2004 (2) TMI 53 - HC - Income Tax

Rectification of mistake - 1. Whether Tribunal was right in holding that the assessee was a trading company as defined in the Finance Acts 1986 1987 and 1988 and was chargeable to tax at the higher rate of 60 per cent.? - 2. Whether Tribunal was right in holding that the question whether the company which worked as tea brokers and auctioneers was or was not a trading company gave no scope for any debate and as such action for rectification of the assessment under section 154 was justified? - It was no more a case of error apparent from the records justifying interference under section 154 without holding any further enquiry - Therefore both questions Nos. 1 and 2 are answered in the negative in favour of the assessee.

Summary

Issues Involved:
1. Whether the assessee was a trading company as defined in the Finance Acts, 1986, 1987, and 1988, and chargeable to tax at the higher rate of 60 per cent.
2. Whether the rectification of the assessment under section 154 of the Income-tax Act was justified.

Issue-wise Detailed Analysis:

1. Nature of the Assessee as a Trading Company:
The primary contention of the assessee was that it was not a trading company but operated as tea brokers and auctioneers, providing services such as sampling, testing, valuing, and cataloguing. The assessee argued that it did not trade in goods but facilitated trading of goods. The business activities included deriving income from brokerage, commission, interest, dividend, and house property, with over 70% of income coming from brokerage of tea auctioneering. The court found that the assessee did not acquire title over the tea nor traded in it but merely facilitated the auction sales. Consequently, the court concluded that the assessee was not a trading company within the statutory definition, as it did not deal in goods, manufacture, produce, or process them.

2. Justification for Rectification under Section 154:
The assessee contended that once the assessment order was passed accepting that it was not a trading company, there was no apparent mistake justifying rectification under section 154. The assessee highlighted that the assessment for each year should be treated independently, and the principle of res judicata did not apply. The court agreed, noting that there was no error apparent from the records that justified the exercise of power under section 154. The court referenced several judgments, including T.S. Balaram, ITO v. Volkart Bros., to emphasize that a mistake apparent from the record must be obvious and not subject to debate. The court found that the initial admission by the assessee describing itself as a trading company was corrected in the revised return for the year 1986-87, and subsequent assessments were made treating it as a non-trading company. Therefore, the rectification under section 154 was not justified without further inquiry.

Conclusion:
Both questions were answered in the negative, in favor of the assessee. The court held that the assessee was not a trading company and that the rectification under section 154 was not justified.