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Swaran Yash Vs. Commissioner of Income-tax, New Delhi - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference Nos. 224 and 225 of 1972
Judge
Reported in[1982]138ITR734(Delhi)
Acts Income Tax Act, 1961 - Sections 64, 154, 155, 184(7) and 246
AppellantSwaran Yash
RespondentCommissioner of Income-tax, New Delhi
Cases ReferredHansraj Dhingra v. Union of India
Excerpt:
.....section 154 - assessed contended rectification effected by department under assessment order on firm - records of firm cannot be treated as part of assessed's records for rectification - nothing in assessed's records or in records of firm to show a was minor son of assessed admitted to benefits of partnership in which assessed was partner - for rectification assessment record of firm cannot be treated as part of assessment record of partner - held, attempt to rectify assessment of assessed by taking note of something discovered from assessment of firm cannot be justified under section 154. (ii) mistake - whether order passed under section 155 be treated as order passed under section 154 - even if provisions of section 155 inapplicable to present case wrong mention of section in orders..........for the assessment year 1963-64 was completed on december 28,1967/january 3, 1968. the total income assessed in her hands included her share income from the firm of daily milap (jullundur). but this was taken 'subject to rectification on the completion of the assessment of the firm'. a salary of rs. 6,200 from the above firm was also included in her assessment. similarly, for the assessment year 1964-65 she was assessed on the share income (subject to rectification as aforesaid) and salary income by an assessment order dated july 9, 1968. 3. on february 5, 1968, the assessment of daily milap (jullundur) was completed by the ito for the assessment year 1963-64. the total income of the firm was determined at rs. 73,016 and this was allocated amongst three partners, chander prakash.....
Judgment:

Ranganathan, J.

1. These are two income-tax references at the instances of the same assessed. They relate to the assessment years 1963-64 and 1964-65. The relevant previous years were the financial years 1962-63 and 1963-64. The references arise under identical circumstances and the questions of law referred to us are common in respect of both the assessment years. They read as follows :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the non-inclusion of the share income of the minor arising from the firm in which the assessed is a partner in the hands of the assessed, is a mistake capable of being rectified under section 154 of the Income-tax Act, 1961

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the orders passed by the Income-tax Officer under section 155 of the Act can be treated as orders passed under section 154 of the Act ?'

2. The assessed, Smt. Swaran Yash, is assessed as an individual. She is a partner in a registered firm known as 'Daily Milap (Jullundur)'. Her assessment for the assessment year 1963-64 was completed on December 28,1967/January 3, 1968. The total income assessed in her hands included her share income from the firm of Daily Milap (Jullundur). But this was taken 'subject to rectification on the completion of the assessment of the firm'. A salary of Rs. 6,200 from the above firm was also included in her assessment. Similarly, for the assessment year 1964-65 she was assessed on the share income (subject to rectification as aforesaid) and salary income by an assessment order dated July 9, 1968.

3. On February 5, 1968, the assessment of Daily Milap (Jullundur) was completed by the ITO for the assessment year 1963-64. The total income of the firm was determined at Rs. 73,016 and this was allocated amongst three partners, Chander Prakash (50%), Mrs. Swaran Yash (25%) and Vishva Kirti (25%). As a postscript to the assessment order there is also an order under s. 184(7) which records that the declaration filed in Form No. 12 was in order and the profits had been duly allocated amongst the partners and, thereforee, a renewal of registration was allocated amongst the partners and, thereforee, renewal of registration was granted for the year under consideration. Similarly for the assessment years 1964-65 the assessment of the firm was completed on March 11, 1969. The share income of the various partners was allocated in a similar manner and the assessment order itself records the grant of registration to the firm in view of the declaration field under s. 184(7). This assessment was completed on March 11, 1969.

4. On May 12, 1969, the ITO issued two notices under s. 154/155 of the I.T. Act, 1961. One was in respect of the assessment year 1963-64 and the other in respect of assessment year 1964-65. The nature of the mistakes proposed to be rectified was set out in the notices as follows :

'Share from M/s. Daily Milap, Jullundur, to be revised as per asstt. order of firm and share of Vishva Kirti to be included.'

