1958 (4) TMI 107 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer under section 35 for rectification of an order.
2. Applicability and interpretation of section 18A(6) regarding penal interest.
3. Effect of the fifth proviso to section 18A(6) and its retrospective application.
4. Legal fiction introduced by Act XXV of 1953 and its implications.
5. Right of appeal against rectification orders.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer under section 35 for rectification of an order:

The court examined the jurisdiction of the Income-tax Officer under section 35 to rectify an order. It was clarified that the power under section 35 is limited to rectification of mistakes apparent on the face of the record and does not extend to revision or review. The judgment cited Sidhramappa v. Commissioner of Income-tax, emphasizing that a mistake must be patent on the record and not one that requires elucidation, argument, or debate. The court concluded that an error of law could be rectified under section 35 if it was apparent on the record without needing further elucidation or ascertainment.

2. Applicability and interpretation of section 18A(6) regarding penal interest:

The court considered whether the Income-tax Officer was obligated to charge penal interest under section 18A(6). The Department argued that there was a statutory obligation to charge penal interest, and the failure to do so was an error apparent on the face of the record. The court agreed that an error of law could be rectified under section 35 if no further facts needed to be ascertained. The court found that the assessment order showed the penal interest was related to business income, making section 18 inapplicable as it was not a case of tax deducted at source. The court concluded that the failure to impose penal interest was an error apparent on the face of the record.

3. Effect of the fifth proviso to section 18A(6) and its retrospective application:

The court examined the fifth proviso to section 18A(6), which allowed the Income-tax Officer to reduce or waive the interest payable by the assessee under certain circumstances. This proviso was enacted by Act XXV of 1953 and came into force retrospectively from April 1, 1952. The court noted that if the proviso had been in force on March 10, 1953, the Income-tax Officer would have had the discretion to waive the penal interest, and the failure to impose it could not be considered an error of law. The court emphasized that the legal fiction introduced by the retrospective application of the proviso must be fully respected, meaning the Income-tax Officer was not obligated to impose penal interest.

4. Legal fiction introduced by Act XXV of 1953 and its implications:

The court highlighted that the legal fiction introduced by Act XXV of 1953, making the fifth proviso effective from April 1, 1952, must be given full effect. The court referred to the Supreme Court's judgment in State of Bombay v. Pandurang Vinayak and Others, which stated that when a statute enacts something to be deemed done, the court must give full effect to the statutory fiction. Therefore, the Income-tax Officer's failure to impose penal interest on March 10, 1953, could be explained by the exercise of discretion under the proviso, and it could not be assumed that the officer acted contrary to law.

5. Right of appeal against rectification orders:

The court observed that if the Income-tax Officer had imposed penal interest in the original assessment order, the assessee could have appealed against it under rule 48. However, no appeal lies against an order made in rectification proceedings under section 35. This further supported the court's view that rectification proceedings should not be used to make orders that could have been challenged in appeal if made originally, thus depriving the assessee of the right to appeal.

Conclusion:

The court concluded that the petitioner must succeed, as the Income-tax Officer's failure to impose penal interest could not be considered an error apparent on the face of the record due to the retrospective application of the fifth proviso to section 18A(6). The rule was made absolute, and the respondent was ordered to pay the costs of the petition and the appeal. The petition was allowed.