COMMISSIONER OF INCOME TAX, KANPUR versus M/S. J. K. COMMERCIAL CORPORATION LTD. ETC.

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COMMISSIONER OF INCOME TAX, KANPUR v. M/S. J. K. COMMERCIAL CORPORATION LTD. ETC.

September 3, 1976

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[H. R. KHANNA, N. L. UNTWALIA AND JAswANT SINGH, JJ.]

Income Tax Act (11 of 1922), ss. 23A and 35(1)-Whether income tax o{fi- ·

cer has power under s. 35 ( 1) to rectify an order passed under s. 23A.

Section 23A, Income Tax Act, 1922, confers power on the Income Tax Offi~r to assess Companies to super-tax on their undistributed income in certam cases.

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In the present case, subsequent to the passing of the orders of asscssmen~, the Income Tax Officer passed orders under s. 23A of the Income Ta.x Act, 1922, asking the respondent-companies to pay certain amounts of additional super-tax on the undistributed profit. Thereafter, under s. 35 (I), over-ruling !he objections of the respondents that he had no power to r~ctify any mistake 1Il an order under s. 23A of the Act, he rectified some mistakes and increased the amounts of additional super-tax payable by the respondents. The respon dents' revision applications were dismissed by the Commissioner, but the High Court quashed the orders, relying on M. M. Parikh v. Navanagar Transport & Industries Ltd. [19671 63 !TR 663 and Sankappa v. l.T.O. Bangalore, (19681 68 ITR 760.

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Allowing the appeal this Court, HELD : The Income Tax Officer had jurisdiction ood competency to rectify under s. 35 (1) any mistakes in his previous orders under s. 23A. The language of s. 35(1) may not be wide enough to confer power on the Income Tax Officer to amend any order passed by him under tjle Act, and he may not have the wide powers conferred on him under s. 154(1)(a) of the 1961-Act. But it is not so narrow as to cover only the order of assessment or of refund in a very restricted or limited sense; but is wide enough to cover some other orders includ ing an order under s. 23A.

(518 E-F]

(I) Section 35 (1) provides inter ·alia that the Income Tai<; Officer may, at any time within four years from the date of any assessment order or refund from order passed by him, on his own motion, rectify any mistake apparent If such rectification the record of assessment or refund as the case may be. has the effect of enhancing an assessment or reducing the refund, under the the assessee is entitled to notice and reasonable opportunity to first proviso, show cause against such enhancement or reduction.

[515 G-Hl

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(2) The word 'assessment' is capable of bearing a very comprehensive mean-

ing.

[515 BJ

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Commissioner of lncome-tax v. Kl1emchand Ramdas [19381 6 J.T.R. 414

applied.

C. A. Abraham v. Income-tax Officer, Kottayam and another [1961] 41 J.T.R. 425 at 429 and Ka/awati Devi Harlalka v. Commissioner of Income-tax [1967] 66 I.T.R. 680 followed.

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The assessment under s. 23 is the assessment of the total income of the assessee and the determination of the sum pa,yable by the assessee including income 'tax, surcharge, super tax etc. Under s. 24, loss is co~puted a-nd is allowed to be ·set off against the income of the same year or earned forward to the next year. · If one were to go upon the use of the literal words, then s. 24 is only for computation of the loss. Yet, it is a stel? in the ~ss7ssment proceed ing a-nd will form part of the order of assessment itself. S1m1larly, the order under s. 23A may not be called an order of assessment, but it is a part of the assessment proceeding and may be called a supplementary assessme~t . order directing a company to pay additional amount of supertax on the und1st~1buted balance of ·the totaL income as assessed and determined in accordance with the provisions of s. 23.

(515 C-D; F]

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. C.I.T. KANPUR v. M/s. J. K. COMM. CORP. (Untwalia, !.)

513

(3) Under s. 35, the Commissioner in revision. the Appellate Assistant Com missioner and the Tribunal in appea.l, can rectify a mistake in the record of revision or appeal taken from orders under s. 23, s. 24' and s. 23A, because such orders are appealable orders under s. 30. Therefore under the same section, the Income Tax Officer can also rectify any mistake apparent from the record assessment, which expression is' wide enough not only to cover an order of assessment made under s. 23 but also an order computing loss under s. 24 and an order made under s. 23 A directing an assessee-company to pay additional super-tax.

[516 D-E]

(4) Fu·rther, the first proviso to s. 35(1) ands. 35(3) shows that rectifica tion of apparent mistakes in an order computing loss or an order under s. 23A is permissible and may have the effect of enhancing the assessment or reducing it.

[516 FJ (5) Also under s. 35(7), on the modification of an order under s. 23A in relation to the assessment of a. company in appeal or revision, power is given to the Income Tax Officer to make rectification in the computation of the total C income of' the shareholders as if it is a mistake apparent from the record within the meaning of s. 35 making the provisions of sub-s. ( 1) applicable to such a. case.

