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Rambhai Jethabhai Patel Vs. Commissioner of Income-tax, Gujarat-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 137 of 1974
Judge
Reported in[1977]108ITR771(Guj)
ActsIncome Tax Act, 1961 - Sections 2(30), 2(46), 6(6), 24(7), 113, 113(1), 113(3), 113(4), 113(5), 143, 146, 147, 155, 155(1) and 263; Finance Act, 1965
AppellantRambhai Jethabhai Patel
RespondentCommissioner of Income-tax, Gujarat-i
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases ReferredRadha Ballav Poddar v. Motilal Chanda Sarkar
Excerpt:
(i) direct taxation - assessment - sections 2 (30), 2 (46), 6 (6), 24 (7), 113, 113 (1), 113 (3), 113 (4), 113 (5), 143, 146, 147, 155, 155 (1) and 263 of income tax act, 1961 and finance act, 1965 - whether tribunal justified in holding that on date of filing application under section 113 assessment for assessment year 19621-63 not pending - date on which declaration was made assessment for assessment year 1962-63 was pending since application for rectification could be made - tribunal erred in not considering whether assessment for assessment year 1962-63 was pending on date of declaration - held, tribunal not justified in holding that on date of filing application under section 113 assessment for assessment year 1962-63 not pending. (ii) option - whether income tax officer justified.....divan, c.j.1. in this case, at the instance of the assessee, the following three questions have been referred to us by the income-tax appellate tribunal for our opinion : '(1) whether the tribunal was justified in holding that on the date on which the assessee had filed application under section 113 of the act, the assessment for the assessment year 1962-63 was not pending (2) whether, on the facts and in the circumstances of the case, the tribunal was correct in holding that the income-tax officer was justified in not allowing the assessee to exercise the option under section 113 of the act for the assessment year 1962-63 (3) whether, on the facts and in the circumstances of the case, the tribunal was correct in holding that the status of the assessee was resident but not ordinarily.....
Judgment:

Divan, C.J.

1. In this case, at the instance of the assessee, the following three questions have been referred to us by the Income-tax Appellate Tribunal for our opinion :

'(1) Whether the Tribunal was justified in holding that on the date on which the assessee had filed application under section 113 of the Act, the assessment for the assessment year 1962-63 was not pending

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the Income-tax Officer was justified in not allowing the assessee to exercise the option under section 113 of the Act for the assessment year 1962-63

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the status of the assessee was resident but not ordinarily resident ?'

