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Commissioner of Income-tax Vs. Narayana Investment Trust (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 98 of 1971
Judge
Reported in[1975]98ITR353(Ker)
ActsIndian Income Tax Act, 1922 - Sections 23A and 35; Income-tax Act, 1961 - Sections 154(1) and 297(2)(1)
AppellantCommissioner of Income-tax
RespondentNarayana Investment Trust (P.) Ltd.
Appellant Advocate P.A. Francis and; P.K. Raveendranatha Menon, Advs.
Respondent Advocate K. Sreedharan, Adv.
Cases ReferredOfficer v. Asok Textiles Ltd.).
Excerpt:
.....income tax act, 1922 and sections 154 and 297 of income tax act, 1961- matter pertains to power of income tax officer to pass rectification order - section 35 enables income tax officer to rectify a mistake apparent from record of assessment or refund at any time within four years from date of any assessment order or refund order passed by him - section 35 does not enable tax officer to rectify mistakes in an order under section 23a. - - the assessee unsuccessfully challenged the latter order before the appellate assistant commissioner. 3. an examination of section 297 of the 1961 act clearly shows that that provision evinces a contrary intention and, therefore, the operation of section 6 of the general clauses act is excluded in respect of the 1922 act. .it is true that whether a..........tax liability make it an order of assessment. the income-tax act contemplates making of diverse orders by income-tax officers directing payments of sums of money by taxpayers which are of the nature of orders for payment of tax, but which are still not orders of assessment.... in each of these cases there is computation of income, determination of tax payable and procedure is prescribed for imposing liability upon the taxpayer. but still these are not orders of assessment within the meaning of section 23. the salient feature of these and other orders is that the liability to pay tax arises not from the charge created by statute, but from the order of the income-tax officer.'7. it, therefore, follows that the proceedings of the income-tax officer under section 23a are not proceedings.....
Judgment:

George Vadakkel, J.

1. This is a reference at the instance of the revenue, and is under Section 256(1) of the Income-tax Act, 1961. The short facts are set out below. The Income-tax Officer, Companies Circle, Ernakulam, passed annexure 'A' order, dated March 11, 1965, in relation to the assessment of M/s. Narayana Investment Trust (P.) Ltd., Trivandrum, in respect of the assessment year 1960-61, whereby he applied to the assessee-company Section 23A of the Indian Income-tax Act, 1922. The additional super-tax payable by the assessee-company was computed at 37%, i.e., the rate applicable to a trading company. Subsequently, the Income-tax Officer arrived at the conclusion that the company is an investment company to which the rate applicable is 50% and not 37%. Therefore, he revised his earlier order as per annexure 'B' order, dated July 13, 1966, fixing additional super-tax at 50% on the net distributable profit. The assessee unsuccessfully challenged the latter order before the Appellate Assistant Commissioner. On further appeal, the Tribunal held that Section 154 of the Income-tax Act, 1961 (for short, '1961 Act'), is not applicable to the case, and that Section 35 of the Indian Income-tax Act, 1922 (for short, '1922 Act'), also is not available to the revenue for the reason that that section does not provide for rectification of an order under Section 23A of the 1922 Act. The Tribunal was further of the view that there is no mistake apparent from the record. As already stated, at the instance of the revenue the following question was referred by the Tribunal for this court's opinion:

'Whether, on the facts and in the circumstance of the case, the Appellate Tribunal is correct in law in holding that Section 35 of the Indian Income-tax Act, 1922, and Section 154 of the Income-tax Act, 1961, cannot be applied to this case ?'

2. We will first consider which of the two statutes, 1922 Act or 1961 Act, governs this case. The applicability of one or the other of the statutes depends upon the effect of repeal of the 1922 Act. In this connection the provisions of law we have to notice are Section 6 of the General Clauses Act, 1897, and the repealing provision in the 1961 Act, viz., Section 297. If a different intention appears, either expressly or by necessary implication in the repealing provision, Section 6 of the General Clauses Act, 1897, cannot be invoked.

