1984 (5) TMI 2 - HC - Income Tax

Company, Income Tax, Preference Shares, Rebate On Super Tax And Income Tax, Super Profits Tax

Summary

Issues Involved:
1. Classification of shares as preference shares.
2. Applicability of Section 154 of the Income-tax Act for rectification of assessment orders.

Issue-wise Detailed Analysis:

1. Classification of Shares as Preference Shares:

The primary issue was whether the shares of the assessee corporation were preference shares. The Tribunal had held that the shares were not preference shares based on the criteria laid down in the Companies Act, 1956. The assessee argued that the shares should be considered preference shares because they carried a guaranteed dividend and were backed by the State Government. However, the court noted that the term "preference shares" was not defined in the Finance Acts of 1964 and 1965 or the Income-tax Act. The court concluded that the expression "preference shares" should be understood in the context of company law, which requires preference shares to have preferential rights over other shares in terms of dividend and capital repayment. Since the assessee's shares did not have such preferential rights over any other class of shares (as there was only one class of shares), they could not be classified as preference shares. The court cited the Patna High Court's decision in Bihar-State Financial Corporation v. CIT, which supported this interpretation. Consequently, the court affirmed that the Tribunal was correct in holding that the shares of the assessee were not preference shares.

2. Applicability of Section 154 of the Income-tax Act for Rectification:

The second issue was whether the mistakes in the original assessments, specifically the failure to reduce the rebates on super-tax and income-tax with reference to the dividends declared by the assessee, were mistakes apparent from the record within the meaning of Section 154 of the Income-tax Act. The court referred to precedents, including Maharana Mills (Private) Ltd. v. ITO and T.S. Balaram, ITO v. Volkart Brothers, which established that a mistake apparent from the record must be obvious and not require a long-drawn process of reasoning. The Appellate Assistant Commissioner had held that the question of whether the shares were preference shares was debatable and thus not a mistake apparent from the record. The Tribunal disagreed, but the court sided with the Appellate Assistant Commissioner, stating that the issue involved interpretation of various provisions and was indeed debatable. Therefore, the court concluded that the Tribunal was not right in holding that the mistakes in the original assessments were mistakes apparent from the record.

Conclusion:

The court answered the first question in the affirmative, against the assessee and in favor of the Department, confirming that the shares were not preference shares. The second question was answered in the negative, in favor of the assessee and against the Department, indicating that the mistakes in the original assessments were not apparent from the record and thus not subject to rectification under Section 154 of the Income-tax Act. The parties were left to bear their own costs.