2. The short facts leading to this reference are as follows : The assessment year under reference is assessment year 1962-63, the relevant previous year being the financial year 1961-62. The assessee belongs to Gujarat and before he settled down in Gujarat, he was practicing as an auditor at Nairobi in East Africa. He returned to India in the year of account relevant to the assessment year 1962-63, and settled at Vallabh Vidyanagar, Anand, Kaira District. The assessment year 1962-63 was the first year of assessment of the assessee and he filed his return to income disclosing 'nil' income in the status of 'resident' for the said assessment year. During the course of assessment proceedings, the Income-tax Officer noticed that the assessee had started construction of an immovable property at Anand in the year 1958 which was completed by the end of the financial year 1961-62. As the Income-tax Officer was not satisfied with the explanation of the assessee regarding the source of the funds with which the said property was constructed, he included a sum of Rs. 16,640 as the assessee's income from other sources. The other income assessed and Rs. 13 earned by way of interest and thus the total income assessed came was Rs. 16,653. By an order dated December 16, 1965, the Income-tax Officer determined the assessee's status as 'resident but not ordinarily resident'. However, in the order which was served upon the assessee, the status of the assessee was stated as 'resident and ordinarily resident'. Subsequently, it appears, that on the records of the department the status of the assessee was corrected to 'resident but not ordinarily resident'. It is the contention of the department that the assessment order was thus corrected to 'resident but not ordinarily resident' before the assessment order was actually served on the assessee. On the other hand, it is assessee's case that the copy of the order of assessment which was served upon him was not corrected and the status of the assessee as shown in the copy received by him was 'resident and ordinarily resident'. It is important to note that while calculating the tax payable by the assessee, the status of the assessee was treated as 'resident and ordinarily resident'. When the assessee realised that the Income-tax Officer had made this mistake, he applied for rectification under section 154 of the Income-tax Act, 1961. The assessment order was passed by the Income-tax Officer on December 16, 1965. Thereafter on November 11, 1966, the assessee applied under section 113 of the Income-tax Act, 1961, declaring that the tax payable by him on his total income shall be determined with reference to his total world income and though by sub-section (3) of section 113 he was required to make that application on June 30, 1962, which was the material date for the purposes of making such a declaration, he submitted that he was prevented by sufficient cause from making the declaration under sub-section (3) of section 113 and, therefore, he contended that his case fell within sub-section (5) of section 113. The application for rectification was made on March 23, 1968. The Income-tax Officer held by his order dated June 17, 1968, that the order of assessment required to be rectified in so far as the tax was worked out on the footing of the status of the assessee being resident and ordinarily resident. By the rectification order the tax was worked out on the footing that the assessee's status was 'resident and not ordinarily resident' and the tax liability was accordingly corrected. The application for declaration under sub-section (5) of section 113 was rejected so far as the assessment year 1962-63 was concerned on the ground that the assessment for that year was already completed when the declaration under section 113, sub-section (5), was sought to be made by the assessee. The Inspecting Assistant Commissioner with whom the power of approval of such declaration lay under section 113 refused to consider the assessee's prayer that the option may also be made applicable to assessment year 1962-63. The assessee was aggrieved by the order passed by the Income-tax Officer under section 154 and before the Appellate Assistant Commissioner he contended that the Income-tax Officer had erred in not taking into consideration the declaration under section 113, sub-section (5), of the Act for the purpose of determining the rate of tax in the status of 'resident but not ordinarily resident'. The Appellate Assistant Commissioner upheld the assessee's claim that the declaration under section 113, sub-section (5), of the Act was effective for the assessment year 1962-63 also. In the view taken by the Appellate Assistant Commissioner, the assessment order dated December 16, 1965, passed by the Income-tax Officer was in the status of 'resident and ordinarily resident' and the order in the status of 'resident but not ordinarily resident' was passed only on June 17, 1968, when the order in rectification proceedings was passed. The Appellate Assistant Commissioner was of the opinion that the assessment in the status of 'resident but not ordinarily resident' was pending on November 11, 1966, that being the date on which the assessee had applied for condoning the delay in filing the declaration under section 113, sub-section (3), of the Act.

3. Against the decision of the Appellate Assistant Commissioner, the revenue took the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal held that the assessment order dated December 16, 1965, passed by the Income-tax Officer was in the status of 'resident but not ordinarily resident' and not in the status of 'resident and ordinarily resident' as contended by the assessee. The Tribunal, therefore, held that the Income-tax Officer was justified in rectifying the mistake in calculation of tax under section 154 of the Act on the basis of the application given by the assessee. The Tribunal further held that since the order of assessment for assessment year 1962-63 was completed before the application under section 113 of the Act was made to the Inspecting Assistant Commissioner of Income-tax and was not approved by him, the Income-tax Officer was justified in not allowing the assessee to exercise the option under section 113 for assessment year 1962-63 which was under reference. In this view of the matter, the Tribunal allowed the appeal of the revenue and, thereafter, at the instance of the assessee, the above-mentioned three questions have been referred to us for our opinion.

