- (1.) This appeal relates to the assessment for the assessment year 1966-67 under the Income Tax Act, 1961. On the 16th of February, 1967 the original assessment was made under section 143(3) of the Income Tax Act, 1961. In the said assessment tax was computed as payable by the petitioner company on the basis of 25% of the dividend income of Rs.16,01,769/- and the taxable figure arrived at was Rs.3,00,442.26 P. After giving the petitioner credit for the tax deducted at source on this account the tax liability of the petitioner was nil on this amount. Thereafter, on the 26th of December, 1967 supplementary assessment was made under section 143(3) read with section 147(a) of the Income Tax Act, 1961 to include the capital gains arising as a result of the sale of 2,14,174 shares of Rs.10/- each to Vazir Sultan Tobacco Co. Ltd. On the 15th of February, 1968 an order was passed under section 154 of the Act on the ground that there was a mistake in the calculation of tax. In the said order in recomputing the tax the tax on dividend income was calculated at 25% as was made in the original assessment. Thereafter on the 5th of January, 1970 another Income Tax Officer made an order under Section 154 of the Income Tax Act, 1961 on the ground that there was some mistake in computation of the capital gains. While computing the tax he also followed the same computation of tax on the dividend income i.e., at 25% as was done in the original assessment. On the 16th of January, 1970 there was a subsequent rectification order under Section 154 of the Income Tax Act, 1961 on the ground that there was a mistake in tax calculation. But in the said order also the tax on the dividend income was computed at 25% as was the case in the original assessment. On the 3rd of February, 1971 a notice was issued under section 154 of the Income Tax Act, 1961 on the ground that there was an error in the calculation of tax on the dividend and, therefore, rectification under section 154 was proposed. The company thereupon moved this application under Article 226 of the Constitution on the ground that there was no mistake as contemplated under section 154 of the Income Tax Act, 1961 and obtained a rule nisi. The rule came up for hearing before T. K. Basu, J. and by a judgment delivered and order passed on the 2nd of February, 1973 the learned Judge made the rule absolute and quashed the aid notice and the proceedings thereunder. This appeal arises out of the aforesaid judgment of T. K. Basu J. delivered on the 2nd of February, 1973.
(2.) The only question with which we are concerned in this case is whether section 154 of the Income Tax Act 1961 has correctly been invoked in this case. Section 154 of the Income Tax Act, 1961 and the previous section 35 of the old Act of 1922 provide for rectification of mistake apparent from the record. The scope and ambit of the sections have been the subject-matter of several decisions and it has been held that a mistake which is not obvious or which requires investigation or in respect of which two different views are possible is not a mistake covered or contemplated by Section 154 of the Income Tax Act, 1961. We may refer to the decisions in the cases of T.S. Balaram, Income-tax Officer, Company Circle IV, Bombay v. Volkart Brothers & Ors., 82 I.T.R. 50 Income-tax Officer, 'G' Ward, Companies District I & Anr. v. India Foils Limited, 76 C.W.N. 549, and of Harbans Lal Malhotra & Sons Private Ltd. v. Income-tax Officer, 'C' Ward, Companies District II, Calcutta and Anr., 83 I.T.R. 848. Therefore, in order to come within the ambit of the section, it is necessary that the mistake must be obvious, patent and self evident and a mistake on which conceivably there can be two opinions cannot be rectified by virtue of section 154 of the Income Tax Act, 1961. The question in the instant case is, whether, the mistake sought to be rectified comes within the ambit of section 154 of the Act. As mentioned hereinbefore in the computation of tax made in respect of the dividend income in the original assessment as well as in the rectified assessment tax on the dividend income of Rs.16,01,769/- has been computed at 25% and the figure that was arrived was Rs.4,00,442.26 P. What the Income Tax Officer did by the last order dated the 16th of January, 1970 was that he computed the different heads of income and thereafter computed the income tax at 25% on the dividend income of Rs.16,01,769/- computed the income tax on commission of Rs.9738/- at 17% and income tax on capital gains of Rs.24,09,289/- at 30% and thereafter added up these tax calculations and arrived at the figure of Rs.11,30,045.50P. We are concerned here whether this tax calculation at 25% on the dividend income received by the petitioner company was made on the correct basis. This calculation has to be made with reference to the provisions of section 85A which has subsequently been repealed and reenacted in Section 80, which was introduced by the Finance Act, 1965. It provides, inter alia, as follows: Where the total income of an assessee being a company includes any income by way of dividends received by it from an Indian Company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee shall be entitled to a deduction from the income tax with which it is chargeable on its total income for any assessment year of so much of the amount of income tax calculated at the average rate of income tax on the income so included (other than any such income on which no income tax is payable under the provisions of this Act) as exceeds an amount of twenty five per cent thereof.
(3.) The section, first, deals with the question of an assessee who is a company and whose total income includes dividend received by it from an Indian company or a company which has made prescribed arrangement for the declaration and payment of dividends including dividends on preference shares within India. Therefore, the section applies to the assessee in the instant case to the dividends received by it from other companies. The section, secondly, provides that the said assessee viz., the company in this case shall be entitled to deduction. The deduction that the petitioner company is entitled to is as indicated by the section, i.e., the income tax which is chargeable to total income for the assessment year of so much on its income at the average rate of the income tax as exceeds 25%. In the instant case before us it appears that the total income other than the capital gains was Rs.16,11,507/- and the income tax thereon was 17% being the rate fixed by the relevant Finance Act. The capital gains of the petitioner company amounted to Rs.24,09,289/- and in accordance with the provisions of section 115 of the Income Tax Act, 1961 the company was liable to pay tax on the capital gains at the rate of 30%. Therefore, on a total income of Rs.40,20,796/- the total tax payable comes to Rs.18,50,842/-. This amount represents 46.03% of the income. This is the average rate which is spoken of in section 85A referred to hereinbefore and according to that section the petitioner was entitled to a deduction from this average rte so much of his income tax as exceeded 25% and that would be 21.03%, 21.03% would amount to Rs.336852/-. This would be deducted from the total liability and the total liability of the tax would be Rs.18,50,842/- and from this deduction of Rs.3,36,852/-. This was the mistake which was sought to be rectified. This mistake, in our opinion, was the result of miscalculation of the tax. It appears that the Income-tax Officer misread the section He thought that section 85A provided for a charging section and laid down the rate of tax on the dividend income of this type. What the section on the other hand stipulated was a deduction from the general average rate applicable. It did not provide for any rate of tax for the dividend income. The facts of the instant case, in our opinion, are apposite to the facts in the case of Maharani Mills (Private) Ltd. v. Income Tax Officer, Porbandar, 36 I.T.R. 350.;