1986 (3) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Rectification of Mistake Apparent from the Record u/s 154 of the Income-tax Act, 1961.
2. Determination of Tax on Capital Gains for a Registered Partnership Firm.

Summary:

Issue 1: Rectification of Mistake Apparent from the Record u/s 154 of the Income-tax Act, 1961.
- The Tribunal referred the question whether the mistake rectified by the Appellate Assistant Commissioner (AAC) could be considered a mistake apparent from the record u/s 154 of the Income-tax Act, 1961.
- The AAC initially upheld the assessee's contention that the taxability of capital gains for a partnership firm was debatable, thus setting aside the Income-tax Officer's (ITO) rectification order.
- However, upon noticing the decision in Hasanali Khanbhai's case, which clarified that a registered partnership firm is liable to pay tax on capital gains, the AAC rectified his earlier order.
- The court held that a mistake apparent on the record must be obvious and patent, not requiring a long-drawn process of reasoning. The ITO's failure to determine the tax payable on capital gains was an error apparent on the face of the record.

Issue 2: Determination of Tax on Capital Gains for a Registered Partnership Firm.
- The ITO included Rs. 2,90,750 as capital gains in the total income of the assessee-firm but did not determine the tax payable on these gains.
- The AAC initially set aside the ITO's rectification order, citing the debatable nature of the taxability of capital gains for a partnership firm.
- The court noted that the decision in Hasanali Khanbhai's case, which was binding, clarified that capital gains are taxable in the hands of a registered firm.
- The court referenced Parshuram Pottery Works Co. Ltd. v. D. R. Trivedi, emphasizing that judicial decisions merely interpret the law as it always has been. Thus, the ITO's failure to determine the tax was a mistake apparent from the record.
- The court concluded that both the ITO and the AAC acted within their powers in rectifying the orders to determine the tax payable on capital gains.

Conclusion:
The court answered the referred question in the affirmative, holding that the rectification by the AAC was within his powers, and the determination of tax on capital gains for a registered partnership firm was not debatable but settled by binding judicial decisions. Reference answered accordingly with no order as to costs.