Dwarka Prasad, J. - (1.) THESE 15 writ petitions raise common questions of fact and law and as such it would be convenient to dispose of them by a common order.
(2.) THE petitioners are the shareholders of M/s. Associated Stone Industries (Kotah) Ltd., Ramganjmandi (hereinafter referred to as "the company"). THE company was incorporated in the erstwhile-princely State of Kota on January 17, 1945, as a public limited company for carrying on the business of quarrying and polishing stones. THE then Maharaja of Kota granted a lease to the company on May 2, 1945, for a period of 15 years beginning from October, 1944. THE company distributed dividends to its shareholders, including the petitioners, for the assessment years 1957-58 to 1960-61. THE ITO, Kota, who was the assessing authority in respect of the petitioners did not gross up the dividends received from the company by the petitioners as shareholders thereof under Section 16(2) of the Indian I.T. Act, 1922 (hereinafter referred to as "the Act"), at the time of the original assessment of the petitioners on the ground that the company did not pay income-tax which it was liable to pay within three years. THE petitioners in Civil Writ Petitions Nos. 132 of 1963 and 133 of 1963, filed appeals against the aforesaid orders passed by the ITO, Kota, before the AAC of Income-tax, Jaipur, who held that the dividends paid by the company to the petitioners should be grossed up under Section 16(2) of the Act and credit for the tax should be allowed under Section 18(5) of the Act. After the aforesaid order was passed by the appellate authority, the ITO gave effect to the orders passed by the AAC of Income-tax, Jaipur, and although he did not pass any formal orders, yet he grossed up the dividend income allowing credit for tax and issued correction slips in respect of the tax payable by the petitioners in the aforesaid two writ petitions. In the case of the other petitioners, the Income-tax Officer, Kota, who was the assessing authority, allowed the dividend income received by the petitioners from the company to be grossed up and gave credit for tax to the petitioners under Section 18(5) of the Act. Some time later, the ITO, Kota, issued notices to the petitioners under Section 35 of the Act, stating therein that the assessment orders of the petitioners required modification as they suffered from a mistake apparent from the record because the petitioners had dividend income from the company and the company had not paid tax till then and so the credit allowed to the petitioners under Section 18(5) of the Act in respect of the dividends paid by the company was to be withdrawn under Section 35(9) of the Act. The notices issued to the petitioners by the ITO, Kota, for the rectification of the mistake, as per details given in the respective notices, called upon them to show cause why the credit allowed to them under Section 18(5) of the Act should not be withdrawn and the assessment made in respect of the petitioners be not modified for the aforesaid reason. The petitioners gave almost identical replies to the notices, issued to them by the ITO, Kota, under Section 35 of the Act. The petitioners in Writ Petitions Nos. 132 of 1963 and 133 of 1963 also stated in their replies, besides the grounds taken by all the other petitioners in their replies, that the dividend income received by such petitioners from the company were grossed up and credit for the tax was given to them as a result of the decision of the AAC of Income-tax in their appeals, and that the ITO had no authority to refuse to gross up the dividends and withdraw the credit directed to be given by the AAC of Income-tax. It was stated by all the petitioners in their replies to the notices issued by the ITO, Kota, under Section 35 of the Act that it could not be said that the company did not pay the taxes for the assessment years in question as the company had deposited with the State Government of Rajasthan the amount by way of royalty for the aforesaid years, which amount was not only payable in respect of royalty proper but also included an amount in lieu of income-tax, super-tax and other Central taxes and, thus, so far as the company was concerned, all the taxes due from it had been paid and there was no question of invoking the provisions of Section 35(9) of the Act. The ITO, Kota, rejected the contentions of the petitioners and came to the conclusion that the dividend income in respect of shares which was received by the petitioners from the company was erroneously grossed up since the company had not paid income-tax on profits out of which the dividends were declared by it and that credit under Section 18(5) of the Act was wrongly allowed to the petitioners and the same was liable to be withdrawn by virtue of the provisions of Section 35(9) of the Act. The ITO also came to the conclusion that the aforesaid mistake was apparent from the record and should be rectified under the provisions of Section 35 of the Act. He, therefore, recomputed the total income of each one of the petitioners for the relevant assessment years for the purpose of levying income-tax, super-tax, surcharge, etc., by including therein the amount of dividend income received by the petitioners from the company in respect of their shares and also raised a demand for the difference in the amount of tax payable by the petitioners on the re-computed income and on the income originally computed by him. In these writ petitions, the orders passed by the ITO, Kota, under Section 35(9) of the Act and the demand raised in pursuance thereof have been challenged by the petitioners and it has been prayed that the said orders passed by the ITO and the demand raised by him be quashed. It was argued by Mr. S. M. Mehta, learned counsel for the petitioners in these writ petitions that the condition precedent to the issuance of a notice under Section 35 of the Act is that the ITO should himself be satisfied that the income payable by the company on its profits and gains out of which the company had declared dividends had not been paid within 3 years after the financial year in which the dividends were declared, and that the notice under Section 35(9) of the Act cannot be issued merely on the basis of instructions issued by the CIT. In support of this contention, learned counsel for the petitioners drew our attention to the notice issued under Section 35 of the Act by the ITO, 'C' Ward, Kota, in Writ Petition No. 133 of 1963 and argued that the notice in the case of the petitioners in the other writ petitions also appear to have been issued in similar circumstances. Mr. L.R. Mehta, appearing for the revenue, controverted the aforesaid contention and argued that the notice issued in all the writ petitions showed that the ITO concerned had applied his mind and was satisfied that the company had not paid the income-tax on its profits and gains within three years of the year in which the dividend was declared and as such he was justified in issuing the notices under Section 35 of the Act to all the petitioners. Mr. L.R. Mehta submitted that an error was committed by the ITO, at the time of the original assessments, in grossing up the amount of dividend income received by the