1972 (9) TMI 19 - HC - Income Tax

In this petition under article 226 of the Constitution, the petitioner company, which is a private limited company, has challenged the legality of the orders dated August 27, 1965, and September 23, 1965, made by the Income-tax Officer under section 35 of the Income-tax Act, 1922, whereby he rectified in respect of the assessment years 1960-61 and 1961-62 two previous orders made under section 23A of the Act on June 26, 1963 - mistake in levying the super-tax at 37% cannot be rectified under section 35

Summary

Issues:
Challenge to legality of orders under section 35 of Income-tax Act, 1922 for assessment years 1960-61 and 1961-62.

Analysis:
The petitioner, a private limited company, challenged the orders dated August 27, 1965, and September 23, 1965, made by the Income-tax Officer under section 35 of the Income-tax Act, 1922, rectifying previous orders under section 23A. The main contention was that the Income-tax Officer lacked authority to rectify the previous orders. The company's failure to distribute distributable balance led to action under section 23A, resulting in super-tax at 37%. The Income-tax Officer later sought to rectify, claiming a mistake in charging super-tax at 37% instead of 50% for being an investment company.

The Income-tax Officer served notices stating the need to amend the assessment orders due to a mistake apparent from the record regarding the super-tax rate. The petitioner-company contested the reassessment but the rectification orders were passed. The petitioner argued that the original orders under section 23A were based on a legal finding that the company was not liable for 50% super-tax due to not being an investment company. The Income-tax Officer rectified the orders based on a different interpretation, leading to the challenge under section 35.

The court emphasized that rectification under section 35 should be for jurisdictional facts, not differing legal opinions. The key issue was whether the company's assets constituted "holding of investment" for the 50% super-tax under section 23A. The court held that the rectification changing the legal findings made in the original orders was improper. Citing precedent, the court clarified that a debatable point of law does not constitute a mistake apparent from the record. The rectification orders were deemed unjustified and beyond the Income-tax Officer's jurisdiction under section 35, leading to their quashing.

In conclusion, the court set aside the rectification orders dated August 27, 1965, and September 23, 1969, made under section 35, as they were deemed unjustified and beyond the Income-tax Officer's jurisdiction. The court ruled in favor of the petitioner, quashing the orders and directing the respondents to pay costs.