[516 HJ

(6) In Parikh's case it was held that an order under s. 23A was outside the purview of limitation provided in s. 34 of the Act; but the ratio of Parikh' s case is. neither applicable nor should be extended to cover the expression 'Assess ment Order' occurring in s. 35(1). The High Court has misunderstood San kappa' s case. According to that decision, what the Income-tax Officer does in a proceeding under s. 35 (1) is to correct errors in assessment or rectify orders of assessment made by him, and that either of such orders is.a part of the proceed ings for assessment.

[517 D; 518 A-Bl

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C1v1L APPELLATE JURISDICTION.: Civil Appeal Nos. 1580-

1583/71.

From the Judgment and Order dated 11-3-69 of the Allahabad E

High· Court in Civil Mic.' Writ Nos. 3251, 3252, 3253 and 3254/ 68.

S. C. Manchanda, J. Ramamurthy and S. P. Nayar, for the Appel~

lants.

S .. V. Gupte and Rameshwar Nath, for the Respondent in C. A.

. 1580/71.

F

Rameshwar Nath, for the Respondents in C. As. 1581-1583/71.

The Judgment of the Court was delivered by

. UNTWALIA~ J.-These four appeals by certificate are from a com- mon judgment of the Allahabad High Court allowing four writ petitions filed by the two respondent companies namely J. K. Com- G mercial Corporation Ltd. and J. K. Synthetics Ltd. In respect of the assessment years 1955-56 and 1956-57 assessment orders were pass- the ed by the Income-tax Officer, Kanpur under section 23(3) of Income Tax Act, 1922-hereinafter referred to as the Act. Subse quent to the passing of the said orders of assessment the Income-tax Officer passed four orders in respect of the two assessment years against the two companies under section 23A of the Act on January H 21, 1957 asking the companies to pay certain amounts of additional In super-tax on the undistributed profit of the concerned years.

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section 23A on 21.1.1957.

November, 1959 the Income-tax Officer issued a notice under section 35 ( l) of the Act for rectification of the mistake committed in the previous orders passed under The as sessee companies in response to the notices objected to the proposed rectification by the Income-tax Officer, inter alia, on the ground that he had no power to rectify any mistake in an order under section 23A of the Act. The Income-tax Officer over-ruled the objection raised by the companies, rectified the mistakes in his previous orders and increased the amounts of additional superctax payable by the com panies in relation to the two assessment years. The companies' revi sion applications filed before the Commissioner of Income Tax, U.P. were dismissed. Thereupon, four writ applications were filed in Lhe High Court to challenge the orders passed by the Income-tax Officer under section 35 ( 1) of the Act as affirmed by the Commissioner of Income Tax in revisions. A Bench of the High Court feeling com pelled to follow the decisions of this Court in M. M. Parikh, Incume Tax Officer, Special Investigation Circle "B", Ahmedabad v. Nava nagar Transport and Industries Ltd. and another(') and in S. San Income-tax Officer, Central Circle ll, Banga~ kappa and others v. ) has allowed the writ applications and quashed the impugned /ore( 2 orders passed by the Commissioner of Income-tax and the Income tax-Officer. The decision ·of the High Court is reported in J. K. Commercial Corporation Ltd. v. Income-tax Officer, District l, (i), Kanpur and another( 3 ). Hence these appeal~ by the Revenue.

In our judgment the High Court was not right in applying

the the facts ratio of the two decisions of this Court referred to above to of these cases. We shall presently show that the Income-tax Officer had jurisdiction and competency to rectify the mistakes under .section 35 ( 1) of the Act in his previous orders passed under section 23A.

Chapter IV of the Act is entitled "Deductions and Assessment". In this chapter occurs various sections relating to assessments of income, determination of tax or super-tax, tax payable on it, payment of additional super-tax, computation of loss, provisions for appeal and revision and provisions for rectification of mistakes the Income-tax Officer or by the Appellate or the Revisional authorities. In one of the earliest decisions of the Privy Council in Commissioner of Inco17Je-tax v. Khemchand Ramdas( 4 ) at page 416 it was s.aid :

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"One of the peculiarities of most Income-tax Acts is that the word 'assessment' is used as meaning sometimes the com putation of income, sometimes the determi.nation of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the 'tax payer. The Indian Income-tax Act is no exception in this respect. ......... "

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(l) [1967] 63 I.T.R. 663. (2) [1968] 68 LT. R. 760. (3) [1969] 73 I.TR. 464. (4) [1938] 6 I.T.R. 414.

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c.r.T. KANPUR v. M/S. J. K. COMM. CORP. ( Untwalia, J.)

