GROVER, J. - This is a petition under article 226 of the Constitution impugning an order made by the Income-tax Officer, 'A' Ward, Ambala Cantt., on 19/21st March, 1955, under section 35 of the Income-tax Act with regard to the assessment of the petitioner for the assessment year 1945-46.
The assessment order with regard to the petitioners income for the aforesaid year was originally made on 28th June, 1949, when his income was assessed at a figure of Rs. 1,85,236. One of the items which had been taken into account was of Rs. 85,957 which included the petitioners income from salary, bonus etc. In this amount, Rs. 37,007 had been included for the purposes of rate only. No tax, however, was payable on the aforesaid amount of Rs. 37,007 as the same had been assessed in the hands of the company after the petitioner had withdrawn the pay etc. Later on the order which is being challenged was made in March, 1955, and the result of that order was that the amount of Rs. 37,007 on which tax not be computed was reduced to Rs. 21,000. The case of the petitioner is that this resulted in an increase of the tax levied on him and, as he was not served with any notice to show cause why such an order should not be made, it merited quashing. On 21st March, 1955, the Income-tax Officer wrote to the petitioner demanding payment of a sum of Rs. 13,596-2-0 after making adjustments for other years. The petitioner deposited only Rs. 7,500 which were due according to him, but did not deposit the balance of Rs. 6,096-2-0. On the 18th April, 1955, the Income-tax Officer made a demand for the said amount and on 30th May, 1955, the petitioner submitted an application to the Income-tax Officer clarifying the whole position and pointing out the illegality committed by him while making the order in March, 1955. It is alleged in paragraph 12 of the petition that the Income-tax Officer did not take any action on the petitioners application but has now threatened to recover the amount in question from the petitioner and that a penalty of Rs. 600 had been levied under section 46(1) of the Income-tax Act for the petitioners default in making the aforesaid payment. The present petition was filed in July, 1958.
The case of the respondents is that no notice was necessary under section 35 of the Act as the net result of the order made in March, 1955, was a decrease in the amount of tax levied on the petitioner and that the petition is very much belated and merits dismissal on that ground as well. Now the facts according to paragraph 2 of the written statement are these :
'That the facts stated in paragraph 2 of the petition are admitted to the extent that the Income-tax Officer had, vide his order dated the 28th June, 1949, computed the total income of the petitioner for the assessment year 1945-46 at a figure of Rs. 1,85,236 and not at Rs. 1,83,236 as stated in the petition. In this total income amounting to Rs. 1,85,236 the following items, besides others, were included :
Share from registered firms.
N.W.R. Purchasing Agency, Ambala (registered firm)
Central Purchasing Agency, Ambala (registered firm)
Under the head Salary:
The details of figure of salary are as under :
Salary from R. B. Benarsi Dass & Company Ltd. (for tax and rate purposes).
Commission (styled as remuneration by the Income-tax Officer from R. B. Benarsi Dass & Co. Ltd. for tax and rate)
Salary from R. B.Benarsi Dass & Company Ltd. (for rate purposes only)
Directors commission from R. B. Benarsi Dass & Company Ltd. (for rate purposes only).
Bonus from R. B. Benarsi Dass & Co. taking (for rate purposes).
The figure at (c), (d) and (e) amounting to Rs. 37,007 were taken for purposes of rate only. R. B. Benarsi Dass & Company Ltd. had also filed an appeal before the Tribunal in its own assessment, the result of which was that it was allowed the payment of commission of Rs. 9,277 as also the payment of salary of Rs. 9,230. Thus, that company got a reduction of tax on a sum of Rs. 18,507. This meant that in the assessment of the petitioner a sum of Rs. 18,500 out of Rs. 37,007 only could have been taken for the purposes of rate and the balance amount of Rs. 18,507 had to be taken into account both for the purposes of rate and computation of tax. This the Income-tax Officer had failed to do and, according to the respondents, he rectified that mistake under section 35 in March, 1955. There were some other appeals which had been filed by N.W. Railway Purchasing Agency and the Central Purchasing Agency, and the share income of the petitioner was consequently reduced to Rs. 6,129 and to Rs. 19,557 respectively from Rs. 9,065 and Rs. 33,952 as taken into account in the original assessment. The petitioner was given the benefit of these reductions. Thus, his total income was reduced to Rs. 1,67,905 and the figure of salary etc., remained at Rs. 85,957, out of which the amount considered for rate purposes was reduced to Rs. 21,000 only. On the whole, therefore, by the revision made under section 35 in March, 1955, the petitioners assessment was reduced and not increased. The learned Advocate-General, who appears on behalf of the respondents, has filed a statement giving the figures of the various assessments which are as follows :
Demand as per original assessment order dated 28th June, 1949.
Demand as revised under section 31 dated 4th April, 1951.
Demand as revised under section 35 dated 19th March, 1955.
Refund allowed under section 35 dated 19th March, 1955.
According to him the net result was that the assessee after rectification under section 35 got a relief to the extent of Rs. 6,871-1-0.
