J.L.KAPUR - (1.) THIS is an appeal pursuant to a certificate of the High Court of Kerala against the judgment and order of that Court and the question for decision is the applicability of S. 35 of the Indian Income-tax Act (hereinafter termed the 'Act').
(2.) THE facts which have given rise to the appeal are these: THE respondent is a limited company which owns a spinning mill at Alwaye. It commenced business in January 1951, and its first accounting year ended on 31/12/1951 and the relevant assessment year is 1952-53. It filed its return showing an income of Rs. 3,21,284 without taking into account the amount allowable under S. 15-C of the Act. On 2/02/1953, the net assessable income of the respondent was determined at Rs. 1,47,083 after deducting Rs. 1,79081 under S. 15-C. THE respondent however declared a dividend of Rs. 4,72,415 which attracted the application of S. 2 of the Finance Act, 1952, read with Part B, proviso (ii) of First Schedule and thus it became liable to the payment of additional income-tax and this fact was overlooked by the Income-tax Officer. After giving notice under Section 35 of the Act, the Income-tax Officer by an order dated 25/01/1954, rectified this error and imposed an additional tax at the rate of one anna in the rupee. He later discovered that this was also erroneous and the rate should have been 5 annas in a rupee. By an order dated 12/08/1954, he rectified the error. Under S. 18 A, advance income tax had to be paid and the respondent company had deposited only Rs. 5,000 and therefore became liable to penal interest under S. 18A (8) of the Act. By the same order this omission to impose penal interest was corrected and this error was thus rectified. Against this order the respondent company went in revision under S. 33-A (2) to the Commissioner of Income-tax but the revision was dismissed. Thereupon the respondent company filed a petition in the High Court of Kerala under Art 226 of the Constitution on the ground that S. 35 of the Act did not apply and that on the merits additional tax could not be imposed. The High Court by its judgment dated 31/10/1955, held that the orders made were without jurisdiction and therefore granted a writ of certiorari quashing the orders and the Income-tax Officer has brought this appeal pursuant to a certificate of that High Court. According to the High Court, S. 35 of the Act was a provision for rectification of "mistakes apparent on the record" and in the opinion of the High Court it was a mistake analogous to Order 47, Rule 1 of the Code of Civil Procedure for grant of review on the ground of mistake or error apparent on the face of the record and it construed it in the following words: "i. e. an evident error which does not require any extraneous matter to show its incorrectness. The error may be one of fact but is not limited to matters of fact and include also errors of law. But the law must be definite and capable of ascertainment. An erroneous view of law on a debatable point or a wrong exposition of the law or a wrong application of the law or a failure to apply the appropriate law cannot be considered a mistake or error apparent on the fact of the record. " On the ground that the applicability of proviso (ii) of Part B of the First Schedule of the Finance Act was a complex question which could not be said to be "apparent on the face of the record", the High Court held that the necessary foundation for the exercise of the powers under S. 35 had not been laid and therefore the Income-tax Officer had no jurisdiction to make the order that he did. The High Court also held that the levy of penal interest under S. 18-A (8) of the Act for failure to make advance deposit under S. 18-A (3) was also without jurisdiction.
(3.) THE learned Judges of the High Court seem to have fallen into an error in equating the language and scope of S. 35 of the Act with that of Order 47, Rule 1. Civil Procedure Code. THE language of the two is different because according to S. 35 of the Act which provides for rectification of mistakes the power is given to the various income tax authorities within four years from the date of any assessment passed by them to rectify any mistake "apparent from the record" and in the Civil Procedure Code the words are 'an error apparent on the face of the record" and the two provisions do not mean the same thing. This Court in Maharana Mills (Private) Ltd. v. Income-tax, Officer, Porbandar, 1959 36 I T R 350 has laid down the scope of S. 35 n the following words: "THE power under section 35 is no doubt limited to rectification of mistakes which are apparent from the record. A mistake contemplated by this section is not one which is to be discovered as a result of an argument but it is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake he is entitled to rectify the error provided that if the result is enhancement of assessment or reducing the refund then notice has to be given to the assessee and he should be allowed a reasonable opportunity of being heard." In that case the error arose because of an initial mistake in determining the written down value which was subsequently rectified. In an earlier case M. K. Venkatachalam v Bombay Dyeing and Manufacturing Co. Ltd., 1958-34 I T R 143 : where as a consequence of a subsequent amendment of the law having retrospective effect, the Income- tax Officer reduced the amount of interest under S. 18-A (5) of the Act and the assessee obtained from the High Court a writ of prohibition against the Income-tax Officer on the ground that the mistake contemplated had to be apparent on the face of the order and not a mistake resulting from an amendment of the law even though it was retrospective in its effect, it was held that it was a case of error apparent from the record. Gajendragadkar J. in his judgment said: "At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from 1/04/1952." Thus this Court has held that discovery of an error on the basis of assessment due to an initial mistake in determining the written down value is a mistake from the record and so is a misapplication of the law even though the law came into operation retrospectively. THE Income-tax Officer can, under S. 35 of the Act, examine the record and if he discovers that he has made a mistake he can rectify the error ad the error which can be corrected may be an error of fact or of law. THE restrictive operation of the power of review under O. 47, R. 1, Civil P. C., is not applicable in the case of Section 35 of the Act and in our opinion it cannot be said that the order of the Income-tax Officer in regard to assessment in dispute was without jurisdiction. In regard to S. 18-A(8) also the learned Judges have misdirected themselves because that section is mandatory. It provides :- S. 18-A(8) "Where, on making the regular assessment, the Income-tax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of this section, interest calculated in the manner laid down in sub-section (6) shall be added to the tax as determined on the basis of the regular assessment.";