3. An examination of Section 297 of the 1961 Act clearly shows that that provision evinces a contrary intention and, therefore, the operation of Section 6 of the General Clauses Act is excluded in respect of the 1922 Act. And this has been so held by the Supreme Court in Kalawati Devi Harlalka v. Commissioner of Income-tax. Sikri J. (as he then was), delivering the judgment of the court, said :

'In our view, Section 6 of the General Clauses Act would not apply because Section 297(2) evidences an intention to the contrary. ....

It is true that whether a different intention appears or not must depend on the language and content of Section 297(2). It seems to us, however, that by providing for so many matters mentioned above some in accord with what would have been the result under Section 6 of the General Clauses Act, and some contrary to what would have been the result under Section 6, Parliament has clearly evidenced an intention to the contrary.'

4. Clauses (a), (c), (d)(i), (e) and (f) of Section 297(2) provide for the continued operation of the repealed Act as if the repealing Act had not been passed in respect of the matters dealt with in each of these clauses. So far as this case is concerned what is relevant is Clause (e), which reads :

'297. (1) .....

(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (hereinafter referred to as the repealed Act).....

(e) subject to the provisions of Clause (g) and Clause (j) of this sub-section, Section 23A of the repealed Act shall continue to have effect in relation to the assessment of any company or its shareholders for the assessment year ending on the 31st day of March, 1962, or any earlier year, and the provisions of the repealed Act shall apply to all matters arising out of such assessment as fully and effectually as if this Act had not been passed.'

5. The first part of the clause provides that subject to Clauses (g) and (j), Section 23A of the repealed Act shall continue to have effect in relation to assessment of a company or its shareholders for any year up to and inclusive of the assessment year ending on March 31, 1962. According to the latter portion of the clause, all matters arising out of such assessment (i.e., assessment of a company or its shareholders in relation to which Section 23Aof the repealed Act has continued operation) will be governed by the provisions of the repealed Act, The Income-tax Officer was, therefore, right in invoking Section 23A of the repealed Act, in passing annexure 'A' order. The question is whether the Income-tax Officer can rely on any of the provisions of the repealed Act to pass the rectification order (annexure 'B'). This will depend upon the answers to the following questions :

(A) Are proceedings for rectification, a matter arising out of assessment of a company or its shareholder in relation to which Section 23A has continued operation and

(B) Does Section 35 of the repealed Act provide for rectification of an order under Section 23A of that Act ?

6. Though the word 'assessment' in its comprehensive and wider sense may include not only computation of income, but also determination of liability, machinery for imposing liability and procedure in that behalf, an order under Section 23A cannot be said to be an order of assessment. In M.M. Parikh v. Navanagar Transport & Industries Ltd. the Supreme Court said :

'... . Section 23A does not use the expression 'assessment' in the body of Clause (i): and to the title of the section after it was amended, viz., 'Power to assess companies to super-tax on undistributed income in certain cases', it is impossible to give any exalted meaning so as to convert what is an order directing payment of tax into an order of assessment within the meaning of Section 34(3) of the Indian Income-tax Act, 1922. Every order which contemplates computation of income for determination of the amount of tax payable is not an order of assessment within the meaning of the Act I nor does prescribing of procedure for determining and imposing tax liability make it an order of assessment. The Income-tax Act contemplates making of diverse orders by Income-tax Officers directing payments of sums of money by taxpayers which are of the nature of orders for payment of tax, but which are still not orders of assessment.... In each of these cases there is computation of income, determination of tax payable and procedure is prescribed for imposing liability upon the taxpayer. But still these are not orders of assessment within the meaning of Section 23. The salient feature of these and other orders is that the liability to pay tax arises not from the charge created by statute, but from the order of the Income-tax Officer.'

7. It, therefore, follows that the proceedings of the Income-tax Officer under Section 23A are not proceedings for assessment of tax. The rectification proceedings in this case, therefore, cannot be said to arise out of any 'assessment'.

8. Further, we are of the view that Section 35 of the repealed Act does not enable the Income-tax Officer to rectify mistakes in an order under Section 23A of that Act. Sub-section (1) of that section reads (omitting the provisos) :

'35. (1) Rectification of mistakes.--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.'

