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income-tax Officer and anr. Vs. National Rubber Manufacturers Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal No. 287 of 1972
Judge
Reported in[1975]98ITR377(Cal)
ActsIncome Tax Act, 1961 - Section 154
Appellantincome-tax Officer and anr.
RespondentNational Rubber Manufacturers Ltd.
Appellant AdvocateSuhas Sen and ;Ajit Sen Gupta, Advs.
Respondent AdvocateSukumar Bhattacharyya and ;Anil K. Roy Chowdhury, Advs.
Cases ReferredPillani Investment Corporation Ltd. v. Income
Excerpt:
- .....we are unable to agree with the learned judge in so far as it held that even if there is an error apparent from the record the income-tax officer cannot issue a notice under section 154 of the act merely because intricate questions are involved. it must be remembered that section 154 of the act confers jurisdiction upon the income-tax officer to issue a notice under that section if there is an error apparent from the record. if there is no such error, or if what appears from the records is not an error at all, undoubtedly the question of jurisdiction of the income-tax officer to issue a notice might be raised. but where there is an error apparent from the record the income-tax officer has jurisdiction under section 154 of the act to issue a notice under that section. it cannot be.....
Judgment:

B.C. Mitra, J.

1. This appeal is directed against a judgment and order dated August 25 and 28, 1972. The respondent made an application under article 226 of the Constitution for quashing a notice dated July 28, 1971, issued under Section 154 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 1964-65. The shares of the respondent which is an existing company are held amongst others by the Life Insurance Corporation of India, Zenith Assurance Co. Ltd., and British India General Insurance Corporation. A list of shareholders of the respondent for the relevant year, that is to say, for the period from January 1, 1963, to December 31, 1963, had been annexed to the petition. A similar list was filed before the Income-tax Officer at or before the time of assessment of the tax for the assessment year 1964-65, In assessing the respondent, the Income-tax Officer computed the total income of the respondent at Rs. 19,78,729 and treated the respondent as a company in which the public were substantially interested within the meaning of Section 2(18) of the Act and allowed rebate of tax under para, (d) of Part II of the First Schedule to the Finance Act, 1964. By a notice under Section 154 of the Act dated July 28, 1971, the respondent was informed that on a perusal of the list of shareholders as on January 1, 1963, and December 31, 1963, it appeared that the respondent was not a company in which the public was substantially interested for the relevant assessment year and on that basis the respondent was called upon to show cause why the assessment should not be revised, and the excess rebate allowed to the respondent be withdrawn. This was followed by another notice dated July 28, 1971, by which the respondent was informed that the assessment order under Section 143(3) for the assessment year 1964-65 made on August 30, 1968, required to be amended, as there was a mistake apparent on the record. The respondent was asked to appear in person or by an authorised representative before the appellant No. I. The respondent obtained extension of time to show cause from time to time.

2. Mr. Suhas Sen, appearing for the appellant, contended that it appeared from the records, particularly from the list of shareholders annexed to the petition and also filed before the Income-tax Officer, that more than 50% of the total voting power of the respondent were held during the relevant previous year by 5 or less persons in terms of Sub-clause (iii) ofclause (b) of Sub-section (18) of Section 2 of the Act. The next contention of Mr. Sen was that at the relevant time the respondent was not engaged wholly in manufacturing and processing of goods. In support of this he relied on the balance-sheet from which it appeared that at the relevant time the respondent was carrying on business as managing agents of different companies and also as exporters of goods. Mr. Sen contended that this was supported by the assessment order which showed that the respondent had obtained rebate as an exporter of goods.

3. Sub-clause (2) of Clause (iii) of Section 109 of the Act contemplates a company whose business consists wholly in manufacturing or processing of goods. It was argued by Mr. Sen that lor the reasons noted above the respondent was not at the relevant period of time a company engaged wholly in manufacturing or processing goods.

4. The only question before us is whether there were materials on record of the department to justify the issue of the notice under Section 154 of the Act. Our attention was drawn by counsel for the appellant to the statement of shareholding during the year 1963. Referring to this statement. Mr. Sen contended that more than 50% of the shares of the respondent was held by four groups of Mookerjees, namely, Mr. K. N. Mookerjee, Mr. Milan Kumar Mookerjee, Mr. N. G. Mookerjee and Dr. B. Mookerjee. Besides these four groups of Mookherjees another block of 1,72,500 shares were held by G. D. Banerjee & Co. Private Ltd. It was argued that the total of the shares held by the four groups of Mookherjees and G, D, Banerjee & Co. Private Ltd. was 2,58,000 which was more than 50% of the shares of the respondent. It was contended further by counsel for the appellant that, prima facie, the records showed that there was an error on the face of the records regarding the control of shares of the respondent and, therefore, the issue of the notice under Section 154 of the Act was justified. It was for the respondent to satisfy the department that in fact 50% of the shares were not held by the 5 groups mentioned above and, therefore, the rebate already allowed to the respondent could not be interfered with under Section 154 of the Act. In support of this contention reliance was placed by Mr. Sen on a decision of this court in Pilani Investment Corporation Ltd. v. Income-tax Officer : [1968]69ITR847(Cal) . In that case a notice was issued calling upon the assessee to show cause why an order under Section 23A of the Act should not be made and thereupon the assessee applied to this court for a writ directing the Income-tax Officer to recall the notice and to forbear from giving effect to the same on the ground that an order under Section 23A of the Indian Income-tax Act, 1922, being an order of assessment was governed by the period of limitation of four years fixed by Section 34(3) of the Indian Income-tax Act, 1922. It was held that asthe Income-tax Officer had merely issued a notice to show cause why an assessment should not be made under Section 23A of the 1922 Act, and the contention that an order under Section 23A of the said Act would be barred by limitation under Section 34(3) of the said Act could be raised before the Income-tax Officer who had jurisdiction to decide the question himself, the Income-tax Officer had not acted in excess of his jurisdiction. It was also held that that was not a case where a writ could be issued. Mr. Sen contended that this decision went up in appeal to a Division Bench of this court where it was upheld and also ultimately before the Supreme Court, where also the judgment of the Division Bench was upheld.