5. The assessed's representative appears to have endorsed that he had no objection to the rectification. thereforee, the ITO passed orders on May 12, 1969, itself purporting to be under s. 155 of the I.T. Act, 1961. Apart from rectifying the share income consequent on the assessments of the firm, he noticed that the income of the minor son, Vishva Kirti, had been omitted to be clubbed in the hands of the guardian and he, thereforee, rectified the assessments by including therein a sum of Rs. 15,979 for the assessment year 1963-64 and Rs. 20,380 for the assessment year 1964-65 as the share income of the minor son which was liable to be included in the assessment of the present assessed.

6. The assessed field appeals to the AAC contending that the rectification orders in so far as they purported to include the minor son's share of profit in the firm of M/s. Daily Milap (Jullundur), in the total income of the assessed under s, 155 of the Act were without jurisdiction. The AAC, however, dismissed these appeals. Further appeals preferred by the assessed to the Tribunal were also unsuccessful. The Tribunal was of opinion that even if the provisions of s. 155 were inapplicable to the present case the wrong mention of the section in the orders could not invalidate the otherwise legal orders. In the view of the Tribunal there was a mistake apparent from the record which could be rectified under s. 154 itself. The apportionment of the shares of the partners had been mentioned in the assessment orders of the firm. Thus, the Tribunal observed, the income assessed against these individual partners had been made part and parcel of the assessment order of the firm. The mistake made therein of not including the minor's income in the share of the mother which was sought to be rectified was, according to the Tribunal, a mistake which could clearly be rectified under s. 154 being a glaring and an obvious mistake of law. The Tribunal, thereforee, held that the orders of the ITO in substance and for all intents and purposes could justifiably be treated as orders under s. 154. They were, thereforee, upheld and the assessed's appeals were dismissed. They assessed has come on a reference to this court.

7. Shri M. L. Verma, learned counsel for the assessed, raised two contentions. He pointed out that according to the Department the rectification was being effected as a result of the assessment orders on the firm. He contended that the records of the firm cannot be treated as part of the assessed's records for purposes of rectification. Learned counsel also pointed out that there was nothing shows to exist either in the assessed's records or in the records of the firm to indicate that Vishva Kirti was the minor son of the assessed who had been admitted to the benefits of a partnership in which the assessed herself was a partner. On these two grounds learned counsel seeks to assail the order of the Tribunal. We may mention here that of the two questions referred at his instance the learned counsel was fair enough to concede that the second question had to be answered against him and in favor of the Revenue, in view of the settled position of law in this respect (vide the decision of the Supreme court in Hazari Mal Kuthiala v. ITO : [1961]41ITR12(SC) ).

8. On the other hand, Shri Wadhera, learned counsel for the Department, submits that since the statement of facts submitted by the Tribunal records that Vishva Kirti, the minor son of the assessed, had been admitted to the benefits of the partnership of the Daily Milap (Jullundur), it is not open to the assessed to seek to canvass the correctness of this finding fact before a High Court in a reference. He submits that 'record', for purposes of s. 154 as well as s. 155, includes not merely the entire records of the assessed but also the records of the firm. He urges that the firm is not a separate entity from the partners in all respect though for certain purposes a firm is treated as a separate assessable entity. In support of his contentions, learned counsel relied upon a large number of decisions. But the only decision which was in point was that of the Allahabad High Court in the case of Devendra Prakash v. ITO : [1969]72ITR151(All) , affirming the earlier single Bench decision reported in : [1963]47ITR501(All) .

9. We are of opinion that the question raised in this case is concluded by two decisions of the Supreme Court. In ITO v. S. K. Habibullah : [1962]44ITR809(SC) , the assessments of an individual were completed on February 20, 1950, including therein an estimated share of losses in two firms subject to rectification of ascertainment of correct particulars. The assessments of the firm in question were completed in 1950 and 1951 respectively. On receipt of the intimation of the orders passed in the assessments of the two firm, the ITO sought to rectify the assessments of the assessed under s. 35 of the Indian I.T. Act, 1922. The assessed challenged the orders under s. 35 by filing writ petitions in the High court. When the matter came up before the Supreme court, the Supreme court considered the applicability of s. 35(1) to the facts of the case. Shah J. (as he then was) speaking for the court observed (p. 811) :

