The judgement of the court was delivered by
B. K. MEHTA J. - A few facts need be noticed before we set out the question referred to us in this group of references for our opinion. Since the facts are similar in all these references, we intend to dispose of these reference by this common judgement.
The relevant assessment year is 1967-68. The assessee of Income-tax Reference No. 5 of 1974 was liable to pay annuity deposit for the assessment year 1967-68, admittedly before 31st March, 1967. As a matter of facts, the same was paid on 3rd April, 1967. In other words, the payment was delayed by three days. It appears that the Income-tax Officer concerned while making the assessment order for the assessment year 1967-68 allowed deduction on that count of annuity deposit from the payable income of the assessee. However, later on, the Income-tax Officer on June 17, 1969, passed on order purporting to act under section 154 of the Income-tax Act, 1961, and corrected the order since the conditions precedent for condoning delay in making payment of the annuity deposit were not satisfied with the result that the allowance made on account of annuity deposit was withdrawn. Being aggrieved by this order of rectification of the Income-tax Officer, the assessee went in appeal before the Appellate Assistant Commissioner who confirmed the oreder of the Income-tax Officer. The assessee, therefore, carried the matter in further appeal to the Tribunal. Before the Tribunal, it was conceded on behalf of the assessee that no application in the prescribed form as required by clause 4 of the Annuity Deposit Scheme, 1966, was made within the prescribed period. It was also conceded that no previous approval of the Inspecting Assistant Commissioner as required under 2nd proviso to clause 4 was obtained by the Income-tax Officer. The Tribunal, however, was of the opinion that since the Income-tax Officer had a discretion under the proviso to section 280C(2) of the Income-tax Act, 1961, to extend the time and since the Income-tax Officer concerned had noted that the deposit was paid after the prescribe date, it should be deemed that he had exercised his discretion in the matter of condoning the delay, inasmuch as he allowed deduction for the annuity deposit. In the opinion of the Tribunal, the lack of prior permission of the Inspecting Assistant Commissioner would not affect the position and the Income-tax Officer was not entitled to treated this as a mistake apparent on the record and rectify the order under section 154. The Tribunal also laid emphasis on the fact that the department has treated this as annuity deposit not only in the relevant assessment year but in subsequent years as well when 1/10th amount refunded to the assessee was being brought to tax. The Tribunal, therefore, held that the mistake sought to be rectified by the under section 154. The Tribunal, therefore, by its common order of 27th February, 1973, allowed the five appeals of the five respondents herein before us and set aside the orders of rectification made under section 154. At the instance of the Commissioner, the following question has referred to us in each of these five references.
'Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the mistake sought to be rectified by the Income-tax Officer was not a mistake apparent on the record which can be rectified under section 154 of the Act, and thereby quashing the rectification order of the Income-tax Officer under section 154 of the Act ?'
In all these five references the question referred to us is identical and, therefore, we intend to dispose of these reference these references by this common judgment.
A few relevant provisions need be noted before we deal with the rival contentions of the parties before us, Section 280C of the Income-tax Act, 1961, prescribed for the payment of annuity deposit in the following terms :
'280C Requirement as to annuity deposit. - (1) Where, in relation to any assessment year, not being an assessment year, commencing on or after the 1st day of April, 1969, any Central Act enacts that any person to whom the provision of this Chapter apply shall make for any assessment year in annuity deposit with the Central Government at any rate or rates, such person shall make such deposit at that rate or those rates in accordance with, and subject to the provisions of, this Chapter in respect of the adjusted total income of the previous year or previous years, as the case may be.
(2) In respect of the adjusted total income in relation to which an annuity deposit is to be made under sub-section (1), such deposit shall -
(i) in respect of the adjusted total income of the previous year or previous years relevant to the assessment year commencing on the 1st day of April, 1966, or any earlier assessment year, be made in advance in accordance with the provisions of sections 280E to 280-I;
(ii) in respect of the adjusted total income of the previous year or previous years relevant to the assessment year commencing on the 1st day of April, 1967, or any subsequent assessment year, not being an assessment year commencing on or after the 1st day of April, 1969, be made by such person at any time (in one sum or in instalments of his choice) during the financial year immediately preceding such assessment year at the rate or rates specified in this behalf in the annual Finance Act :
Provided that the Income-tax Officer may, in such cases, under such circumstances and subject to such conditions as may be specified in a scheme framed under section 280W, allow a depositor to make a deposit or a further deposit at any time after the expiry of the financial year referred to in clause (ii), and any deposit or further deposit so made shall be deemed to be an annuity deposit for the relevant assessment year for the purposes of this Chapter.'
