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P. Kuttikrishna Nair Vs. Income-tax Appellate Tribunal, Madras and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberWrit Petn. Nos. 649 and 650 of 1957
Judge
Reported inAIR1959Mad108; [1958]34ITR540(Mad); (1958)2MLJ601
ActsIncome Tax Act, 1922 - Sections 35(1) and 35(2)
AppellantP. Kuttikrishna Nair
Respondentincome-tax Appellate Tribunal, Madras and anr.
Appellant AdvocateT.V. Viswanatha Aiyar, ;T.V. Ramanathan and ;S. Narayanaswami, Advs.
Respondent AdvocateC.S. Rama Rao Sahib, Adv.
DispositionPetitions dismissed
Cases ReferredSidharamappa v. Commr. of Income
Excerpt:
.....to be rectified when existence of mistake brought to its notice by assessee - tribunal may not rectify mistake to prejudice of assessee until he has been given notice and allowed reasonable opportunity of being heard. - - the officer examined the accounts in detail and ultimately dropped proceedings as he was then satisfied that the petitioner's income was below the taxable limit. the income-tax officer took action on the basis that for the assessment year 1944-45 no return had been filed, and, that as regards the other years, the petitioner had failed to disclose fully and truly all the material particulars of his income and that as a result his income had escaped assessment. section 35(1) and (2) of the income-tax act runs as follows ;35 (1) the commissioner or appellate..........do not mean anything more in the context than 'similarly'. this means that the tribunal can rectify mistakes it has made provided the mistakes are apparent from the record.it is given power to act suo motu. it is bound to rectify the mistake when the existence of the mistake is brought to its notice by the assessee. it may not rectify a mistake to the prejudice of an assessee until he has been given notice and allowed a reasonable opportunity of being heard. the words 'in like manner' are not in our opinion, sufficient to carry the matter any further.16. mr. rama rao sahib contended that sub-section (1) of section 35 gives the assessee a right to draw the attention of the tribunal to any mistake it may have made and that when the assessee does so the tribunal is bound to take.....
Judgment:

Balakrishna Ayyar, J.

1. These are two petitions for the issue of appropriate writs to quash the order of the Income-tax Appellate Tribunal, Madras dated 3-1-1957, and made under Section 35 of the Income-tax Act. W. P. no. 649 of 1957 relates to the assessment year 1948-49 and W. P. No. 650 of 1957 relates to the assessment year 1916-47.

2. The material facts ore these : The petitioner is a businessman at Kozhikode whose name has been on the files of the Income-tax Officer, Kozhikode since the assessment year 1942-43. In pursuance of a memo dated 3-5-1945, issued by the Income-tax Officer, the petitioner appeared before him on 26-6-1945 with his accounts, and he also filed his trading and profit and loss statements. The Officer examined the accounts in detail and ultimately dropped proceedings as he was then satisfied that the petitioner's income was below the taxable limit.

3. For the assessment years 1945-46, 1946-47, 11947-48 and 1948-49, the Income-tax Officer made assessments under Section 23 (3) of the Act after investigation and after looking into the accounts and the statements produced by the petitioner. The income assessed for these years was respectively Rs. 2,234, Rs. 2,841, Rs. 4,398 and Rs. 6,332. Subsequently the Income-tax Officer took action under Section 34(1)(a) of the Act for the assessment years 1944-45 to 1948-49 and issued notice that he proposed to reassess the income of the petitioner.

The Income-tax Officer took action on the basis that for the assessment year 1944-45 no return had been filed, and, that as regards the other years, the petitioner had failed to disclose fully and truly all the material particulars of his income and that as a result his income had escaped assessment.

By orders, all of them dated 20-2-1957, the Income-tax Officer completed the re-assessment for the years 1944-45 to 1948-49 on revised total incomes of Rs. 4,792, Rs. 9,234, Rs. 7,341, Rs. 27,890 and Rs. 18,332 respectively. For the assessment year 1944-45 credits to the extent of Rs. 3,500 which stood in the petitioner's books in favour of his mother and sister were added by the Income-tax Officer as income from undisclosed sources. By letters dated 17-12-1949 the petitioner's mother and sister explained the sources of those moneys.