'Section 35(1) empowers the income-tax authorities to rectify mistakes apparent from the record of certain orders passed by them. The clause (omitting parts not material) provides that the Income-tax Officer may at any time within four years from the date of any assessment order passed by him, on his own motion rectify any mistake apparent from the record of the assessment. The power of rectification may be exercised subject to two conditions : (1) that there is a mistake apparent from the record of the assessment, and (2) that the order of rectification is made within four years from the date of assessment sought to be rectified. The mistake which may be rectified need not be in the order itself; it may be in any part of the record or proceedings of assessment of the assessed. But for the purpose of assessment an individual and a firm are distinct entities and even if an individual is a partner of the firm, a mistake discovered because of something contained in the assessment of the firm is not a mistake apparent from the record of assessment of the individual partner.'

10. The learned judges then proceeded to the observations of Subba Rao C.J. (as he then was) in the decision in Kanumarlapudi Lakshminarayana Chetty v. First Addl. ITO [1956] 28 ITR 49 . The learned Chief Justice had observed in that case that a mistake discovered from the assessment of the firm was a mistake apparent not from the record of the individual partner but a mistake discovered from the disposal of another case. The judgment proceeds further to discuss the scope and effect of the amendment made by the insertion of s. 35(5) with which we are not concerned. We may, however, refer to another observation appearing at page 814, where the learned judge pointed out :

'Before April 1, 1952, rectification of assessment of an individual on the disclosure of error consequent upon assessment of the firm of which he is a partner was not, for reason already stated, permissible under clause (1) of section 35'.

11. It appears to us that the observations in this case directly govern the present case. Even assuming that as a result of the assessment of the firm the ITO came to discover that Vishva Kirti, the minor son of the assessed, had been admitted to the benefits of the partnership in which she was a partner and that his share income had been omitted to be included in the total income of the assessed as required by s. 64, such a mistake was a mistake apparent not from the assessed's records but only from the record of another assessed, namely, the firm of Daily Milap.

12. The observations in the Habibullah's case : [1962]44ITR809(SC) were reiterated by the Supreme Court in the case of Second Addl. ITO v. Atmala Nagaraj : [1962]46ITR609(SC) . In that case also the assessment of a partner of a firm had been completed on January 22, 1952, on a provisional basis subject to rectification. The assessment of the firm was completed in 1954 and it was discovered that the share income of the assessed was much higher, and thereupon the assessment order made on the assessed was sought to be rectified under s. 35(5). The case was mainly concerned with the extent of retrospective effect to be given to s. 35(5) of the Act. But before proceeding to discuss the question their Lordships referred to the decisions in Habibullah's case : [1962]44ITR809(SC) and in the case of Kanumarlapudi Lakshminarayana Chetty [1956] 29 ITR 419 (AP) and endorsed those observations.

13. It is true that in subsequent decisions the Supreme Court has had occasion to consider the scope of the retrospecitve effect of the various sub-sections of s. 35. In ITO v. T. S. Devinatha Nadar : [1968]68ITR252(SC) the majority of judges (on the Bench) of the Supreme Court overruled the decision in Atmala Nagaraj : [1962]46ITR609(SC) . This decision has also been subsequently followed by the Supreme court in CIT v. K. S. Rashid : [1972]85ITR118(SC) and CIT v. Onkarmal Meghraj : [1974]93ITR233(SC) . Even some years earlier, a Full Bench of the Punjab High Court in Ram Bhagat v. CIT , had suggested that the decision in Habibullah : [1962]44ITR809(SC) and Atmala Nagaraj : [1962]46ITR609(SC) , required reconsideration and this has been done by the Supreme Court in the decisions above cited. However, these three decisions of the Supreme Court do not in any way whittle down the effect of the judgment either in the Habibullah case or in the case of Atmala Nagaraj in regard to the aspect that is under consideration in the present case. The observations of the Supreme Court in these two decisions that for purposes of rectification the assessment record of the firm cannot be treated as a part of the assessment record of the partner are final and fully binding on us. Learned counsel for the respondent has not been able to show any authority in which these observations have been reconsidered or distinguished. The Allahabad decision cited by him do not refer to any of the decisions of the Supreme Court. On the contrary the Madras High Court in Addl. CIT v. Shree Shankar & Co. : [1979]118ITR636(Mad) , has applied the observations of the Supreme Court in the Habibullah case : [1962]44ITR809(SC) , in a converse stituation where the assessment of the firm was sought to be rectified by referring to what happened in the case of a partner.