5. Our attention was next drawn by Mr. Sen to the decision of this court in Narsingdas Bangur v. Income-tax Officer : [1973]87ITR340(Cal) . In that case also a notice under Section 154 of the Act was issued and this was challenged by a writ petition. It was held that the question, where tax credit was given to a shareholder under Section 49B of the 1922 Act and where the shareholder's income was exempt from tax under certain other provisions of the Act, was a very intricate and difficult question to be decided by a Tribunal and that the Income-tax Officer could not assume jurisdiction to decide such a question in the guise of a procedure for rectification of a mistake apparent from the record. We are unable to agree with the learned judge in so far as it held that even if there is an error apparent from the record the Income-tax Officer cannot issue a notice under Section 154 of the Act merely because intricate questions are involved. It must be remembered that Section 154 of the Act confers jurisdiction upon the Income-tax Officer to issue a notice under that section if there is an error apparent from the record. If there is no such error, or if what appears from the records is not an error at all, undoubtedly the question of jurisdiction of the Income-tax Officer to issue a notice might be raised. But where there is an error apparent from the record the Income-tax Officer has jurisdiction under Section 154 of the Act to issue a notice under that section. It cannot be over-looked that, at the stage when the notice is issued, no order is made against the assessee, who is merely called upon to show cause why the error should not be rectified. The assessee is at liberty to appear before the Income-tax Officer and satisfy him that there is in fact no such error. This is not a case of inherent lack of jurisdiction. If, prima facie, there is an error on the record, the Income-tax Officer has jurisdiction under the section to issue a notice.

6. Mr. Bhattacharyya, appearing for the respondent, OH the other hand,contended that there is no error on the face of the record and, therefore,the Income-tax Officer had no jurisdiction to issue the impugned notice. Insupport of his contention he relied firstly upon a decision of the SupremeCourt in T. S. Balaram, income-tax Officer v. Volkart Brothers : [1971]82ITR50(SC) . In that case it was held that a mistake apparent on the record must be obvious and patent and not something which can be established by a long drawn process of reasoning on points on which there might conceivably be two opinions, and that a decision on a debatable point of law was not a mistake apparent from the record.

7. Mr, Bhattachaxyya next relied on a Bench decision of the Bombay High Court in Sidhramappa Andannappa Manvi v. Commissioner of Income-tax : [1952]21ITR333(Bom) . In that case the question was whether the Appellate Tribunal in exercise of its powers under Section 35 of the 1922 Act could rectify its own mistake on its own motion and whether such a mistake could be rectified on the application of the party appearing before it. It was also held that the power of the Tribunal to rectify a mistake was a limited power and was not a power of revision or review but was limited to correcting only those mistakes which were apparent on the record.

8. Reliance was next placed by Mr. Bhattacharyya on a Bench decision of this court in P. C. Ray and Co. (India) Private Ltd. v. A. C. Mukherjee, Income-tax Officer : [1959]36ITR365(SC) . In that case it was held that in order that an error of law might be corrected by certiorari, it had to be an error apparent on the face of the record and that the order alleged to be vitiated by the error must be a speaking order, that is to say, an order giving its reasons for the view taken therein and such reasons being manifestly wrong. Reliance was also placed by Mr. Bhattacharyya on another decision of this court in India Foils Ltd. v. Income-tax Officer : [1973]87ITR333(Cal) . In that case the learned judge, following his earlier decision, held that the Income-tax Officer could not assume jurisdiction under Section 154 of the Act to decide a question which involved intricate questions of law. Our attention was also drawn by Mr. Bhattacharyya to the decision of the Supreme Court in the case of Pillani Investment Corporation Ltd. v. Income-tax Officer : [1972]83ITR217(SC) .

9. We do not think that any of the decisions relied upon by Mr. Bhattacharyya lends any support to his contention that even where there is an error apparent on the record the Income-tax Officer cannot issue a notice under Section 154 of the Act. As has been held in the several decisions discussed above the error must be an error apparent from the record, and in this case it is clear from the list of shareholding which is annexed to the petition and which was filed before the Income-tax Officer that there is, prima facie, at any rate, material for the formation of a belief that there was an error apparent from the record. As I said earlier, no order has yet been made against the assessee. It is up to him to appear before the Income-tax Officer and controvert the materials on which the inference has been drawn that more than 50% of the shares' of the respondent are held by 5 persons or groups of shareholders. It can by no means be said that this is a case of inherent lack of jurisdiction. The materials were on record and the Income-tax Officer had issued the notice by relying on the materials on the record .

10. A point was sought to be made by Mr. Bhattacharyya that from the letter dated July 28, 1971, of the Income-tax Officer to the respondent it appeared that the list of shareholding was not before the Income-tax Officer at the time when the assessment was made, but was furnished to him at a later point of time. We asked Mr. Bhattacharyya to produce the records of the respondent to satisfy us that the list of shareholding was furnished by the respondent to the Income-tax Officer at a point of time subsequent to the making of the original assessment order. No such record was produced before us. We must, therefore, hold that the materials on the record on which the Income-tax Officer relied, namely, the lists of shareholding, were before the Income-tax Officer at the time of making the assessment for the assessment year 1964-65. For the reasons mentioned above this appeal succeeds and is allowed.

11. The judgment and order under appeal are set aside,The rule is discharged.

12. Each party to pay and bear its own costs. Operation of the order is stayed for six weeks.

Janah, J.

13. I agree.


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