1970 (5) TMI 25 - HC - Income Tax

Either under section 35 of the Income-tax Act, 1922, or under section 154 of the 1961 Act, the jurisdiction of the Income-tax Officer to rectify any mistake in any assessment order or refund order must be confined to a mistake which is apparent from the record Whether rectification can be made on the ground that consideration paid was lower than the written down value and excess depreciation can be disallowed? When assets are transferred in consideration of fully paid up shares, it is difficult to say whether the actual consideration is only the face value of the shares therefore, Income-tax Officer had no jurisdiction to issue the impugned notice under section 154 purporting to correct an alleged error apparent on the records

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer under Section 154/155 of the Income-tax Act, 1961.
2. Determination of the actual cost of assets transferred in exchange for fully paid-up shares.
3. Validity of the notice issued under Section 154 for rectification of a mistake apparent from the record.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer under Section 154/155 of the Income-tax Act, 1961:
The court examined whether the Income-tax Officer (ITO) had the jurisdiction to rectify any mistake in the assessment order under Section 154 of the Income-tax Act, 1961. It is well-settled that such jurisdiction must be confined to a mistake which is apparent from the record. The court emphasized that the mistake contemplated is not one that requires argument or where two opposite views might be possible. It must be an error that is apparent and does not call for any argument.

2. Determination of the actual cost of assets transferred in exchange for fully paid-up shares:
The petitioner argued that when assets are acquired in exchange for fully paid-up shares, determining the exact amount of consideration paid for such acquisition is a complex question. The face or par value of the shares is not the only criterion to be considered. If the transferee-company acquires assets in excess of the par value of the shares paid for such acquisition, the excess should be credited to the capital reserve account or share premium account. The petitioner referred to the Supreme Court case of Commissioner of Income-tax v. Standard Vacuum Oil Co., where it was held that the difference between the book value of the assets transferred and the par value of the capital stock issued was "premium" realized from the issue of the shares. The court noted that it was not suggested that by issuing shares below the value of the assets acquired, the assessee-company was acquiring the assets at the par value of the shares.

3. Validity of the notice issued under Section 154 for rectification of a mistake apparent from the record:
The respondent-ITO issued a notice under Section 154, stating that there was a mistake in allowing depreciation on certain assets. The reason provided was that the assets acquired by the petitioner were far in excess of the consideration paid, and hence, assets for which no consideration was paid were not entitled to depreciation. The court noted that the jurisdiction of the ITO to rectify a mistake under Section 154 depends on the presence of an error apparent on the record. The court held that the question of whether the actual consideration paid would be only the par value of the shares is an intricate question that cannot be decided off-hand. The court also referred to its previous decision in Narsingdas Bangur v. Income-tax Officer, where it was held that if there is no error apparent on the record, the ITO has no jurisdiction to issue any notice under Section 154.

The court concluded that the ITO had no jurisdiction to issue the impugned notice under Section 154, as the error was not apparent on the record. The rule was made absolute, and a writ of prohibition was issued commanding the respondents to forbear from proceeding any further with the impugned notice and any proceedings connected therewith. There was no order as to costs, and the operation of the order was stayed for six weeks.