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1971 (12) TMI 6 - HC - Income TaxWhether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer, while passing the order under section 155 of the Act, was not justified in treating the share income of profit from the partnership firms as unearned ? - Held that It also held that, in any event, this was not a mistake which was apparent from the records but the Tribunal did not upset the order of the Appellate Assistant Commissioner and in a way actually affirmed the same, by observing that it was conceded by the departmental representative that earned income relief was allowed to the assessee in the past in respect of his share income from various out-station firms.
Issues Involved
1. Legality of the Income-tax Officer's order of rectification under section 154/155 of the Income-tax Act, 1961, imposing special surcharge on the assessee's income from share in the income of his various firms. 2. Legality of the Income-tax Officer's enhancement of penal interest under section 18A(6) of the Income-tax Act, 1922, without giving specific notice to the assessee. Detailed Analysis Issue 1: Legality of the Income-tax Officer's Order of Rectification Imposing Special Surcharge The primary issue was whether the Income-tax Officer's (ITO) rectification order under section 154/155 of the Income-tax Act, 1961, imposing a special surcharge on the assessee's income from his share in various firms was legal. The original assessment for the assessment year 1958-59 was completed before the new Act came into force. The ITO revised the assessment to increase the assessee's share income based on information received from various out-station firms. The assessee agreed to the revised share income but objected to the imposition of the special surcharge, claiming active engagement in the business of the firms. The Appellate Assistant Commissioner (AAC) held that the question of whether the special surcharge was leviable required a detailed investigation and could not be rectified under section 154/155 as a mistake apparent from the records. The AAC relied on the Supreme Court's decision in Income-tax Officer, V Circle, Madras v. S. K. Habibullah, stating that mistakes apparent only from the records of the firms are not mistakes from the records as far as the assessment of the partners is concerned. The Income-tax Appellate Tribunal (ITAT) agreed, noting that the ITO's presumption based on a letter from the Income-tax Officer, Calcutta, was not supported by any finding of fact in the assessment order of the Calcutta firm. The ITAT held that this was a debatable issue requiring investigation into fresh facts, not a mistake apparent from the records. Issue 2: Legality of the Income-tax Officer's Enhancement of Penal Interest The second issue was whether the enhancement of penal interest under section 18A(6) of the Income-tax Act, 1922, by the ITO without giving specific notice to the assessee was legal. The AAC found that while extra penal interest was leviable due to the increased assessed income, the levy was illegal because the assessee was not given specific notice on this point. The ITAT upheld this view, referencing the Supreme Court's decision in M. Chockalingam and M. Meyyappan v. Commissioner of Income-tax, which held that the levy of penal interest without notice was a breach of natural justice and thus illegal. Conclusion The High Court answered the question in favor of the assessee and against the revenue, affirming that the ITO's rectification order imposing the special surcharge was illegal. The court also upheld the finding that the enhancement of penal interest without specific notice was illegal. The judgment emphasized the necessity of detailed investigation and adherence to principles of natural justice in tax assessments and rectifications.
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