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TMI Blog2002 (5) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income tax Officer was justified in passing order under section 154 of the Income-tax Act, 1961?" The matter pertains to the assessment year 1980-81 in respect of which the assessment of the assessee family trust was completed on November 24, 1980, determining the total income at Rs. 7,03,490. One-half of that income, i.e., Rs. 3,51,745, was taxed in the hands of 25 beneficiaries as per clause 3(B)(i)(a) of the trust deed dated April 23, 1979, shown in Schedule I thereto and the other 50 per cent., i.e., Rs. 3,51,745, was assessed in the hands of the trustees of the assessee-trust under section 161 of the said Act on the respective share of each of the beneficiaries mentioned in clause 3(B)(i)(b) of the trust deed and Schedule II thereto. In the trust deed, it was specifically stipulated that the trust was a specific trust and in clause 3(B)(i)(b), it was provided as under: "It is hereby agreed and declared between the parties to this deed of the trust that the trustees shall stand and possessed the balance 1/2 part of the income which shall be receivable on behalf of and for the benefit of the persons mentioned in Schedule II herein attached to this trust deed, and shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of the individual rate of tax calculated separately and applicable to the total income of each beneficiary. According to the Income-tax Officer, this was a mistake apparent from record and, therefore, a notice under section 154 of the said Act was issued to the assessee on October 30, 1984, asking it to show cause why the said mistake should not be rectified and tax at proper rate be levied. The assessee, by letter dated October 15, 1984, raised a preliminary objection that the proposal to rectify the assessment was illegal as there was no Mistake in the order of assessment apparent from the record. It was also submitted that the Income-tax Officer intended to make further inquiry in respect of each of the 23 beneficiaries and, therefore, the alleged mistake was not apparent from the record. The Income-tax Officer held that there was no force in this contention, because, there was no question of holding any further inquiry in respect of the income of 23 beneficiaries. According to the provisions of the Act, the total income of the beneficiaries had to be taken into account for the purpose of ascertaining the rate of tax that should be applied to the share income of the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax levied by the Income-tax Officer in the original assessment at Rs. 35,103. The assessment was accordingly modified under section 154 of the said Act. The assessee-trust preferred an appeal against the order of the Income-tax Officer and the Commissioner of Income-tax (Appeals), observing that having gone through the facts of the two cases cited by the appellant's counsel and having seen the circular of the Board and on a consideration of the facts and circumstances of the case, he was of the view that the Income-tax Officer was not justified in making the proposed rectification in the case of the trust, as there was no mistake apparent from the record, allowed the appeal. The Revenue appealed against the order of the Commissioner of Income tax (Appeals) before the Tribunal and the Tribunal accepted the stand of the Revenue that since the assessee-trust had accepted the order originally passed by the Income-tax Officer taxing 50 per cent. of the income of the trust in respect of the 23 beneficiaries mentioned in Schedule II, it was too late in the day for the assessee to urge that even the assessment as originally framed was bad in law. It was held that the only issue which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such construction. Referring to the decisions of the Supreme Court in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913, it was held that it was well settled that circulars issued by the Central Board of Direct Taxes under section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act. (b) The decision of this court in Addl. CIT v. M.K. Doshi [1980] 122 ITR 499 was heavily relied upon for the contention that when the income was to be accumulated, it could not be taxed. That was a decision in the context of the provisions of section 64(v) of the Act (prior to amendment in 1971) prescribing that the income from a transferred asset can be included in the income of the transferor, provided under the transfer, the benefit of the income from such asset is immediately available or is deferred for the spouse or minor children of the settlor. It was held that if the child, for whom the benefit is provided attains majority, it is clear that the provision contained in clause (v) would not be attracted on the plain reading of clause (v) itself. Other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 1, 1952. (e) The decision of the Bombay High Court in Gammon India Ltd. v. CIT [1995] 214 ITR 50 was relied upon for the proposition that the power of rectification of mistakes under section 154 of the Act is a limited power which is restricted to rectification of mistakes apparent from the record. It must be a mistake which is patent on the face of the record and does not call for detailed investigation of the facts or require an elaborate argument to establish it. A decision on a debatable point of law or failure to apply the law to a set of facts which remain to be investigated cannot be corrected by way of rectification. The expression "record" has to be construed and understood in the context in which it appears and in the context of the expression "apparent from the record" in section 154, "record" would mean the record of the case comprising the entire proceedings including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject matter of proceedings for rectification. The authorities cannot go beyond the record and look into fresh evidence or materials which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original assessment was itself uncalled for, even that can be considered by the authority proposing to rectify the assessment. Learned counsel appearing for the Revenue, supporting the reasoning of the Tribunal, contended that there was no debatable question involved at all and since the rectification was to be done only by applying the correct rate of tax which in the context was the rate applicable to the total income of the beneficiary concerned in view of the provisions of section 161(1) of the said Act, which lays down that the tax was to be levied upon and recovered from the representative