1985 (1) TMI 19 - HC - Income Tax

Issues Involved:
1. Jurisdiction of the Income-tax Officer to invoke section 35 of the Indian Income-tax Act, 1922.
2. Legitimacy of the rectification order under section 35 of the Indian Income-tax Act, 1922.
3. Applicability of section 244 of the Income-tax Act, 1961, for interest on refunds.
4. Interpretation of section 297(2)(a) of the Income-tax Act, 1961.
5. Definition and scope of "error apparent on the face of the record."

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to invoke section 35 of the Indian Income-tax Act, 1922:
The principal contention raised in the writ petition was that the Income-tax Officer had no jurisdiction to invoke section 35 of the Indian Income-tax Act, 1922, given the facts and circumstances of the case. The petitioner argued that the order dated October 5, 1976, issued by the Income-tax Officer, was wholly without jurisdiction. The court examined the sequence of events, noting that the Income-tax Officer initially acted on the basis of the provisional ratio certificate and later revised the assessment following the Appellate Assistant Commissioner's order.

2. Legitimacy of the rectification order under section 35 of the Indian Income-tax Act, 1922:
The petitioner received an undated notice under section 154/155 of the new Act read with section 35 of the old Act, proposing to rectify the refund order under section 244 of the new Act. The petitioner disputed this, arguing that the subsequent notice for rectification and the consequent order for withdrawal of the interest payment were unauthorized and without jurisdiction. The court found that the Income-tax Officer's order dated September 15, 1973, was not an independent order but merely communicated the Commissioner of Income-tax's directive. Thus, the rectification under section 35 was deemed illegitimate.

3. Applicability of section 244 of the Income-tax Act, 1961, for interest on refunds:
The court noted that the Commissioner of Income-tax had directed the Income-tax Officer to allow interest under section 244 of the new Act on the refund amount withheld. The petitioner argued that the Income-tax Officer's subsequent rectification order was unauthorized since it merely implemented the Commissioner's directive. The court agreed, emphasizing that the directive from the Commissioner was binding and the Income-tax Officer had no authority to alter it under section 35 of the old Act.

4. Interpretation of section 297(2)(a) of the Income-tax Act, 1961:
The petitioner contended that section 297(2)(a) of the 1961 Act did not bar the continuation of proceedings under the new Act. The court referenced previous decisions, including Imperial Chemical Industries Ltd. v. CIT and CIT v. Rajnagar Tea Company Ltd., which supported the view that section 297(2)(a) was an enabling provision allowing the tax authorities to invoke either the 1922 Act or the 1961 Act. The court concluded that the actions of the tax authorities under the new Act were legitimate and not barred by section 297(2)(a).

5. Definition and scope of "error apparent on the face of the record":
The court examined whether the directive of the Commissioner could be considered an "error apparent on the face of the record" under section 35 of the old Act. Citing the Supreme Court's decision in Balaram, ITO v. Volkart Brothers, the court held that an error apparent must be an obvious and patent mistake, not one requiring extensive reasoning or debate. The court determined that the directive from the Commissioner did not constitute such an error and thus could not be rectified under section 35.

Conclusion:
The court concluded that the Income-tax Officer was in error in invoking section 35 of the Indian Income-tax Act, 1922, to rectify the order dated September 15, 1973. The application succeeded, and the rule was made absolute, with no order as to costs. An oral prayer for a stay of the order's operation for two weeks was granted.

← Previous Next →