DIPAK KUMAR SEN, J. - (1.) : The Shell Petroleum Co. Ltd., the assessee, is a non-resident company. During the relevant accounting year, the assessee was a shareholder of Burmah-Shell Refineries Ltd., an existing company within the meaning of the Companies Act, 1956 (hereinafter referred to as " the Indian Company "). The assessee held 50per cent of the total share capital of the Indian company.
(2.) IN the asst. yr. 1957-58, the assessee was assessed to income- tax under the INdian IT Act, 1922. Under the order of assessment passed on February 17, 1959, the total income of the assessee was computed at Rs. 1,40,07,571 which included dividends received from an INdian company. A certificate was issued by the INdian company under s. 20 of the INdian IT Act, 1922, recording that 22.01per cent of the dividends declared by the INdian company came out of its profits exempt under s. 15C of the Act of 1922 and that the balance 77.99per cent had suffered full tax. The ITO while assessing the assessee grossed up the dividend on the said basis. The above assessment was reopened under s. 34 of the Act of 1922 and an order of reassessment was passed on September 27, 1962. The ITO recomputed the income of the assessee holding that the percentage of the taxable profit of the Indian company to the total sum out of which dividends had been declared was 58.27per cent and that the grossing factor was 11.804. Dividend received by the assessee was grossed up accordingly. Aggrieved by the reassessment, the assessee went up in appeal to the AAC and thereafter to the Tribunal. By its order dated November 3, 1966, the Tribunal set aside the order of reassessment and directed the ITO to recompute the income of the assessee oil the basis that no part of the dividends declared by the Indian company came out of the earlier year's profit and that the dividends had been declared out of the balance of profits after charging further depreciation. It was held that the ITO was not right in adding the amounts of such further depreciation, viz., Rs. 2.12 crores, to arrive at the profits of the Indian company. On June 29, 1967, the ITO made a fresh assessment in accordance with the order of the Tribunal recomputing the gross dividend. The ITO held that the percentage of taxable profits of the Indian company to the total sum out of which the dividend was declared was 78.78per cent and that the grossing factor was 1.261.
(3.) LATER, in 1971, the ITO sought to rectify the above order dated June 29, 1967. By an order passed on June 18, 1971, which was recorded as having been passed under s. 154 of the IT Act, 1961, the earlier order dated June 29, 1967, was rectified. The ITO made a fresh computation and held that the dividend should be grossed up at 71per cent instead of 78.78per cent and that the exemption under s. 15C should be granted at 29per cent instead of 21.22per cent. In the computation, the ITO held further that loss of the Indian company in earlier years aggregating to Rs. 66,33,021 which was set off against the profits of the relevant assessment year should be added back to such profits and gains out of which dividends were declared for working out the grossing factor. Being aggrieved by the aforesaid, the assessee preferred an appeal to the AAC. The AAC held that the proceedings for rectification initiated by the ITO was not justified as the same had been initiated long after the lapse of the period allowed under the Act. The mistake which was sought to be rectified had occurred in the original order of the ITO and not in his subsequent orders. There was no mistake which could be stated to be apparent from the records. The points on which rectification was effected involved consideration of different contentions and were not free from doubt. The appeal of the assessee was allowed. Being aggrieved, the Revenue preferred a further appeal before the Tribunal. In the appeal before the Tribunal, the Revenue contended for the first time that the proceedingsfor rectification were initiated and had been taken under s. 35 of the Indian IT Act, 1922. Though the order had apparently been made under s. 154 of the Act of 1961, the same was to be treated as proceedings under s. 35 of the Act of 1922, in view of the provisions of s. 297(2)(d)(i) of the IT Act, 1961. The proceedings having been taken under s. 35 of the Act of 1922, it was contended that no appeal lay from the same before the AAC who had erred in entertaining the appeal. It was further urged that though an error was committed by the AAC in his order, the same, however, remained an appealable order and that the Tribunal was competent to adjudicate upon the issue. The Tribunal was invited to hold that the Appellate Assistant Commissioner was not competent to entertain the appeal.;