1978 (4) TMI 70 - HC - Income Tax

Summary

Issues Involved:
1. Rate of tax applicable to the income of a non-resident received through an agent.
2. Jurisdiction of the ITO to rectify assessment orders u/s 154 of the Income-tax Act, 1961.
3. Legality of ITO's actions based on directions from the Additional CIT.

Summary:

1. Rate of Tax Applicable to Non-Resident's Income:
The principal question was whether the tax rate should be that applicable to the income of the non-resident in the hands of the agent or the total income of the non-resident. The court held that u/s 161 read with s. 4 of the Income-tax Act, 1961, the rate applicable to the income of the representative-assessee (agent) received on behalf of the non-resident should be the rate applicable to such total income. The court rejected the contention that the rate should be applicable to the total income of the non-resident from all sources, as it would be unreasonable and could penalize the representative-assessee.

2. Jurisdiction of the ITO to Rectify Assessment Orders u/s 154:
The ITO had revised the original assessment orders for the assessment years 1970-71 and 1971-72, excluding the income of the non-resident from other companies and applying the rates accordingly. Later, the ITO purported to rectify these revised orders u/s 154 on the ground of a mistake apparent on the face of the record. The court, referring to the Supreme Court's decision in T. S. Balaram, ITO v. Volkart Brothers, held that a mistake apparent on the record must be an obvious and patent mistake, not something debatable. The court found that the ITO had no reason to think he had committed an error apparent on the face of the record.

3. Legality of ITO's Actions Based on Directions from the Additional CIT:
The respondent No. 1 challenged the ITO's rectification orders on the ground that they were made according to the direction of the Additional CIT, West Bengal-I. The court held that s. 119(3) of the Act does not permit higher authorities to interfere with the judicial or quasi-judicial functions of the ITO in making assessments. Directions from higher authorities should be administrative and not influence the judicial decision-making process of the ITO. The court found the impugned orders vitiated as they were passed at the behest of the Additional CIT.

Conclusion:
The appeal was dismissed, and the court upheld the contentions of the respondent No. 1, setting aside the impugned orders of the ITO. The judgment's operation was stayed for four weeks as requested by the appellants.