4. It may be pointed out that a provision similar to section 113 of the Act of 1961 was to be found in section 17, sub-section (1), of the Indian Income-tax Act, 1922. When the Income-tax Act, 1961, was enacted, section 113 took the place of section 17, sub-section (1), of the Act of 1922. By the Finance Act, 1965, section 113 was deleted from the Act with effect from April 1, 1965, and section 2, sub-section (46), of the Act of 1961, was also deleted. Section 2, sub-section (46), defined 'total world income'. After 1965, non-residents as well as those who are resident but not ordinarily resident are assessed at the rate appropriate to their total income and their total world income can no longer be taken into account for any purpose of assessment. Prior to its deletion in 1965, section 113 provided for tax in case of non-residents and persons not ordinarily resident. It may be pointed out that under section 2, sub-section (30), of the Act of 1961, 'non-resident' means a person who is not a 'resident', and includes a person who is not ordinarily resident within the meaning of sub-section (6) of section 6. Under sub-section (1) of section 113, where a person is a non-resident and is not a company, the tax payable by him or on his behalf, on his total income was to be an amount equal to the income-tax which would be payable on his total income at the maximum rate, plus either the super-tax which would be payable on his total income at the rate of nineteen per cent. or the super-tax which would be payable on his total income if it were the total income of a resident, whichever was greater. Under sub-section (3), any non-resident other than a company, might, on or before the 30th day of June of the assessment year in which he first became assessable as a non-resident, by notice in writing to the Income-tax Officer, declare (such declaration being final and being applicable to all assessments thereafter) that the tax payable by him or on his behalf on his total income shall be determined with reference to his total world income, and, thereupon, notwithstanding the provisions of sub-section (1), such tax shall be determined in accordance with sub-section (4). Sub-section (4) of section 113 provided that where under the provisions of sub-section (3) any non-resident had exercised his option to be taxed with reference to his total world income, the tax payable by him or on his behalf was to be the tax payable on his total income as if it were the total income of a resident or an amount bearing to the total amount of tax which would have been payable on his total world income had it been his total income the same proportion as the total income bore to the total world income, whichever was greater. Sub-section (5) of section 113 is material for the purpose of our judgment and it reads as follows :

'Where any person referred to in sub-section (1) satisfies the Income-tax Officer that he was prevented by sufficient cause from making the declaration referred to in sub-section (3) or in any similar provisions of the Indian Income-tax Act, 1922 (XI of 1922), on the first occasion on which he became assessable as a non-resident under this Act or the said Act, as the case may be, and his failure to make such declaration has not resulted in reducing his liability to tax for any year, the Income-tax Officer may, with the previous approval of the Inspecting Assistant Commissioner, allow such person to make the declaration at any time after the expiry of the period specified, and such declaration shall have effect in relation to the assessment for the year in which the declaration is made (if such assessment had not been completed before such declaration), any assessment pending on the date of such declaration and all assessments for subsequent assessment years.'

5. It is, therefore, clear that if the conditions of sub-section (5) were satisfied, then the declaration though made after the date specified in sub-section (3), that is, 30th June, 1962, on the facts of this case, was to have effect in relation to the assessment year in which the declaration was made (if such assessment had not been completed for the year in which the declaration was made) and it was to affect any assessment pending on the date of such declaration and all assessments for subsequent assessment years. It is the last portion about the effect of the declaration that is in controversy before us. In view of the facts which we have set out above, the question that we have to decide is, whether assessment for assessment year 1962-63 can be said to have been pending on the date when the assessee applied on November 11, 1966, for making the declaration. It is not in dispute that for years subsequent to assessment year 1962-63, that is, for assessment year 1963-64 onwards, the benefit of this declaration was given to the assessee. It is only the question of assessment year 1962-63 which is in dispute between the assessee and the revenue.

6. The Inspecting Assistant Commissioner held by his order dated January 25, 1968, that the delay was not condoned for assessment year 1962-63 and the delay was condoned for 1963-64 and the assessment for 1963-64 and 1964-65 might be made at world income rates. That is shown by annexure 'C' to this reference. The Appellate Assistant Commissioner relied upon the decision of the Supreme Court in S. Sankappa v. Income-tax Officer : [1968]68ITR760(SC) and took the view that the declaration filed on November 11, 1966, ought to have been taken into account for computation of tax as regards assessment year 1962-63. Apparently, the Appellate Assistant Commissioner has proceeded upon the footing that all conditions for the operation of section 113, sub-section (5), were satisfied and that is why he allowed that declaration. So far as the Tribunal is concerned, it held that since the order for assessment year 1962-63 was completed before the application under section 113 was made to the Inspecting Assistant Commissioner of Income-tax and was not approved by him, the Income-tax Officer was justified in not allowing the assessee to exercise the option under section 113, sub-section (5), read with section 113, sub-section (3), for assessment year 1962-63.

