2018 (10) TMI 1730 - HC - Income Tax

Rectification of mistake - assessment under section 172 - assessment of non-resident shipping company - AO failed to notice the change in law which occurred prior to the assessment being framed, and relied on a circular, the terms of which were no longer sustainable - HELD THAT - Assessee who comes under section 172 is given an option either to be summarily assessed under that provision or go for regular assessment under the statute; the later option being exercised at any time after the financial year and before the expiry of the assessment year. The assessee has within their knowledge the entire figures for the subject year and could very well arrange its affairs accordingly. Hence, the assessee exercising an option under section 172(7) does so voluntarily with open eyes and when the regular assessment brings in additional liability; it cannot be wriggled out of. The non-resident charterer or owner and his agent, interested in the clearance of the ship after its cargo is unloaded; invariably subjects themselves to the assessment under section 172. There is hence no obligation on the payer to deduct tax and the payment is ensured by the non-resident or agent before departure or at least within 30 days from departure. The complete code under section 172 ensures assessment and payment of tax within a time frame; after which the assessee opts out of the scheme under section 172 to move under the regular assessment; when necessarily the assessee would be entitled to all benefits and mulcted with all liabilities flowing from the other provisions of the Act. On the questions of law framed, we find that the Tribunal has erred in so far as interfering with the order of rectification especially since the rectification was made on the basis of a decision of the hon'ble Supreme Court which was the declared law even when the original order which was rectified was passed. Circular No. 730 dated December 14, 1995 has lost its significance and validity, on the Supreme Court authoritatively speaking on the provision under section 172(7) and the effect of the option exercised, in A. S. Glittre 1997 (4) TMI 3 - SUPREME COURT . There was hence an error apparent on the face of the record and the Tribunal erred in setting aside the order of rectification. On the above findings, we answer the questions of law framed by the Revenue in favour of the Revenue and against the assessee. The appeal is allowed setting aside the order of the Tribunal and that of the first appellate authority and restoring that of the assessing authority.

Issues Involved:
1. Whether the Tribunal was right in interfering with the order of rectification.
2. Validity of Circular No. 730 dated December 14, 1995, in light of the Supreme Court's decisions.
3. Whether the rectification based on Circular No. 9, dated July 9, 2001, is in accordance with law.
4. Whether the error in the earlier proceedings was an error apparent from the record.
5. Whether the Tribunal erred in finding the issues debatable and its approach was wrong, perverse, unsustainable, and uncalled for.

Detailed Analysis:

1. Interference with the Order of Rectification:
The Tribunal's interference with the rectification order was challenged. The original assessment did not levy interest under sections 234B and 234C, which was later rectified based on Circular No. 9 of 2001 and the Supreme Court's decision in A. S. Glittre. The High Court found that the rectification was justified as it corrected an error apparent on the face of the record, aligning with the Supreme Court's interpretation.

2. Validity of Circular No. 730:
Circular No. 730 dated December 14, 1995, directed officers not to levy interest under sections 234B and 234C for non-resident shipping companies opting for regular assessment under section 172(7). However, the Supreme Court's decision in A. S. Glittre rendered this circular nonest. The High Court upheld that the circular lost its significance and validity post the Supreme Court's authoritative interpretation of section 172(7).

3. Rectification Based on Circular No. 9:
Circular No. 9 of 2001, which withdrew Circular No. 730, was issued following the Supreme Court's decision in A. S. Glittre. The rectification order levied interest under sections 234B and 234C, aligning with the Supreme Court's interpretation. The High Court confirmed that this rectification was in accordance with law, as it was based on the prevailing legal interpretation by the Supreme Court.

4. Error Apparent from the Record:
The High Court found that the original assessment order, which did not levy interest under sections 234B and 234C, was erroneous in light of the Supreme Court's decision. The error was apparent from the record, justifying the rectification. The Tribunal's decision to set aside the rectification was deemed incorrect, as it failed to recognize the error in the original assessment.

5. Tribunal's Approach and Conclusion:
The Tribunal had highlighted various extraneous questions and found the issues debatable. The High Court disagreed, stating that the Tribunal's approach and conclusion were wrong, perverse, unsustainable, and unwarranted. The rectification was based on a clear legal precedent set by the Supreme Court, and the Tribunal erred in not upholding it.

Conclusion:
The High Court allowed the appeal, setting aside the Tribunal's order and that of the first appellate authority, and restored the assessing authority's order. The questions of law framed by the Revenue were answered in favor of the Revenue and against the assessee. The rectification was justified as it corrected an error apparent on the face of the record, in line with the Supreme Court's interpretation of section 172(7).

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