S. Ranganathan J.
1. These three income-tax references can be disposed of together. They arise out of the assessments of the three partners of the firm of M/s. Rameshwar Dass Sri Kishan Dass (hereinafter referred to as 'the firm'). They relate to the assessment year 1961. All the three reference involve the same question of law.
2. The firm was assessed to income-tax for the assessment year 1961-62 by an assessment order dated September 13, 1963. Each of the three respondents in the references before us was assessed on his respective share income as apportioned in the assessment of the firm. These three assessments were completed under s. 23(3) of the Indian I.T. Act, 1922. The assessments in the cases of Om Parkash and Shri Kishan Dass were completed on October 21, 1963, and the assessment in the case of Rameshwar Dass was completed on February 22, 1966.
3. Subsequently, a mistake in the assessment order of the fir came to light. The ITO thereupon rectified the assessment of the firm for the year under s. 154 of the I.T. Act, 1961, on February 9, 1968. As a result of this order, the income from the ready business carried on by the firm was enhanced. The ITO thereafter initiated proceedings to carry out the effect of the above rectification in the case of the three partners. He took steps in this behalf by issuing notices purporting to be under s. 155 of the Act of 1961. Orders under this section carrying out the appropriate modifications were passed in all the cases on February 15, 1968.
4. The assesseds objected to the above rectification. According to them, the rectification sought to be made by the ITO could have been made, if at all, only under s. 35(5) of the Indian I.T. Act, 1922, and not under the I.T. Act, 1961. In support of this contention, reliance was placed on behalf of the assessed on the decision of the Supreme Court in the case of S. Sankappa v. ITO : 68ITR760(SC) . The AAC accepted this argument and quashed the orders of rectification passed by the ITO.
5. The revenue preferred appeals to the Appellate Tribunal in all the three cases but these appeals were unsuccessful. The Tribunal pointed out that, in view of the decision of the Supreme Court abovementioned, proceedings for rectification of the assessments could be initiated only under the 1922 Act. In two of the cases, the rectifications had been made beyond four years from the date of the original assessment orders and in the third case of Rameshwar Dass, the rectification had been made within a period of four years. The department, thereforee, attempted to rely on the provisions of s. 35(1) of the 1922 Act in the last case and the provisions of s. 35(5) in the other two cases. It was contended that, if these provisions of s. 35 were found to apply, the mere fact that the proceedings had been initiated under s. 155 of the 1961 Act would not render the rectification invalid. The Tribunal, however, pointed out that the order in the case of Rameshwar Dass could not be supported under s. 35(1) of the 1922 Act as the mistake sought to be rectified was apparent only from the record of the firm and not from the record of the individual assessed. It was also pointed out that s. 35(5) would not apply in any of the cases as in its wording, there was a conspicuous omission of any reference to a variation in the income of the firm as a result of a rectification under s. 35 whereas there was a reference to any variation in the income of the firm as a result of order under ss. 31,33,33A,33B,66 and 66A of the Act. The Tribunal, thereforee, concluded that the orders of rectification could not be supported on the provisions of the 1922 Act and, this bring so, they could not also be sought to be salvaged on the ground that though they purported to be under s. 155 of the 1961 Act, they could be actually correlated to the jurisdiction vested inn the ITO under s. 35 of the 1922 Act. In the result, the Tribunal upheld the orders of the AAC and dismissed the department's appeal.
6. At the instance of the Commissioner, the Tribunal had made a reference to this court, the question of law referred being:
'Whether, on the facts and in the circumstances of the case, the order dated February 15, 1968, rectifying the original order of assessment dated October 3, 1963 (sic)/February 26, 1966, was in accordance with the provisions of law ?'
