LAKSHMI VENKATESWARA KALYANA MANDAPAM Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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T.V.Rajagopala Rao, -
(1.) THESE are appeals preferred by the assessee against the common order of the Deputy Commissioner of Income-tax (Appeals), Visakhapatnarn dated 19-3-1991 relating to assessment years 1985-86 to 1988-89.
(2.) The question at issue in these appeals is whether the income earned by the assessee is liable to be taxed at maximum marginal rate by applying provisions of Section 161 (1A) of the Income-tax Act which came into effect from 1-4-1985. Admittedly the assessee returned income for these four assessment years describing it as business income. The assessments were completed in the status of AOP and in the original assessments, tax was levied at ordinary rates. After the assessments were thus over, the Assessing Officer found out that since the income returned was business income, even according to the assessee, taxing the income at ordinary rates was a mistake and in violation of the provisions of Section 161(1A) which came into effect from 1 -4-1985 and in order to rectify the said defect, the Income-tax Officer gave notice dated 16-2-1990 under Section 154, seeking to rectify the assessment orders passed for each of these four assessment years. It is stated in these notices that as this is a private trust deriving income from business and all the beneficiaries are not relative-dependents of the author of the trust, the proviso under Section 161(1A) is not applicable and tax should have been levied at maximum marginal rate. However, instead the tax was levied only at ordinary rates which is a mistake. After receipt of the notices, the assessee ultimately failed to file any objections though it had requested adjournments to file its objections. The failure to file the objections was considered to be 'no objection' by the Income-tax Officer for the proposed rectification and, therefore, he passed rectificatory orders all dated 30-3-1990 separately for each of these four assessment years. The tax levied at maximum marginal rate, the tax at ordinary rate and the balance amount for which demand notices are served for each of these years are shown in the table given below:
Against the separate rectificatory orders dated 30-3-1990, the assessee went in appeal before the Deputy Commissioner (Appeals), Visakhapatnam. The Deputy Commissioner (Appeals) had consolidated all the appeals since all of them involved a common point and disposed of all the appeals by his consolidated order dated 19-3-1991. The contentions raised were all common and they are the following:
(1) The assessee was not given adequate opportunity to file its objections for the rectificatory notices.
(2) The question whether the income of the assessee was to be taxed at maximum marginal rate is a debatable issue and outside the scope of Section 154.
(3) The Assessing Officer could have followed the correct procedure by initiating proceedings under Section 147. It is contended that the assessee was hitherto assessed at rates applicable to individuals and subsequent change in the said method is a mere change of opinion and application of Section 161 (1A) on the ground that beneficiaries are not relative dependents of the author of the Trust was wrong.
The Deputy Commissioner (Appeals) repelled each one of the above contentions and in his impugned orders held that Section 161(1A) was introduced with effect from 1 -4-1985. The assessee's case was never tried to be brought under the exception provided under Section 161 (1 A). He held that since the assessee was an AOP and was earning business income, it should be taxed at the maximum marginal rate and the mistake of not taxing the assessee at maximum marginal rate is a mistake apparent from records and, therefore, the Assessing Officer was correct in rectifying any such mistakes by applying the provisions of Section 154. The mistake found out was clear and capable of rectification under Section 154 and for that reason initiation of proceedings under Section 147 is besides the point. There is no possibility of two opinions being present about the applicability of Section 161(1A) to the assessee. The contention does not bear any merit and, therefore, he dismissed the appeals for all these four years.
Before the Deputy Commissioner (Appeals), apart from the regular ground, some additional grounds also were filed. The third of such common additional ground filed was the following:
The Income-tax Officer ought to have held that Section 161 (1A) applies to income from business alone and in the instant case as the income is from property, Section 161(1A) had no application.
(3.) I have heard Shri D.V. Anjaneyulu, learned C.A. for the assessee and Shri C.V. Surya Prakash Rao, the learned Departmental Representative. The learned authorised represen ative for the assessee contended that no doubt, the assessee returned it incomes only under the head 'business income under a mistaken notion'. In fact the income returned would properly come under the head 'property income'. Shri D.V. Anjaneyulu contended that the income-tax return filed for each of these four assessment years contained an admission under a mistaken notion of law. Hence it is an erroneous admission which does not bind the assessee and in support of his proposition that an erroneous admission is not an admission, the assessee relied upon the following decision namely, the Allahabad High Court's decision in Abdul Qayume v. CIT  184ITR 404 at 411. It is further contended that in view of the administrative instructions in F. No. 81/27/65-IT(B), dated 18-5-1965, a copy of which is now furnished to this Tribunal in a paper compilation, ordains that the officers of the department should not take advantage of the assessee's ignorance as to his rights. It is one of their duties to assist a taxpayer in every reasonable way particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding the taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. At some other place in the instructions it is said that whatever the legitimate tax, it must be assessed and must be collected. The purpose of the circular is merely to emphasise that the department should not take advantage of the assessee's ignorance to collect more tax out of him than is legitimately due from him. In view of the above instructions, the Department should not take advantage of the ignorance of law exhibited by the assessee in this case and is not justified to collect tax at maximum marginal rate under Section 161(1A) and in fact the whole income earned by the assessee is in its true nature 'property income'. The assessee relied upon the following decisions:
(1) CIT v. Khalid Mehdi  165 ITR 685 (AP),
(2) CITv. Phabiomal & Sons  158 ITR 773 (AP),
(3) ITO v. K. Rami Reddy & Sons  24 ITD 228 (Hyd.), and
(4) CIT v. New India Industries Ltd.  201 ITR 208 (Guj.).
If the assessee is able to substantiate its plea that the correct income head under which the income earned by the assessee should be assessed is 'property income' then Section 161 (1 A) does not apply since it applies only to business income and not property income and as such there is no scope for rectification of the assessment at all and on that ground the rectificatory orders are to be held as illegal arid all the appeals should be allowed.;
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