of Income-tax, [1970] 78 I.T.R. 133 (Cal.) wherein the Bench of the Calcutta High Court observed :

'The issue of a notice under Section 154 of the Act of 1961, in respect of an assessment under the 1922 Act, would not deprive the officer of his jurisdiction to rectify the assessment under Section 35 of the Act of 1922. To vest an officer with jurisdiction to rectify an assessment made under the Act of 1922, a notice under Section 35 is not necessary. In this respect a proceeding for rectification under Section 35 differs from a proceeding for reassessment under Section 34 of the Act.'

7. The facts of that case were slightly different from the facts of the present case. In that case the notice was issued under Section 154 of the 1961 Act, whereas the assessment was made under Section 35 of the 1922 Act. The new order was challenged on the ground that the notice had been issued under Section 154 of the 1961 Act, which the Income-tax Officer could not do and, therefore, all the subsequent proceedings were without jurisdiction. The principle of law on the basis of which the reference was decided, however, was the same as that was laid down in Hazari Mal Kuthiala's case. The observations in the above case are fully applicable in the present case.

8. The learned counsel for the revenue has also taken support for his arguments from the decisions of the Madras High Court in Vr. C. Rm. Adaikkappa Chettiar v. Commissioner of Income-tax, [1970] 78 I.T.R. 285 (Mad.) and the Assam and Naga-land High Court in Bidyut Prova Raha v. Income-tax Officer, A-Ward, Digboi, [1971] 79 I.T.R. 187 (Assam) and the Calcutta High Court in Indra Co. Ltd, v. Income-tax Officer, Central Circle, [1971] 80 I.T.R. 400 (Cal.) In the aforesaid cases similar observations have been made as in the above mentioned cases. The matter also stands concluded as far as we are concerned by this High Court in Commissioner of Income-tax v. Hargopal Bhalla & Sons, [1971] 82 I.T.R. 243 (Punj.) The Bench consisting of Mahajan and Tuli JJ. observed as follows:

'A wrong reference to the power under which an order is made does not per se vitiate the order if there is some other power under which the order could lawfully be made. The validity of the impugned order has to be tested by reference to the question whether the Income-tax Officer had any power at all to make an order of that nature. If the power is otherwise established, the fact that the source of the power has been incorrectly described would not make the order invalid.'

9. The learned counsel for the revenue has also referred to S. Sankappa v. Income-tax Officer, Central Circle II, Bangalore, [1968] 68 I.T.R. 760 ; [1968] 2 S.C.R. 674 (S.C.) and has urged that the learned counsel for the assessee might refer to it during the course of his arguments, but that case was distinguishable from the present case. In that case, notices of rectification of assessment of the partners, which had been made under the 1922 Act, were issued under Section 155 of the 1961 Act. They filed a writ petition that their reassessment could not be made under the 1961 Act and the notices issued to them were invalid, which was dismissed. In appeal before the Supreme Court, the Income-tax Officer did not justify the notices under Section 155 of the 1961 Act, but relied on Section 35(5) of the 1922 Act. The partners mainly disputed the applicability of Section 35(5) of the 1922 Act on the ground that proceedings for rectification under Section 35(5) of the 1922 Act were not proceedings for assessment within the meaning of Section 297(2)(a) of the 1961 Act and, therefore, the Act of 1922 could not be resorted to by the Income-tax Officer. The question which arose before the Supreme Court was different from that which is before us. The Supreme Court on an interpretation of Section 297(2)(a) of the 1961 Act held that the word 'assessment' as used in that section, that is, Section 297(2)(a), comprehends the whole procedure for ascertaining the liabilityupon the taxpayer and it included proceedings for rectification of assessment to tax. The appeal was ultimately dismissed. The point which iscanvassed before us was in fact never canvassed in that case. We do notfind that the observations in that case are of any help to the assessees. Thecontention of Mr. Awasthy is correct that the aforesaid case is distinguishable and the respondent-assessee cannot take any benefit from theobservations therein.

10. We are in respectful agreement with the view enunciated in Hargopal's case and other cases referred to above and hold that if the authorities tinder the Income-tax Act have the power to pass an order, it will not be bad merely because a wrong provision of law has been referred to by the officer concerned. The order of the Income-tax Officer, dated March 7, 1968, is, therefore, valid on this ground also as he had the jurisdiction to pass it even though he purported to act under a wrong section.

11. In view of the aforesaid findings, the question referred to is replied inthe negative, that is, in favour of the revenue. We, however, leave theparties to bear their own costs in view of the circumstances of thiscase.

R.S. Narula, J.

I agree.


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