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Commissioner of Income-tax Vs. Madurai Knitting Company - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 121 of 1969 (Reference No. 34 of 1969)
Judge
Reported in[1976]104ITR36(Mad)
ActsIncome Tax Act, 1922 - Sections 24(1), 35 and 35(1); Income Tax Act, 1961 - Sections 154
AppellantCommissioner of Income-tax
RespondentMadurai Knitting Company
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateT.V. Balakrishnan, Adv. for ;C.V. Mahalingam and S. Mathrubutheswaran
Cases ReferredM. Adaikkappa Chettiar v. Commissioner of Income
Excerpt:
- .....and 1959-60, the firm was assessed by orders dated december 30, 1961, under section 23(3) of the indian income-tax act, 1922. the business loss was determined at rs. 1,37,674 and rs. 1,51,221, respectively. the income-tax officer also computed that the assessee-firm derived capital gains of rs. 22,865 and rs. 58,360, respectively. but, in the original assessment order, the income-tax officer did not set off the business loss against the capital gains and did not strike the net figure of loss. consequently, in the individual assessments of the partners, the income-tax officer allowed deduction for the gross business loss apportioned in the ratio in which they were entitled to share profit and loss and brought to tax the share of capital gains as allocated to them. on the ground that a.....
Judgment:

Ramaswami, J.

1. The assessee in this case is a firm of partnership, consisting of nine partners, registered under Section 26A of the Income-tax Act. For the assessment years 1958-59 and 1959-60, the firm was assessed by orders dated December 30, 1961, under Section 23(3) of the Indian Income-tax Act, 1922. The business loss was determined at Rs. 1,37,674 and Rs. 1,51,221, respectively. The Income-tax Officer also computed that the assessee-firm derived capital gains of Rs. 22,865 and Rs. 58,360, respectively. But, in the original assessment order, the Income-tax Officer did not set off the business loss against the capital gains and did not strike the net figure of loss. Consequently, in the individual assessments of the partners, the Income-tax Officer allowed deduction for the gross business loss apportioned in the ratio in which they were entitled to share profit and loss and brought to tax the share of capital gains as allocated to them. On the ground that a mistake apparent on the face of the record has crept in the original assessment orders, in that the business loss of the assessee was not set off against the income under capital gains as required by the provisions of Section 24(1) of the Indian Income-tax Act, 1922, the Income-tax Officer initiated proceedings in 1965 and issued a notice under Section 154 of the Income-tax Act, 1961. Ultimately, after considering the objection and in the view that there was a mistake apparent on the face of the record, the Income-tax Officer revised the assessment order and set off the business loss against the capital gains and arrived at the net loss of Rs. 1,14,809 and Rs. 92,861 respectively. The assessee preferred an appeal to the Appellate Assistant Commissioner and contended that the Income-tax Officer had no jurisdiction to make the order under Section 154 of the Income-tax Act, 1961, for rectifying the assessments made under the Indian Income-tax Act, 1922. The assessee also contended that there was no mistake apparent from the records which could be rectified under, Section 154 of the Income-tax Act, 1961. The Appellate Assistant Commissioner rejected both these contentions and held that the Income-tax Officer had jurisdiction under Section 154 to revise the order made on December 30, 1961. On a further appeal to the Tribunal, it was held, relying on certain authorities, that for an assessment order made prior to April 1, 1962, the rectification could be made only under Section 35(1) of the Indian Income-tax Act, 1922, and Section 154 of the Income-tax Act, 1961, is not applicable. In that view, the Tribunal cancelled the order of rectification for each of these assessment years as made without jurisdiction. All the same, the Tribunal gave a finding that there was a mistake apparent from the record, which could have been rectified by the Income-tax Officer under Section 35(1) of the Indian Income-tax Act, 1922. At the instance of the revenue, the following question has been referred:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the order of rectification made on December 10, 1965, under Section 154 of the Income-tax Act, 1961, as illegal ?'

2. Section 35(1) of the Indian Income-tax Act, 1922, and Section 154 of the Income-tax Act, 1961, are in pari materia. Both confer jurisdiction on an Income-tax Officer for rectifying mistakes apparent from the record, the only difference being that an appeal is provided under the Income-tax Act, 1961, against an order under Section 154, but in the old Act, no such provision of appeal was provided, but only revision was competent. In this reference, it is not disputed and could not be disputed that the mistake in the original assessment in not setting off the business loss against the capital gains is a mistake apparent from the record within the meaning of Section 35 of the Indian Income-tax Act, 1922. In fact, the Tribunal, as already stated, had also given a finding that the mistake is of such a nature which could have been rectified under Section 35(1) of the Indian Income-tax Act, 1922, Only on the ground that since the assessment order was made prior to April 1, 1962, Section 154 of the Income-tax Act, 1961, Was not applicable, the Tribunal cancelled the order of rectification. It is contended by the learned counsel for the revenue that once the Income-tax Officer had jurisdiction to make the order under Section 35, the rectification order should be deemed to be referable to the exercise of the power under that provision, though the Income-tax Officer purported to exercise his jurisdiction under Section 154 of the Income-tax Act, 1961. The reference to Section 154 should, therefore, be treated as quoting a wrong provision of law, which will not invalidate the order itself, if the order was one otherwise within his jurisdiction. In support of this contention, the learned counsel has referred to the decision of this court in VR.C.RM. Adaikkappa Chettiar v. Commissioner of Income-tax, : [1970]78ITR285(Mad) , wherein the earlier decision of the Supreme Court in Hazari Mal Kuthiala v. Income-tax Officer, : [1961]41ITR12(SC) was quoted and followed. In Hazari Mal Kuthiala v. Income-tax Officer, where an order of the Commissioner of Income-tax passed under Sections 5(5) and 5(7A) of the Indian Income-tax Act, 1922, was attacked as ultra vires and incompetent on the ground that the correct provision to be invoked for the assessment in question was Section 5(5) of the Patiala Income-tax Act, the Supreme Court upheld the order treating the same as one passed under the provisions of Section 5(5) of the Patiala Income-tax Act, with the following observation :

'The exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it would be nugatory.'

3. The facts in VR.C.RM. Adaikkappa Chettiar v. Commissioner of Income-tax, were also similar to the one on hand. In that case, the Income-tax Officer invoked his power under Section 154 of the Income-tax Act, 1961, while it was found that he had jurisdiction only under Section 35 of the Indian Income-tax Act, 1922, and the order was held to fall under Section 35 of the Indian Income-tax Act, 1922, and amount to quoting only a wrong provision of law. We are in agreement with this part of the decision. The other question decided in that decision does not call for determination in this case as that has not been raised.

4. In the result, the question is answered in the negative and in favour of the revenue. There will be no order as to costs.


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