Section 280D provides for repayment subject to the provisions of Chapter XXII-A and the Scheme framed thereunder. Under section 280D, the Central Government is under obligation to repay to the depositor the annuity deposit made or recovered in any year in ten equal instalments of principle and interest at such rate or rates as may be notified by the Central Government in the Official Gazette. Section 280C provides for deduction of the amount of annuity deposited in computing total income. Sub-section (1) of section 280-O. Which is relevant for our purposes, reads as under :
'280-O. Annuity deposit allowed as deduction in computing total income. - (1) Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under any head of income, the annuity deposit required to be made under this Chapter shall, subject to the provisions of sub-section (2), be allowed as a deduction in computing the total income assessable for the assessment year in respect of which the annuity deposit is required to be made :
Provided that where in relation to the assessment year commencing on the 1st day of April, 1967, or any subsequent assessment year, not being an assessment year commencing on or after the 1st day of April, 1967, no annuity deposit has been made during the financial year immediately preceding such assessment year (or such further period as may be allowed be the Income-tax Officer under the proviso to clause (ii) of sub-section (2) of section 280C), or the amount of annuity deposit made during the financial year or further period aforesaid falls short of the annuity deposit required to be made under this Chapter, the amount to be allowed as a deduction under this sub-section shall be nil or, as the case may be, limited to the amount of the deposit so made, and the provisions of this section shall have effect as if references therein to the annuity deposit required to be made were references to the amount of annuity deposit actually so made.'
Section 280W empowers the Central Government to frame one or more scheme or schemes to be called Annuity Deposit Scheme or Schemes in relation to deposits under Chapter XXII-A. Sub-section (2) enumerates the different topics which may be provided for the by purposes of theses references. Sub-section (2)(aa) reads as under :
'280W. Annuity Deposit Scheme. - (1) .......
(2) A scheme under sub-section (1) may provide for - .....
(aa) the cases in which, the circumstances under which and the conditions subject to which, the Income-tax Officer may, under the proviso to clause (ii) of sub-section (2) of section 280C, allow a depositor to make a deposit or a further deposit after the expiry of the financial year immediately preceding the assessment year.'
The Central Government has, in exercise of powers conferred by section 280W of the Income-tax Act, 1961, framed and Annuity Deposit Scheme, 1966. Clause 4 of the said Scheme, so far as relevant for purposes of these references, reads as under :
'4. Deposit when to be made. - (i) Save as provided hereinbelow, annuity deposit in relation to any assessment year commencing on the 1st day or April, 1967, or any subsequent assessment year, shall be made at any time (in one sum or in instalments of the depositors choice) during the financial year immediately preceding such assessment year (which financial year is hereafter, in this Scheme, referred to as the relevant financial year).
(2) Notwithstanding anything contained in sub-paragraph (1), the Income-tax Officer may, on an application by the depositor in Form A made on or before the specified date, by order in writing allow the depositor to make a deposit or, as the case may be, a further deposit after the expiry of the relevant financial year, where - ....
(v) the depositor produces evidence to the satisfaction of the Income-tax Officer that he was prevented by sufficient cause from making the deposit or the full amount of the deposit required to be made, during the relevant financial year :
Provided that the further period so allowed by the Income-tax Officer under this sub-paragraph shall, in no case, extend beyond a period of thirty days from the date of this order :
Provided further that the previous approval of the Inspection Assistant Commissioner shall be obtained before allowing the depositor, under clause (v), to make a deposit or, as the case may be, a further deposit after the expiry of the relevant financial year.'
It is in the context of these relevant provisions that we will be required to answer the question referred to us in each of these references.
On behalf of the revenue, it was urged that there was no absolute discretion to the Income-tax Officer under the provision to sub-section (2) of section 280C of the Income-tax Act, 1961, and the Income-tax Officer has to exercise his discretion for condoning delay in such cases, under such circumstances and subject to such conditions as may be specified in the Scheme framed under section 280W of the said Act. If the Income-tax Officer is not invested with the absolute discretion is subject to such conditions, as may be specified in the Scheme, framed under section 280W, the Income-tax Officer concerned has precedent are wanting, the exercise of discretion is bad in law. It was further urged on behalf of the revenue that if on perusal of the record, it can be found that these conditions prescribed in the scheme were wanting and were not complied with before exercising the discretion, the order is liable to be rectified under section 154 of the said Act, as it would be an error apparent on the record.
