1970 (5) TMI 23 - HC - Income Tax

Whether rectification can be made under Income-tax Act, 1961 when assessment of a partner was under Indian Income-tax Act, 1922 - whether the Income-tax Officer had any power at all to make the order

Issues Involved:
1. Validity of the notice under section 154/155 of the Income-tax Act, 1961.
2. Applicability of section 297(2)(a) of the Income-tax Act, 1961.
3. Jurisdiction of the Income-tax Officer to rectify the assessment under the new Act.
4. Interpretation of section 35(5) of the Indian Income-tax Act, 1922.
5. Validity of the subsequent notices and orders issued under the new Act.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 154/155 of the Income-tax Act, 1961
The petitioner challenged the notice issued under section 154/155 of the new Act on May 6, 1966, for the assessment year 1961-62, arguing that it should have been issued under section 35(5) of the old Act. The court noted that the rectification notice aimed to increase the petitioner's tax liability based on the firm's assessment on March 31, 1966. The court concluded that the notice for rectification should have been served under the old Act, making the initial notice under the new Act invalid.

2. Applicability of Section 297(2)(a) of the Income-tax Act, 1961
The petitioner contended that since the return of income for the assessment year 1961-62 was filed before the commencement of the new Act, all proceedings, including rectification, should be conducted under the old Act as per section 297(2)(a). The court agreed, emphasizing that the proceedings for rectification are part of the assessment process and should be governed by the old Act.

3. Jurisdiction of the Income-tax Officer to Rectify the Assessment under the New Act
The court examined whether the Income-tax Officer had the jurisdiction to rectify the assessment under the new Act. The respondents argued that sections 154 and 155 of the new Act contained distinct provisions and were independent of section 297(2)(a). However, the court disagreed, stating that section 154 deals with rectification of mistakes, while section 155 pertains to amendments in assessment orders. The court held that the proceedings under section 155 of the new Act could not be initiated due to the provisions of section 297(2)(a).

4. Interpretation of Section 35(5) of the Indian Income-tax Act, 1922
The court analyzed the applicability of section 35(5) of the old Act, which deals with rectification of a partner's assessment upon the assessment or reassessment of his firm. The court noted that the language of section 155 of the new Act is identical to section 35(5) of the old Act. The court concluded that the rectification proceedings should have been conducted under section 35(5) of the old Act, as the firm's assessment was made under the new Act, but the partner's assessment was under the old Act.

5. Validity of the Subsequent Notices and Orders Issued under the New Act
The petitioner challenged the subsequent notices and orders, including the notice under section 156 dated May 23, 1966, the notice under section 222(1) dated July 4, 1966, the notice of demand from the Tax Recovery Officer dated December 30, 1967, and the prohibitory order on the same date. The court referred to the judgment in Giridharilal Jhajharia v. Commissioner of Income-tax, which held that rectification proceedings should be governed by the old Act. The court also cited the Gujarat High Court's decision in P. N. Bharucka & Company v. G.S. Venkatesan, which supported the view that a wrong reference to the power under which an order is made does not invalidate the order if it could be lawfully made under another provision.

The court ultimately ruled that the order of rectification, although issued under the new Act, should be considered valid under section 35 of the old Act. The court dismissed the petition, discharged the rule, and vacated all interim orders, with no order as to costs. The operation of the order was stayed for four weeks on the petitioner's counsel's application.

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