7. In S. Sankappa's case : [1968]68ITR760(SC) the Supreme Court had held that the word 'assessment' should be read in the Income-tax Act in a very wide sense particularly when the word 'assessment' is used in the context of rectification proceedings. It was held by the Supreme Court that proceedings taken for rectification of assessment to tax either under section 35(1) or under section 35(5) of the Act of 1922 were proceedings for assessment. At page 763 of the report, Bhargava J., delivering the judgment of the Supreme Court, observed :

'...... the word 'assessment' is used in the Income-tax Act in a number of provisions in a comprehensive sense and includes all proceedings, starting with the filing of the return or issue of notice and ending with determination of the tax payable by the assessee. Though, in some sections, the word 'assessment' is used only with reference to computation of income, in other sections it has the more comprehensive meaning mentioned by us above. Reference may be made to the decision of this court in C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) . The same principle has been recently reiterated in the case of Kalawati Devi Harlalka v. Commissioner of Income-tax : [1967]66ITR680(SC) .......'

8. After culling a passage from Kalawati Devi's case : [1967]66ITR680(SC) Bhargava J. proceeded to observe (page 764) :

'It is clear that, when proceedings are taken rectification of assessment to tax either under section 35(1) or section 35(5) of the Act of 1922, those proceedings must be held to be proceedings for assessment. In proceeding under those provisions, what the Income-tax Officer does is to correct errors in, or rectify orders of assessment made by him, and orders making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment.'

9. In view of this decision of the Supreme Court it is obvious that rectification proceedings are proceedings for assessment and are part of the proceedings for assessment. Section 154 of the Act of 1961 substantially reproduces the provisions of section 35(1) of the Act of 1922 and whatever has been said by the Supreme Court in S. Sankappa's case : [1968]68ITR760(SC) relating to rectification proceedings under section 35(1) of the Act of 1922 will apply to rectification proceedings under section 154 of the Act of 1961.

10. In K. L. Varadarajan v. Commissioner of Income-tax : [1975]98ITR182(SC) the Supreme Court was concerned with a declaration under section 17(1) and reassessment proceedings under section 34 of the Act of 1922. As already pointed out above, section 113 of the Act of 1961 reproduces the provisions of section 17(1) of the Act of 1922. At page 185 of the report, Khanna J., delivering the judgment of the Supreme Court, observed :

'In appeal before us, Mr. Desai on behalf of the assessee-appellant has assailed the judgment of the High Court and has contended that the correct view of law was taken by the Appellate Assistant Commissioner and the Tribunal. As against that, Mr. Hardy, on behalf of the revenue, has supported the view taken by the High Court.'

11. The view taken by the Appellate Assistant Commissioner and the Tribunal was that the assessee in that case had sufficient cause for not filing the declaration under section 17(1) when the assessee became first assessable and held that the failure to file the declaration had not resulted in a reduction of tax liability. The declaration filed on March 24, 1959, by the assessee for assessment years 1955-56 to 1957-58 could be availed of for the three assessment years as the assessment orders consequent upon the reopening of assessments were being made subsequent to the date. The Tribunal upheld the view of the Appellate Assistant Commissioner but the High Court reversed that view. It was urged on behalf of the assessee before the Supreme Court that the view taken by the Appellate Assistant Commissioner and the Tribunal was correct. Khanna J., delivering the judgment of the Supreme Court, further observed (Se : [1975]98ITR182(SC) ) :

