1976 (2) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Whether the rectification proposed by the notice dated 9th July, 1973, falls within the purview of Section 154 of the I.T. Act, 1961.
2. Whether the sale proceeds from the sale of import entitlement are profits or gains derived from the export of goods or merchandise out of India.
3. Whether the petitioner, engaged in manufacturing aluminium utensils, is entitled to rebate under para. F(I)(b)(ii)(a) of Part I of the First Schedule to the Finance Act, 1965.

Issue-wise Detailed Analysis:

1. Rectification under Section 154 of the I.T. Act, 1961:
The primary issue is whether the rectification proposed by the notice dated 9th July, 1973, falls within the purview of Section 154 of the I.T. Act, 1961. Section 154 allows the ITO to rectify any mistakes apparent from the record. The judgment emphasizes that a mistake must be "obvious and patent" and not something that requires a "long-drawn process of reasoning." The court references several precedents, including Harbans Lal Malhotra & Sons (P.) Ltd. v. ITO, T.S. Balaram, ITO v. Volkart Brothers, and ITO v. Rakigh Investment Co., to establish that a mistake requiring investigation or on which two views are possible does not fall under Section 154. The court concludes that the proposed rectifications in this case do not meet the criteria of being "self-evident or apparent" and thus do not fall within the scope of Section 154.

2. Sale Proceeds from Import Entitlement:
The second issue concerns whether the sale proceeds from the sale of import entitlement are profits or gains derived from the export of goods or merchandise out of India, as per Section 2(5)(a)(i) of the Finance Act, 1965. The court notes that this is a debatable point with two conceivable views. One view is that the profits from the sale of import entitlement are derived from the export of goods, as the right to import entitlement is earned through export. The other view is that the profits from import entitlement are not directly derived from export. The court cites the Income-tax Appellate Tribunal's view in Income-tax Appeals Nos. 272 and 300 (Cal) of 1974-75, which supports the former interpretation. However, the court emphasizes that since two views are possible, the issue cannot be resolved through rectification under Section 154.

3. Rebate for Manufacturing Aluminium Utensils:
The third issue pertains to whether the petitioner, engaged in manufacturing aluminium utensils, is entitled to a rebate under para. F(I)(b)(ii)(a) of Part I of the First Schedule to the Finance Act, 1965. This provision allows for a rebate on profits attributable to the manufacture or production of articles specified in Part III of the Schedule, which includes "Aluminium, copper, lead and zinc (metals)." The court examines whether aluminium utensils fall under this category. The petitioner argues that aluminium utensils, being made from aluminium, should qualify. The revenue, however, contends that only aluminium in its metal form qualifies for the rebate. The court references Supreme Court cases Tungabhadra Industries Ltd. v. CTO and State of Madhya Bharat v. Hiralal to illustrate the complexity of this issue. Given that two views are possible, the court concludes that this issue also cannot be resolved through rectification under Section 154.

Conclusion:
The court concludes that the nature of the proposed rectifications does not meet the criteria for rectification under Section 154 of the I.T. Act, 1961, as the mistakes are not "self-evident or apparent." Consequently, the notice dated 9th July, 1973, is quashed and set aside, and the respondents are restrained from giving effect to it. If any order has been passed pursuant to the notice, it is also quashed and set aside. The rule is made absolute to the extent indicated, with no order as to costs.