1988 (4) TMI 91 - AT - Income Tax

Issues Involved:
1. Jurisdiction of the IAC to pass rectification orders under Section 13 of the Companies (Profits) Surtax Act, 1964.
2. Exclusion of interest income from chargeable profits under Rule 1(x) of the First Schedule to the Companies (Profits) Surtax Act, 1964.
3. Validity of rectification orders passed beyond the statutory time limit.
4. Doctrine of merger and its applicability to the orders of the IAC and CIT(A).
5. Applicability of CBDT Circulars to the Companies (Profits) Surtax Act, 1964.
6. Material on record supporting the claim for exclusion of interest income.

Issue-wise Detailed Analysis:

1. Jurisdiction of the IAC to pass rectification orders under Section 13 of the Companies (Profits) Surtax Act, 1964:
The assessee argued that the IAC had no jurisdiction to pass rectification orders under Section 13 of the Act concerning the original assessment orders passed by the ITO. The Tribunal noted that the IAC issued show cause notices for rectification of mistakes other than the exclusion of interest income from chargeable profits. The IAC's omission to address the assessee's claim for exclusion of interest income was raised in appeals, and the Tribunal ultimately held that the rectification orders of the IAC could not be upheld.

2. Exclusion of interest income from chargeable profits under Rule 1(x) of the First Schedule to the Companies (Profits) Surtax Act, 1964:
The IAC initially did not consider the exclusion of interest income from chargeable profits in the assessment orders. Upon the assessee's application for rectification, the IAC excluded interest received from Indian parties but not from the First National City Bank, stating it was not from an Indian concern. The Tribunal found that the IAC correctly excluded interest from Indian banks and parties but upheld that the First National City Bank could not be considered an Indian concern, thus its interest income could not be excluded from chargeable profits.

3. Validity of rectification orders passed beyond the statutory time limit:
The CIT(A) held that rectification orders passed more than five years after the expiry of the limitation period were invalid. The Tribunal disagreed, referencing the Supreme Court ruling in L. Hirday Narain vs. ITO, which stated that the power to rectify an order is to ensure justice and should be exercised when a mistake apparent from the record is brought to notice. The Tribunal emphasized that the right to get an order on rectification applications filed within the statutory time limit could not be extinguished due to the authority's delay.

4. Doctrine of merger and its applicability to the orders of the IAC and CIT(A):
The CIT(A) believed the IAC's order had merged with his own order on appeal, thus barring further rectification. The Tribunal, referencing CIT vs. Sakseria Cotton Mills Ltd., clarified that only the part of the order dealt with by the appellate authority merges. Since the CIT(A) did not address the exclusion of interest income in his order, the IAC's order on this issue did not merge.

5. Applicability of CBDT Circulars to the Companies (Profits) Surtax Act, 1964:
The assessee cited CBDT Circular No. 14, which mandates that tax officers should assist taxpayers in claiming due reliefs. The Tribunal acknowledged this circular and related High Court rulings, emphasizing that the Department should not stand on technicalities and should grant relief where due. The Tribunal found that there was enough material on record to support the claim for exclusion of interest income.

6. Material on record supporting the claim for exclusion of interest income:
The Tribunal noted that the assessee's balance sheets and profit & loss accounts indicated interest income from various sources, including Indian banks and concerns. The IAC had enough material to conclude that Rule 1(x) applied, justifying the exclusion of such interest income from chargeable profits. The Tribunal upheld the IAC's rectification orders to this extent but agreed that interest from the First National City Bank could not be excluded.

Conclusion:
The Tribunal partly allowed the appeals, reversing the CIT(A)'s order and restoring the IAC's rectification orders, except for the exclusion of interest from the First National City Bank. The Tribunal held that the IAC's orders were valid and within jurisdiction, and the claim for exclusion of interest income from Indian banks and concerns was justified.

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