DIVAN, J. -
(1.) THE petitioner in this Special Civil Application is the assessee and is also the applicant in the income -tax reference. The Special Civil Application is in connection with the assessment year 1961 -62 and the reference is in connection with the assessment year 1962 -63. The question which arises for consideration is the same in both the matters as will be pointed out later in the course of this judgment and, therefore, we are disposing of both these matters by this common judgment.
(2.) THE petitioner in the special civil application challenges two orders, one passed by the ITO, the first respondent herein, on September 10, 1970, being annex. 'E' to the petition. This order was passed by way of rectification in exercise of the powers of the ITO under s. 35 of 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 the benefits of the partnership to the extent of one anna share in the profits of the firm. In Krishna Oil Mills the mother, that is the petitioner, was entitled to 6.25 paise share out of one rupee in the profits of the firm and each of the three minor sons was entitled to a share of 6.25 paise out of one hundred paise in the profits of the firm. In the partnership deeds of Rasik Solvent Extraction Company and Messrs. Krishna Oil Mills, by clause 6, which was in identical terms in both the cases, it was provided as follows : 'The partners shall in like proportion bear all losses including the loss of capital, if any, provided however and it is hereby expressly agreed by and between the parties hereto being all majors that the minors admitted to the benefits of the partnership shall be entitled to the benefits of the 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 and that pending their respectively attaining the age of majority their respective share in the profits of the business shall be accumulated to their respective credit so as to be available to meet their respective share of losses, if any, incurred by the firm at any time during their respective minority provided always that in the event of the accumulation to the credit of the minor, Rasikchandra Dayalbhai Vadera, being insufficient for his share of losses, if any, such insufficiency or deficit shall be exclusively borne by the second partner and in the event of the accumulations to the credit of the minors, Narendrakumar Harjivandas Kotecha, Chandulal Harjivandas Kotecha and Rameshchandra Harjivandas Kotecha, the eleventh partner, the twelveth partner and the thirteenth partner, respectively, being insufficient for their respective share of losses, if any, such insufficiency or deficit shall be exclusively borne by the third respondent (the petitioner herein).'
(3.) THE terms and conditions of the deed of partnership of Halar Salt Works are not material for the purposes of this judgment. For the assessment year 1961 -62, for which the relevant previous year was S.Y. 2016, that being the accounting period, the petitioner filed her return showing the total income of Rs. 70,710 comprising of property income of Rs. 417, income from money lending business of Rs. 15,943 and share from money -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 profit 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 profits 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 by way of their share in the profits of Messrs. Rasik Solvent Extraction Company. The share of profits from Krishna Oil Mills was computed at nil subject to the modification under s. 35 of the Act on finalisation of the assessment of the said firm by the ITO in charge of the assessment of the firm. In exercise of the powers, under s. 155 of the I.T. Act, 1961, on July 13, 1966, the ITO assessed the petitioner's income from Halar Salt and Chemical Works at Rs. 66,223 in place of Rs. 54,350 and he also allowed the sum of Rs. 4,648 as remuneration payable to one B. V. Trivedi. As a result of the aforesaid modification, the revised income of the petitioner came to be computed at Rs. 75,650. When the assessment of Krishna Oil Mills was completed by the order dated December 1, 1968, the accounts of the firm showed, after necessary computation, a loss of Rs. 1,50,916. The share of loss of each minor and that of the petitioner was computed at Rs. 9,434 and as a result of the completion of the assessment of Rasik Solvent Extraction Company and Krishna Oil Mills, the petitioner's income was rectified on February 3, 1967, by an order passed by the ITO under s. 155. The loss suffered by the three sons of the petitioner and by the petitioner herself in the assessment year 1961 -62 so far as Messrs. Rasik Solvent Extraction Company and Messrs. Krishna Oil Mills were concerned, came to the following computation : The petitioner herself was entitled to a set -off of the loss of Rs. 94,340 against the income of Rs. 75,650 and by virtue of clause 6 of the partnership deed of Krishna Oil Mills, she became entitled to a set -off of Rs. 28,102 against the said income of Rs. 76,650 according to the contentions urged on behalf of the petitioner. Thus, the entire amount of Rs. 37,736 comprising the loss suffered by the petitioner herself and the loss attributable to the shares of the three minor sons of the petitioner came to Rs. 37,736 and in the order which was passed on February 3, 1967, the petitioner was allowed the set -off of this amount of Rs. 37,736 against her total income from all other sources. Thus, the petitioner's income finally was revised at Rs. 41,698, it was further revised at Rs. 43,925 and later on by an order, which was final, revised on January 9, 1970, and the petitioner's income stood assessed at Rs. 43,620.;