9. That section enables the Income-tax Officer only to rectify a mistake apparent from the record of the assessment or refund at any time within four years from the date of any assessment order or refund order passed by him. As such, even assuming that the old Act were to govern this case, Section 35 of that Act would not be of any help to the revenue.

10. We may here notice three decisions, viz., S. Sankappa v. Income-tax Officer, J. K. Commercial Corporation Ltd. v. Income-tax Officer and Bharat Agencies v. Income-tax Officer. In the latter two decisions the question as to the applicability of Section 35 to rectify orders under Section 23A directly arose, and the Allahabad and the Calcutta High Courts respectively upheld the contention of the assessee that Section 35 is not available to rectify mistakes in orders under Section 23A. These decisions take the view that the procedure laid down under Section 23A is entirely different from the procedure for regular assessment, that what is contemplated by 'record of assessment or refund' is the actual assessment proceedings or actual refund proceedings culminating in an order of assessment or refund, respectively, and that proceedings under Section 23A do not come within the scope of Section 35. In Sankappa's case the question arose with reference to Section 26A of the 1922 Act. The assessees were all partners in two different firms. The Income-tax Officer refused registration of the firms and assessed them as unregistered firms. The orders refusing registration were taken up in appeal, which were allowed. Consequently, earlier assessments of the firms were revised. The Income-tax Officer thereafter issued notices proposing to rectify the individual assessments of the partners. This was impugned by them. Therein M. M. Parikh's case, which was pressed in support of the appellants' contention, was distinguished on the ground that what was proposed to be rectified in Sankappa's case wasassessment orders themselves, whereas M. M. Parikh's case was concerned with an order under Section 23A. The following passage from Sankappa's case makes out this distinction :

'In the present cases, the orders, which have been rectified or are being taken up for rectification, are all orders under which there was assessment of incomes and determination of the charge to tax in accordance with the charging sections. The orders passed under Section 35(1) by the Income-tax Officer on 20th December, 1966, were all orders altering assessment orders made in the proceedings for assessment of the firms, while under the impugned notices the Income-tax Officer is proposing to rectify orders made for computation of income and imposition of tax under the charging section in the case of individual partners.'

11. These decisions also support the conclusions we have arrived at.

12. The only other question that has to be considered is whether the 1961 Act and Section 154(1)(a) thereof can be invoked to sustain annexure 'B' order. M. S. Menon J. (as he then was), speaking for the court, said in the decision in Thomas v. State of Kerala :

'A taxing statute in order to affect a period of time anterior to the date of its enactment must be retroactive in character. The terms 'retroactive' and 'retrospective' are synonymous in judicial usage and they describe Acts which operate on transactions which have occurred or rights and obligations which existed before the passage of the Act.'

13. First Additional Income-tax Officer v. Uppala Peda Venkataramanayya is another decision in point. Dealing with retrospective operation of the Income-tax Act, 1961, the Andhra Pradesh High Court said:

'It is, therefore, clear from the statement of law made by recognised authorities that a statute affecting vested rights is prima facie prospective unless the statute expressly or by necessary implication indicates to the contrary. Even when it is retrospective in operation, courts should confine its operation only to the extent the language renders it necessary. Further, if an Act is to a certain extent retrospective, when we reach the line at which the words of the sections cease to be plain, the same rule of construction leaning against retrospectivity should be applied.'

14. We are in respectful agreement with the principles laid down in the decisions referred to above. Therefore, Section 154 of the 1961 Act is also not available to the revenue.

15. In view of what is stated above, the question as to the scope of the phrase 'any mistake apparent from the record' occurring both in Section 35 of the 1922 Act and Section 154 of the 1961 Act does not arise for decision in this case. However, we may point out that it does not bear thesame meaning as the phrase 'an error apparent on the face of the record' in Order XLVII, Rule 1, of the Civil Procedure Code (See Income-tax Officer v. Asok Textiles Ltd.).

16. Our answer to the question under reference is in the affirmative, that is, in favour of the assessee and against the revenue. The revenue will pay the costs of the assessee including advocate's fee of Rs. 250,

17. A copy of this judgment shall be sent under the seal of this court and the signature of the Registrar to the Appellate Tribunal.


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