1998 (2) TMI 167 - AT - Income Tax

Rectification Of Mistakes, Debatable Point Of Law, Entertainment Subsidy, Capital Receipt, Revenue Receipt, Mistake Apparent From Record

Summary

Issues Involved:
1. Whether the CIT(Appeals) was justified in canceling the order under section 154 of the Income-tax Act, 1961, passed by the Assessing Officer.
2. Whether the subsidy received by the assessee should be treated as a capital receipt or a revenue receipt.

Issue-wise Detailed Analysis:

1. Justification of CIT(Appeals) in Canceling the Order under Section 154:

The appeal by the revenue contended that the CIT(Appeals) erred in canceling the rectification order under section 154. The Assessing Officer initially accepted the subsidy as a capital receipt during the assessment proceedings under section 143(3). However, the Assessing Officer later issued a notice under section 154 to rectify what was perceived as a mistake, treating the subsidy as a revenue receipt. The CIT(Appeals) canceled this rectification, stating that the issue was debatable and outside the purview of section 154.

2. Treatment of Subsidy as Capital or Revenue Receipt:

The assessee, a partnership firm running a cinema theatre, received a subsidy of Rs. 12,49,877 from the Government of Madhya Pradesh and treated it as a capital receipt. The Assessing Officer initially did not tax this subsidy, implicitly accepting it as a capital receipt. However, the Assessing Officer later sought to rectify this under section 154, treating it as a revenue receipt based on the Supreme Court's decision in Sahney Steel & Press Works Ltd. v. CIT, which categorized various subsidies as revenue receipts.

The assessee argued that the subsidy was disclosed and examined during the original assessment, and the rectification was merely a change of opinion, not permissible under section 154. The assessee cited several cases, including TS. Balaram ITO v. Volkart Bros. and CIT v. Hero Cycles (P.) Ltd., to support the argument that rectification under section 154 cannot be made on debatable issues.

Judgment Analysis:

The Tribunal examined whether the rectification order under section 154 was sustainable. Section 154 allows rectification of "any mistake apparent from the record." The Supreme Court in Volkart Bros. and Hero Cycles (P.) Ltd. clarified that a mistake must be obvious and not subject to debate.

The Tribunal noted that the subsidy was disclosed and examined during the original assessment, and the Assessing Officer accepted it as a capital receipt. The subsequent rectification was deemed a change of opinion, not permissible under section 154. The Tribunal also considered the Supreme Court's decision in Sahney Steel & Press Works Ltd., which stated that the nature of the subsidy depends on its purpose. The Tribunal found that the issue of whether the subsidy was a capital or revenue receipt was debatable and outside the scope of section 154.

The Tribunal upheld the CIT(Appeals)'s order, concluding that the matter was debatable and not an apparent mistake. Thus, the revenue's appeal was dismissed.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(Appeals)'s decision to cancel the rectification order under section 154, as the issue of whether the subsidy was a capital or revenue receipt was debatable and not an apparent mistake.