'After hearing the learned counsel for the parties, we are of the opinion that the submission made by Mr. Desai is well founded. The assessee, as mentioned earlier, filed by declaration in the course of assessment proceedings relating to the year 1958-59, on March 24, 1959. Although the above declaration was rejected by the Income-tax Officer, the Appellate Assistant Commissioner on appeal, in respect of assessment for the assessee year 1958-59, held that there was sufficient cause for the assessee in not making the declaration on the first occasion on which he became assessable and that his failure to make such declaration had not resulted in reducing his liability to tax for any year. The assessee was accordingly allowed to make the declaration after the expiry of the prescribed period. According to the second proviso to section 17(1) of the Act, once the assessee is allowed to make the declaration after the expiry of the period specified 'such declaration shall have effect in relation to the assessment for the year in which the declaration is made (if such assessment had not been completed before such declaration) and all assessments thereafter'. The words of the second proviso to section 17(1) reproduced above make it clear that the declaration would be operative not only for the assessment for the year in which the declaration is made if such assessment had not been completed before such declaration, but also for all assessments to be made thereafter. The words 'all assessments thereafter', in our opinion, signify not only assessments for the subsequent years but would also never assessments for the earlier years in case the assessments for those earlier years are being made subsequent to the filing of the declaration. The words 'all assessments thereafter' have a wide amplitude and we see no cogent reason for not giving them their natural meaning or for restricting their scope. Those words would include within their ambit all assessments made subsequent to the filing of the declaration and it would be wrong to so construe them as if the legislature had used the words 'all assessments for the subsequent years'.'

12. It may be pointed out that under section 113 of the Act of 1961 the legislature departed from the phraseology of the second proviso to section 17(1) when it enacted sub-section (5) of section 113 and the declaration was to have effect in relation to any assessment pending on the date of such declaration and all assessments for subsequent assessment years. Therefore, we have to consider whether, on the facts of this case, assessment for assessment year 1962-63 can be said to be pending on the date of such declaration. We have referred to the decision in K. L. Varadarajan v. Commissioner of Income-tax : [1975]98ITR182(SC) for the purpose of pointing out that under the Act of 1922 under the second proviso to section 17(1) the Supreme Court had come to this particular conclusion because of the fact that in that particular case the orders in reassessment proceedings came to be passed after the date of the declaration.

13. Mr. Patel for the assessee has relied on the decision of this High Court in Commissioner of Income-tax v. Himatlal Bhagubhai : [1972]86ITR481(Guj) . In that case, a Division Bench of this High Court has considered when an assessment order can be said to have been finally made. At page 485 of the report, Bhagwati C.J., delivering the judgment of the Division Bench, observed :

'Now, it is well-settled that once an assessment is made, it is final and conclusive unless there is some provision of law which permits its finality to be disturbed : See Commissioner of Income-tax v. Khemchand Ramdas [1938] 6 ITR 414 . There are in the new Act several provisions which permit interference with the finality of an assessment. They are to be found in sections 146, 147, 154 and 155 of the new Act...... Then there is power conferred on the Income-tax Officer under section 154 to rectify any mistake apparent from the record of the assessment. This power can be exercised only if there is a mistake apparent from the record and there is a time-limit prescribed under the section for exercise of the power and that time-limit is four years from the date of the order sought to be amended. Section 155 confers power on the Income-tax Officer to rectify an order of assessment in certain specified cases. Sub-section (1) of section 155 is the counterpart of section 35(5); it deals with the case of rectification of the assessment of a partner, where it is found on the assessment or reassessment of the firm that the share of the partner in the income of the firm has not been included in the assessment of the partner or as included is not correct. There are similar provisions in the other sub-sections of section 155 dealing with different situations. There is a time-limit provided in each of these cases, within which power to rectify the assessment must be exercised by the Income-tax Officer. We are not referring here to the powers of appeal and revision since these powers are necessary concomitants of every judicial or quasi-judicial adjudication and the assessment made by the Income-tax Officer can always be interfered with in appeal or revision. But, it may be pointed out that in appeal and revision also, time-limits are provided in the relevant sections. These sections are all enabling sections which permit disturbance of the finality of an assessment at various stages under different conditions and within different time-limits. Each section is an independent section with its own distinctive conditions and its own particular time-limit and if the conditions are satisfied and action is taken within the time-limit, it opens the door for interfering with the finality of the assessment. It may be that a particular door provided by a section for penetrating the finality of an assessment is closed because the conditions of entry through that door are not satisfied or the time-limit within which the entry can be made has expired, but that does not mean that if the conditions of entry through another door provided by a different section are satisfied and the entry is sought to be made within the time-limit specified in that section, such entry should not be permissible.'

