S. K. MAL LODHA, J. - (1.) THIS is an application under s. 256 (2) of the Income Tax Act, 1961 (No. 43 of 1961) ('the Act' herein) by the Commissioner of Income Tax, Jodhpur, ('the C. I. T. ') for a direction to the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as 'the Tribunal') to state the case and refer the following questions for the opinion of this Court: " (1) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that notwithstanding the findings arrived at by the Income Tax Officer in the course of original assessment that the provisions of s. 13 (l) (c)/13 (2) (a) of the Act were applicable, the I. T. O. 's failure to deny exemption in terms of ss. 11 and 12 with respect to the assessee Trust's income was not an obvious, glaring and apparent legal mistake rectifiable u/s 154 of the I. T. Act, 1961? (2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in ignoring that the matter in dispute was straight way covered by the decision of the Supreme Court in the case of Venkatachalam V. Bombay Dyeing & Mfg. Co. Ltd. (34 ITR-143, 150/sc) to the effect that ah obvious and glaring mistake of law is a mistake apparent from record rectifiable under s. 154 of the Act? (3) Whether, on the facts and in the circumstances of the case and in view of the weight of material on record, the Tribunal was justified in cancelling the order of the Income Tax Officer passed under s. 154 of the Act?" The assessee is a Trust, which was allowed exemption under the Act. Deceased Bhagwatsingh was its Managing Trustee. A sum of Rs. 3,50,000/- was advanced to a Private Limited Company known as Lake Palace Hotels and Motels (P) Ltd. Udaipur (hereinafter to be referred as 'the company') on an interest @ 5% p. a. in earlier year. Deceased Bhagwat Singh was also the Managing Director of the Company. During the course of the assessment proceedings, the I. T. O. found that the Trust has advanced a further sum of Rs. 1. 50,000/- to the Company @ 10% p. a. The I. T. O. concluded that the assessee Trust had advanced loans without adequate interest to a person having the substantial interest within the meaning of s. 13 (3) of the Act. The I. T. O. further considered interest @ 10% as reasonable on the advance of Rs. 3,50,000/- and accordingly, taxed the excess amount of interest. According to the successor I. T. O. , the entire income of interest of the assessee Trust is taxable in view of the provisions of clause (c)ofsub-s. (l)of s. 13 (1) of the Act read with clause (a) of sub-s. (2) of s. 13 and not the excess amount of interest charged to tax by the assessing I. T. O. He was of the opinion that there is a mistake apparent from the record when the assessing I. T. O. only charged to tax excess amount of interest and that was a mistake of law. A notice under s. 154 of the Act was issued asking the assessee to show cause as to why the assessment be not rectified by denying the exemption allowed u/ss. 11 and 12 of the Act. A reply was filed by the assessee on June 26, 1980 stating that u/s 154 (1a) of the Act, the I. T. O. can order rectification of mistake in relation to any matter other than the matter which has been considered and decided by the A. A. C. in appeal. In this connection, it was submitted on behalf of the assessee that the A. A. C. had considered the taxability of Rs. 13, 125/- and decided that the entire income of the Trust was not taxable. The I T. O. rejected all the contentions raised by the assessee Trust and came to the conclusion that as the assessee Trust has lent money to a Private Limited Company which is a person referred to in s. 13 (3) on an inadequate interest, provisions of s. 13 (2) (a) read with s. 13 (1) (c) are applicable and consequently, ss. 11 and 12 will not be attracted. He, therefore, rectified the assessment under s. 154 of the Act and recomputed the taxable income of the assessee by his order dated July 17, 1980. An appeal was filed and the C. I. T. (Appeals) Rajasthan-I, Jaipur by his order dated December 18, 1980 dismissed the appeal holding that the question whether the appellant is entitled to exemption under any or all the provisions contained in ss. 11 and 12 is a highly debatable question and a mistake, if any on this point, cannot be said to be apparent from the record. He was further of the view that the I. T. O. had exceeded his jurisdiction in passing the impugned order. The Department filed further appeal before the Tribunal and it has observed as under : "however, the Commissioner of Income-tax (Appeals) has rightly decided the issue in favour of the assessee and had come to the conclusion that the mistake pointed out by the I. T. O. was not obvious and patent. The assessee was charged to tax on the additional interest of Rs. 13125/ -. The order under s. 154 had been passed that the interest income attracted the provisions of ss. 13 d) (c) and 13 (2) (a) of the Act. However, it is clear from the order passed u/s 154 of the Act that another item of income of Rs. 1, 73,953/- had been taxed. It is not clear whether the provisions of ss. 13 (1) (c) and 13 (2) (a) were applicable in relation to income of Rs. 13125/- or Rs. 1, 73, 953/- or to both. Under the above circumstances, the mistake pointed out by the I. T. O. was neither obvious nor patent nor glaring. It was neither a legal nor an arithmetical mistake. Under the above circumstances, the Commissioner of Income Tax (Appeals) was perfectly justified having in mind the decision in 82 ITR-50 (SC) in setting aside the order of the I. T. O. u/s 154 of the Act. " In view of the above conclusion, the appeal was dismissed. An application under s. 256 (1) of the Act was filed by the C. I. T. for referring the aforesaid three questions. The Tribunal by its order dated May 18, 1983 dismissed the reference application holding that according to the ratio of the decisions of the Supreme Court on the issue, no referable question arises and that whether or not, the issue is debatable is a finding of fact recorded by the Tribunal. Hence this application under s. 256 (2) of the Act as aforesaid.
