1967 (2) TMI 4 - HC - Income Tax

Error apparent from the record - rectification -orders of rectification passed by the respondent and the notices of demand issued in pursuance thereof are illegal and without jurisdiction and liable to be set aside

Summary

Issues Involved:
1. Whether the original assessments made on the firm suffered from any mistake.
2. Whether the alleged mistake of not applying section 17(1) of the Indian Income-tax Act, 1922, can be regarded as a mistake apparent from the record.
3. Whether the Income-tax Officer had the jurisdiction to rectify the assessments under section 154 of the Indian Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the original assessments made on the firm suffered from any mistake:
The petitioners contended that the original assessments did not suffer from any mistake. The assessments were made on the slab rates applicable to registered firms as per the respective Finance Acts. The individual assessments of the partners included their respective shares in the firm's income and were assessed at the maximum rate of income-tax since they were non-residents. The respondent, however, argued that the non-application of section 17(1) of the Indian Income-tax Act, 1922, constituted an error apparent from the record.

2. Whether the alleged mistake of not applying section 17(1) of the Indian Income-tax Act, 1922, can be regarded as a mistake apparent from the record:
The power of the Income-tax Officer under section 35 of the Income-tax Act, 1922, or the corresponding section 154 of the Act of 1961, is limited to rectification of mistakes apparent from the record. An error apparent from the record must be obvious and patent, not requiring elaborate arguments to be discovered. The department argued that the non-application of section 17(1) was a clear error. However, the court found that the applicability of section 17(1) to registered non-resident firms raised a highly controversial issue that required elaborate argument. Therefore, the non-application of section 17(1) could not be treated as a mistake apparent from the record.

3. Whether the Income-tax Officer had the jurisdiction to rectify the assessments under section 154 of the Indian Income-tax Act, 1961:
The court held that the respondent was not entitled to invoke his power of rectification under section 154 of the Act of 1961, as the alleged mistake was not apparent from the record. The impugned orders of rectification and the subsequent notices of demand were deemed illegal and without jurisdiction. The court emphasized that the original assessments did not involve a mistake even on merits, and the non-application of section 17(1) could not be treated as an error apparent from the record.

Conclusion:
The court ruled in favor of the petitioners, setting aside the orders of rectification dated February 8, 1965, and the notices of demand dated February 9, 1965. The respondent, his officers, agents, and servants were restrained from taking any further action in pursuance of the said orders. The petitioners were awarded their costs from the respondent.