1979 (8) TMI 23 - HC - Income Tax

Issues Involved:
1. Entitlement to special rebate under Paragraph F of Part I of the First Schedule to the Finance Act, 1965.
2. Rectification of mistake under Section 154 of the Income Tax Act, 1961.
3. Computation of profits and gains for the purpose of special rebate.
4. Interpretation of Section 80E of the Income Tax Act, 1961, and its applicability.
5. Retroactive application of Supreme Court decisions.

Detailed Analysis:

1. Entitlement to Special Rebate:
The appellant, a public company, derived profits from several industries, including a chemical factory where soda ash was manufactured. Soda ash is listed in Part III of the First Schedule to the Finance Act, 1965, entitling the appellant to a special rebate of 35% on the profits and gains attributable to its manufacture and production under Paragraph F of Part I of the First Schedule to the Finance Act, 1965. The appellant initially did not claim this rebate but later filed a revised return to claim it.

2. Rectification of Mistake Under Section 154 of the Income Tax Act, 1961:
The assessment was completed on February 27, 1970, allowing the special rebate without deducting the development rebate of Rs. 5,50,040. A notice under Section 154/155 was issued on May 5, 1972, to rectify this alleged mistake. The appellant contested this, arguing that the mistake was not apparent and required detailed reasoning and arguments, thus not rectifiable under Section 154.

3. Computation of Profits and Gains for the Purpose of Special Rebate:
The core issue was whether the development rebate should be deducted from the profits and gains attributable to the business of manufacture and production of soda ash when computing the special rebate. The appellant argued that the special rebate should be allowed on gross or commercial profits, not on net or taxable profits. The court examined the provisions of Paragraph F of Part I of the First Schedule to the Finance Act, 1965, and Section 80E of the Income Tax Act, 1961, which replaced it.

4. Interpretation of Section 80E of the Income Tax Act, 1961, and Its Applicability:
Section 80E allows a deduction on profits and gains from specified industries. The appellant contended that the interpretation of "profits and gains attributable to the business" was debatable, citing the Gujarat High Court's judgment in CIT v. Cambay Electric Supply Industrial Co. Ltd. [1976] 104 ITR 744, which held that unabsorbed depreciation and development rebate should be deducted before allowing the deduction under Section 80E. The Supreme Court later affirmed this view.

5. Retroactive Application of Supreme Court Decisions:
The appellant argued that the subsequent Supreme Court decision in Cambay Electric Supply [1978] 113 ITR 84 could not be used to rectify the assessment after the four-year period specified in Section 154(7). The court noted that the law declared by the Supreme Court becomes the law that remained in operation all along since its promulgation. However, the existence of a debate or doubt prior to the Supreme Court's decision does not obliterate the fact that such debate or doubt existed.

Conclusion:
The court concluded that there was a debatable issue on the interpretation of the relevant provisions at the time of the original assessment and issuance of the rectification notice. Therefore, the mistake was not apparent from the record and could not be rectified under Section 154. The appeal was allowed, and the notice under Section 154/155 was quashed. There was no order as to costs.

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