1985 (9) TMI 25 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal was right in holding that the question of surcharge leviability was open to argument and debate?
2. Whether the Income-tax Officer was justified in rectifying the assessment order under section 154 of the Income-tax Act, 1961 by levying additional surcharge on unearned income of the assessee?
3. Whether the legal propositions in Nandlal Mangaram Pamnani v. G. L Lakshminarasimhan and T S Balaram, ITO v. Volkart Brothers are applicable in the present case?

Analysis:

1. The Tribunal held that the question of surcharge leviability was open to argument and debate. The issue arose when the Income-tax Officer rectified the assessment order under section 154 of the Income-tax Act, 1961, to levy additional surcharge on the unearned income of the assessee. The Tribunal set aside the order of the Income-tax Officer, leading to the present reference. The Revenue contended that the rectification was within the ambit of section 154 as it corrected a mistake apparent on the record.

2. The key contention revolved around whether the income of the minor assessee from a partnership firm and other sources constituted "unearned income" subject to surcharge. The definition of "earned income" and "unearned income" from the Finance (No. 2) Act, 1967 was crucial. The court determined that the income received by the minor from the partnership firm without actively engaging in its business, along with income from other sources, qualified as "unearned income." Consequently, the Income-tax Officer was justified in rectifying the assessment order to levy additional surcharge on such income.

3. The Tribunal relied on legal precedents like Nandlal Mangaram Pamnani and T S Balaram, ITO v. Volkart Brothers. However, the court distinguished these cases from the present scenario. It noted that the failure to apply a section permitting higher taxation, open to argument and debate, cannot be deemed an error apparent on the face of the record. In this case, the application of the relevant provisions was clear, and there was no need for interpretation or debate. The court emphasized that the rectification was based on a straightforward reading of the law and the facts of the case, making the legal propositions inapplicable.

In conclusion, the court upheld the rectification by the Income-tax Officer, ruling in favor of the Revenue and against the assessee. The reference was disposed of with no order as to costs.