1980 (6) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 35 of the Indian Income Tax Act, 1922, versus Section 147(b) of the Income Tax Act, 1961.
2. Allegation of discrimination under Article 14 of the Constitution of India.
3. Right of appeal against orders under Section 35.
4. Period of limitation for rectification under Section 35 versus reassessment under Section 147(b).

Issue-Wise Detailed Analysis:

1. Applicability of Section 35 of the Indian Income Tax Act, 1922, versus Section 147(b) of the Income Tax Act, 1961:
The court examined whether the Income Tax Officer (ITO) was correct in taking action under Section 35 of the Indian Income Tax Act, 1922, rather than Section 147(b) of the Income Tax Act, 1961. The ITO had issued a notice dated January 23, 1968, proposing to rectify an error of excess depreciation allowed in the assessment made on January 16, 1965. The notice was initially issued under Section 154 of the Income Tax Act, 1961, but it was later clarified that action should be taken under Section 35 of the Indian Income Tax Act, 1922. The court found that Section 35 and Section 147(b) operate in different fields, with Section 35 dealing with rectification of errors apparent on the record and Section 147(b) dealing with reassessment when income has escaped assessment.

2. Allegation of Discrimination under Article 14 of the Constitution of India:
The respondent argued that Section 35 of the Indian Income Tax Act, 1922, was unconstitutional as it was violative of Article 14 of the Constitution. The argument was based on the premise that Section 35 allowed an extended period of limitation compared to Section 147(b) of the Income Tax Act, 1961, and provided no right of appeal. The court referred to the Supreme Court decisions in Suraj Mall Mohta and Co. v. Visvanatha Sastri and Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO, which held that when two provisions are applicable and one is more onerous, it could be struck down as violative of Article 14. However, the court found that the two sections operate in different fields and thus do not lead to discrimination. The court also noted that the plea of violation of Article 14 was farfetched and not justified by the facts of the case.

3. Right of Appeal Against Orders Under Section 35:
The respondent contended that if action had been taken under Section 147(b), there would have been a right of appeal, whereas an order under Section 35 was not appealable. The court observed that Section 35 is intended for rectification of errors apparent on the record and does not inherently prejudice the assessee. It was noted that while there is no specific appeal against the dismissal of an application under Section 35, the original order can still be appealed. The court also highlighted that an amended assessment order under Section 35 could be appealed as a fresh assessment order, thus negating the argument of lack of appeal rights.

4. Period of Limitation for Rectification Under Section 35 Versus Reassessment Under Section 147(b):
The respondent argued that the period within which action could be taken under Section 147(b) is shorter than that under Section 35, leading to discrimination. The court explained that the commencement of the limitation period is different for the two sections due to their distinct purposes. Section 147(b) deals with reassessment of escaped income for a particular assessment year, while Section 35 deals with rectification of an order, starting from the date of the order. The court concluded that the different time limits are not discriminatory as they serve different objectives and apply equally to all assessees.

Conclusion:
The court upheld the contentions of the appellant, finding that the provisions of Section 35 and Section 147(b) operate in distinct fields and do not lead to discrimination. The plea of violation of Article 14 was deemed farfetched, and the right of appeal under Section 35 was found to be adequately addressed. The appeal was allowed, and the judgment of the learned single judge was reversed, resulting in the dismissal of the writ petition.