1967 (2) TMI 21 - HC - Income Tax

ITO computed the capital for the purpose of relief under s. 15C on the basis of the written down value of the assets as per the income-tax records without deducting initial depreciation from the written down value and subsequently sought to rectify his assessment under section 154 - held that there was no error apparent from the record -

Summary

Issues Involved:
1. Validity of notices issued under Sections 154 and 155 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to rectify assessments under Section 154.
3. Correct computation of "written down value" for capital employed under Section 15C.
4. Interpretation of Section 10(2)(vi) and Section 10(5) regarding initial depreciation.

Detailed Analysis:

1. Validity of Notices Issued Under Sections 154 and 155 of the Income-tax Act, 1961:
The petitions were directed against notices issued on January 18, 1965, to correct errors apparent from the record under Sections 154 and 155 of the Income-tax Act, 1961. Initially, the notices were challenged, and stay orders were passed. The stay orders were later modified to allow the department to complete rectification proceedings while ensuring no enforcement of the rectified assessments.

2. Jurisdiction of the Income-tax Officer to Rectify Assessments Under Section 154:
The main contention was whether the Income-tax Officer had jurisdiction under Section 154 to rectify an error that was not apparent from the record. The court emphasized that an error apparent from the record must be a glaring, obvious, or self-evident mistake. The court found that the error the Income-tax Officer sought to correct was not apparent from the record and required a long process of reasoning and argument, thus falling outside the purview of Section 154.

3. Correct Computation of "Written Down Value" for Capital Employed Under Section 15C:
The dispute centered on whether initial depreciation should be deducted in computing the written down value of the capital employed in the undertaking under Section 15C. The department argued that initial depreciation should be deducted, treating it as an arithmetical error apparent from the record. The court analyzed the relevant provisions, including Rule 3(1)(a) and Section 10(5), and concluded that initial depreciation should not be deducted when determining the written down value for the purposes of Section 15C.

4. Interpretation of Section 10(2)(vi) and Section 10(5) Regarding Initial Depreciation:
The court examined Section 10(2)(vi), which provides for normal and initial depreciation, and Section 10(5), which defines written down value. It was noted that initial depreciation, as per the second part of Section 10(2)(vi), "shall however not be deductible in determining the written down value for the purposes of this clause." The court held that the initial depreciation is not to be deducted in determining the written down value for the purposes of Section 10(2)(vi), and this interpretation must be read in conjunction with Section 10(5). The court emphasized that the legislative history and specific provisions indicated that initial depreciation should not be included in the written down value.

Conclusion:
The court quashed the notices dated January 18, 1965, and the subsequent orders passed by the Income-tax Officer, as the error sought to be corrected was not apparent from the record and could not be rectified under Section 154. The respondents were ordered to pay the costs of the petitioners.