515

The above dictum of the Privy Council was quoted with approval by this Court in C: A. Abraham v. Income-tax Officer, Kottayam ap.d In Sankappa's case (supra) the same Bench which had another(!). decided the Parikh's case and delivered the judgment through Shah, J. as he then was, speaking thro-ugh Bhargava, J. followed Abraham's case (supra) and the decision of this Court in Kalawati Devi Harlalka v. Commissioner of Income-tax(") wherein it has been stated that the word "assessment" is capable of bearing a very comprehensive meaning; in the context it can comprehend the whole procedure for It is to be ascertaining and imposing· liability on the tax payer. . noticed that the marginal note of section 23 is· "Assessment" and sub-section ( 3) says "the Income-tax Officer.: ...... shall, by an order in writing, assess the total income of the assessee"· and then adds '.'determine the sum payable by him on the basis of such assess ment." · Literally speaking, therefore, the assessment is of the total income of the assessee and then in the same order the sum payable by the assessee is determined which would include income-tax, sur charge, super-tax etc. Under section 24 of the Act, loss is computed and is allowed to be set off against the income of the same year or carried forward to the next year. . If one were to go upon the use of the literal words, then section 24 is for computation of the loss. Yet it is a step in the assessment proceeding and will form part of the order of assessment itself. Section 23A as the marginal note indicates is the "Power to assess Companies fo super-tax. on undistributed in come in certain cases". The relevant words of sub-section (1) of section 23A are the following : "Where the Income-tax Officer is satisfied ........ the Income-tax Officer shall unless he is satisfied .. make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under sec tion 23, be liable to pay super-tax" at the rates specified "on the undistributed balance of the total income of the previous year ...... " It would thus be seen that although -in a narrow sense an order under section 23A may not be called an order of assessment, surely it is a part of the assessment proceeding and may be called a supplementary assessment order directing a company to pay additional amount of super-tax on the undistributed balance of the total income as assess ed and determined in accordance with the provisions of section 23.

We shall now read section 35 (1) :

"The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the c4ite Q_f any order passed by him in appeal or, in the case of the Com missioner, in revision under section 33A and the Income tax Officer may, at any time within four- years from the date_ of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the re cord of the appeal, revision, assessment or r~fund as the case may be, and shall within the like period rectify any such mistake w]1ich has. been brought to his notice by an. assessee :

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(1) [1961] 41 J.T.R. 425. at 429. (2) (1967) 66 J. T.R. !J80.

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SUPREME COURT REpORTS

[1977] l S.C.R.

Provided that no such rectification shall be made, hav ing the effect of enhancing an assessment or reducing a re fund unless the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportirnity of being heard :"

the Commissioner,

The Commissioner or the Appellate Assistant Commissioner can rec tify any mistake apparent from the record of the appeal or revision. In the like 'manner, as provided in sub-section (2), the Appellate Tribunal has been given the power of rectification of mistakes appar ent from the record of the appeal. The marginal note or -section 30 is "Appeal against assessment under this Act". Various types of orders passed under the various sections in Chapter IV of the Act have been enumerated as being appealable orders. The list includes an order by which the amount of loss may be computed under section 24 or the amount of tax pas been determined under section 23 and an order made by the Income-tax Officer under sub-sectfon ( 1) of It is, therefore, plain that the Commissioner in :revision, section 23A. the Appellate Assistant Commissioner and the Tribunal in appeal can rectify a mistake in the record of the revision or the appeal., as the case may be, taken from the order of. assessment under section 23, the order CO!llputing loss under section 24, or an order made under section 23A by the Income-tax Officer. Viewed in that light it follows as a matter of construction that the Income-tax Officer can rectify any mistake apparent from the record of assessment which expression is wide enough not only to cover an ordoc of assessment made under section 23 but also an order computing loss under section 24 and an order made under section 23A directing the assessee company to pay these additional super-tax. appeals to give a complete list of the types of orders, apparent mis takes in which can be rectified by the Income-tax Officer under section of 3 5 (1) of the Act. Obviously the first proviso to sub-section (1) section 35 and sub-section (3) that lends support to the view rectification of apparent mistakes in an order computing loss or an order under section 23A is permissible and may have the effect of enhancing the assessment or reducing it. The provisions of sub-sec tion (7) of section 35 of the Act also give an indication that the opinion which we have recorded above as to the power of the Income tax Officer to rectify a mistake in an order made under section 23A is correct. By a deeming provision sub-section (5) gives powers to the Income-tax Officer to make the assessment of a partner of firm on the modification of the assessment of the income of the firm. Similarly by a deeming provision engraft ed in sub-section (7) on the modification of an order under section 23A in relation to the assessment of a company in appeal or revision, power has been given to the Income-tax Officer to make re~tification in the computation of the total income of the shareholders as if it is a mistake apparent from the record within the meaning of section 35 making the provisions of su!J:.section ( 1) applicable to such a case.

