1970 (4) TMI 44 - HC - Income Tax

Held that order u/s 23A cannot be rectified u/s 35, because section 35 covers any orders made in the proceedings of the regular assessment and not in proceedings under section 23A - but order u/s 23A can be rectifed by ITO u/s 154 of Income-tax Act, 1961

Issues Involved:
1. Jurisdiction of Income-tax Officer under Section 35 to rectify orders made under Section 23A of the Income-tax Act, 1922.
2. Nature of orders under Section 23A and whether they can be classified as assessment orders.
3. Applicability of Section 35(1) to orders under Section 23A.
4. Interpretation of the term "record of assessment" in the context of Section 35.

Detailed Analysis:

1. Jurisdiction of Income-tax Officer under Section 35 to Rectify Orders Made under Section 23A:
The petitioner contended that the Income-tax Officer (ITO) lacked jurisdiction under Section 35 to rectify orders made under Section 23A, as Section 23A is a self-contained code and not an order of assessment. The court upheld this contention, stating that Section 35(1) confers jurisdiction on the ITO to rectify an order of assessment or refund, but not an order under Section 23A, which imposes additional super-tax for failure to declare a certain percentage of profits as dividends.

2. Nature of Orders under Section 23A:
The court examined the nature of orders under Section 23A, referencing the Supreme Court's decision in M. M. Parikh, Income-tax Officer v. Navanagar Transport and Industries Ltd. The Supreme Court had held that an order under Section 23A directing payment of additional super-tax is not an order of assessment within the meaning of Section 34(3) of the Act. The court highlighted that the liability under Section 23A arises from the order of the ITO and not from the statutory charge under Sections 3 and 4 of the Act.

3. Applicability of Section 35(1) to Orders under Section 23A:
The court considered whether Section 35(1), which allows rectification of mistakes apparent from the record of assessment, applies to orders under Section 23A. The court noted that Section 35(1) permits the ITO to rectify mistakes in assessment or refund orders. However, since an order under Section 23A is not an assessment order, the court concluded that Section 35(1) does not apply to it. The court referred to the Supreme Court's observations that the process under Section 23A is not the process of assessment but of determining whether the liability should be charged and imposed.

4. Interpretation of the Term "Record of Assessment":
The court analyzed the term "record of assessment" and whether it includes orders under Section 23A. The court concluded that the record of assessment refers to the actual assessment proceedings culminating in an order of assessment or refund. Since orders under Section 23A are not part of the regular assessment proceedings, they do not form part of the record of assessment. The court also noted that Section 35(7) of the Act, which deals with rectification in cases where an order under Section 23A is modified, does not apply here as it pertains to recomputation of shareholders' total income.

Conclusion:
The court ruled that the ITO had no jurisdiction under Section 35 to rectify orders made under Section 23A. Consequently, the impugned orders of rectification and the certificate proceedings were quashed. The court made the rule absolute and ordered a stay of operation for six weeks, with no order as to costs.

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