1971 (3) TMI 14 - HC - Income Tax

Rectification of partner s assessment on the basis of reassessment - period of limitation available is from the date of the order of the corrected or rectified assessment of the firm - firm s assessment has been validly reopened u/s 35(1) and in consequence the rectification of the order of assessment on the assessee as partner of the firm is competent - such a reopening of the assessee s tax liability is well within time as well

Issues Involved:
1. Jurisdiction and validity of the rectification order under section 35(1) of the Indian Income-tax Act, 1922.
2. Limitation period for rectification under section 35(5) of the Act.
3. Legality of rectification under section 35(5) in the absence of explicit reference to section 35(1).

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of Rectification Order under Section 35(1):
The petitioner challenged the rectification order dated January 30, 1961, arguing it was not warranted in law and should be deemed non est. The petitioner contended that rectification under section 35(1) is permissible only when there is a mistake apparent on the record, and the proceedings reflected a mere change of opinion rather than an apparent error. The revenue countered that the initial additional depreciation allowance was a mistake apparent on the record, which was corrected later.

The judgment held that the Income-tax Officer's original error in granting additional depreciation due to misappreciation of facts and law constituted an apparent error on the record. The court cited previous cases to support that rectification proceedings are not available for mere changes of opinion but can address apparent errors. The court concluded that the rectification under section 35(1) was validly undertaken in the rightful exercise of statutory power, thus dismissing the petitioner's contention.

2. Limitation Period for Rectification under Section 35(5):
The petitioner argued that the impugned order could not have been made as it relates back to the date of the original assessment and is beyond the four-year limitation period from the firm's assessment date. The court clarified that section 35(5) is a deeming provision dependent on the assessment or reassessment of the firm. The jurisdiction to act under section 35(5) is consequential upon such reassessment, and the limitation period should be calculated from the date of the corrected or rectified assessment of the firm.

The court emphasized that the assessment process is integrated, and once an order of rectification is passed, the original erroneous order no longer holds. The corrected order is the "statutorily deemed order of assessment." The court referenced a similar case to support that the limitation period commences from the corrected order date. Thus, the reopening of the assessment within four years from January 30, 1961, was deemed proper and unassailable.

3. Legality of Rectification under Section 35(5) in Absence of Explicit Reference to Section 35(1):
The petitioner contended that section 35(5) does not expressly refer to orders passed under section 35(1), making the rectification illegal. The court rejected this argument, explaining that section 35(5) allows rectification if, upon reassessment of the firm, it is found that the partner's share was incorrectly taxed. The court defined assessment as an integrated process, encompassing all stages from the original order to appellate, revisional, and rectification orders.

The court held that rectification is a procedure leading to the correct assessment of tax liability and is part of the assessment process. The first part of section 35(5) enables rectification of a partner's assessment if the firm's assessment is reopened under section 35(1). The specific sections mentioned in section 35(5) are illustrative, and the reassessment of the firm is the basis for rectifying the partner's assessment.

Conclusion:
The court concluded that the firm's assessment was validly reopened under section 35(1), and consequently, the rectification of the petitioner's assessment as a partner was competent and within the limitation period. The petitioner's contentions were dismissed, and the writ petition was rejected with no order as to costs.

Petition dismissed.

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