14. This decision was relied upon by Mr. Patel for contending that the finality which his conferred on an assessment order is only an ad hoc finality which disappears when, for instance, rectification proceedings are initiated. We are unable to accept this contention of Mr. Patel. All that Commissioner of Income-tax v. Himatlal Bhagubhai : [1972]86ITR481(Guj) decides is that though the assessment order is final and conclusive, under certain provision of the Act of 1961, a door to disturb that finality or to penetrate that finality can be opened. But that does not mean that the order of assessment has only an ad hoc finality as 'ad hoc finality' is understood in law. We would be departing from the ratio of the decision in Commissioner of Income-tax v. Himatlal Bhagubhai : [1972]86ITR481(Guj) based on the earlier decision of the Privy Council in Commissioner of Income-tax v. Khemchand Ramdas [1938] 6 ITR 414 if we were to hold that the order of assessment has only an ad hoc finality. The finality attaches to every order to assessment, subject to that finality being disturbed in proceedings adopted, for instance, under section 146 or section 147 or section 263 or sections 154 and 155 of the Act of 1961.

15. It may be pointed out that the exact scope of the finality of an assessment order was explained by this High Court in Mandal Ginning & Pressing Co. Ltd. v. Commissioner of Income-tax : [1973]90ITR332(Guj) . In that particular case the question before the Division Bench was whether an appeal lay against an order of rectification made by the Income-tax Officer under section 35, sub-section (1), of the Act of 1922. Section 30 of the Act of 1922 provided for appeals against orders made under different sections of the Act of 1922 set out in section 30, sub-section (1). An order of rectification made under section 35(1) was not one of the orders referred to in section 30 and it was contended that an order of rectification made by the Income-tax Officer under section 35, sub-section (1), was also an order under section 23 and that the assessee was entitled to appeal against the order of rectification to the Appellate Assistant Commissioner on the footing that in such a case, the assessee would be objecting to the amount of income assessed under section 23 or the amount of tax determined under section 23. Bhagwati C.. observed - See : [1973]90ITR332(Guj) :

'The words 'under section 23' must, therefore, be given due effect in interpreting this clause. These words in the context in which they occur can mean 'by virtue of' or 'in exercise of the power conferred under section 23'. If assessment of income or determination of tax has taken place under any other provision of the Act, it would not attract the right of appeal, unless of course it falls within any other clause of section 30, sub-section (1).'

16. The decision of the Supreme Court in S. Sankappa's case : [1968]68ITR760(SC) was considered by the Division Bench and it was held (page 337) :

'...a proceedings for rectification of an assessment under section 23 is a proceeding for assessment; it is part of the procedure for ascertainment and imposition of tax liability on the assessee. When an assessment made under section 23 is rectified by an order of rectification, what was a wrong quantification of tax liability is rectified and a corrected quantification of tax liability is substituted for it. This may result in enhancement of the amount of the tax liability or reduction of the amount of the tax liability. Where the amount of the tax liability is enhanced by reason of the rectification made by the Income-tax Officer, can it be said that the enhanced tax liability is the result of assessment under section 23...... When an order of rectification is passed under section 35, sub-section (1), it undoubtedly rectifies the assessment under section 23, but the enhanced tax liability which results from it, owes its validity to the exercise of power under section 35, sub-section (1), and not to the exercise of power under section 23.' It is, therefore, clear in the light of this decision of our court in Mandal Ginning & Pressing Co. Ltd.'s case : [1973]90ITR332(Guj) , with which we are in respectful agreement, that merely because the order was passed in rectification proceedings, it cannot be said that the order which was passed on March 23, 1968, in rectification proceedings was in effect and substances an order of assessment under section 143 of the Act of 1961. It is not an ordinary order of assessment. It is true that by the order of March 23, 1968, the earlier order made under section 143 was rectified and corrected and it is the corrected order which would hold the field; but it cannot be said that the order of March 23, 1968, was the order under section 143 in assessment proceedings and that, therefore, on November 11, 1966, the assessment for the assessment year 1962-63 was not completed.