On behalf of the assessees these contentions were sought to be repelled by urging that the Tribunal was justified in drawing the inference that, since the Income-tax Officer allowed the deduction on account of annuity deposit after noting specifically in the respective assessment orders that the assessees concerned have made the deposits on 3rd April, 1976, coupled with the fact that the said annuity amount refunded every year as required under section 280D has been brought to tax, the Income-tax Officer has in fact condoned to delay. It was further urged that if this discretion has been exercised by the Income-tax Officer concerned, as has been found by the Tribunal, the court should not interfere with this discretionary order.
In our opinion, the contentions of the revenue should prevail. It is an admitted position that there is no necessity of any detailed investigation in this matter so far as the question of exercise of discretion of the Income-tax Officer under the proviso to sub-section (2) of section 280C is concerned, because it is common ground between the parties that no application in the prescribed form as required under sub-paragraph (2) of clause 4 of the Scheme of 1966, was made before the Income-tax Officer for condoning the delay. The Income-tax Officer concerned has also not made any order in writing condoning the delay in question. It is also an admitted position that no previous approval of the Inspecting Assistant Commissioner was obtained as required under the proviso to para. (2)(v) of clause 4 of the said Scheme before the Income-tax Officer could have made the order condoning delay. In our opinion, therefore, the Tribunal was not justified on the facts and in the circumstances of these cases to draw an inference that the Income-tax Officer had condoned the delay in fact. It is no doubt true that Income-tax Officer concerned in the respective orders of assessment referred to the annuity deposit in the following terms while allowing deduction on that count before computing the total income :
'Less : Annuity claimed to have paid on 3-4-67, Rs. 16,570 allowable, Rs. 11,640.'
The Tribunal was impressed with the contention of the assessees that this is tantamount to the Income-tax Officer applying his mind and processing the item. It appears that this fact has weighed unduly with the Tribunal. We cannot lose sight of the limitation which has been placed on the discretion of the Income-tax Officer in the matter of condonation of delay in making the annuity deposit within the prescribed time under the proviso to section 280C(2). The discretion of the Income-tax Officer is not absolute and it has been subjected to such conditions and is to be exercised in such cases and in such circumstances as may be specified in the Scheme to be framed under section 280W of the Income-tax Act, 1961. The important condition to which this discretion of the Income-tax Officer has been subjected in the Scheme is as we find in proviso to sub-para. (v) of paragraph (2) of clause 4 of the 1966 Scheme. The said proviso requires the Income-tax Officer to obtain previous approval of the Inspecting Assistant Commissioner before condoning the delay if he was called upon to exercise the powers under paragraph (2)(v) in the circumstances which justifiably prevented an assessee from making the deposit within the prescribed period. There is also another condition which has limited this discretion of the Income-tax Officer under the proviso to section 280C(2). The second limitation is that the assessee concerned has to make an application in writing in the prescribed form before a specified date and the specified date in the present references before us is the date of filing of return. Unless the assessee concerned made an application before the specified date, which in the present references is the date of filing of return, for condoning the delay, the Income-tax Officer concerned could not have exercised his discretion at all. The third limitation to which this discretion of the Income-tax Officer is subjected is that the he is required to make the order in writing. It is an admitted position here that all these three conditions are wanting, namely, (1) no application in the prescribed form had been made before the specified date; (2) no previous approval was obtained from the Inspecting Assistant Commissioner before condoning the delay; and (3) no order has been made in writing condoning the delay. If these three conditions are wanting, which in fact have been found to be wanting by the Tribunal in these matters, we do not think that the Tribunal was justified in reaching the inference that the Income-tax Officer concerned has exercised the discretion.
