1981 (3) TMI 16 - HC - Income Tax

Business Expenditure, Company, Mistake Apparent From Record, Remuneration Paid To Directors, Tribunal

Summary

Issues Involved:

1. Propriety of the Tribunal's jurisdiction to recall its own order.
2. Application of section 10(4A) versus section 10(2)(xv) of the Indian Income-tax Act, 1922, in determining allowable remuneration.
3. Existence of a "mistake apparent from the record" justifying the Tribunal's recall of its order.

Issue-wise Detailed Analysis:

1. Propriety of the Tribunal's jurisdiction to recall its own order:

The appellant challenged the High Court's decision, which held that the Tribunal did not have the jurisdiction to set aside its own order dated February 24, 1971. The High Court observed that a Tribunal like the Income-tax Appellate Tribunal does not possess inherent jurisdiction similar to a civil court. The Tribunal has ancillary and implied powers to exercise the jurisdiction vested in it, but these do not extend to inherent powers. The High Court concluded that the Tribunal could only act within the express powers conferred upon it, such as those under section 35 of the Act, which allows rectification of mistakes apparent from the record. However, the High Court found that there was no such mistake justifying the Tribunal's recall of its order.

2. Application of section 10(4A) versus section 10(2)(xv) of the Indian Income-tax Act, 1922, in determining allowable remuneration:

The appellant contended that the Tribunal made an error by applying section 10(4A) instead of section 10(2)(xv) when determining the allowable remuneration for its managing directors. The Tribunal had previously upheld the disallowance of part of the remuneration based on section 10(4A). The High Court noted that section 10(2)(xv) pertains to expenditure laid out wholly and exclusively for business purposes, while section 10(4A) addresses the reasonableness of such expenditures specifically for directors. The High Court emphasized that any allowance under section 10(2)(xv) must also satisfy the conditions of section 10(4A) if applicable. The Tribunal, therefore, was within its rights to apply section 10(4A) in assessing the reasonableness of the remuneration, even if the AAC had only considered section 10(2)(xv).

3. Existence of a "mistake apparent from the record" justifying the Tribunal's recall of its order:

The appellant argued that the Tribunal committed a mistake apparent from the record by applying section 10(4A) instead of section 10(2)(xv). The High Court examined whether the AAC had solely relied on section 10(2)(xv) or also considered section 10(4A). It found that the AAC's observations suggested he had section 10(4A) in mind, indicating that the Tribunal did not make an apparent mistake. Furthermore, the High Court stated that even if the AAC had only applied section 10(2)(xv), the Tribunal's subsequent application of section 10(4A) was not erroneous. The High Court concluded that the Tribunal's decision did not constitute a mistake apparent from the record, as it involved a matter of interpretation where two views were possible. Therefore, the Tribunal's recall of its order was unjustified.

Conclusion:

The High Court dismissed the appeal, concluding that the Tribunal did not have the jurisdiction to recall its own order under section 35 of the Act, as there was no mistake apparent from the record. The Tribunal's application of section 10(4A) was appropriate, and the appellant's contentions were without merit. The High Court also denied the appellant's request for a certificate to appeal to the Supreme Court, stating that the case did not involve any substantial question of law of general importance.