However, there is another decision of our High Court which requires to be considered in this context. That decision is in Karsandas Bhagwandas Patel v. G. V. Shah, Income-tax Officer : [1975]98ITR255(Guj) , where it was pointed out at page 273 :

'The order of rectification thus corrects the assessment and the corrected assessment is the final assessment, unless it is followed by a subsequent order disturbing the corrected assessment. Where, therefore, the order of rectification under section 35, sub-section (1), is not followed by a subsequent order disturbing the corrected assessment, it would be the final order passed in the case of the assessee....' The question before the Division Bench in that particular case was as to which was the final order passed in the case of the firm within the meaning of section 35, sub-section (5). In that case against the original order of assessment of the Income-tax Officer, an appeal was taken to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner considered only some of the items and gave his decision at the appellate stage only regarding those items. This High Court held in Karsandas Bhagwandas Patel's case : [1975]98ITR255(Guj) : 'That part of the order of assessment which relates to items not forming the subject-matter of the appellate order is left untouched and does not merge in the order of the Appellate Assistant Commissioner.'

17. Therefore, a mistake in that part of the order of assessment which was not the subject-matter of appeal before the Appellate Assistant Commissioner and had been left untouched can be rectified by the Income-tax Officer under section 35 of the Act of 1922 and if the order of assessment was rectified in the case of a firm, to give effect to the result of the rectification in the assessment of the individual partners of the firm, the provisions of section 35(5) of the Act of 1922 can be invoked within the four years of the order of rectification made by the Income-tax Officer. In that case the Appellate Assistant Commissioner had passed his order in appeal on May 18, 1961, and the Income-tax Officer had passed his order of rectification on February 25, 1963; the Division Bench held that the final order of assessment passed in the case of the firm was the order of rectification dated February 25, 1963. It was pointed out that when an assessment is rectified by an order of rectification, what was wrong quantification of tax liability is rectified and a correct quantification of the liability is substituted for it.

18. In view of these different decisions we have to consider as to whether the assessment for assessment year 1962-63 could be said to be pending on November 11, 1966, on which the date application under section 113, sub-section (5), was made by the assessee. Now, the word 'pending' has been interpreted as follows :

'A cause is still pending within the Judicature Act, 1873, section 24(7) (repealed); (see now Supreme Court of Judicature (Consolidation) Act, 1925) even though there has been final judgment given, and the court has very large powers in dealing with a judgment until it is fully satisfied. It may stay proceedings on the judgment, either wholly or partially, and the cause is still pending, therefore, for this purpose, as it appears to me, and must be considered as pending, although there may have been final judgment given in the action, provided that judgment has not been satisfied.' (Vide Words and Phrases Legally Defined, second edition, volume 4, page 100). In Stroud's Judicial Dictionary, fourth edition, volume 4, at page 1975, it is stated :

'A legal proceedings is 'pending' as soon as commenced and until it is concluded, i,e., so long as the court having original cognizance of it can make an order on the matters in issue, or to be dealt with, therein.' This passage from Stroud's Judicial Dictionary was approved by the Supreme Court in Asgarali Nazarali v. State of Bombay : 1957CriLJ605 . At page 509 of the report, Bhagwati J., delivering the judgment of the Supreme Court, set out this definition of 'pending' legal proceeding and then observed :

'Similar are the observations of Jessel M. R. in In re Clagett's Estate Fordham v. Clagett [1882] 20 Ch D 637 (CA) :

'What is the meaning of the word 'pending In my opinion, it includes every insolvency in which any proceeding can by any possibility be taken. That I think is the meaning of the word 'ending'...... A cause is said to be pending in a court of justice when any proceeding can be taken in it. That is the test.'