assessee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. It was contended that when the income going to the share of these beneficiaries was assessed in the hands of the trust, the rate that should have been applied was the rate applicable to the total income of each of the beneficiaries including the income that went to their shares, It was submitted that there was no question of making any further inquiry or assessment, because, the assessment orders of the beneficiaries were just to be seen with a view to total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that income and limited to that extent and tax could be levied and recovered from the representative assessee to the same extent as it was leviable upon and recoverable from the person represented by him. (c) The decision of the Supreme Court in the case of Hindustan Aeronautics Ltd. v. CIT [2000] 243 ITR 808, was cited for the proposition that circulars or instructions given by the Board though binding in law on the authority under the Act, it will not be open to contend that a circular should be given effect to and not the view expressed in the decision of the Supreme Court or the High Court which declared the law on the question arising for consideration. (d) The decision of this court in Induprasad Chunibhai Patel v. Central Board of Direct Taxes [1993] 200 ITR 688 was cited for the proposition that the Central Board of Direct Taxes is not competent to give directions regarding the exercise of judicial powers by the subordinates. (e) The decision of the Madras High Court in Estate of Khan Sahib Mohd. Oomer Sahib v. CIT [1958] 33 ITR 767 was cited to point out that, in the context of section 41(1) of the Indian Income-tax Act, 1922, it was held that the liability impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a settled legal position as can be seen from the decision of the Supreme Court in Khatau's case [1994] 209 ITR 101, that it was implicit in the terms of section 161(1) of the said Act that the Income-tax Officer could assess a representative assessee as regards the income in respect of which he was the representative and that he could assess either the representative assessee or the person represented by him in view of the provisions of section 166 of the Act. The Income-tax Officer could assess the person represented in respect of the income of the trust property under the appropriate provisions of the Act relating to the computation of his total income and the manner in which the income amount was to be computed. When the Income-tax Officer chooses to assess the person represented in respect of the income of the trust property in the name of the trust, the computation of the total income of the person represented is to be done on the basis of the provisions which would apply to the computation of his total income while making such assessment. The assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficiary and that the reply itself should be taken to be an application for rectification of mistake and refund should be given of the tax assessed under the initial order. This contention was raised on the footing that the income of the beneficiary was to be accumulated and on the authority of M.K. Doshi [1980] 122 ITR 499 (Guj), it was claimed that they cannot be said to be having any vested interest over the period of nineteen years from the date of the trust deed. A further contention was raised on the basis of the circular of the Central Board of Direct Taxes issued on February 24, 1967, that such inclusion of the beneficiary's income for the purpose of working out the total income even for the rate purposes amounted to an assessment of the income which was already assessed. It was submitted that, in view of that circular, there was no mistake apparent from the record committed by the Income-tax Officer. It was finally submitted that these were highly arguable questions and therefore, no rectification should be allowed. We first take up the question whether the Central Board of Direct Taxes circular which according to the Tribunal was not applicable to the assessee's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the facts of the present case. Merely by referring to an irrelevant circular, one cannot make a simple issue a debatable one. The question whether there is a debatable point or not will not depend on endless arguments over non-issues. The length of irrelevant arguments cannot be a parameter for deciding whether a point is debatable or not. One has to adopt the standards of reasonable understanding and therefore, even when some ordinary facts are not easily understood, time consumed to sort them out cannot make obvious issues debatable issues. There should be genuineness of a debate and howsoever, prolonged frivolity there may be in discussing a point, it would not raise an obvious issue to the level of a debatable issue. In our opinion, this circular is wholly irrelevant and has no bearing on the question of rectification and has been only referred to with a view to cloud the issue for the purpose of urging that no rectification ought to be done on such a contrived debate. The other aspect which is sought to be raised, namely, that the income of the beneficiaries which was receivable by them under the trust deed was to be paid to them only after nineteen years, and, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent rectification order. On the reading of the said decision of the Supreme Court, no such debatable point is arising in the present case. It does not lay down that in all cases, if the income which is receivable or which is accrued is accumulated and only if the payment is delayed, it ceases to be the income of the years in which it accrued. Such a startling result would defeat the provisions of the Act and it would be very easy for any assessee to allow the income that may accrue to him to be accumulated over a period of time, and to say that it is not his income and should be treated as capital when he receives it in a lump sum. We are, therefore, of the view that the Tribunal was right in holding that since such an issue was not raised by the assessee-trust during the assessment proceedings by stating that the income in question was not taxable, it could not be raised now in the rectification proceedings. For the reasons that we have given hereinabove, we hold that the Income tax Officer was justified in passing the rectification order under section 154 of the said Act. The question referred to the High Court is, therefore, answered in the affirmative against the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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