Certain documents were also produced to support their statements. But the Income-tax Officer rejected the explanation and added the sum of Rs. 3,500 as the petitioner's income from undisclosed resources. For the assessment year 1945-46 the Income-tax Officer added a sum of Rs. 5,000 being credits in favour of the petitioner's mother and sister, and a further sum of Rs. 2,000 alleged to be credits in favour of the petitioner in the account of Messrs. O. Appunni Nair and Sons.

The explanation which the petitioner offered was rejected by the Income-tax Officer. Thus a total of Rs. 7,000 was added by the Income-tax Officer to the income of the petitioner for the year 1915-46. Similarly for the assessment year 1946-47 a sum of Rs. 4,500 was added being the credits in favour of the petitioner's mother and sister in his accounts.

For the assessment year 1947-48 credits of Rs. 22,500 in favour of the petitioner's mother and sister and a further sum of Rs. 1,000 credited in favour of the petitioner in the books of Messrs. O. Appunni Nair and Sons were added as petitioner's income. For the assessment year 1948-49 credits of Rs. 10,000 in favour of the petitioner's mother and sister and a sum of Rs. 2,000 credited in favour of the petitioner in the books of Messrs. Appunni Nair and Sons were added as income from undisclosed resources.

4. The petitioner appealed to the Appellate Assistant Commissioner, and he confirmed the orders of the Income-tax Officer so far as they related to the credits in favour of the petitioner's mother and sister; but set them aside so far as they related to the credits in the accounts of Appunni Nair and Sons. The petitioner then went up on second appeal to the Income-tax Appellate Tribunal. By an order it made in I.T.A. Nos. 5938 to 5942 of 1945-46 dated 8-11-1956 the Tribunal held that the action of the Income-tax Officer under Section 34 was valid, and that the credits in question did not represent genuine borrowings.

But the Tribunal was also of the opinion that the department had not correctly appreciated the situation when they added the entire credits from year to year. The Tribunal found that the maximum that had been brought as cash credits was Rs. 22,500 and that this had happened in the assessment year 1947-48. It considered that on this basis all the credits could be explained. In this view it directed that Rs. 3,500 should be added for the year 1944-45, Rs. 1,500 for 1945-46 and Rs. 17,500 for 1947-48 and nothing should be added for 1946-47 and 1948-49.

5. The petitioner applied to the Tribunal under Section 66(1) of the Income-tax Act to state a case and refer certain questions to the Kerala High Court in respect of the assessment for the years 1944-45, 1945 46 and 1947-48.

6. On 26-11-1956 the authorised representative of the Income-tax department filed a petition under Section 35 of the Act before the Tribunal pointing out that the order of the Tribunal dated 8-11-1956 required rectification. In brief that application pointed out that the Tribunal had given relief to the assessee for the assessment years 1945-46 to 1948-49 on the ground that the maximum credit in any particular year was only Rs. 22,500 but that as a matter of actual fact the correct figure was Rs. 46,500 and that in this view no further relief was due to the asses-see. On that basis the authorised representative of the Income-tax Department prayed that the Tribunal's orders may be rectified and the appeals for the years 1945-46 to 1948-49 be dismissed.

7. The appellant filed a statement pointing out that the order of the Tribunal dated 8-11-1956 had been passed after hearing both the petitioner and the authorised representative of the department. He added :

'The appellant is not aware of any provision in the Income-tax Act or in the Appellate Tribunal Rules' enabling the Income-tax Officer or his authorised representative to file an application concerning matters decided in the appeal after the order has been passed and communicated to the appellant and the Commissioner of Income-tax.'

8. This further position was taken in the statement; under Section 35 the Tribunal can rectify its own order only if there is a mistake apparent on the record; besides it can do so only either on its own motion or on application made to it by the assessee. The Income-tax department had no locus standi to ask for a rectification of any mistake in the order of the Tribunal.

The application filed by the department was incompetent. The petitioner, further, submitted that since the authorised representative of the income-tax department had illegally intervened and brought its alleged mistake to the notice of the Tribunal, the Tribunal was thereafter precluded from taking any action suo motu.

'the authorised representative has by his own hasty and ill-advised application put it beyond the power of the Tribunal to rectify the mistake now.'

Finally, the petitioner stated that there was no mistake apparent on the record.

