Skip to content


Commissioner of Income-tax Vs. Rajnagar Tea Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 143 of 1967
Judge
Reported in[1973]87ITR669(Cal)
ActsIncome Tax Act, 1922 - Sections 35, 49A, 49AA and 49D(3); ;Income Tax Act, 1961 - Section 154
AppellantCommissioner of Income-tax
RespondentRajnagar Tea Company Ltd.
Appellant AdvocateA.K. Basu and ;Suhas Sen, Advs.
Respondent AdvocateKalyan Roy, ;Sanjoy Bhattacharya and ;A. Roy Chowdhury, Advs.
Cases ReferredM. Adaikkappa Chettiar v. Commissioner of Income
Excerpt:
- .....its business is controlled and managed wholly from the taxable territories as defined in the indian income-tax act. the result is that its income arising from manufacture and sale of tea was assessed under the indian income-tax act, 1922. in the assessment for the tax years 1951-52, 1955-56 and 1956-57 the assessee has been treated as resident company. as such, the assessee was entitled to deduction from the india'n income-tax payable by it in respect of the said assessment years certain sums to be calculated in accordance with the provisions of section 49d(3) of the indian income-tax act, 1922. this sub-section reads thus :'if any person who is a resident in the taxable territories in any year proves that in respect of his income which accrues of arises to him during that year in.....
Judgment:

Sankar Prasad Mitra, J.

1. This is a reference under Section 256(1) of the Income-tax Act, 1961. The assessee-respondent is a tea company. It has its gardens in East Pakistan in respect whereof agricultural income-tax is payable in Pakistan. Its head office is, however, located in Calcutta, Naturally, its business is controlled and managed wholly from the taxable territories as defined in the Indian Income-tax Act. The result is that its income arising from manufacture and sale of tea was assessed under the Indian Income-tax Act, 1922. In the assessment for the tax years 1951-52, 1955-56 and 1956-57 the assessee has been treated as resident company. As such, the assessee was entitled to deduction from the India'n income-tax payable by it in respect of the said assessment years certain sums to be calculated in accordance with the provisions of Section 49D(3) of the Indian Income-tax Act, 1922. This sub-section reads thus :

'If any person who is a resident in the taxable territories in any year proves that in respect of his income which accrues of arises to him during that year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him-

(a) of the amount of tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also; or

(b) of a sum calculated on that income at the Indian rate of tax;

whichever is less.'

2. In the present case there is no dispute regarding the quantum of agricultural income of each year which had been subjected to tax in Pakistan. It is also common ground that relief is to be calculated in terms of Clause (b) of the above sub-section with speaks of deduction of a sum calculated on the agricultural income arising in Pakistan at the ' Indian rate of tax.' The expression 'Indian rate of tax' has been defined in Explanation (ii) which follows Sub-section (4) to Section 49D and means:

' ......the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the other provisions of this Act but before deduction of any relief due under this section, by the total income.: '

3. In the original assessments made on the respondent-company for the assessment years referred to above relief under Section 49D(3) had been granted by the Income-tax Officer concerned making such assessments without reducing the gross tax payable by the company by such relief or abatement of tax to which it was entitled under the Agreement for the Avoidance of Double Taxation (hereinafter referred to as ' A.A.D.T.') between the Government of India and Pakistan dated December 10, 1947. It struck the Income-tax Officer at a later stage that the Indian rate of tax on the basis of which relief under Section 49D(3) had already been granted for those years was in excess of what the company was entitled to. By his orders dated December 18, 1962, purported to have been passed under Section 154 of the Income-tax Act, 1961, the Income-tax Officer revised the original assessment orders with a view to recover the excess relief which, in his opinion, had already been granted to the company as a result of the original assessment orders. He rejected the respondent's contention that such revision did not strictly fall within the ambit of either Section 35 of the Indian Income-tax Act, 1922, which has been referred to in the body of the Income-tax Officer's orders or under the corresponding Section 154 of the Income-tax Act, 1961. The Income-tax Officer further held that the abatement to which the respondent-company was entitled under the A.A.D.T. was nothing but ' relief due under the other provisions of the Act', and, as such, had got to be deducted from the gross tax in calculating the Indian rate of tax within the Explanation to Section 49D(3).

