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Commissioner of Income-tax Vs. Navinchandra Tribhovandas Shah - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 40 of 1971
Judge
Reported in[1987]165ITR192(Guj)
ActsIncome Tax Act, 1961 - Sections 114, 154 and 182
AppellantCommissioner of Income-tax
RespondentNavinchandra Tribhovandas Shah
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.P. Shah, Adv.
Excerpt:
- - the assessee objected to this, both on merits as well as the legality of the proceedings under section 154. the income-tax officer rejected contentions of the assessee and held as regards the the maintainability of the proceedings as well as on merits against the assessee......in accordance with the relevant provisions of the income-tax act. no income-tax was charged on the assessee-firm because the amount of rs. 40,661 was taken into consideration for the purpose of calculating the income-tax payable by the registered firm itself under the provision of section 182. subsequently, on june 18, 1965, the income-tax officer thought that he had committed a mistake in the original assessment for the year 1964-65, inasmuch as he had no included the capital gains in the income of the firm for the purpose of determining the income-tax payable by the firm. he treated this mistake apparent from the record and initiated proceedings under section 154 by way of rectification. he issued the necessary notice with a view to include the capital gains in the income of the firm.....
Judgment:

B.J. Divan, C.J.

1. The following two questions have been referred to us at the instance of the Revenue :

'1. Whether, on the facts and in the circumstances of the case, the respondent was liable to pay tax on capital gains under section 114 of the Income-tax Act, 1961

(2) Whether, on the facts and in the circumstances of the case, the rectification order by the Income-tax Officer under section 154 of the Income-tax Act, 1961, was validly passed ?'

2. The assessment year in question is 1964-65 and the assessee is a registered firm. The firm was originally assessed for the year 1964-65 on March 27, 1965, on a total income of Rs. 35,361 (sic). Out of this total income, Rs. 40,661 consisted of long term capital gains. The business income of the firm and the capital gains were both allocated amongst the partners in accordance with the relevant provisions of the Income-tax Act. No income-tax was charged on the assessee-firm because the amount of Rs. 40,661 was taken into consideration for the purpose of calculating the income-tax payable by the registered firm itself under the provision of section 182. Subsequently, on June 18, 1965, the Income-tax Officer thought that he had committed a mistake in the original assessment for the year 1964-65, inasmuch as he had no included the capital gains in the income of the firm for the purpose of determining the income-tax payable by the firm. He treated this mistake apparent from the record and initiated proceedings under section 154 by way of rectification. He issued the necessary notice with a view to include the capital gains in the income of the firm for the purpose of taxation. The assessee objected to this, both on merits as well as the legality of the proceedings under section 154. The Income-tax Officer rejected contentions of the assessee and held as regards the the maintainability of the proceedings as well as on merits against the assessee. On appeal, the Appellate Assistant Commissioner dismissed the appeal and upheld the order of the Income-tax Officer on both the grounds. The assessee carried the matter further to the Income-tax Appellate Tribunal and the Tribunal held that for the purpose of computing the total income-tax payable by a registered firm under section 182, the capital gains should not be taken into consideration while considering the total income of the registered firm. The Tribunal also held that the rectification proceedings under section 154 of the Income-tax Act were not maintainable as there was no mistake apparent from the record and the Tribunal observed that the controversy was highly debatable and, therefore, section 154 would no apply. Thereafter, at the instance of the Revenue, the above two question have been referred to us.

3. It is obvious that if we come to the conclusion that the rectification proceedings under section 154 were not at all maintainable, the is no question of considering the merits of the case. As a matter of fact, the Supreme court has observed in T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) , that the High Court would no be justified in such a case in going into the question whether the original assessments were in accordance with law. We would, therefore, reverse the order on the questions that have been referred to us and we would treat question No. 2 as question No. 1 and in the event of our holdings that the rectification proceedings were maintainable, we would go into the merits of the question.

4. As regards the question of maintainability of the rectification proceedings under section 154, in T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) , an almost identical question arose before the Supreme Court. The original assessments on the assessee, which was a firm duly registered under the Income-tax Act, were made on the slab rates prescribed under the respective Finance Acts applicable to registered firms. In the individual assessments of the partners of the firm, their respective shares were included and tax was assessed at the maximum rate since the partners were assessed as non-residents. Thereafter, initiating rectification proceedings under section 154 of the Income-tax Act, 1961, on the ground that there was a mistake apparent from the record inasmuch as the firm had been charged at the maximum rate of tax under section 17(1) of the Indian Income-tax Act, 1922, the Income-tax Officer purported to rectify the assessments by applying the provisions of that section. The respondent firm and its partners applied to the High Court under article 226, of the Constitution and the High court held that the original assessments were prima facie in accordance with law and at any rate there was no obvious or patent mistake in those orders of assessment and, therefore the officer was incompetent to pass the orders of rectification. When the matter was carried in appeal to the Supreme Court, that court held (headnote) :

'The question whether section 17(1) of the Act of 1922 was applicable to the case of the respondent firm was not free from doubt, and it was not open to the Income-tax Officer to go into the true scope of the provisions of the Act in a rectification proceeding under section 154 of the Income-tax Act, 1961 : the officer was wrong in holding that there was a mistake apparent from the record of assessments of the firm.'

5. In view of this clear pronouncement of the Supreme Court, it is obvious that in the instant case also the Income-tax Officer was wrong in holding that there was a mistake apparent from the record of assessment of the assessee-firm and it was not competent for him to go into the true scope of the provisions of the Act in rectification proceedings under section 154.

6. Under these circumstances, it is obvious that question No. 1 as renumbered by us, must be answered against the Revenue and in favour of the assessee. In this view of the matter, question No. 2 as renumbered by us, does not arise for consideration. We, therefore, answer the questions accordingly. The Commissioner will pay the costs of this reference to the assessee.


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