Our attention has been invited to a ruling of the supreme Court in S. A. L. Narayan Row v. Ishwarlal Bhagwandas, where the court was concerned with the question whether the Income-tax Officer has exercised his discretion in fact under the 5th proviso to section 18A(6) of the Income-tax Act, 1922, and reduced or waived the interest payable by the assessee on the advance tax. The assessment order in the case before the Supreme Court was made on March 31, 1953, and it was found that the tax paid on the basis of the estimate of the assessee was lass than 80 per cent. of the tax determined as a result of the regular assessment. But the Income-tax Officer made no charge for interest under section 18A(6). On the objection being raised by the departmental auditor that a mistake was committed by the Income-tax Officer in failing to charge interest in making the order of assessment against the assessee, the assessee was called upon by a notice of September 21, 1956, to show cause why the mistake in not levying interest be not rectified and why he should not be directed to pay 'penal interest' under section 18A(6). The Income-tax Officer rectified the said mistake under section 35 and served a notice of demand calling upon the assessee to pay interset due under section 18A(6) for the relevant period. The assessee moved the High Court of Bombay by a petition under article 226 of the Constitution for quashing and setting aside the order passed by Income-tax Officer under section 35 and the notice of the demand issued pursuant thereto. The High Court of Bombay granted the relief and quashed the order of the Income-tax Officer following its earlier judgment in Shantilal Rawji v. M. C. Nair. The revenue carried the matter an appeal before the Supreme Court. The Supreme Court noted that by the Amending Act 25 of 1953 which was enacted with retrospective operation from April 1, 1952, the 5th proviso was added to section 18A(6) which authorised the Income-tax Officer to reduce or waive the interest payable by the assessee in such circumstances as may be prescribed. The Amending Act was given retrospective operation from April 1, 1952, and, therefore, the discretion conferred upon the Income-tax Officer became, by fiction of law, exercisable as from April 11, 1952, even though the Act came into force from May 24, 1953. The relevant rules prescribing the cases in which discretion was to be exercised by the Income-tax Officer under 5th proviso were prescribed by the Central Government by rule 58 in December, 1953. Negativing the contention of the Attorney-General urged on behalf of the revenue that in any case there was nothing to show that the Income-tax Officer had purported to exercise his discretion when he passed the order of assessment and did not impose any liability for payment of interest under section 18A(6), Shah J., speaking for the majority of the judges, observed as under :
'The Attorney-General contended that in any event there was nothing to show that the Income-tax Officer had purported to exercise his discretion when he passed the order of assessment and did not impose any liability for payment of interest under section 18A(6). That may be so. That may be so. But the case of the assessee did fall within the terms of rule 48(1) and the Income-tax Officer must in law be bound to consider whether he was entitled to reduction or waiver of interest under the fifth proviso. The amendment and the rules which came into operation later must in view of the retrospective operation be deemed to be then extant, and the fact that the Income-tax Officer could not in making the assessment have adjusted his approach to the problem before him in the light of those provisions is irrelevant in considering the legality of his order. The order of the Income-tax Officer which did not take note of the law deemed to be in force must be regarded as defective. The matter was brought before the Commissioner of Income-tax and it is unfortunate that the Commissioner in considering the matter under section 33A assumed that the Amending Act 25 of 1953 had no retrospective operation and rejected the claim of the assessee on the ground that at the date when the order of assessment was made, Act 25 of 1953 had not come into operation, and that the Act became effective as from December, 1953, when the rules were framed. In so holding, the Commissioner committed an error of law apparent on the face of the record. The High Court was therefore right in setting aside the order which was passed by the Commissioner without considering the proviso to section 18A(6) which was clearly applicable to the case of the assessee and in the light of rule 48 which was enacted in pursuance of that proviso.'
It appears that the Tribunal had followed this decision and has inferred from the admitted facts that the Income-tax Officer concerned has exercised his discretion for condonation of delay. We do not think that the assessees are justified in pressing the ratio of this decision in service. The proviso to section 280C(2) which invests the Income-tax Officer with the discretion to condone delay is not in pari materia with the 5th proviso to section 18A(6) of the Indian Income-tax Act, 1922. In the proviso with which we are concerned under section 280C(2) the discretion invested in the Income-tax Officer is made subject to the conditions and the circumstances specified in section 280W of the Income-tax Act, 1961. It is no doubt true that the Income-tax Officer has a discretion. But it is not an absolute discretion at all. It is a limited discretion which is to be exercised subject to the conditions and in the circumstances mentioned in the Scheme to be made in that behalf. As we have seen above, there were three important conditions subject to which the discretion is to be exercised by the Income-tax Officer. If those conditions were wanting, it cannot be successfully urged, much less accepted, that that discretion was in fact exercised by the Income-tax Officer concerned.