(2.) WE have heard Mr. J. L. Daga, learned counsel for the Department and Mr. R. Mehta learned counsel for the assessee. S. 11 deals with income from property held for charitable or religious purposes and s. 12 deals with income of Trust or Institutions from contributions, S. 13 lays down that s. 11 or s. 12 will not apply in certain cases. The material part of s. 13 for the present purpose reads as under: "s. 13 (1)Nothing contained in s. ll ors. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof:- (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensures, or (ii) if any part of such income or any property of the trust or institution whenever created or established is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in subsection (3 ). (2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (l), the income or the property of the trust or institution or any part of such income or property shall for the purposes of that clause be deemed to have been used or applied for the benefit of a person referred to in sub-section (3), (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3), for, any period during the previous year without wither adequate security or adequate interest or both. The I. T. O. has rectified the assessment order on the ground that the assessee had lent its fund to the aforesaid Private Limited Company which falls within the purview of s. 13 (3) of the Act on inadequate interest and, therefore, the provisions of s. 13 (2) (a) read with s. 13 (1) (c) are applicable and consequently ss. 11 and 12 cannot be availed of. In other words, according to the I. T. O. , omission to charge tax was a mistake apparent from the record, for, the assessing I. T. O. had no discretion to assess only the excess interest in respect of the entire income, which was done at the time of the original assessment for the year 1974-75. The I. T. O. has referred to Venkatachalam V. Bombay Dyeing and Mfg. Co. Ltd. (1) to support the order of the rectification wherein the scope and effect of the expression 'mistake apparent from the record' was considered. The facts of that case are distinguishable. The principle laid down therein is that when there is omission to charge tax, such mistake can be rectified by exercising powers under s. 35 of the Indian Income Tax Act, 1922 ('the Old Act'), which is similar to s. 154 of the Act. We may, however, refer the decisions of the some of the High Courts bearing on the question. In Volu Vs. C. I. T. (2), it was held that where the I. T. O. omitted to include super tax and surcharge on super tax in the assessment as he ought to have done for that assessment year, there was a mistake apparent from the record and that the I. T. O. had jurisdiction to proceed under s. 35 of the Act and rectifiy the omission. In Vs. M. S. Sectalingam Chettiar V. I. T. O. (3), the Division Bench of the Madras High Court opined that if the order of assessment shows that interest in accordance with s. 18a (8) has not been added to the tax determined on the basis of the regular assessment, such omission is a mistake. It was held that s. 35 of the Old Act, applies and the mistake can be rectified under that section. In Wheeler & Co. Pvt. Ltd. Vs. I. T. O. (4), it was opined that where the I. T. O. had made an assessment for 1958-59 and 1959-60 without reducing the super-tax rebate as required by the Finance Acts of the respective years, that can be rectified under s. 35 of the Old Act.
(3.) IT was observed in P. A. & K. V. Rice Mill Co. Vs. Addl. Income Tax. Officer (5) that the I. T. O. has ample authority in rectification proceedings under s. 35 of the Old Act to add interest in the assessment in accordance with s. 18a (6) where the assessee is a new one within the ambit of s. 18a (3) despite the fact that no estimate was submitted by the assessee. In Swadeshi Cotton Mills Co. Ltd. Vs. I. T. O. (6), it was ruled that according to the mandatory provision of the Finance Act of 1956 contained in paragraph D of Part II, the rebate given under clause (ii) of the first proviso had to be further recalled as required by clause (1) (b) of the second proviso thereto and if it was not inadvertently given effect to, then there is a mistake of law apparent from the record and that the I. T. O. would be justified in invoking s. 35 of the Old Act. The Gujarat High Court has also occasion to consider the scope of s. 154 of the Act in C. I. T. Vs. Ahmedabad Jupitor Spg. Wvg. & Mfg. Co. Ltd (7 ). In that case, the question that arose was whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the order of the I. T. O. under s. 143 (3) dated March 28, 1968 granting set off of unabsorbed development rebate relating to assets installed prior to January 1,, 1958 by Hind Mills Ltd. , was not liable to rectification under s. 154 of the Act as it was not a mistake apparent from the record. It was held that such mistake was liable to rectification under s. 154 of the Act and the view taken by the Tribunal was erroneous. In the case on hand, there was omission to charge tax by the I. T. O. , for, he had no discretion to assess the excess interest only. The entire income was taxable. The assessee had lent its funds to the Private Limited Company on an inadequate interest, and, therefore, s. 13 (1) (c) and 13 (2) (a) are applicable and ss. 11 and 12 could not be attracted. ;