4. The Appellate Assistant Commissioner by a consolidated order made on August, 2, 1963, dismissed all the appeals by upholding the Income-tax Officer's orders passed under Section 154. The Appellate Assistant Commissioner agreed with the Income-tax Officer that the A.A.D.T. itself had been made under the powers conferred by Section 49A of the Act of 1922 and, as such, any relief under the agreement could not be considered to be other than a relief under Section 49A. He came to the conclusion that relief under the A.A.D.T. is nothing but relief under ' other provisions of this Act.' The said relief, therefore, according to him, must be deducted from the total amount of the Indian income-tax in calculating the Indian rate of tax. The Appellate Assistant Commissioner was also of opinion that what the Income-tax Officer had originally done in calculating the relief under Section 49D(3) for each of the years was clearly a mistake apparent from the. record and, as such, could be rectified under Section 154 of the Act of 1961.

5. Before the Tribunal it was argued on behalf of the assessee that in computing the Indian rate of tax, abatement allowable under the A.A.D.T. should not be deducted from the tax payable in India. Secondly, the orders passed under Section 154 were beyond the Income-tax Officer's jurisdiction as there were no apparent mistakes on records. With regard to the abatement allowable under the A.A.D.T. the assessee's counsel submitted to the Tribunal that there was a distinction between ' relief ' and 'abatement' of tax. This distinction, it was submitted further, was sought to be maintained in Clauses (a) and (b) of Section 49A of the Income-tax Act, 1922. It was also pointed out that under the Income-tax Act of 1961, Explanation (ii) to Section 91(2) corresponds to Section 49D(3) of the old Act and it expressly prohibits deduction of the amount of abatement allowable under the A.A.D.T. (Incidentally, the said Explanation runs thus.: 'The expression ' Indian rate of tax ' means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this chapter, by the total income '). And agreements with foreign countries were included in this chapter, i.e., Chapter IX in Section 90.

6. The assessee's counsel, in view of the above provisions, argued that abatement under the A.A.D.T. should not be deducted from the Indian income-tax for calculating the ' Indian rate of tax' in terms of Section 49D(3).

7. The Tribunal accepted the respondent-company's arguments. The Tribunal observed that ' relief ' referred to in Clause (a) of Section 49A is granted when tax has been paid in both the countries, while the benefit conferred by Clause (b) arises before tax has been imposed and paid. The Tribunal, therefore, held that abatement of tax under the A.A.D.T. with Pakistan does not amount to ' relief due under the other provisions of the Act' within the meaning of Explanation (ii) to Section 49D(3).

8. As regards the second contention of the respondent-company, viz., that the provisions of Section 154 were not applicable to the present case, the Tribunal, by following the decision of the Madras High Court in the case of M. Subbaraja Mudaliar v. Commissioner of Income-tax, [1958] 33 I.T.R. 228 (Mad.) has held that the provisions of Section 154 of the Act of 1961 corresponding to Section 35 of the old Act do not confer any power on the Income-tax Officer to rectify the mistake which is not apparent from the records but ' may be discovered by a complicated process of investigation, argument or proof '. In this connection the Tribunal also referred to the Supreme Court's decision in M.K. Venkatachalam, Income-tax Officer v. Bombay Dyeing and ., : [1958]34ITR143(SC) in which the same principle was laid down, namely, that only a glaring and obvious mistake of law could be rectified under Section 35. The Tribunal was of opinion that the mistakes attempted to be rectified in the instant case were, not apparent from the records and they could not be corrected under Section 154.

9. The following questions of law have been referred to this court:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer who had made the original assessment had not committed any glaring and obvious mistake of law while granting relief under Section 49D(3) of the Indian Income-tax Act, 1922, and that accordingly the provisions of Section 154 of the Income-tax Act, 1961, were not applicable to the case ?

(2) If the answer, to question No. (1) be in the negative, whether, on the facts and in the circumstances of the case and on a proper construction of Section 49A and Explanation (ii) to Section 49D of the Indian Income-tax Act, 1922, the Tribunal was right in holding that the Income-tax Officer was not justified in deducting the amount of abatement allowable under the Agreement for Avoidance of Double Taxation with Pakistan from the amount of the Indian income-tax for the purpose of determination of the Indian rate of tax mentioned in Clause (b) of Section 49D(3) of the said Act?'

