1. At the instance of the Addl. CIT, the Appellate Tribunal has referred the following question:
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Appellate Assistant Commissioner was justified in cancelling the orders passed under Section 154 of the Income-tax Act, 1961, for the assessment years 1966-67 and 1967-68?'
2. The assessee is a firm consisting of two partners, viz., T.S. Krishna and S.B. Shankar. While completing the assessment of the income under Section 143(3) on 12th October, 1966, in the hands of the firm which amounted to Rs. 43,450, the ITO observed that there was no application for registration and that it would be beneficial to the revenue, if the firm was treated as a registered firm under the provisions of Section 183(b) of the Act. Heproceeded to state that both partners were actively engaged in the business. Similarly, for the assessment year 1967-68, in completing the assessment under Section 143(3) on September 21, 1967, on a total income of Rs. 86,150 he made similar observations.
3. The audit party of the Accountant-General appears to have raised an objection to the assessment so completed on the ground that it was not beneficial to the reveune to treat the firm as a registered firm. The ITO thereafter took proceedings under Section 154 for rectification of the assessment and, after overruling the objections raised by the assessee, rectified the assessment by treating the firm as an unregistered firm. The result was a demand of Rs. 11,605 for the assessment year 1966-67 and Rs. 43,883 for the assessment year 1967-68. These orders were passed on September 1, 1970.
4. The assessee appealed to the AAC, who cancelled the said orders on the ground that this revision fell outside the scope of Section 154. There was an appeal to the Tribunal at the instance of the department and the Tribunal found that the ITO took the decision to apply Section 183(b) not on the basis of any available information as regards the individual total income of the two partners for these years, as the relevant returns had been filed by the said partners after the completion of the assessment mentioned above, but presumably on the basis of what happened in the earlier years. It was seen by the Tribunal that the fresh calculations of tax proceeded on the footing that the share income of each of the two partners from the assessee-firm was to be looked upon as an unearned income. As in its view the change of opinion on the part of the ITO could not be implemented by passing an order under Section 154, it sustained the order of the AAC for these two years. It is this order of the Tribunal that has given rise to the question extracted already.
5. Section 154(1)(a) provides that with a view to rectifying any mistake apparent from the record, the ITO may amend any order of assessment or of refund or any other order passed by him. In order to attract the application of this section, there must be a mistake and the mistake must be one apparent from the record. For the purpose of assessment, it is well settled that an individual and a firm are distinct entities. The courts have considered the question whether a mistake discovered because of something contained in the assessment of the firm is a mistake apparent from the record of assessment of an individual partner.
6. In Kanumarlapudi Lakshminarayana Chetty v. First Addl. ITO : 29ITR419(AP) , the Andhra Pradesh High Court had to deal with a similar question which arose under the provisions of Section 35 of the Indian I.T. Act, 1922, corresponding to Section 154 of the 1961 Act. Section 35 itself was amended and the relevant parts are re-enacted in Section 155, but the case before the HighCourt arose prior to the coming into force of the said amendment. Suhba Rao C.J., as he then was, speaking for the court, observed at page 424 as follows :
'But it is said that Section 35 of the Act even without the amendment would have enabled the income-tax authorities to reopen the assessment on the ground that there was a mistake apparent from the record. But from the record of final assessment, it is impossible to say that there was a mistake apparent from the record, for the assessing authority accepted a certain figure as representing the share of the assessees in the firm and made a final assessment. The mistake is not in the record but by a subsequent assessment of the firm, it was discovered that the earlier assessment was wrong to the extent of the assessees' share in the firm. It is not a mistake apparent from the record but a mistake discovered from the disposal of another case.'
7. This passage was extracted and approved by the Supreme Court in ITO v. Habibullah : 44ITR809(SC) . The case here is a converse one, viz., the assessment of the firm was sought to be rectified by reference to what happened in the hands of a partner. There is no difference in the legal position, because this is a converse case and the same principle holds good in a case like this also.
8. The learned counsel appearing for the CIT brought to our notice a passage from the judgment of a Bench of this court in T.S. Rajam v. CED : 69ITR342(Mad) , running as follows :
''Mistake' is an ordinary word, but in taxation law, it has a special signification. It is not an arithmetical or clerical error alone that comes within its purview. It comprehends errors which, after a judicious probe into the record from which it is supposed to emanate, are discerned. It is difficult to axiomatise and lay down dicta for the discovery of a mistake from official records. The word 'mistake' is inherently indefinite in scope, as what may be a mistake to one may not be one for another. It is mostly subjective and the dividing line in border areas is thin and indiscernible. Indeed, it is imponderable due to its inherent indefiniteness. It is something which a duly and judiciously instructed mind can find out from the record. It may be that sometimes an argument, though not a complex study, may be required to find it out. But that by itself is not the test to discountenance it as being not a mistake apparent from record. In the ultimate analysis, the conclusion a well equipped and trained judicial mind will reach after scrutinising the record, will govern and his finding whether it is a mistake or not has to be accepted.'
9. We do not find that this passage has any scope for application to the case before us. In that case, there was no need to consider the question as to what was the record which had to be looked into for finding out whetherthere was a mistake apparent from the record. We have already found that the so-called mistake is one that arose consequent on the submission of the returns by the two partners after the assessment of the firm was completed on the basis that it would be advantageous to the revenue to treat it as an unregistered firm. It has already been seen that the record to be looked into is that of the assessee, which in this case, is the firm. The action of the ITO in taking into account what happened later in the hands of the partner, is more in the nature of an exercise of a power of review, which power he does not have. Section 155 has provided for the records of the firm being used in the assessment of a partner so as to rectify it in accordance with the assessment of the firm. There is, however, no provision to rectify an order passed under Section 183(b) on the firm in the light of the return submitted by or the assessment on partners. Section 183(b) is a provision enabling the ITO to treat a firm as a registered firm if he was of the opinion that the tax payable by the partners individually if the firm were assessed as a registered firm would be greater than the aggregate amount of the tax payable by the firm. In such a case, if the ITO had really some information, which came into his possession subsequent to the assessment, then he may have powers to start proceedings under the provisions of Section 147(b), but he cannot have recourse to Section 154. This is not a case, where it is possible to take action both under Sections 147 and 154, so that if the action was taken under one of them, instead of the other, such action could not be held to be bad.
10. We, therefore, answer the question in the affirmative and against the revenue. The assessee will have its costs. Counsel's fee Rs. 250. A copy of the judgment under the seal of the court and the signature of the Registrar will be sent to the Appellate Tribunal.