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Commissioner of Income-tax Vs. KelvIn Jute Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 307 of 1974
Judge
Reported in(1980)17CTR(Cal)138,[1980]126ITR679(Cal)
ActsIncome Tax Act, 1961 - Section 245(2); ;Income Tax (Amendment) Act, 1972 - Section 4; ;Indian Income Tax Act, 1922 - Sections 33 and 35; ;Income Tax (Amendment) Ordinance, 1972
AppellantCommissioner of Income-tax
RespondentKelvIn Jute Co. Ltd.
Appellant AdvocateAjit Sengupta and ;Prabir Majumdar, Advs.
Respondent AdvocateS.K. Bhattacharya, ;Nirmal K. Poddar and ;R.N. Saha, Advs.
Cases ReferredS. A. L. Narayan Row v. Ishwarlal Bhagwandas
Excerpt:
- .....order sought to be rectified (had been passed) and, therefore, at the relevant time there was a deemed mistake but no mistake apparent from the record which could be rectified, and an order of rectification could not be passed. now, this case has to be understood in the light of the facts of that case. there are one or two factual errors. the assessment in this case though for the years 1957-58 and 1958-59 and the assessment as recorded was made under the act of 1922, yet the attention of their lordships was not obviously drawn to section 4 of the amendment act of 1972, which i have set out hereinbefore, which also stated that nothing in the amendment act, 1972, would be deemed to have authorised the deduction of wealth-tax in an assessment made under the 1922 act. therefore, it was.....
Judgment:

Sabyasaciii Mukharji, J.

1. In this case while making the assessment under the I.T. Act, for the year 1959-60, the ITO disallowed the assessee's claim for deduction of Rs. 37,879 being wealth-tax paid by it. The assessee went up in appeal to the AAC. There were several grounds of appeal before the AAC including the one relating to the disallowance of wealth-tax paid. The assessee, however, did not press this particular ground relating to the wealth-tax and the AAC confirmed this disallowance. The assessee raised the above points before the Tribunal as an additional ground along with other grounds for this assessment year. The Tribunal observed that this ground was not pressed by the assessee before the AAC, because at that time the law was as laid down by the Supreme Court in the decision of Travancore Titanium Product Ltd. v. CIT : [1966]60ITR277(SC) and the law was that wealth-tax was not a permissible deduction. But later on in the decision in the case of Indian Aluminium Co. Ltd. v. CIT : [1972]84ITR735(SC) , the Supreme Court held that wealth-tax was deductible from the computation of income in certain specified cases. Following the later decision, the Tribunal held in the instant case that the wealth-tax paid by the assessee amounting to Rs. 37,879 was business expenditure and as such deductible. Meanwhile, the Income-tax (Amendment) Ordinance was promulgated by the President of India on 16th July, 1972, and thereafter it was followed by the Income-tax (Amendment) Act, 1972. As some arguments were made in respect of the same it is relevant to set out Section 2 and Section 4 of the said Act (See [1972] 85 ITR 163) :

' 2. Amendment of Section 40.--In Section 40 of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as ' the principal Act '), after Sub-clause (ii) of Clause (a), the following sub-clause shall be, and shall be deemed always to have been, inserted, namely :--

' (iia) any sum paid on account of wealth-tax......' ' '4. Wealth-tax not deductible in computing the total income for certain assessment pears.--Nothing contained in the Indian Income-tax Act, 1922 (11 of 1922), shall be deemed to authorise, or shall ba deemed ever to have authorised, any deduction in the computation of th' income of any assessee chargeable under the head ' Profits and gains of business, profession or vocation ' or ' Income from other sources ' for the assessment year commencing on the 1st day of April, 1957, or any subsequent year, of any sum paid on account of wealth-tax.'

2. Thereafter, the revenue filed miscellaneous application on the 30th of September, 1972, before the Appellate Tribunal praying before the Tribunal to amend suitably its earlier order dated 12th of July, 1972, so that the direction by the Tribunal to the ITO is cancelled. The Tribunal found that a similar matter had come up before it and it had held that in a matter which had been given finality under Section 24(10) of the W.T. Act, 1957, the Tribunal had no power under Section 254(2) of the I.T. Act, 1961, to amend or modify. In the premises, the Tribunal rejected the said application. Upon that, at the instance of the revenue, the following question has been referred to this court by the Tribunal :

' Whether, on the facts and in the circumstances of the case and in view of the promulgation of the Income-tax (Amendment) Ordinance, 1972, and the subsequent amendment made to the Income-tax Act, 1961, the Tribunal was right in holding that there was no rectifiable error in its order dated 12th July, 1972, and in that view of the matter dismissing the miscellaneous application made by the department '

3. Learned advocate for the assessee is right in contending that, the question as framed is incorrect, because the expression ' and the subsequent amendment made to the Income-tax Act, 1961 ', is misconceived. The subsequent amendment to the Income-tax Act, 1961, does not affect the position. He, therefore, submitted that the court has to adjudicate on a controversy which was not before the Tribunal. We are, however, unable to accept this contention. The controversy was whether the Tribunal was justified in allowing the deduction of wealth-tax in view of the subsequent alteration of law, later on made. If that is the proper controversy, then even though the expression 'subsequent amendment to the Income-tax Act, 1961 ', is incorrect, the real controversy was whether the deduction of wealth-tax was correctly allowed or not. In that view of the matter, we reframe the question as follows :

' Whether, on the facts and in the circumstances of the case and in view of the Income-tax (Amendment) Act, 1972, the Tribunal was right in holding that there was no rectifiable error in its order dated 12th July, 1972, and in that view dismissing the miscellaneous application made by the department '

4. We now proceed to consider the merits of this question.

5. We have set out the relevant provisions of Section 2 as well as Section 4 of the Act. In this case even though the return was for the assessment year 1958-59, it is not clear nor does it appear from the facts before us whether the return for the relevant assessment year was filed after the coming into operation of the I.T. Act, 1961, because if the return was filed prior to the coming into operation of the Act of 1961, then, in view of the provisions of Section 297(2)(a), it would be guided by the old Act but if it was filed after the new Act came into operation, except in certain specified cases, which is not the case here, assessment proceedings would have to be completed under Section 297(2)(a) in terms of the provisions of the I.T. Act, 1961. But in both cases either Section 2 of the Amending Act which we have referred to as the Act of 1972 or Section 4 would be applicable and in neither case wealth-tax would be deductible in computing the income of the assessee. Learned advocate for the assessee contended that there was no particular section under the Indian I.T. Act, 1922, which authorised deduction of wealth-tax from income. That is true. That deduction is made and was allowed in the computation of the profit as a method of computation of the business profit. If nothing in the provisions of the I.T. Act including the method of computation of income authorised the deduction of wealth-tax and if the law enjoins that the said provisions of law should be deemed to have always been there then the deduction of wealth-tax in this particular case was not permissible. If that is the position, the effect of the deeming provision gives retrospective effect. The effect of a deeming provision has been recognised in several cases and the main principle was enunciated, which has since been followed, in the decision in the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587 ; [1952] AC 109 (HL), Lord Asquith observed as follows :

' If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs hack in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs. It does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. '

6.These principles have been recognized by the Supreme Court in numerous decisions including the decision of the Supreme Court in the case of Bombay Dyeing and . : [1958]34ITR143(SC) and again referred to by the Division Bench decision of this court in the case of CIT v. General Electric Co. of India Ltd. : [1978]112ITR246(Cal) . If that is the position in law which must be deemed to have been there in the law, then the order of the Tribunal in allowing deduction was obviously a mistake. Learned advocate for the revenue drew our attention to the decision in the case of M. K. Venkatachalam, ITO v. Bombay Dyeing and . : [1958]34ITR143(SC) , where the Supreme Court held that the provision of the section, the amendment of which should be deemed to come into effect in April, 1952, was that the amendment of the section must be deemed to have been included in the principal Act from that day, 1st April, 1952, for all purposes and, therefore, consequently the assessment order which was inconsistent with that provision must be a mistake apparent from the record. In the case of S. A. L. Narayan Row v. Ishwarlal Bhagwandas : [1965]57ITR149(SC) , the same principle was reiterated by the Supreme Court.

7. Our attention was also drawn to a decision of this court in the case of CIT v. General Electric Co. of India Ltd. : [1978]112ITR246(Cal) , which we have mentioned hereinbefore. In that case deduction was allowed for the assessment years 1957-58 and 1958-59 in respect of the amount of wealth-tax paid by the assessee. The assessment was made in 1960 under the Act of 1922. Subsequently, an amendment was made in 1972 in the Act of 1961, which laid down that wealth-tax was not deductible. The amendment was made with retrospective effect from the commencement of the Act of 1961. On the question whether the allowance of wealth-tax in that case could be withdrawn by an order of rectification, the court held that the Amending Act came into existence long after the order sought to be rectified (had been passed) and, therefore, at the relevant time there was a deemed mistake but no mistake apparent from the record which could be rectified, and an order of rectification could not be passed. Now, this case has to be understood in the light of the facts of that case. There are one or two factual errors. The assessment in this case though for the years 1957-58 and 1958-59 and the assessment as recorded was made under the Act of 1922, yet the attention of their Lordships was not obviously drawn to Section 4 of the Amendment Act of 1972, which I have set out hereinbefore, which also stated that nothing in the Amendment Act, 1972, would be deemed to have authorised the deduction of wealth-tax in an assessment made under the 1922 Act. Therefore, it was not correct to state that the amendment which had been made in 1972 only laid down that wealth-tax was not deductible and the amendment was retrospective with the commencement of the Act of 1961. The amendment was retrospective not only from the commencement of the 1961 Act, but retrospective in respect of the assessment made under the 1922 Act by virtue of Section 4 of the Amending Act, 1972, which we have set out hereinbefore. But, as we have mentioned before, that case must be understood in the light of the facts of that case. There what happened was that the step for rectification was taken before the amendment. In such a situation, the decision of the court, if we may be permitted to say with respect, was right that such step for rectification could not be taken before the amendment is given retrospective effect and came into operation at all, but if the effect and the deeming provision was that this was deemed to have been there in the Act from the very beginning then it must be deemed that in passing the order either the ITO or the Tribunal must have misread the section, because the amending provision should be deemed to have been there in the original principal Act from the very beginning. If such a mistake has to be read in view of the deeming provision, then there was a mistake apparent from the record. Therefore, in view of the principles enunciated by the Supreme Court in the casas of M. K. Venkatachalam, ITO v. Bombay Dyeing and . : [1958]34ITR143(SC) and S. A. L. Narayan Row Ishwarlal Bhagwandas : [1965]57ITR149(SC) , in our opinion, there was certainly a mistake apparent from the record.

8. Now, the Tribunal has referred to the fact thai there was finality in the order passed. Section 254, Sub-section (2), authorised the Appellate Tribunal at any time within four years from the date of the order with a view to rectify a mistake from the record to amend ' any order ' passed by it under Sub-section (1) and. make such amendment if the mistake is brought to the notice of the Tribunal. Therefore, the amplitude of the expression of ' any order ' includes the final order, the order passed by the Tribunal in disposing of the appeal, and if there is a mistake apparent from the record even though it finally disposed of the appeal, and Section 254(2), in our opinion, clearly authorised the Tribunal to rectify such a mistake provided such a mistake was apparent from the record.

9. The Division Bench of the Gauhati High Court in the case of CIT v. Smt. Eva Raha held that even though it was true that when the orders were passed by the Tribunal they were made in accordance with law as it then stood, Section 13 of the Amendment Act, viz., the Direct Taxes (Amendment) Act, 1974, provided that the amendment made in the section should be substituted and should be deemed always to have been substituted in the principal Act. The Division Bench was of the opinion that the consequence was that the amendment made in the principal Act by Section 13 of the Amendment Act must by legal fiction be deemed to have been always included in the principal Act and it inevitably meant that when the Tribunal passed its orders allowing the appeals of the assessee the amended Section 297(1) must be deemed to have been inserted in the Act and there could not be any dispute that the Appellate Tribunal had power of rectification in respect of any appellate order if it had attracted the provisions of Section 254(2) of the Act. As such, the orders of the Appellate Tribunal in the appeal were not final in the literal sense of the term. Orders were made and continued subject to modification or rectification under Section 254(2) of the Act. We respectfully agree with the said view of the Division Bench of the Gauhati High Court and we are of the opinion that simply because a final order was passed it could not be rectifiable in the circumstances of the case.

10. On behalf of the assessee, however, it was contended that under Section 35 of the Indian I.T. Act, 1922, rectification was permissible in respect of an order by the Tribunal by virtue of Sub-section (2) of Section 35. But, Section 33 which dealt generally with the powers of the Appellate Tribunal against the orders of the AAC did not specifically mention any power of rectification. But, in our opinion, Section 33 naturally must be read in conjunction with Sub-section (2) of Section 35 of the Indian I.T. Act, 1922. It is also true that under the provisions of the Indian I.T. Act, 1922, there was no scope for any reference under Section 66 of any order passed by the Tribunal under the authority of Section 35 or Section 33 of the I.T. Act. Therefore, it was contended on behalf of the assessee that if the return for the assessment was in respect of the year prior to coming into operation of the I.T. Act, 1961, then it could have been sought to be rectified only by virtue of Section 33 read with Section 35 but in neither contingency was any reference permissible under Section 66 of the Indian I.T. Act, 1922. But, whether the Tribunal proceeded by virtue of Section 297, Sub-section (2)(a) or Section 297, Sub-section (2)(b), would depend upon the question whether the return for the relevant assessment year was filed before or after the coming into operation of the I.T. Act, 1961. This point was not canvassed before the Tribunal as to when the return was filed and under the provision of which Act would the return be considered. If that is the position, we are not in a position to consider whether the Indian I.T. Act, 1922, was attracted and as such there was no scope for any reference. The Tribunal has declined to exercise its power under Section 254(2) of the I.T. Act, 1961, on the plea of the finality of this order. Thus, we are unable to accept that position. On that basis there is no question for any debate or doubt. If there was any scope for any debate or doubt as to whether the assessment was made under the 1922 Act or the 1961 Act, different considerations might have arisen. But that debate or doubt was not raised before the Tribunal and it is not open for any party to raise that controversy before us for the first time.

11. In the aforesaid view of the matter, we answer the question as refram-ed by saying that the Tribunal was not right and was wrong in dismissing the application. The answer is in favour of the revenue.

12. In the facts and circumstances of this case, each party will pay and bear their own costs.

Sudhindra Mohan Guha, J.

13. I agree.


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