19. Mr. Patel for the assessee also relied upon the decision of the Calcutta High Court in Radha Ballav Poddar v. Motilal Chanda Sarkar : AIR1951Cal569 . There it was held that the word 'pending' in section 5 of the West Bengal Premises Rent Control (Temporary Provisions) (Amendment) Act, 1950, should be liberally construed so as to include a case such as the one where although no actual appeal was pending when the Amending Act came into force an appeal was subsequently filed within limitation and, consequently, the appeal was to be disposed of on the basis that the law in force at the time when the decree was passed was the law as it stood amended by the Amending Act. In our opinion, this decision of the Calcutta High Court is not of much assistance to us in deciding the question before us. However, in the light of the observations of Jessel M. R. which have been approved by the Supreme Court in Asgarali Nazarali's case : 1957CriLJ605 , it can safely be said that a matter can be said to be pending in a court of justice when any proceedings can be taken in it and that is the test to be applied. Applying that test in the liberal and the broader sense of the word 'pending', it can be said that the assessment for assessment year 1962-63 was pending on November 11, 1966, since an application for rectification could be made in respect of the assessment order for assessment year 1962-63. This is the liberal interpretation which should be made, but what is more important in this case and which really, in our opinion, concludes the matter in favour of the assessee is that though application for rectification came to be made on March 23, 1968, that is, nearly one year and four months after the application for declaration under section 113, sub-section (5), subsequently, the order of rectification was granted. It cannot be gainsaid that if the application for declaration had been made after March 23, 1968, in view of the fact that rectification was in fact granted, the assessment proceedings for assessment year 1962-63 could be said to be pending. In order to avoid all anomalies and absurdities of the type which arise, we must hold, particularly in the light of the special facts of the case, that the proceedings of assessment for assessment year 1962-63 were pending on November 11, 1966, when the application for declaration was made. The order of rectification passed in this matter on June 17, 1968, corrected the assessment and the corrected assessment is the final assessment in this case for assessment year 1962-63. In our opinion, it would be an anomalous and absurd position if we were to hold that because of the accident of the application for declaration under section 113, sub-section (5) having been made prior to the application for rectification, the assessee should be denied the relief under section 113, sub-section (5), on a narrow and technical reading of the words 'pending on the date of such declaration' occurring in section 113(5). We, therefore, hold that in the peculiar facts and circumstances of the case, the proceedings for assessment can be said to be pending on the date when the declaration was made on November 11, 1966, and the conclusion of the Tribunal that the order for the assessment year 1962-63 was completed before the application under section 113 was made to the Inspecting Assistant Commissioner of Income-tax and was not approved by him, was not correct. The real test to be applied was whether on the date on which the declaration was made the assessment for assessment year 1962-63 was pending and as we have pointed out, in view of the liberal interpretation put on the word 'pending', particularly to avoid anomaly and absurdity, assessment for assessment year 1962-63 can be said to be 'pending' on the date of the declaration. It may be pointed out that the words in bracket 'if such assessment had not been completed before such declaration', occurring in section 113, sub-section (5), refer to the assessment for the year in which the declaration is made, that is, in 1966. As pointed out earlier, section 113 was deleted from the statute book with effect form April 1, 1965, by the Finance Act, 1965. Therefore, there was no question of the declaration having effect on assessment for assessment year 1967-68. The real question is whether the declaration will affect any assessment pending on the date of such declaration. In our opinion, the Tribunal erred in law in not considering whether the assessment for assessment year 1962-63 was pending on the date of the declaration instead of considering whether the assessment had not been completed before such declaration. The words in the bracket are a qualification of the words which immediately preceded, namely, 'in relation to the assessment for the year in which the declaration is made 'and, therefore, the only thing which the Tribunal was required to consider was whether assessment for assessment year 1962-63 was pending on November 11, 1966. As we have pointed out above, it must be held to have been pending on that date.

20. In view of these conclusions, our answer to the questions referred to us is as follows :

Question No. 1. - In the negative, that is, in favour of the assessee and against the revenue.

Question No. 2. - In the negative, that is, in favour of the assessee and against the revenue.

21. In view of the fact the declaration must be held to have effect for assessment year 1962-63, the tax payable by the assessee for assessment year 1962-63 must be the tax payable on his total income as if it was the total income of a resident within the meaning of section 113, sub-section (4), of the Act of 1961. Question No. 3 must also, therefore, be answered in the negative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.


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