10. At the outset we should state that counsel for both the parties before us have relied on a large number of decisions. These decisions are: Giridharilal Jhajharia v. Commissioner of Income-tax, : [1970]78ITR133(Cal) . Adaikkappa Chettiar v. Commissioner of Income-tax, : [1970]78ITR285(Mad) Venkatachalam (M. K.), Income-tax Officer v. Bombay Dyeing and ., Shell Co. of India Ltd. v. Commissioner of Income-tax, [1964] 51 I.T.R. 669 (Cal.) National Rayon Corporation Ltd. v. G.R. Bahmani, Income-tax Officer, Bombay, [1965] 56 I.T.R. 114 (Bom.). Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale, : [1960]1SCR890 . Commissioner of Income-tax v. Khemchand Ramdas, [1938] 6 I.T.R. 414 (P.C.) Commissioner of Income-tax v. Arunachalam Chettiar, [1953] 23 I.T.R. 180; [1953] S.C.R. 463 (S.C.). Mela Ram and Sons v. Commissioner of Income-tax, [1956] 29 I.T.R. 607 ; [1956] S.C.R. 166 (S.C) Commissioner of Income-tax v. Vellingiri Gounder and Brothers, [1953] 24 I.T.R. 166 (Mad.). T.S. Rajan v. Controller of Estate Duty, [1968] 69 I.T.R. 342 (Mad.) and K.M. Shunmugham, K. M. S. Transport v. S.R.V.S. (P.) Ltd., : [1964]1SCR809

11. It would not be necessary for us to refer to all these decisions, as we propose to dispose of this reference on simpler grounds. Mr. A. K. Basu, learned counsel for the Commissioner, has urged before us : (a) that the Tribunal has gone wrong in holding that 'relief ' under Section 49A is not to be taken into account as ' any relief due under the provisions of this Act ' in Explanation (ii) to Section 49D(3) of the Act in computing the Indian rate of tax; (b) that the Income-tax Officer in his original assessment made a mistake apparent from the record by holding that relief under Section 49A stood on a different footing; and (c) that, in any event, as the order for rectification was made under Section 35 of the old Act no appeal lay either to the Appellate Assistant Commissioner or the Tribunal and, as such, the present reference is incompetent and the court should decline to answer the questions referred to it on that ground.

12. It would be enough for us to discuss the second and the third contentions of Mr. Basu. So far as the second point is concerned, the expression ' mistake apparent from the record ' and similar other expressions have been judicially construed on a number of occasions. It may be a mistake of law or fact. But, it must be a clear (be apparent) or self-evident mistake. If the discovery of a mistake calls for elaborate investigations either as to the legal position or the facts involved, it would not be a mistake apparent from the record. Broadly speaking, it can be stated that in a case where two views are possible you cannot take one of these views and proceed to rectify a so-called mistake on the basis of that view. That would not be rectifying a mistake apparent from the record.

13. We intend in this connection to refer to two of the comparatively recent judgments of our Supreme Court in Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavdnappa Thirumale, : [1960]1SCR890 where it is stated :

' An error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. As the above discussion of the rival contentions show the alleged error in the present case is far from self-evident and if it can be established, it has to be established by lengthy and complicated arguments.'

14. The Supreme Court considered the above passage in K. M. Shanmugam v. S. R. V.S. (P.) Ltd. and said :

' This test also may break, for what is complex to one judicial mind may be clear and obvious to another: it depends upon the equipment of a particular judge. In the ultimate analysis the said concept is comprised of many imponderables; it is not capable of precise definition, as no objective criterion can be laid down, the apparent nature of the error, to a large extent, being dependent upon the subjective element. So too, in some cases the boundary between error oi law and error of fact is rather thin. A Tribunal may hold that 500 multiplied by 10,000 is 5 lakhs (instead of 50 lakhs); another Tribunal may hold that a particular claim is barred by limitation by calculating the period of time from 1956 instead of 1961 ; and a third Tribunal may make an obvious error deciding a mixed question of fact and law. The question whether the said errors are errors of law or fact cannot be posited on a priori reasoning, but falls to be decided in each case. We do not, therefore, propose to define with any precision the concept of ' error of law apparent on the face of the record'; but it should be left, as it has always been done, to be decided in each case.'

