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income-tax Officer, e Ward and ors. Vs. Raleigh Investment Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal No. 184 of 1973
Judge
Reported in78CWN919,[1976]102ITR616(Cal)
ActsIncome Tax Act, 1961 - Sections 25A, 85A and 154; ;Constitution of India - Article 226
Appellantincome-tax Officer, "e" Ward and ors.
RespondentRaleigh Investment Co. Ltd.
Appellant AdvocateB.L. Pal and ;Suhas Sen, Advs.
Respondent AdvocateDebi Pal, ;D. Gupta and ;M. Seal, Advs.
Cases ReferredMaharana Mills Private Ltd. v. Income
Excerpt:
- .....which was introduced by the finance act, 1966. it provides, inter alia, as follows :'where the total income of an assessee being a company includes any income by way of dividends received by it from an indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within india, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included (other than any such income on which no income-lax is payable under the provisions of this act) as exceeds an amount of twenty-five per cent. thereof.'3. the section first.....
Judgment:

Sabyasachi Mukharji, J.

1. This appeal relates to the assessment for the assessment year 1966-67 under the Income-tax Act, 1961. On the 16th of February, 1967, the original assessment was made under Section 143(3) of the Income-tax Act, 1961. In the said assessment tax was computed as payable by the petitioner-company on the basis of 25% of the dividend income of Rs. 16,01,769 and the taxable figure arrived at was Rs. 4,00,442'26. After giving the petitioner credit for the tax deducted at source on this account the tax liability of the petitioner was nil on this amount. Thereafter, on the 26th December, 1967, supplementary assessment was made under Section 143(3) read with Section 147(a) of the Income-tax Act, 1961, to include the capital gains arising as a result of the sale of 2,14,174 shares of Rs. 10 each to Vazir Sultan Tobacco Co. Ltd. On the 15th of February, 1968, an order was passed under Section 154 of the Act on the ground that there was a mistake in the calculation of tax. In the said order in recomputing the tax, the tax on dividend income was calculated at 25% as was made in the original assessment. Thereafter, on the 5th of January, 1970, another Income-tax Officer made an order under Section 154 of the Income-tax Act, 1961, on the ground that there was some mistake in computation of the capital gains. While computing the tax he also followed the same computation of tax on the dividend income, i.e., at 25% as was done in the original assessment. On the 16th of January, 1970, there was a subsequent rectification order under Section 154 of the Income-Act, 1961, on the ground that there was a mistake in tax calculation. But in the said order also the tax on the dividend income was computed at 25% as was the case in the original assessment. On the 3rd of February, 1971, a notice was issued under Section 154 of the Income-tax Act, 1961, on the ground that there was an error in the calculation of tax on the dividend and, therefore, rectification under Section 154 was proposed. The company thereupon moved this application under Article 226 of the Constitution on the ground that there was no mistake as contemplated under Section 154 of the Income-tax Act, 1961, and obtained a rule nisi. The rule came up for hearing before T.K. Basu J. and by a judgment delivered and order passed on the 2nd of February, 1973, the learned judge made the rule absolute and quashed the said notice and the proceedings thereunder. This appeal arises out of the aforesaid judgment of T. K. Basu J. delivered on the 2nd of February, 1973.

2. The only question with which we are concerned in this case is whether Section 154 of the Income-tax Act, 1961, has correctly been invoked in this case. Section 154 of the Income-tax Act, 1961, and the previous Section 35 of the old Act of 1922 provide for rectification of mistake apparent from the record. The scope and ambit of the sections have been the subject-matter of several decisions and it has been held that a mistake which is not obvious or which requires investigation or in respect of which two different views are possible is not a mistake covered or contemplated by Section 154 of the Income-tax Act, 1961. We may refer to the decisions in the cases of T.S. Balaram v. Volkart Brothers, : [1971]82ITR50(SC) , Income-lax Officer v. India Foils Ltd., : [1973]91ITR72(Cal) and of Harbans Lal Malhotra & Sons Private Ltd. v. Income-tax Officer, : [1972]83ITR848(Cal) . Therefore, in order to come within the ambit of the section, it is necessary that the mistake must be obvious, patent and self-evident and a mistake on which conceivably there can be two opinions cannot be rectified by virtue of Section 154 of the Income-tax Act, 1961. The question in the instant case is whether the mistake sought to be rectified comes within the ambit of Section 154 of the Act. As mentioned hereinbefore in the computation of tax made in respect of the dividend income in the original assessment as well as in the rectified assessment, tax on the dividend income of Rs. 16,01,769 has been computed at 25% and the figure that was arrived at was Rs. 4,00,442'26. What the Income-tax Officer did by the last order dated the 16th January, 1970, was that he computed the different heads of income and thereafter computed the income-tax at 25% on the dividend income of Rs. 16,01,769, computed the income-tax on commission of Rs. 9,738 at 17% and income-tax on capital gains of Rs. 24,09,289 at 30% and thereafter added up these tax calculations and arrived at the figure of Rs. 11,30,045.50. We are concerned here whether this tax calculation at 25% on the dividend income received by the petitioner-company was made on the correct basis. This calculation has to be made with reference to the provisions of Section 85A which has subsequently been repealed and re-enacted in Section 80M, which was introduced by the Finance Act, 1966. It provides, inter alia, as follows :

'Where the total income of an assessee being a company includes any income by way of dividends received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included (other than any such income on which no income-lax is payable under the provisions of this Act) as exceeds an amount of twenty-five per cent. thereof.'

3. The section first deals with the question of an assessee who is a company and whose total income includes dividend received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends including dividends on preference shares within India. Therefore, the section applies to the assessee in the instant case to the dividends received by it from other companies. The section secondly provides that the said assessee, viz., the company in this case, shall be entitled to a deduction. The deduction that the petitioner-company is entitled to is as indicated by the section, i.e., the income-tax which is chargeable to the total income for the assessment year of so much on its income at the average rate of the income-tax (sic) as exceeds 25%. In the instant case before us it appears that the total income other than the capital gains was Rs. 16,11,507 and the income-tax thereon was 17% being the rate fixed by the relevant Finance Act. The capital gains of the petitioner-company amounted to Rs. 24,09,289 and in accordance with the provisions of Section 115 of the Income-tax Act, 1961, the company was liable to pay tax on the capital gains at the rate of 30%. Therefore, on a total income of Rs. 40,20,796, the total income-tax payable comes to Rs. 18,50,842. This amount represents 46.03% of the income. This is the average rate which is spoken of in Section 85A referred to hereinbefore and according to that section the petitioner was entitled to a deduction from this average rate of so much of his income-tax as exceeded 25% and that would be 21'03%. 21.03% would amount to Rs. 3,36,852. This would be deducted from the total liability and the total liability of the tax would be Rs. 18,50,842 and from this the petitioner is entitled to a deduction of Rs. 3,36,852. This was the mistake which was sought to be rectified. This mistake, in our opinion, was the result of miscalculation of the tax. It appears that the Income-tax Officer misread the section. He thought that Section 85A provided for a charging section and laid down the rate of tax on the dividend income of this type. What the section on the other hand stipulated was a deduction from the general average rate applicable. It did not provide for any rate of tax for the dividend income. The facts of the instant case, in our opinion, are apposite to the facts in the case of Maharana Mills Private Ltd. v. Income-tax Officer, : [1959]36ITR350(SC) .

4. The learned judge in the judgment has observed that it was not necessary for him to go into the question whether Section 85A was capable of two possible interpretations or constructions. According to the learned judge, from the fact that the Income-tax Officer took the earlier view, that is to say, the view that the petitioner was liable to be taxed on the dividend income at 25%, it was evident that two views were possible. We are unable to accept this reasoning of the learned judge. The very fact that the Income-tax Officer or for that matter the assessee makes calculation on one basis does not establish or indicate that two views are possible. In a case where two views are not possible, if by misreading the section or miscalculation of the rate provided in the section a mistake is committed such a mistake would come within the purview of Section 154 of the Income-tax Act, 1961. In support of the contention that two views were possible counsel for the respondent drew our attention to the note on the object Clause which is as follows :

'Clause (22) seeks to insert a new Section 85A in the Income-tax Act to secure that income from dividends received by one company from another Indian company or a company which has made the prescribed arrangements for the declaration or payment of dividends within India will bear income-tax at the rate of 25 per cent.'

5. It may have been the intention at the time of original introduction of Section 85A that the companies of this type should not bear income-tax at a rate of more than 25%. But the intention of the legislature must be found in the language used and here in the instant case in view of the language used, viz., 'the average rate of income-tax on the income so included' and the expression 'deduction' used in Section 85A, it is not possible to say that the section as enacted was possible of a construction that the dividend income would bear tax at the hands of a company at the rate of 25% only. We are not, at this stage, concerned with the correctness or otherwise of the view taken by the Income-tax Officer because the rectification order is not under challenge. A point of limitation though taken in the petition was not pressed before us. This point will be open to the petitioner, if the petitioner is otherwise entitled to take this point before the authorities under the Act. We are only concerned with the question whether the mistake proposed to be rectified comes within the purview of Section 154 of the Income-tax Act, 1961, and for the reasons indicated above we are of the opinion that the mistake proposed to be rectified comes within the purview of Section 154.

6. In the aforesaid view of the matter this appeal is allowed. Judgment and order of the learned judge dated the 2nd of February, 1973, are hereby set aside and the application under Article 226 of the Constitution is dismissed and the rule is discharged.

7. There will be no order as to costs.

Sankar Prasad Mitra, C. J.

8. I agree.

Appeal allowed


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