9911796707
TMI Blog1979 (1) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Indian I.T. Act, 1922. The other order which she challenges in these proceedings is the order of the Commissioner, the second respondent herein, passed in revision in exercise of the powers under s. 33A(2) of the Act of 1922. That order was passed on December 19, 1973, and a copy of the order is annex. " A " to the petition. Thus, in these proceedings, annexs. " A " and " E " to the petition are challenged and the challenge is on the ground of the scope of the power of rectification under s. 35 of the Indian I.T. Act of 1922. The petitioner was a partner in three partnership firms, namely, Messrs. Halar Salt and Chemical Works, Messrs. Rasik Solvent Extraction Company and Messrs. Krishna Oil Mills. In Halar Salt Works, two of her minor sons were admitted to the benefits of the partnership, whereas in Rasik Solvent Extraction Company and Krishna Oil Mills, three minor sons of the petitioner, namely, Narendrakumar Harjivandas, Chandulal Harjivandas and Rameshchandra Harjivandas, were admitted to the benefits of the partnership. In Rasik Solvent Extraction Company, the petitioner was entitled to a share of one anna in the rupee and each of the three minor sons were admitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney-lending business of Rs. 15,943. She disclosed share of profits from Halar Salt and Chemical Works of Rs. 54,350. By a note made in the return of income, it was mentioned that the income or loss, if any, from Rasik Solvent Extraction Company and Krishna Oil Mills would be shown at the time of assessment. The assessment of the petitioner's income for the assessment year 1961-62 was completed by the ITO, Ward-C, Jamnagar, on August 25, 1961. The income of the petitioner was assessed at Rs. 71,756 and this total income included property income assessed at Rs. 1,084, income from money-lending business assessed at Rs. 16,322 and share of profits from Halar Salt and Chemical Works assessed at Rs.54,350 subject to the modification under s. 35 of the Act. As regards her share of profits from Rasik Solvent Extraction Company, the petitioner had filed an extract of the profit credited to her account. This was to be taken provisionally subject to the modification under s. 35 of the Act as and when the final assessment of the firm was made by the concerned ITO. It appears that, ultimately, it was ascertained that the petitioner and her three minor sons were each entitled to Rs. 208 as and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act of 1961, the ITO, Ward-D, Jamnagar, informed the petitioner that her assessment under s. 155 for the assessment year 1961-62 was required to be amended as there was a mistake apparent on the face of the record within the meaning of s. 154/155 of the Act of 1961. That notice mentioned at the foot : " Nature of mistake proposed to be rectified--Minor's share of loss from M/s. Rasik Solvent and M/s. Krishna Oil Mills which was set off, is to be withdrawn, comes to Rs. 28,302." A copy of that notice dated January 17, 1970, is annexure " C " to the petition. Similar notices were also issued with reference to the assessment years 1962-63, 1963-64 and 1964-65. In response to the said notices, the petitioner, by her letter dated January 21, 1970, submitted her objections to the rectification of the alleged mistake and at the time of hearing of these notices before the ITO concerned, it was urged that in view of the specific provision made in the respective partnership deed as to the extent of the accumulated profits lying to the credit of the minors, and as the amounts lying to the credit of the minor sons were insufficient to meet their respective share of loss, the insufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gitated before the Tribunal in those two appeals, the hearing of the revision application should be postponed till after the decision given by the Tribunal in those two appeals. Without adjourning the matter and without giving any further opportunity of being heard to the petitioner, according to her, the CIT by his order dated December 19, 1973, annex. " A " to the petition, dismissed the revision application under s. 33A and these two orders, annexs. " A " and " E " to the petition, have been challenged in this special civil application. The facts leading to the reference are that, in connection with the assessment year 1962-63, the ITO had taken into consideration the losses allocated to the share of the assessee and her three minor sons when the assessments of the two partnership firms of Rasik Solvent Extraction Company and Krishna Oil Mills were finalised by the ITO in charge of the assessment of those two firms. As shown by the original order of assessment dated January 9, 1967, passed by the ITO, the minors' share of loss aggregating to Rs. 1,28,424 from Rasik Solvent Extraction Company and the minors' share of loss aggregating to Rs. 38,766 from Krishna Oil Mills were de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls Ltd. v. CIT [1971] 80 ITR 1, and also relying upon the observations of this High Court in Dayalbhai Madhavji Vadera's case [1966] 60 ITR 551, which the Tribunal took to be binding in the State of Gujarat, it held that the rectification order was proper. However, the Tribunal pointed out in its order that so far as Krishna Oil Mills were concerned, the ITO, who completed the assessment of that particular partnership firm, had determined the losses coming to the petitioner at twenty-five per cent. and not at 6.25 per cent. apparently because in that assessment order, as shown by annex. " G " in the paper book at page 82, an amount of loss representing 25 per cent. was shown against the name of the assessee. The Tribunal came to the conclusion that it was not open to the ITO, hearing rectification proceedings, to go behind the order passed under s. 156 of the I.T. Act and, hence, so far as Krishna Oil Mills were concerned, the order of rectification was erroneous and contrary to law. However, the Tribunal upheld the order of rectification as regards the deduction in respect of the minors' share of loss aggregating to Rs. 73,545. Thereafter, at the instance of the assessee, the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee ......" that was the provision under s. 35 of the 1922 Act. It is clear that what is emphasised in the aforesaid section is that the powers of rectification could be exercised in respect of a mistake apparent from the record. Under s.154 of the Act of 1961 also, the wording is identical, namely, " with a view to rectifying any mistake apparent from the record ". In T. S. Balaram v. Volkart Brothers [1971] 82 ITR 50, the Supreme Court held that a mistake apparent on the record or from the record must be an obvious and patent mistake and not something which could be established by a long drawn process of reasoning on points on which there might conceivably be two opinions. A decision on a debatable point of law was not a mistake apparent from the record. Hegde J., speaking for the Supreme Court, in Volkart Brothers' case [1971] 82 ITR 50, observed at page 53 : " From what has been said above, it is clear that the question whether section 17(1) of the Indian Income-tax Act, 1922, was applicable to the case of the first respondent is not free from doubt. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars requires to be allocated among the minors. As per the Gujarat High Court decision in the case of Dayalbhai Madhavji Vadera v. CIT [1966] 60 ITR 551, the loss so allocated cannot be clubbed in the hands of the mother and hence cannot be allowed to be set off against her other incomes. " As pointed out earlier, the orders of rectification for the two years, namely, assessment year 1961-62, which is challenged in the special civil application, and the assessment year 1962-63, which is challenged in the income-tax reference, were both passed on the very same day, namely, September 10, 1970, and, as we have pointed out above, they were passed in identical words and for identical reasons. The learned Advocate-General, appearing in the special civil application for the petitioner, who is also the assessee in the I.T. Reference, has urged that there was no error apparent from the record in the sense pointed out by the Supreme Court in Volkart Brothers'case [1971] 82 ITR 50 because of three grounds. His first ground is that the decision of the Gujarat High Court in Dayalbhai Vadera's case [1966] 60 ITR 551 has not been followed by the Mysore High Court in two of its decisions and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which would be includible in the income of the individual, the loss should be set off against the income of the individual under section 24(1), and if not wholly set off should be carried forward under section 24(2). The wife or the minor child would, therefore, be assessable on the personal income of Rs.5,000. If in any case the wife or minor child claims a set-off of the loss against the personal income, it should be brought to the notice of the Board. Board's Circular No. 35 of 1941 is hereby cancelled. " It may be pointed out that the report of the decision of this court in Dayalbhai Vadera v. CIT (1966] 60 ITR 551, does not indicate on the face of the report whether this circular of the Board of July 15, 1944, was brought to the notice of the learned judges who decided Dayalbhai's case [1966] 60 ITR 551. In that case, on an interpretation of s. 16(3) of the Indian I. T. Act, 1922, the Division Bench consisting of J. M. Shelat C. J. and Bhagwati J., as he then was, held : " Where the share of the wife or minor child in a firm in which the assessee is a partner is a loss, such loss cannot be included in the total income of the assessee. " It was held : " The term 'incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be noted that the decision in Dayalbhai Vadera's case [1966] 60 ITR 551 (Guj) was in the context of a clause of a partnership deed which was altogether different from the clause before us. That is another point of argument and debate which is required to be considered in the context of the observations of the Supreme Court in Volkart Brothers' case [1971] 82 ITR 50 (SC). In Dr. T. P. Kapadia v. CIT [1973] 87 ITR 511, a Division Bench of the Mysore High Court consisting of G. K. Govinda Bhat and B. Venkataswami JJ. held : " Where the wife or minor son of an individual is a partner of a firm in which the individual is also a partner, the income of the wife or minor son has to be included in the total income of the individual under the provisions of section 16(3) of the Act of 1922 and section 64 of the Act of 1961. Where losses are incurred by the firm and the question arises as to how the share of loss of the wife or minor child is to be dealt with, there are two views possible. One is that the loss should be set off only against the income of the wife or minor child and if the loss is not wholly set off it should be carried forward and set off. The other and more equitable v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonally liable for such losses. " The question regarding cl. 6 will assume importance in the light of this passage which summarises the effect of several decisions cited in the foot note at page 52 of Kanga and Palkhivala's book. However, in the instant case, what is material to be noticed is that even regarding the interpretation of cl. 6, there is a scope for argument and debate. In the earlier portion the clause states : "........ the minors admitted to the benefits of the partnership shall be entitled to the benefits of partnership and shall not personally be liable for any obligation of the said firm but their respective share only shall be liable for the obligations of the said firm..." If this were the only provision in cl. 6, in the light of what has been summarised in the passage extracted from page 52 of Kanga and Palkhivala's book, it would be clear that the minor's capital contribution would be liable to be utilised for the purpose of meeting the losses of the firm. However, in cl. 6, after providing as above, it is further stated : "................. pending their respectively attaining the age of majority their respective shares in the profits of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points of contention. We are merely indicating that there is a great deal of scope for debate and discussion on each of these three points and, hence, in view of the decision of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50, there cannot be said to be a mistake apparent from the record since a decision on a debatable point of law is not a mistake apparent from the record. Under these circumstances, the ITO had no jurisdiction when he passed the order, annex. " E ", to Special Civil Application No. 380 of 1974 and correspondingly, the CIT was bound to decide in favour of the assessee and set aside the order of the first respondent, but in spite of that, by his order, annex. " A " to the petition, the Commissioner has confirmed the order of the ITO when the Commissioner was exercising his revisional power. The order of the Commissioner also, therefore, is contrary to law and must be quashed and set aside. Therefore, in Special Civil Application No. 380 of 1974, we pass the following order : The orders, annexs. "E" and " A " to the petition, are quashed and set aside as being beyond the scope of powers of rectification under s. 154 of the 1961 Act. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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