15. Let us, therefore, look into the provisions in the instant case. We have already discussed the difference of opinion between the Income-tax Officer and the Appellate Assistant Commissioner on the one hand and the Tribunal on the other. What the former authorities have considered to be ' relief' the Tribunal considers to be 'abatement'. In fact, the word ' abatement ' has been used in various articles of the ' Agreement for the Avoidance of Double Taxation in India and Pakistan ' dated the 10th December, 1947. The provisions of this agreement were considered by this court in Shell Co. of India Ltd. v. Commissioner of Income-tax. There it was held that if an assessee desires to avoid double taxation under this Agreement, he must take steps to obtain an ' abatement ' at the time of the assessment or see that the Income-tax Officer makes an estimate of the ' abatement ' and keeps the same in abeyance. If, however, the assessee has fully paid the tax which has been assessed and has not appealed against the order of assessment, which has become binding, he cannot obtain any advantage under the 'Agreement'. There is no machinery for making an application for ' abatement ' in such a case, or for applying for a refund. This court has held further that there is material difference between the provisions of Sections 49A and 49AA of the Indian Income-tax Act, 1922. Section 49A provides for relief in certain cases where income-tax has already been paid, both in India and in a foreign country, on the same income which had been charged to tax in both countries. Section 49 AA, however, does not grant relief against double taxation which has already taken place, but provides for the avoidance of double taxation. In the former case, says this court, tax has first to be paid, and then only arises the right to apply for a refund of the excess payment. In the latter case, this court points out, provision has been made for avoiding double taxation.

16. It is true that in the last paragraph of this judgment, as pointed out by Mr. A.K. Basu, it has been stated ' Doubtlessly the assessee was confused as regards its rights to relief against double taxation...............It is also evident that if the assessee was not so prompt in its payment, it might have got some relief.' But, in these sentences, to our mind, the word ' relief ' has been used in a general and not in a technical sense.

17. It seems to us that this judgment of our court amply supports the assessee's contention before us that there was considerable scope for argument on the scope and effect of Clauses (a) and (b) of Section 49A of the Indian Income-tax Act, 1922, which were previously numbered as Sections 49A and 49AA. And, this is the reason why we are inclined to hold that what the Income-tax Officer sought to rectify was not a clear or obvious mistake of law or a mistake apparent from the record.

18. Our answer to question No. 1 in this reference is, therefore, in the affirmative and in favour of the assessee and in view of this answer there is no occasion for us to give our answer to question No. 2.

19. It seems to us that Mr. Basu realised his difficulties and, as a last resort, invited us to hold that the reference itself was incompetent, on grounds we have already indicated. Counsel for the department in support of this argument placed considerable reliance on the case of VR. C. RM. Adaikkappa Chettiar v. Commissioner of Income-tax, : [1970]78ITR285(Mad) . In this case the Madras High Court has held that as there was no appeal provided under the old Act of 1922, against an order under Section 35, the appeals to the Appellate Assistant Commissioner and the Tribunal as well as the consequential reference to the High Court were incompetent and, hence, the reference had to be returned unanswered. The question before the Madras High Court was :

' Whether, on the facts and in the circumstances of the case,

(1) the order of the Income-tax Officer dated February 7, 1963, is illegal as being outside the scope of Section 154 of the Income-tax Act, 1961 and

(2) the Appellate Tribunal was wrong in holding that the sum of Rs. 25,233 was part of the salary income ?'

20. In the Madras case the Tribunal held that Section 154 was properly applied and the assessee, therefore, made a direct challenge to the invocation of that section. In the Madras case it was possible to argue that Section 35 and not Section 154 was attracted. But, in our case, the department is the applicant in this reference and it is not the department's contention that the order for rectification was improperly made either under Section 154 or under Section 35. In other words, an argument that Section 154 does not apply is different from an argument that it does apply but certain consequences should follow. The first question in this reference is all impediment to Mr. Basu's argument. A question relating to the competence of the reference is an entirely new question which this court is being invited to answer. Moreover, in the Madras case the point as to the propriety of the reference was raised by the respondent who was opposing the reference. Here, strangely enough, it is the applicant who wants us to say that the reference is incompetent.

21. To us it seems that this argument of Mr. Basu cannot be sustained principally for four reasons : Firstly, the Income-tax Officer made his order not under Section 35 of the old Act but under Section 154 of the Act of 1961. Prima facie, therefore, his order was an appealable order. Secondly, the point that Mr. Basu is trying to raise in his argument in this court as to the maintainability of the appeal was never raised either directly or indirectly or even remotely before the Tribunal and this court in the exercise of its jurisdiction under Section 66 of the old Act or Section 256 of the Act of 1961 cannot under any circumstances entertain it. Thirdly, since the reference is at the instance of the department, by taking this point, the department is trying to achieve indirectly what it could not achieve directly. Fourthly, as we have already pointed out, it was possible for the Madras High Court to entertain the question of competence of the reference as the assessee had all along before the tax authorities challenged the propriety of rectification. But, such a course is not open to this court in the present reference. On these grounds we overruled this third contention of counsel for the department.

22. As the first question in the reference has been answered in favour of the assessee, the department will pay to the assessee the costs of this reference.

A.N. Sen, J.

I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //