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Nicco Corporation Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberI.T.A. No. 375 of 2000
Judge
Reported in(2005)194CTR(Cal)59,[2005]272ITR58(Cal)
ActsIncome Tax Act, 1961 - Sections 115J, 143(3) and 154
AppellantNicco Corporation Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateJ.P. Khaitan, Adv.
Respondent AdvocateDipak Kumar Deb, Adv.
DispositionAppeal dismissed
Cases ReferredO) v. Bombay Dyeing and
Excerpt:
- .....filed a return on august 12, 1988, showing total income of rs. 36,00,000 being 30 per cent, of the book profit which was higher than the total income as per computation of the assessee at rs. 29,97,170 as per the provisions of the act. subsequently, the assessee filed a revised return of income showing a total income of rs. 39,75,514 which was more than 30 per cent, of the book profit.4. the assessment was completed under section 143(3) of the act on march 25, 1991, and the total income was determined at rs. 3,10,90,561. aggrieved thereby the assessee preferred an appeal from the order dated march 25, 1991, before the commissioner of income-tax (appeals). by his order dated january 17, 1992, the commissioner of income-tax (appeals) allowed substantial reliefs to the assessee. the.....
Judgment:

M.H.S. Ansari, J.

1. This is an appeal under Section 260A of the Income-tax Act, 1961. The same was admitted by this court and the following questions of law arising out of an order dated May 2, 2000, passed by the Income-tax Appellate Tribunal, 'C' Bench, Calcutta, in income-tax appeal being I. T. A. No. 425/Cal of 1995 for the assessment year 1988-89, were framed :

'(1) Whether the determination and/or computation under Section 115J is required to be made in an order under Section 143(3) and not having been so made the liability, if any, under Section 115J lapses and cannot be introduced by seeking to rectify a subsequent order under Section 154 ?

(2) Whether in a case where according to the Department the determination and/or computation under Section 115J was required to be made in the original order of assessment under Section 143(3) but was not made, can such determination and/or computation under Section 115J be made by seeking to rectify a subsequent order under Section 154 ?

(3) Whether an order under Section 154 can be said to suffer from a mistake apparent from the record by reason of non-determination/ non-computation of income under Section 115J when according to the Department such determination and/or computation was required to be made in the original assessment under Section 143(3) ?

(4) Whether and in any event Section 115J can be applied and any determination and/or computation thereunder can be made in proceeding under Section 154 ?'

2. The facts to the extent relevant for consideration of the questions as framed above, briefly stated, are as under :

3. The assessee filed a return on August 12, 1988, showing total income of Rs. 36,00,000 being 30 per cent, of the book profit which was higher than the total income as per computation of the assessee at Rs. 29,97,170 as per the provisions of the Act. Subsequently, the assessee filed a revised return of income showing a total income of Rs. 39,75,514 which was more than 30 per cent, of the book profit.

4. The assessment was completed under Section 143(3) of the Act on March 25, 1991, and the total income was determined at Rs. 3,10,90,561. Aggrieved thereby the assessee preferred an appeal from the order dated March 25, 1991, before the Commissioner of Income-tax (Appeals). By his order dated January 17, 1992, the Commissioner of Income-tax (Appeals) allowed substantial reliefs to the assessee. The Assessing Officer (AO) gave effect to the said appellate order and modified the assessment order under Section 143(3) read with Section 251 by an order dated February 10, 1992, and determined the income at Rs. 67,56,139. On an application for rectification filed by the assessee under Section 154 the total income was redetermined at Rs. 53,56,140.

5. In the meanwhile the assessee's appeal for the earlier assessment year 1986-87 was decided by the Tribunal whereby the unabsorbed loss was allowed to be carried forward to subsequent years. The Assessing Officer gave effect to the same by an order under Section 154 dated September 29, 1992. By reason of the carried forward of loss from the assessment year 1986-87, the income for the assessment year 1.988-89 was reduced to 'nil'. Thus the income for the assessment year 1988-89 with which we arc concerned in the present appeal, finally stood at 'nil'. In the said order under Section 154 dated September 29, 1992, the Assessing Officer determined that the assessee was entitled to the refund of the entire amount of tax paid by it.

6. Subsequently, the Assessing Officer issued a notice under Section 154 of the Act dated October 14, 1992, to rectify the order passed under Section 154 dated September 29, 1992. As according to the Assessing Officer, the total income for the assessment year 1988-89 was reduced to 'nil' and the assessee had the book profit in the profit and loss account, the provisions of Section 115J were attracted for determination of income at 30 per cent, of the adjusted book profit. The authorised representative of the assessee expressed no objection to the rectification of the said order and the Assessing Officer vide order dated October 21, 1992, passed a rectification order under Section 154 of the Act and computed the total income under Section 115J at Rs. 35,66,740.

7. It is against the said order of rectification passed under Section 154 on October 21, 1992, that the income assessable under Section 115J at 30 per cent, of the book profit was determined and it is that order which was questioned by the assessee by an appeal before the Commissioner of Income-tax (Appeals).

8. The appeal was allowed by the learned Commissioner of Income-tax (Appeals) holding that there was no mistake in the order under Section 154 dated February 10, 1992, which the Assessing Officer wanted to rectify by the order dated October 21, 1992. It was further held that Section 154 is not the forum for creating charge under Section 115J. It was further held that liability under Section 115J lapsed after the order of assessment was made under Section 143(3) of the Act. After such lapse the liability, it was held, could not be revived. The Revenue aggrieved by the said order preferred an appeal before the Income-tax Appellate Tribunal. By its order under appeal the Tribunal allowed the appeal in the following terms and for the reasons contained therein which read as under :

'... It is apparent from the above facts that the assessee was liable to be assessed under Section 115J of the Act. We are of the view that in not considering Section 115J of the Act while giving effect to the Tribunal's order dated 29th September, 1.992, reducing the total income to nil for the assessment year under appeal is a mistake of law. We are of the view that the action of the Assessing Officer in rectifying the mistake by order dated 21st October, 1992, is in order and as such we set aside the order of the learned Commissioner of Income-tax (Appeals) and restore the order of the Assessing Officer.'

9. The questions framed as above are dependant upon the interpretation of Section 115J of the Act and the power of rectification under Section 154.

10. Mr. Dipak Kumar Deb, learned counsel for the Revenue, submitted that Section 115J has a scheme of its own and the object of introducing the said section was to make every company pay a minimum corporate tax on the profits declared by it in its own accounts. It was submitted that under this provision a company will have to pay tax on at least 30 per cent of its book profits. Reliance was placed by Mr. Deb upon the judgment of the Supreme Court in Surana Steels Pvt. Ltd. v. Deputy CIT : [1999]237ITR777(SC) , therein the Supreme Court in a different context, namely, interpretation of clause (iv) under the Explanation to Section 115J construed the provision contained in Section 115J as under (page 783) :

'Section 115J was introduced in the assessment year 1988-89 to take care of the phenomenon of prosperous zero tax companies which had continued in spite of the enactment of Section 80WA. These were companies which were paying no income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. A plain reading of Section 115J shows that if the assessee be a company and its total income determined under the Income-tax Act in respect of a previous year be less than thirty per cent of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent of such book profit. The total income of the assessee shall first be computed in accordance with the provisions of the Income-tax Act and if the total income so computed be less than thirty per cent of the book profit, then the profit and loss account of the company for the relevant previous year shall have to be prepared under sub-section (1A) of Section 115J in accordance with Parts II and III of Schedule VI to the Companies Act. The book profit so arrived at under the Companies Act shall be suitably adjusted so as to satisfy the requirements of the Explanation...' (emphasis, Here printed in italics supplied)

11. It is thus clear that Section 115J has a scheme of its own. The total income of the assessee is in the first instance required to be computed in accordance with the provisions of the Income-tax Act and only if the total income so computed be less than 30 per cent of the book profit then fictionally it will be deemed that the total income chargeable to tax of the said company would be an amount equal to 30 per cent of the adjusted book profit.

12. Judged in the light of the above it is apparent that when the order dated September 29, 1992 , was passed by the Assessing Officer under Section 154 giving effect to the carried forward loss for the earlier assessment year 1986-87, the income for the assessment year 1988-89 with which we are concerned was reduced to 'nil'. The provisions of Section 115J were accordingly attracted. While passing the order under Section 154 dated September 29, 1992, the Assessing Officer without applying the provisions of Section 115J determined that the assessee was entitled to refund of the entire amount of tax paid by it. This, in our view, was a glaring mistake. The question, however, is as to whether the same could be rectified in exercise of the power conferred under Section 154 of the Act.