It is neither advisable nor necessary in

consequential correction in

.•

C.I.T. KANPUR v. M/S. J. K. COMM. CORP. (Untwalia, J.)

517

Some difficulty is presented, as we shall presently show, in view of Parikh's case (supra) from the provision of time limit of 4 years pro vided in section 35 ( 1) for the exercise of the power by the Income tax Officer for the rectification of the mistakes apparent from the re cord of assessment; the starting point of the period being "date of In Parikh's case this Court was concerned any assessment order". with the interpretation of the expression "order of assessment'', occur ring in sub-section (3) of section 34 of the Act. In that connection, Shah, J as he then was, delivering the judgment on behalf of a Divi sion Bench of this Court said at page 670 of 63 l.T.R. :

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"In each of these cases there is computation of income, determination of tax payable and procedure is prescribed for imposing liability upon the taxpayer. But still these are not orders of assessment within the meaning of section 23. The salient feature of these and other orders is that the liability to pay tax arises not from ~he charge created by statute but from the order of the Income-tax Officer."

On the above principle an order under section 23A was held to be outside the purview of limitation provided in section 34 of the Act as in the opinion of the Court it was not an order of assessment. Doubt (!bout the correctness of the view taken in the above case has been expressed during the course of hearing. We need not say any thing about that as we constitute a Bench of equal strength. But we are clear and definite in our mind that the ratio of Parikh's case is neither applicable nor should be extended to cover the expression "Assessment Order" occurring in section 35 ( 1) of the Act. In the context the said expression would include an order made under section 23A also, as, such an order und01~btedly forms part of the . record of assessment. Mr. Gupte, learned counsel for the respondents in his usual fairness conceded, and rightly, that the power of rectifi cation of mistake conferred on the Income-tax Officer under section 35 ( 1) of the Act cannot be confined within the very narrow limit of an order of assessment made under section 23 only. Counsel sub mitted that it does embrace some other kinds of order relating to in assessment. Having conceded so far Mr. Gupte endeavoured vain to take an order made under section 23A of the Act outside the purview of the power of the Income-tax Officer for rectification of mistakes.

In Sankappa's case, as we have said above, the same Bench which decided Parikh' s case, after stating on the basis of certain earlier authorities that the word 'assessment' under certain circumstances in a given context has a more comprehensive meaning finally said at page 764 of 68 l.T.R. thus :

"It is clear that, when proceedings are taken for recti fication of assessment to tax either under section 35 ( 1) or section 35(5) of the Act of 1922, those proceedings must be held to be proceedings for assessment. In proceeding under those provisions, what the Income-tax Officer does is , to correct errors in, or rectify orders of assessment made by him, and orders making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment."

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SUPREME COURT REPORTS

[1977] 1 S.C.R.

The High Court in the judgment under appeal has extracted the above passage from Sankappa's case but allowed itself to be lnisled by it. Correctly appreciated, the passage means that what the Income-tax Officer does in a proceeding under section 35 ( 1) is to correct errors in assessment or rectify orders of assessment made by him. Either of such orders is a part of the proceeding of assessment. In our considered opinion correcting an apparent error in an order made under section 23A 'of tlie Act is rectifying a mistake in the record of assessment and clearly falls within the ambit of the power conferred upon the Income-tax Officer under section 35 (1) of the Act.

the Although in the appeals before us we are concerned with Income-tax Act of 1922 only, in passing we may make reference t<> the corresponding provisions in the Income Tax Act of 1961. Cor responding to section 23A of the 1922 Act is section 104 in the 1961 Act. Section 154(1) of the latter Act corresponds to section 35(1) of the former Act. Clause (a) of section 154( 1) says :

"With a view to rectifying any mistake apparent from

the record-

(a) the Income-tax Officer may amend any order of assessment or of refund or any other order passed by him;"

The provision so made is very precise and definite giving power t<> the Income-tax Officer to amend any other order passed by him apart from the order of assessment or refund. The language of section 35(1) of the 1922 Act, perhaps, is not wide enough conferring power on the Income-tax Officer to a~end any order passed by him under the Act and may not b(' at par with the wide powers conferred on him under sectiori 154(1) (a) of the 1961 Act. Yet it is not too narrow to cover only the order of assessment or of refund in a very restricted or limited sense. It is wide enough to take within its sweep some other orders made under the Act including an order under section 23A.

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For the reasons stated above, we allow these appeals and set aside the judgment and order of the High Court. The writ petitions filed by the respondents -are dismissed. Each of the two respondent com- panies must pay one set of costs in this Court in its respective appeals.

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V.P.S.

Appeals allowed.