9. The Tribunal considered that in its order dated 8-11-1956 it had committed a mistake apparent on the face of the record. It also took the view that when such a mistake had been discovered it had jurisdiction to rectify the mistake, by whomsoever the mistake may have been brought to its notice. In the result the Tribunal rectified its order in the manner that had been asked for by the department. The necessary consequential charges were also made. The final result of all this was that the appeal which the petitioner had preferred to the Income-tax Appellate Tribunal was dismissed.

10. These writ petitions have been filed to quash the order of the Tribunal whereby it purported to rectify the mistakes it had committed in its earlier orders.

11. The question for determination is whether in rectifying its earlier order in the circumstances that have been set out the Tribunal acted in excess of its jurisdiction.

12. Mr. Viswanatha Aiyar, the learned advocate for the petitioner, contended that though under Section 35 (2) of the Income-tax Act the Tribunal can rectify a mistake suo motu or on the application of the assessee, it cannot do so at the instance of the income-tax department, and, that in fact the Tribunal would be deprived of its own power to act suo motu if its attention is drawn to an error by the authorised representative of the income-tax department.

13. Mr. Rama Rao Sahib, the learned advocate for the department, however, contended that not only has the authorised representative of the department a right to apply to the Tribunal pointing out any obvious mistake that may have been made but that when such an application is made the Tribunal is bound to act on it.

14. An examination of the relevant provisions of the Act will show that both these are extreme contentions and untenable. Section 35(1) and (2) of the Income-tax Act runs as follows ;

'35 (1) 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 33-A 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 :

Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard :

Provided further that no such rectification shall be made of any mistake in any order passed more than one year before the commencement of the Indian Income-tax (Amendment) Act, 1939.

(2) The provisions of Sub-section (1) apply also in like manner to the rectification of mistakes by the Appellate Tribunal.'

An analysis of Section 35 (1) gives these results ;

(1) The officers empowered to act under that sub-section are, the Commissioner, the Appellate Assistant Commissioner and the Income-tax Officer.

(2) The Commissioner may rectify any order passed by him in appeal or in revision, the Appellate Assistant Commissioner may rectify any order that he may have passed in appeal, and the Income-tax Officer may rectify the assessment order or refund order that he may have made.

(3) They cannot rectify any order which is four years or more old.

(4) They can act on their own motion.

(5) The mistake rectified must be apparent from the record.

(6) All these officers are bound to rectify any mistake when it is brought to their notice by the asessee.

(7) The first provision incorporates the rules that no rectification which has the effect of increasing the burden of the assessee shall be made till he has been given notice and allowed a reasonable opportunity of being heard. The second proviso is not of any consequence now.

15. The second Sub-section of Section 35 merely states that the Appellate Tribunal also may rectify its mistakes ''in like manner.' The words 'in like manner' do not mean anything more in the context than 'similarly'. This means that the Tribunal can rectify mistakes it has made provided the mistakes are apparent from the record.

It is given power to act suo motu. It is bound to rectify the mistake when the existence of the mistake is brought to its notice by the assessee. It may not rectify a mistake to the prejudice of an assessee until he has been given notice and allowed a reasonable opportunity of being heard. The words 'in like manner' are not in our opinion, sufficient to carry the matter any further.

16. Mr. Rama Rao Sahib contended that Sub-section (1) of Section 35 gives the assessee a right to draw the attention of the Tribunal to any mistake it may have made and that when the assessee does so the Tribunal is bound to take action, and that the words 'in like manner' are sufficient to comprehend a similar application by the authorised representative of the department.

We are unable to agree. The words 'in like manner' appearing in Sub-section (2) of Section 35 in relation to Sub-section (1) of Section 35 are not sufficient to comprehend the authorised representative of the Income-tax department. To bring about such a result a completely new set of words would be necessary.

17. Similarly we can find no support in the language of the section or the contention of Mr. Viswanatha Aiyar, that once the authorised representative of the department draws the attention of the Tribunal to a mistake it has made it is deprived of its jurisdiction to act. There are just no words in the section sufficient to produce that meaning.

Though normally only the persons interested in the result would draw the attention of the Tribunal to a mistake it has made it is in theory open to anybody to do so. In that sense everybody has got a 'right' to draw the attention of the Tribunal to any mistake it may have made. But the Tribunal is not hound to act on any representation made to it unless the representation is that of the assessee.

The assessee has a right just like any one else to draw the attention of the Tribunal to a mistake it may have made but he has a further right to insist that the Tribunal shall examine the representation he has made. In this respect the authorised representative stands in the same position as an outsider. He has got a right to draw the attention of the Tribunal to any mistake it might have made, but, the Tribunal may, if it thinks fit, ignore the representation.

18. The matter is covered by authority. Section 33 of the Income-tax Act, as it stood before it was amended by Act VII of 1939, authorised the Commissioner of Income-tax of his own motion to call for the record of a proceeding under the Act which has been taken by an authority subordinate to him or by himself when exercising the power of an Assistant Commissioner under Sub-section (4) of Section 5, and having called for the record it empowered him subject to the provisions of the Act, to pass such order as he thought fit.

But he could not pass an order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being heard. Commenting on this section in Sreeramulu Chetti v. Commr. of Income-tax, Madras : [1939]7ITR263(Mad) the learned Chief Justice, who delivered the judgment of a Full Bench of this court consisting of five Judges, observed:

'The section makes no mention of the right of an assessee to move the Commissioner to take action but as the Commissioner may take action of his own motion the assessee must have the right of calling his attention to a prejudicial order and of asking that action be taken.'

A Bench of three Judges of the Rangoon High Court expressed complete accord with these observations in Amulakharai Chhotalal v. Commissioner of Income-lax, [1940] 8 ITR 382; AIR 1940 Rang 175.

19. The case in Sidharamappa v. Commr. of Income-tax Bombay : AIR1952Bom287 is even more directly in point. In (hat case a contention exactly similar to that which, Mr. Viswanatha Aiyar pressed before us was urged and repelled by the court. We quote the relevant passage,

'It is also contended by Mr. Kola that the power of rectification can only be exercised by the Tribunal on its own motion. The Tribunal cannot exercise the power of rectification at the instance of the Commissioner. Now when we turn to Section 35 (2) the power of rectification which is conferred upon the Tribunal is the same as the power which is conferred upon the Commissioner and the Appellate Assistant Commissioner under Section 35(1) and that power is to rectify on its own motion its own mistake appearing on the face of the record. Now it is in my opinion impossible to contend that if a Tribunal is given a power to rectify its own mistake on its own motion, that power excludes the power to rectify the same mistake at the instance of a party or when the attention of the Tribunal is drawn to its mistake by a party appearing before it. The power to rectify on its own motion is a larger power than the power to rectify on the application of a party. When a statute confers a power upon a Tribunal to make an order on the application of a party that is a limited power. The power is limited to rectification on an application being made by a party. If an application is not made even if the Tribunal realises its own mistake or finds out its own mistake it has no power to correct it. But when a statute confers a power upon a Tribunal to rectify a mistake suo motu that power is a wider power, a larger power, and can he exercised without an application being made by any party. Therefore, when the Tribunal exercises this power on the application of the Commissioner or at the instance of the Commissioner it is doing something which it can do on its own motion and in doing the same at the instance of the Commissioner, it is exercising a narrower power than the power conferred upon it by Section 35(2).'

20. We are respectfully in accord with this view. Mr. Viswanatha Ayyar then raised another point. He contended that as a matter of actual fact in this case the Tribunal had acted not suo motu at all, but on the application of the authorised representative of the department, and that since factually this is a case where the application of the authorised representative of the department has been allowed when it has no locus standi at all, the order is without jurisdiction.

21. We do not consider that this is a proper view to take of the order of rectification which the Tribunal made. Objection was taken before the Tribunal that it had no jurisdiction to act, because the matter had been brought to its notice by the department. The Tribunal considered the objection and stated that it was not thereby precluded from acting suo motu. The order if passed further makes it clear that it was acting not on the application of the department but in exercise of its own power to rectify the mistake it had made.

22. Mr. Viswanatha Aiyar finally stated that a copy of the order made on 3-1-1957 by which the Tribunal rectified its error was served on the petitioner only on 24-1-1957, that by that date the period of sixty days which he had under Section 66 (1) of the Act to ask for a reference to this court had expired and that for that reason the order of the Tribunal is bad.

23. We are unable to agree. So far as the time within which a rectification can be made is concerned, it is specifically provided for in Sub-section (1) of Section 35 of the Act, viz., as four years, and that period would also apply to, the action of the Tribunal under Sub-section (2) of Section 35.

24. In the result both these writ petitions fail and they are dismissed with costs. Advocate's fee one set Rs. 250.


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