13. Mr. J. P. Khaitan learned counsel for the assessee, contended that the mistake to be rectified under Section 154 has to be apparent from the record. Reliance was placed by Mr. Khaitan upon the judgment of the Supreme Court in CIT v. Keshri Metal P. Ltd. : [1999]237ITR165(SC) , wherein it was held that (page 167) 'under the provisions of Section 154 there has to be a mistake apparent from the record. In other words, a look at the record must show that there has been an error and that error may be rectified...'

14. To similar effect is the judgment of the Supreme Court in CIT v. Hero Cycles P. ltd. : [1997]228ITR463(SC) wherein it was held that rectification under Section 154 can only be made when a glaring mistake of fact or law committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. It was, therefore, the contention of Mr. Khaitan that as assessment under Section 115J is dependant upon the examination of the return, the accounts filed therewith and thereafter to arrive at 30 per cent, of the book profit the matter is a debatable one and therefore resort cannot be had to Section 154. The submission is sought to be buttressed by the submission that only prima facie adjustments can be made under Section 154 by way of rectification.

15. On the other hand, Mr. Dipak Kumar Deb relying upon the judgments of the Supreme Court in :

(1) M. K. Venkatachalam, (ITO) v. Bombay Dyeing and . : [1958]34ITR143(SC) ;

(2) Maharana Mills (Pvt.) Ltd. v. ITO : [1959]36ITR350(SC) ;

(3) ITO v. Asok Textiles Ltd. : [1961]41ITR732(SC) .

contended that when on an examination of the record the Assessing Officer discovers that he has made a mistake he can rectify the error which may be an error of fact or of law.

16. In Asok Textiles Ltd. : [1961]41ITR732(SC) , the earlier judgments have been considered and it was observed that the discovery of an error on the basis of assessment due to an initial mistake in determining the written down value (Maharana Mills (Pvt.) Ltd. : [1959]36ITR350(SC) is a mistake from the record and so is a misapplication of the law even though the law came into operation retrospectively (M. K. Venkatachalam's case : [1958]34ITR143(SC) . The Supreme Court thereupon held in Asok Textiles Ltd.'s case : [1961]41ITR732(SC) 'the Income-tax Officer can under Section 35 of the Act, examine the record and if he discovers that he has made a mistake, he can rectify the error and the error which can be corrected may be an error of fact or of law'. In that case the assessee-company had declared a dividend and become liable to pay additional income- tax with respect to excess dividends under the Finance Act, 1952, but this fact was overlooked by the Income-tax Officer in the original assessment. This was rectified by resort to Section 35 of the Income-tax Act. The Income-tax Officer later discovered that this was also erroneous and by a second order of rectification he levied additional income-tax and also charged interest on income which the company had failed to pay in advance under the then Section 18A of the Act. The Supreme Court held that the order was not without jurisdiction and that the Income-tax Officer was required to calculate the interest in the manner provided under the provisions of the Act and had to add to the assessment.

17. Section 154 of the Income-tax Act, 1961 (which corresponds to Section 35 of the Indian Income-tax Act, 1922) empowers the income-tax authorities to rectify any mistake 'apparent from the record'. In the case on hand there was such a mistake or a glaring mistake in not computing the income under Section 115J when the income of the assessee was subsequently assessed at 'nil'. The assessment under Section 115J could have been made only when the income computed under the provisions of the Income-tax Act fell below 30 per cent, of the book profits. This occasion arose when the rectification order was passed under Section 154 on September 29, 1992. Before that date it could not be stated that the provisions of Section 115J are attracted. The question that immediately arises is whether there was material on record to rectify such error in the manner that the Income-tax Officer did by resort to Section 154 of the Act.

18. As already noticed supra, the assessee filed its return under Section 115J of the Act showing the total income being 30 per cent of the book profit which was higher than the total income under other provisions of the Act. A revised return of income was filed showing income under the provisions of the Act which was more than 30 per cent of the book profit. Assessment was therefore made under the provisions other than Section 115J of the Act. There was thus material on record for making an assessment in terms of Section 115J on the adjusted book profit. The initial order of assessment would show that for computing the total income chargeable to tax the Assessing Officer computed the same as under :

Rs. Rs.'Net profit as per profit and loss account 1,00,89,134Add back:(i) Depreciation for separate consideration 52,14,174(ii) Provision for taxation 18,00,00070,14,1741,70,03,308'

thereafter the Assessing Officer deducted and added what according to the Assessing Officer were admissible and inadmissible under various provisions (see page 26 of the paper book).

