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1982 (5) TMI 16 - HC - Income Tax

Issues:
Rectification of mistake under Section 154 of the Income Tax Act - Whether the Income Tax Officer was justified in changing the status of the assessee from a public limited company to a private limited company without proper investigation and justification.

Analysis:

The case involved a dispute regarding the rectification of the status of the assessee from a public limited company to a private limited company by the Income Tax Officer (ITO) under Section 154 of the Income Tax Act. The assessee, a company engaged in financing, had initially been assessed as a public limited company for the assessment year 1964-65. However, during a supplementary assessment, the ITO changed the status to that of a private limited company without proper justification.

The assessee contended that the change in status was a mistake apparent from the record and requested rectification to reflect the correct status as a public limited company. The ITO, in response to the assessee's application, rectified the mistake under Section 154 by changing the status back to a public limited company. The assessee appealed against the ITO's order, and the Appellate Commissioner (AC) upheld the appeal, directing the ITO to rectify the status to that of a public limited company.

Subsequently, the Department filed an appeal before the Income Tax Appellate Tribunal challenging the AC's decision. The Tribunal rejected the appeal, stating that the order of the AC did not warrant interference. The Commissioner of Income Tax then referred the question of law to the High Court for its opinion.

The High Court, in its judgment, emphasized that Section 154 of the Income Tax Act allows rectification of mistakes apparent from the record, which must be errors of law or factual mistakes evident on the face of the record. The Court noted that the ITO had changed the status of the assessee without proper investigation or justification, which was not a mistake apparent from the record.

The Court held that the ITO's decision to describe the assessee as a public limited company in which the public was not substantially interested was not justified under Section 154. The Court emphasized that rectification under this section is limited to correcting obvious errors and cannot be used to decide debatable factual points that require further investigation.

Consequently, the High Court answered the reference against the Revenue and in favor of the assessee, directing that the orders to rectify the status of the assessee to a public limited company stand, with no order as to costs.

 

 

 

 

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