The learned counsel for the petitioner does not challenge the correctness of the figures or other facts stated above, but his contention is that he was entitled as of right to the benefit which was given to him with regard to the share from the N.W. Railway Purchasing Agency and the Central Purchasing Agency, because of other proceedings by way of appeals etc., but that when the item of Rs. 37,007, which was included for purposes of rate only, was reduced to Rs. 21,000 that was bound to lead to an increase n the assessment of the income-tax, as admittedly in the original order the entire sum of Rs. 37,007 was taken into consideration for purposes of rate only and later on when the order was made in March, 1955, a sum of Rs. 18,507 out of that amount was added for consideration both for purposes of rate and computation of tax. This was done without any notice which was mandatory under the provisions of section 35. It is further contended that the order made under section 35 in March, 1955, was beyond the period of four years from the date of the original assessment order and that was not possible under the statutory provisions. A further question has been raised whether the impugned order could be regarded to be one of rectification of a mistake at all within the meaning of that expression as employed in section 35 of the Act. There does not appear to be much difficulty so far as the last point is concerned. In Arvind N. Mafatlal v. Income-tax Officer, North Satara, it has been held that in ascertaining whether there is an error apparent from the record, the Income-tax Officer need not confine himself to the order of assessment of the assessee alone. All proceedings which constitute evidence on which the assessment order is passed must be regarded as record for the purposes of section 35. In Sidhramappa Andannappa Manvi v. Commissioner of Income-tax, it was laid down that the power to rectify under section 35 could be exercised to pass all consequential orders as well after the mistake is corrected. In Kangas Law and Practice of Income-tax, Volume 1, at page 716, it is stated that the 'record' consists not merely of the assessment order but includes all proceedings and materials on which the assessment is based, and that the power conferred by section 35 is not confined to mere rectification of the mistake apparent from the record but extends to passing all consequential orders. It appears to me that if as a result of the appeal preferred by Benarsi Dass & Company a rectification became necessary in the assessment of the petitioner, it was open to the Income-tax Officer to do the same under section 35, but that could be done only within the periods prescribed, and this brings me to the other point that has been raised, namely, that the Income-tax Officer had no jurisdiction to make any rectification after a lapse of four years from the date when the original order of assessment was made. In this connection reference may be made to the provisions of section 35 of the Act which are as follows :
'35. (1) The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under section 33A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee :
Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard.'
The contention of the learned Advocate-General is that the period of four years in the present case should be computed from 4th April, 1951, when an order was made by the Appellate Assistant Commissioner with regard to the assessment of the petitioner for the year 1945-46. This order was made in an appeal preferred against the order of the Income-tax Officer dated 28th June, 1949. The language employed makes a clear distinction between the order passed in appeal or revision by the Appellate Assistant Commissioner or Commissioner, and an assessment order or refund order passed by the Income-tax Officer in exercise of his jurisdiction. There is no indication whatsoever in the statute to show that an Income-tax Officer can rectify a mistake or error in the order made in appeal by the Appellate Assistant Commissioner or the Commissioner. The power of rectification has been given to each of these authorities with regard to their own orders, and, therefore, the period of four years has to be calculated from the date of the assessment order in the present case. That order was made on 28th June, 1949, and the order under section 35 having been made in March, 1955, it was clearly beyond the period of four years as prescribed by the statute.
The next question that has to be examined is whether any notice was necessary for the purpose of making a rectification in the present case. The proviso to section 35(1) makes an express provision for such notice if the effect of the rectification is one of enhancement of the assessment or reduction of the refund. The assessee has also to be given a reasonable opportunity of being heard. This provision is in consonance with the principles of natural justice as well. The submission of the learned Advocate-General is that the effect on the assessment has to be seen as a whole and not with regard to each item. That, however, cannot mean that if the assessee is entitled to the benefit of reduction as a result of certain other proceedings before the appellate authorities and by giving him reduction as the authorities are bound to do with regard to those items, some other item can be increased and the amount raised simply because the net result after final calculation is going to be a reduction in the total figure of assessment. So far as the item of Rs. 37,007 was concerned, the petitioner was certainly prejudicially affected by the absence of notice as that figure was altered for purposes of rate and, if the petitioner had not been given the benefit of certain reductions made in other proceedings, his assessment would have been increased and not decreased. I consider, therefore, that the proviso was applicable and that the petitioner was entitled to a notice.
Lastly, the contention of the learned Advocate-General with regard to the effect of delay and laches has to be examined. It is true that the impugned order was made in March, 1955, but as stated before when the Income-tax Officer made a demand on 18th April, 1955, the petitioner submitted an application on 30th May, 1955, pointing out the illegal nature of the impugned order. Thereafter, the Income-tax Officer took no further steps for the realisation of the aforesaid amount and it is contended on behalf of the petitioner that he was under the impression that his objection had been accepted, but when action had been threatened for realisation of arrears in June, 1958, the present petition was filed. The reason suggested for not filing the petition earlier appears to be plausible. Even otherwise the petitioner is under a threat of being subjected to the penal and other consequences provided by the statute if he does not satisfy the aforesaid demand. I do not consider that in these circumstances the present petition can be dismissed simply on the ground that the impugned order was made in the year 1955 and the petition was filed much later. In Himmatlal Harilal Mehta v. State of Madhya Pradesh, it was observed that the imposition of sales tax on the appellant in that case was without authority of law, and that being so a threat by the State by using the coercive machinery of the impugned Act to realise it from the appellant was a sufficient infringement of his fundamental right under article 19(1)(g), and the appellant was clearly entitled to relief under article 226 of the Constitution.
For the reasons stated above, this petition is allowed and the order of the Income-tax Officer, dated 19th/21st March, 1955, is hereby quashed. Considering all the circumstances of the case, I leave the parties to bear their own costs in this court.