19. From the order of rectification dated October 21, 1992, subject matter of appeals before the Commissioner of Income-tax, Income-tax Appellate Tribunal and leading to this appeal, shows that the computation under Section 115J of the Act has been made as follows :

Rs.'Tax payable under Section 115 of the Income-tax Act.Book profit 1,00,89,134Add : Provision for taxation 18,00,000Profit 1,18,89,134provision of Rs. 35,66,740'

20. On the facts of the instant case there is no debatable question involved 20 in computing the book profits which as noticed supra, the Assessing Officer had computed in his original assessment order based upon the return and the accounts of the assessee. The power conferred upon the Assessing Officer, in the light of the deeming provision contained in Section 115J, is limited. The Assessing Officer cannot go behind the profit and loss account for computing the fictional income (30 per cent, of the book profits). Also there was material on record based on which such rectification could be made. There is the income-tax return filed by the assessee based whereupon in the original assessment, the Assessing Officer computed the profit as per the profit and loss account. The return, as noticed supra, was filed under Section 115J. The present is a case where the Assessing Officer invoked the jurisdiction to rectify the assessment order. There can be no dispute that such action can be justified only on the ground of a mistake apparent from the record. We have already noticed that such a mistake was detected only when the rectification order under Section 154 was passed on September 29, 1992, when the income was reduced to nil, i.e., to say below the book profit. The material on record justifies the action for rectification and therefore it cannot be said that the Assessing Officer either had no jurisdiction or that there was no mistake, which was required to be rectified. All the data is evidently on record from the time the first assessment was made but under the scheme of Section 115J the assessment in the first instance was required to be and was accordingly made under the provisions of the Act. Unless it is established that all the material on record for computing the income under Section 115J did not exist on record no fault can be found with the action of the Assessing Officer in rectifying the mistake apparent from the record in exercise of the powers conferred under Section 154.

21. This takes us to the next contention urged on behalf of the assessee and which found favour with the Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) held that the liability under Section 115J lapsed after the order of assessment was made under Section 143(3) of the Act. The question of lapse can arise when there is an option to the Assessing Officer to make the assessment either under other provisions of the Act or to make an assessment under Section 115J. In our view, there is no such option to the Assessing Officer. The second situation that can be visualised is based upon the statutory provision barring the exercise of such power of rectification under Section 154. Neither of the two conditions exist in the case on hand. As already noticed supra, under the scheme of Section 115J the Assessing Officer is required in the first instance to compute the total income of the assessee in accordance with the provisions of the Income-tax Act and it is only if the total income so computed be less than 30 per cent, of the book profit that under Section 115J the assessment is to be made on the adjusted book profit. The fiction in Section 115J has to be given effect to at that stage.

22. Further we are of the view that Mr. Deb, learned counsel for the Revenue, is right in contending that when proceedings are taken for rectification of assessment under Section 154 those proceedings must be held to be proceedings for assessment. In proceedings under Section 154 what the Assessing Officer does is to correct errors in, or rectify, the order of assessment made by him, and orders making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment. It was so held in the context of Section 35 of the Indian Income-tax Act, 1922, in S. Sankappa v. ITO : [1968]68ITR760(SC) . The contention of the assessee has accordingly to be rejected.

23. We observe that the questions of law as framed are not happily worded in the context of the order of the Income-tax Appellate Tribunal which we have extracted elsewhere in this judgment. As noticed, the power under Section 154 was invoked by the Assessing Officer as according to him there was a mistake while passing the order under Section 154 dated September 29, 1992, as the provision of Section 115J was not taken into account while computing the refund. The Income-tax Appellate Tribunal by its order under appeal upheld the said action of the Assessing Officer and in our view rightly.

24. Therefore, all the questions referred to above are answered in favour of the Revenue and against the assessee.

25. In the result, the appeal is dismissed. No order as to costs.

Soumitra Pal, J.

26. I agree.


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