7. We find that the question referred to us lie within a very narrow compass and is actually concluded by the decisions of the Supreme Court in the case of Sankappa : 68ITR760(SC) earlier referred to. The original assessments of the respondents in this case were completed under s. 23(3) of the 1922 Act on the basis of returns processed under s. 297(2)(a). This clause requires the ITO to complete the assessment of an assessed under the 1922 Act in cases where the return of income had been filed before the commencement of the 1961 Act. A question arose as to whether proceedings for rectification of an assessment would fall within the scope of this clause and the Supreme Court in the case of Kalawati Devi Harlalka : 66ITR680(SC) and Sankappa : 68ITR760(SC) (earlier referred to) answered the question in the affirmative. It was held that the words 'proceedings for the assessment' used in the section had a very wide meaning and were comprehensive enough to include proceedings by way of revision or rectification of an assessment. The same view has also been taken by this court in CIT v. National Small Industries Corporation Ltd. : 91ITR579(Delhi) . The Tribunal, thereforee, has relied upon Sankappa : 68ITR760(SC) rightly for coming to the conclusion that, in the present case, any rectification of the assessments of the respondents could be done only under the provisions of the 1922 Act.
8. In our opinion, however, the Tribunal has erred in coming to the conclusion that the rectification in question fall outside the purview of the provisions of s. 35(5) of the 122 Act. That sub-section runs as follows:
'35. (5) Where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm.'
9. It will be seen from the above extract that the sub-section permits the rectification of the assessment of a partner of a firm in two circumstances: (1) when it is found, on the assessment or reassessment of the firm, that the share of the partner has either not been included in his assessment or, if included, is not correct, and (2) where it is found, on any reduction or enhancement made in the income of the firm by the an order under s. 31, s. 33, s. 33A, s. 33B, s. 66 or s. 66A that such share income has not been included at all or included correctly. These are two independent limbs of the sub-section and the reference to ss. 31, 33, 33A, 33B, 66 and 66A occurs only in the second limb. Perhaps a reference to s. 35 also could have been included in the second limb and had it been done the present difficulty would not have arisen. As it is, we have to consider whether the action taken to rectify the assessment can be justified under the first limb. This, once again, turns on the meaning of the words 'assessment or reassessment' used in that limb. There is no reason to interpret these words more narrowly in this context that they have been interpreted by the Supreme Court in the context of s. 297(2)(a). The whole object of s. 35(5) was to ensure that, when there is a change in the income of the firm and the shares allocated to the partners, that change should also be given effect to in the partners' assessments. The interpretation of the words 'assessment or reassessment' in s. 35(5) so as to exclude a case of rectification of the firm's assessment would result either in some income escaping assessment in the hands of the partners or in the partners failing to secure consequential relief even though the assessed income of the firm might have been reduced by the rectification. Such a result should be avoided unless the statutory language compels such an inference. In our opinion, there is nothing in the context of s. 35(5) to interpret the words 'assessment or reassessment' differently from s. 297(2)(a) to exclude a rectification from the scope of these words. We may refer in this context to the decision of the Madras High Court in S. Arthanari v. First ITO : 83ITR828(Mad) .
10. The result of the above discussion is that the ITO was competent to rectify the assessments of partners-respondents by invoking the provisions of s. 35(5) of the 1922 Act to give effect to the consequences of an order passed under s. 155 in the case of the firm. The ITO has no doubt referred to the provisions of s. 155 of the 1961 Act instead of to the corresponding provision in s. 35(5) of the 1922 Act. But, as mentioned earlier in the discussion, this is only a case of wrong labelling and since we have held that the ITO had the requisite authority to pass the order under s. 35(5) of the 1922 Act, the order passed by him cannot be held invalid merely because it was purportedly made under s. 155 of the Act. The decision of the Supreme Court in Hazari Mal Kuthiala : 41ITR12(SC) the decision of this court in National Small Industries Corporation's case : 91ITR579(Delhi) and the decision of the Gujarat High Court in P. M. Bharucha & Co. v. G. S. Venkatesan, ITO : 74ITR513(Guj) , referred to by the Tribunal, make this position absolutely clear.
11. For the above reasons, we answer the question referred to us in each of the three cases in the affirmative and in favor of the revenue. The revenue will be entitled to its costs, (Counsel's fee Rs. 300) in one of the references, namely, ITR No. 75/71.