1969 (9) TMI 37 - HC - Income Tax

By this application under Article 226 of the Constitution of India the jurisdiction of the respondent-Income-tax Officer to issue a notice under section 154 of the Income-tax Act, 1961, and to take proceedings thereunder are challenged held that Income-tax Officer had no jurisdiction to invoke section 154, on the issue which is quite interrogate and difficult

Issues Involved:
1. Jurisdiction of the Income-tax Officer to issue a notice under section 154 of the Income-tax Act, 1961.
2. Entitlement to tax credit on grossed-up dividends under sections 16(2) and 18(5) of the Income-tax Act, 1922.
3. Applicability of rectification procedure under section 154 when difficult legal questions are involved.
4. Availability of alternative remedies and the appropriateness of invoking Article 226.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to issue a notice under section 154 of the Income-tax Act, 1961:
The petitioner challenged the jurisdiction of the Income-tax Officer to issue a notice under section 154 of the Income-tax Act, 1961. The Income-tax Officer had issued a notice proposing to rectify an alleged mistake in the petitioner's assessment for the year 1961-62, arguing that the credit for tax on grossed-up dividends should not have been allowed as the firm's income was exempt from tax. The court held that the jurisdiction of the Income-tax Officer to rectify an error under section 154 depends on the presence of a "mistake apparent from the record." If no such error exists, the Income-tax Officer has no jurisdiction to issue the notice. The court concluded that the Income-tax Officer had no jurisdiction to issue the impugned notice under section 154, as the issue involved intricate legal questions that could not be resolved through the rectification procedure.

2. Entitlement to tax credit on grossed-up dividends under sections 16(2) and 18(5) of the Income-tax Act, 1922:
The petitioner contended that even if the firm's income was exempt from tax, the grossing up of dividends and the corresponding tax credit should still be allowed under sections 16(2) and 18(5) of the old Act. The court considered the provisions of section 16(2) and section 18(5) of the old Act, which allowed for the grossing up of dividend income and the corresponding tax credit. The court also examined the amendments introduced by the Finance Act, 1959, which changed the system of grossing up dividends. The court acknowledged the complexity of the issue and noted that the question of whether partners of a firm are entitled to tax credit on grossed-up dividends in their individual assessments is intricate and should be decided by the proper tribunal.

3. Applicability of rectification procedure under section 154 when difficult legal questions are involved:
The petitioner argued that the rectification procedure under section 154 is not permissible when difficult legal questions or where two opinions are possible are involved. The court referred to several decisions, including those of the Supreme Court and High Courts, which established that rectification under section 154 is limited to mistakes that are glaring, obvious, or self-evident. A mistake that requires a long drawn process of reasoning or examination of arguments on points where there may be two opinions cannot be rectified under section 154. The court held that the question involved in the present case was intricate and could not be resolved through the rectification procedure under section 154.

4. Availability of alternative remedies and the appropriateness of invoking Article 226:
The respondent argued that the petitioner had an adequate alternative remedy of appealing against the order under section 154 and that the court should not exercise its extraordinary jurisdiction under Article 226. The court rejected this argument, stating that the question of alternative remedy does not arise when the taxing authorities are shown to have assumed jurisdiction they do not possess. The court held that the challenge to the jurisdiction of the Income-tax Officer to issue the impugned notice was valid and that the petitioner was entitled to seek relief under Article 226.

Conclusion:
The court held that the Income-tax Officer had no jurisdiction to issue the impugned notice under section 154 of the Income-tax Act, 1961, as the issue involved intricate legal questions that could not be resolved through the rectification procedure. The rule was made absolute, and a writ of certiorari was issued quashing the notice. Additionally, a writ of prohibition was issued prohibiting the respondents from proceeding with the impugned notice and any related proceedings. There was no order as to costs of the application.

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