14. We are, thereforee, of opinion that the contention of the learned counsel for the assessed that the attempt to rectify the assessments of the present assessed by taking note of something which is stated to have been discovered from the assessment of the firm cannot be justified under s. 154 of the Act.

15. In fact, as earlier mentioned, learned counsel for the assessed even went further and contended that even in the assessment record of the firm there was nothing to indicate that Vishva Kirti was the minor son of the assessed. From the copies of the assessment orders in the firm's case which are on record all that is seen is that Vishva Kirti was a partner in the firm. Perhaps the declaration in Form No. 12 may also have disclosed that he was only a minor. But from the papers before us we are unable to see anything either in the assessment of the present assessed or the firm that would indicate that Vishva Kirti was a minor son of Mrs. Swaran Yash, the present assessed. Learned counsel for the Department, Shri Wadhera, contended that if the entire assessment record of the firm is looked into and in particular the original partnership deed and the application for registration made by the firm, it may disclose that Vishva Kirti was the minor son of the assessed. There are no facts before us in this respect and since we are of opinion that the first contention is sufficient to dispose of the matter before us, we express no opinion on the second contention raised by Shri Verma.

16. We have earlier referred to the fact that the learned counsel for the Department places great emphasis on the fact that the assessed and her minor son were both partners of the firm, Daily milap (Jullundur). Learned counsel for the Revenue contended that in view of this admitted fact referred to in the statement of case the assessed cannot challenge the existence of mistake apparent from the record. To us it appears that the argument of the learned counsel proceeds on a misconception. It is no doubt true that after the rectification was made and in the course of the proceedings before the AAC and the Appellate Tribunal the assessed was not in a position to challenge the correctness of the fact that the minor son, Vishva Kirti, was admitted to the benefits of the partnership in which Mrs. Swaran Yash was a partner. But the question is not whether after the rectification was made this position is admitted to not. The question is whether at the time of original assessment or at any time before the rectification was made there was anything on the record which disclosed the relationship between these two persons, for, unless the relationship was clear from the available record, there would be no 'mistake' needing correction. As we have already pointed out, it is not the Department's case that there is anything in the record of the present assessed indicating the above position and it is not possible for the Department, for the reasons which we have already discussed, to rely upon the assessment record of the firm in this respect.

17. Finally, we may refer to one aspect that is touched upon in the order of the Tribunal. The Tribunal also made an observation that since the assessed had not raised any objection to the rectification before the ITO she was precluded from challenging the rectification in appeal.

18. Shri Verma contends that this is not a clear finding by the Tribunal as the Tribunal was only observed that there was substantial force in the contention of the departmental representative to the above effect. However, it is now clear that where there is a lack of jurisdiction it is not possible for a party to confer jurisdiction by consent. This position is clearly established by a series of decisions and it is sufficient to refer to two recent decisions cited by Shri Verma in this context : Hansraj Dhingra v. Union of India : [1975]98ITR397(Cal) and Continental Commercial Corporation v. ITO : [1975]100ITR170(Mad) . In view of this principle, the assessed could not be estopped from raising the contention that the rectifications were without jurisdiction. Though a specific question has not been referred to us in this regard, this is implicit in the questions before us. For, if there is in fact no mistake apparent from the record as found by us, the Tribunal would not be justified in holding it to be a mistake merely because the assessed said so.

19. In the light of the above observations, question No. 1 is answered in the negative and in favor of the assessed. As already mentioned, so far as question No. 2 is concerned, the answer has to be in the affirmative and against the assessed.

20. The reference are disposed of accordingly. As the assessed has succeeded only in part, he will not be entitled to any costs.


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