2006 (8) TMI 517 - AT - Income Tax

Summary

Issues Involved:
1. Deviation from earlier decisions favoring the assessee.
2. Misreading of Supreme Court and High Court judgments.
3. Scope of powers under section 254(2) for rectifying mistakes.
4. Misclassification of dividend income as "income from business."
5. Applicability of Explanation to section 73.
6. Whether a considered view of the Tribunal can be rectified.

Issue-wise Detailed Analysis:

1. Deviation from Earlier Decisions Favoring the Assessee:
The Tribunal's order dated May 31, 2001, was challenged on the grounds of deviating from a series of earlier decisions where the same issue was decided in favor of the assessee. The Tribunal acknowledged this deviation but emphasized that decisions of co-ordinate Benches, if per incuriam, do not have binding force.

2. Misreading of Supreme Court and High Court Judgments:
The Tribunal was accused of misreading the Supreme Court's judgment in Western States Trading Co. P. Ltd. v. CIT [1971] 80 ITR 21 and the Bombay High Court's judgment in CIT v. Amritlal and Co. Ltd. [1995] 212 ITR 540. The Tribunal clarified that it had erred in interpreting these judgments, specifically in the context of misclassifying dividend income.

3. Scope of Powers under Section 254(2) for Rectifying Mistakes:
The scope of section 254(2) is limited to rectifying mistakes apparent from the record, which refers to obvious and patent mistakes. The Tribunal cited the Supreme Court's ruling in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50, emphasizing that a decision on a debatable point of law is not a mistake apparent from records.

4. Misclassification of Dividend Income as "Income from Business":
The Tribunal had initially concluded that dividend income from shares held as stock-in-trade should be assessed as "income from business." This conclusion was found to be an error of omission, as it overlooked the context in which the Supreme Court made its observations. The law, as settled by the Supreme Court, states that dividends are taxable under the residuary head "Income from other sources."

5. Applicability of Explanation to Section 73:
The Tribunal noted that for the application of the Explanation to section 73, the relevant factor is the head under which an income is taxed, not the nature of the income. The exclusion clause in the Explanation refers explicitly to the head under which the income is chargeable.

6. Whether a Considered View of the Tribunal Can Be Rectified:
The Tribunal addressed the Revenue's contention that a considered view cannot be rectified. It clarified that if a mistake is obvious, patent, and glaring, it can be rectified regardless of whether it was a conscious mistake. The Tribunal emphasized that perpetuating an error is not justified, quoting Justice Bhagwati's observation that rectifying an error is a compulsion of judicial conscience.

Conclusion:
The Tribunal concluded that it had committed an error apparent from the record by misclassifying the dividend income. The error was fundamental and affected the conclusions arrived at by the Tribunal. Therefore, the Tribunal recalled its order and directed the Registry to fix the matter for a de novo hearing. The rectification petition was allowed, and it was pronounced in open court on August 1, 2006.