1981 (7) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 18A(5) of the Indian Income-tax Act, 1922/Section 214 of the Income-tax Act, 1961.
2. Validity of rectification under Section 35 of the 1922 Act/Section 154 of the 1961 Act.

Detailed Analysis:

1. Interpretation of Section 18A(5) of the Indian Income-tax Act, 1922/Section 214 of the Income-tax Act, 1961:
The core issue revolves around whether the interest payable to the assessee under Section 18A(5) of the Indian Income-tax Act, 1922/Section 214 of the Income-tax Act, 1961, should be determined based on the tax finally determined after giving effect to the appellate orders. The Tribunal initially held that the interest should be calculated on the basis of the original assessment, unmodified by any appeals, revisions, or rectifications. However, the Tribunal also expressed an opinion that interest should be paid based on the amount determined in the light of appeals or revisions. The department's counsel did not press for an answer to this question, leading the court to express no opinion on this matter.

2. Validity of Rectification under Section 35 of the 1922 Act/Section 154 of the 1961 Act:
The main contention here is whether the Income-tax Officer (ITO) had the jurisdiction to rectify his earlier orders and withdraw the interest by resorting to Section 35/Section 154, which is intended to rectify mistakes apparent from the record. The Tribunal found that the question of whether "regular assessment" includes revisions or appeals is a debatable point of law and not a mistake apparent from the record. The court cited the Supreme Court's decision in T. S. Balaram, ITO v. Volkart Brothers, which states that a mistake apparent on the record must be an obvious and patent mistake, not one that requires a long-drawn process of reasoning. The Tribunal concluded that the ITO could not have rectified his original orders under Section 154 in the manner he had done.

Illustration of the Assessment Year 1959-60:
For the assessment year 1959-60, the original assessment was completed on March 25, 1964, with the total income determined at Rs. 32,98,398 and tax payable at Rs. 17,72,659. The assessee had paid an advance tax of Rs. 16,12,756, resulting in no excess advance tax and no interest entitlement. However, after an appeal to the AAC, the total income was reduced, leading to a revised assessment on November 16, 1966, and the granting of interest under Section 214. Subsequent revisions further adjusted the total income and tax payable, leading to the recovery of excess interest paid. The ITO later issued a rectification order under Section 35/Section 154 to withdraw the excess interest, which was challenged by the assessee.

Tribunal's Decision and Court's Analysis:
The Tribunal upheld the ITO's action on the merits but found that the rectification under Section 35/Section 154 was without jurisdiction. The court agreed with the Tribunal, stating that the question of whether "regular assessment" includes revisions or appeals is a complex and debatable issue, not suitable for rectification under Section 35/Section 154. The court rejected the department's arguments that the assessee did not initially object to the rectification and that the legal position was clear at the time of rectification. The court emphasized that the issue was one of interpretation and debate, making rectification inappropriate.

Conclusion:
In I.T.R. Nos. 139 to 142 of 1974, the court declined to answer the first question and answered the second question in favor of the assessee. In I.T.R. No. 109 of 1975, the question was answered in the affirmative and in favor of the assessee. The assessee was entitled to the costs of the reference.