1976 (5) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in holding that there was no mistake apparent from the record regarding the allowance of Rs. 61,163 as wealth-tax and that the order of rectification passed by the Income-tax Officer was not justified in law.
2. Whether the Tribunal was right in holding that the omission to charge interest under section 18A(7) of the Income-tax Act could not be rectified under section 154 of the Income-tax Act, 1961, and in deleting the charge of Rs. 7,173.63 made by the Income-tax Officer.

Detailed Analysis:

Issue 1: Mistake Apparent from the Record Regarding Wealth-Tax Allowance
The Tribunal had to determine if the allowance of Rs. 61,163 as wealth-tax was a mistake apparent from the record. The Income-tax Officer initially allowed this deduction in the assessment year 1959-60. However, he later issued a notice under section 154 of the Income-tax Act, 1961, to rectify this, citing a mistake apparent from the record. The Tribunal, however, held that at the time of the original assessment, two opinions were possible regarding the deductibility of wealth-tax, and the subsequent decision by the Supreme Court in Travancore Titanium Products Ltd. v. Commissioner of Income-tax confirmed the view of the Kerala High Court, which did not exist at the time of the original assessment. Therefore, the Tribunal concluded that the original mistake was not apparent and did not justify rectification.

The Tribunal also noted that the assessment was made under the Indian Income-tax Act, 1922, but the rectification was attempted under section 154 of the Income-tax Act, 1961, which was not applicable as per the Supreme Court's decision in Sankappa v. Income-tax Officer. The Tribunal emphasized that the correct section should have been section 35 of the 1922 Act. However, since it was held that there was no rectifiable error, the principle need not be invoked.

Issue 2: Omission to Charge Interest Under Section 18A(7)
The Tribunal examined whether the omission to charge interest under section 18A(7) was a rectifiable error. Section 18A(7) empowered the Income-tax Officer to charge interest but also gave discretion to reduce or waive it. The Tribunal held that this discretion meant the omission was not an apparent mistake. The Tribunal relied on the Supreme Court's decision in S. A. L. Narayan Row v. Ishwarlal Bhagwandas, which held that such omissions involving discretion could not be rectified as apparent mistakes.

Arguments and Counterarguments
Mr. K. Ray, representing the assessee, argued that the Tribunal had already found that section 154 was wrongly applied and that the rectification could only have been made under section 35 of the 1922 Act. He contended that this finding made the questions academic. Mr. S. Sen, representing the revenue, countered that the Tribunal's decision rested on whether there was a rectifiable mistake and not on the application of the wrong section.

Court's Analysis and Decision
The court agreed with Mr. Sen, stating that the Tribunal's decision was based on the absence of a rectifiable mistake. The court also discussed the retrospective effect of the Income-tax (Amendment) Act, 1972, which disallowed wealth-tax deductions retrospectively from April 1, 1957. Mr. Sen argued that this retrospective amendment made the original allowance a mistake apparent from the record. The court, however, held that the mistake, though deemed, was not apparent at the time of the original assessment or rectification.

In conclusion, the court answered both questions in the affirmative and in favor of the assessee, stating that there was no rectifiable mistake apparent from the record regarding the wealth-tax allowance and the omission to charge interest under section 18A(7).

Conclusion
The court held that the Tribunal was correct in its findings that there was no apparent mistake in the original assessment regarding the wealth-tax deduction and the omission to charge interest under section 18A(7). Both issues were resolved in favor of the assessee, and there was no order as to costs.