Mr. Patel, learned advocate appearing on behalf of the assessees, invited our attention to the decision of a single judge of the Kerala High Court in Mohammed Kunhi v. Additional Income-tax Act, Officer, Cannanore, where the learned single judge was concerned with the legality of the rectification proceedings under section 35 of the Indian Income-tax Act, 1922, in respect of an original assessment order where the Income-tax Officer omitted to charge interest as required under section 18A. In that context, the learned single judge held that in such proceedings it was necessary to conduct an filed to determine whether the officer has exercised his discretion, and if it was possible to decide whether there was an error or not only after coming to the conclusion whether rule 48(1) has been satisfied, the error could not be said to be an error apparent on the face of the record and the officer cannot invoke section 35 of the Indian Income-tax Act, 1922, to include interset under section 18A(6) originally not included in the assessment.
We do not think that now in view of the settled legal position on the question about the scope of the jurisdiction of the Income-tax Officer in rectification proceedings as enunciated by the Supreme Court in T. S. Balaram, Income-tax Officer v. Volkart Brothers, we should consider the above decision of the Kerala High Court. The ratio of T. S. Balarams case is that a mistake in order to be apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. We do not think that the ratio of T. S. Balarams case is applicable in the facts of these cases because the facts are all admitted and are as we have set out above. The error which has been found in the rectification proceedings by the Income-tax Officer concerned is apparent on perusal of the record of the assessment proceedings of the respective assessees concerned. The absences of application for condonation of delay before the specified date, the previous approval of the Inspecting Assistant Commissioner and the order in writing for condoning the delay as required by the Scheme could be easily detected from a mere perusal of the record and, therefore, it cannot be said that these facts were not apparent on the record of the case. In that view of the matter, therefore, we do not think that the decision of the learned single judge of the Kerala High Court can be of any assistance to the cause of the assessees.
A similar question arose before a Division Bench of this High Court consisting of B. J. Divan C. J. and T. U. Mehta J. in Income-tax Reference No. 54 of 1972 in the matter of Dalwadi & Co. v. Commissioner of Income-tax, decided on December 17, 1973, where the Income-tax Officer had omitted to charge interest for the late submission of the return. The Income-tax Officer has the power under section 139 read with rule 117A of the 1961 Act to condone he delay in filing return. That discretion was subject to the conditions prescribed in rule 117A, which provided in effect that where the Income-tax Officer is satisfied by the evidence produced by the assessee that he was prevented by sufficient cause from furnishing the return within time, he may, with the previous approval of the Inspecting Assistant Commissioner, if the amount of interest exceeds Rs. 1,000, condone the delay. Admittedly, in the said case before the Division Bench, the previous approval of the Inspecting Assistant Commissioner was not obtained. In that context Divan C. J., speaking for the Division Bench, observed as under :
'Therefore, it is apparent that the obligatory levying of penal interest under sesction 139 was omitted by the Income-tax Officer and the procedure laid down in section 139(8) and rule 117A was not followed. Even if, therefore, the provisions of secstion 139 and rule 117A were held to be retrosective and were held to be applicable to the case of the assessee, the Income tax Officer at the time of the original assessment order had not waived penal interest within the meanning of rule 117A. Hence, non-waiving of penal iinterest was consequently an error apparent on the face of the record and rectification provisions of sectiion 154 could cleraly be invoked by the Income-tax Officer.'
Attention of the Division Bench was invited to the decision of the Supreme Court in S. A. L. Narayan Row v. Ishwarlal Bhagwandas, but the Division Bench found that that decision could not help he assessee in that case on the aspect regarding the scope and applicability of rectification proceedings in view of the facts of the case before it. We are respectful agreement with that decision and we, therefore, hold that the Tribunal was not justified in the facts and in the circumstances of these references to draw an inference that the Income-tax Officer concerned had condoned the delay and, therefore, there was no error apparent on the face of the record which justified he rectification orders.
We, therefore, answer the question referred to us in the affirmative and in favour of the revenue, and we hold that the rectification orders were legal and valid orders.
Before we part with this judgment, we must put on record that he revenue authorities were not justified in treating the instalments of the annuity deposit as subject to tax in subsequent years and the least which we can recommend in the facts of these references is that the competent authority should consider the facts of these references and make necessary orders for refund of the tax collected in subsequent years on respective instalments repaid under section 280D of the Income-tax Act, 1961.
Having regard to the facts and circumstances of these references, there should be no order as to costs in these references.
Question answered in the affirmative.