petitioners from the company and in giving credit to them for the tax under Section 18(5) of the Act. According to the learned counsel for the revenue, the ITO should have included the amount of dividend income received by the petitioners from the company along with their other income for the purpose of computing the total income of the respective petitioners and such a mistake was apparent on the face of the record and that such an error could be brought to the notice of the assessing authority by any person. The relevant provisions of Section 35 of the Act, with which we are concerned, are as under : "35. (1) The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under Section 33A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee: Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard... ." "35. (9) Where the Income-tax Officer is satisfied that the income-tax payable by a company on its profits and gains out of which the company has declared a dividend, has not been paid within three years after the financial year in which the dividend was declared, the amount of income-tax which a shareholder of the company is deemed himself to have paid in respect of such dividend under Section 49B, or the amount for which credit is due to him under Sub-section (5) of Section 18 in respect of such dividend, shall be deemed to have been wrongly computed ; and the Income-tax Officer may, notwithstanding anything contained in this Act, proceed to recompute such amount by reducing it in the same proportion as the amount of income-tax remaining unpaid by the company bears to the amount of income-tax payable by it on such profits and gains, as if the re-computation is a rectification of a mistake apparent from the record within the meaning of this section ; and the provisions of Sub-section (1) shall apply accordingly, the period of four years specified therein being reckoned from the date on which the period of three years aforesaid has expired : Provided that this Sub-section shall not apply in relation to dividends payable by a company in respect of any previous year relevant to any assessment year commencing on or after the 1st day of April, 1960." The notices issued by the ITO, Kota, to the petitioners are identical, except the one issued to the petitioner in Writ Petition No. 133 of 1963. The notice issued to the petitioner in Writ Petition No. 132 of 1963, which may be taken to be illustrative of the notices in all the other writ petitions except Writ Petition No. 133 of 1963, runs as under : "The assessment for the year 1957-58 made on 6-9-62 requires to be modified as there is mistake apparent from record within the meaning of Section 35 of the Indian Income-tax Act. The rectification of the mistake, as per details given below, will have the effect of enhancing the assessment/ reducing refund by Rs. 12,942 and if you wish to be heard, you are requested to appear in person or by representative in my office on 10-2-63 at 11 a.m. If, however, you intend sending a written reply to this notice and do not wish to be heard in person you are requested to ensure that your reply reaches me on or before the date mentioned above. The company has dividend income from A.S.I. (K) Ltd., Ramganjmandi. As the company has not paid tax till now, the credit allowed under Section 18(5) on the dividends of A.S.I. (K) Ltd. are to be withdrawn under Section 35(9) of the 1922 Act." Thus, considering the case of the petitioners in all other writ petitions, except Writ Petition No. 133 of 1963, a bare perusal of the aforesaid notice shows that the ITO realised that the assessment made in respect of the respective petitioners for the assessment year in question required modification, as the same suffered from a mistake apparent from the record, within the meaning of Section 35 of the Act, and for that purpose the petitioners were required to show cause and appear for a hearing before the ITO concerned or send a written reply to him. The mistake which was proposed to be rectified has also been specified in the notice and it has been clearly mentioned therein that although the company did not pay the income-tax payable by it on its profits and gains during the relevant assessment year, yet the ITO had allowed the petitioners credit for the tax under Section 18(5) of the Act on the amount of the dividend income received by the petitioners from the company and that under the provisions of Sub-section (9) of Section 35 of the Act a recomputation of the income of the petitioners should be made by taking into consideration the income-tax payable by the petitioners on the income received by them from the company by way of dividends. Although the word "satisfaction" has not been used in the notices issued by the ITO to the petitioners under Section 35(9) of the Act, yet the recitals made in the said notices clearly lead to the conclusion that the ITO felt satisfied that the assessment of the petitioners for the relevant assessment years suffered from an error apparent on the record which was specified in the notice.
(3.) LEARNED counsel for the petitioners relied upon the decision of the Madras High Court in CIT v. T.R. Rajakumari [1974] 96 ITR 78 and the decision of their Lordships of the Supreme Court in Sirpur Paper Mills Ltd. v. CWT [1970] 77 ITR 6, in support of his contention that the ITO should himself apply his mind and should be satisfied independently about, the existence of the alleged mistake apparent from the record and he should not act merely on the directions received from higher authorities. The Madras case referred to above related to proceedings for reassessment of tax under Section 147 of the I.T. Act, 1961, and it was held therein that initiation of reassessment proceedings by the ITO on the basis of directions received from the Commissioner were invalid, as a condition precedent for initiation of reassessment proceedings is a reasonable belief of the ITO him self that the income of the assessee had escaped assessment. In Sirpur Paper Mills' case [1970] 77 ITR 6 (SC) applications for revision under Section 25 of the W.T, Act, 1957, were disposed of by the Commissioner in accordance with the instructions of the Central Board of Revenue. In such circum stances, their Lordships of the Supreme Court set aside the order passed by the Commissioner and directed him to rehear and redecide the revision application afresh, according to law and uninfluenced by any instructions or directions given by the CBR. In the aforesaid case, their Lordships of the Supreme Court held that in the matter of exercise of quasi-judicial powers by the Commissioner he must apply his unbiased mind and consider the objections raised by the aggrieved party impartially, and decide the dispute according to the procedure consistent with the principles of natural justice and he cannot allow his judgment to be influenced by or dictated by any superior authority. As we have already pointed out above, in all other writ petitions, except Writ Petition No. 133 of 1963, there is nothing on record to show that the ITO did not apply his independent mind to the facts of the case or that he was influenced or guided in the matter by any instructions issued by the CIT or any other superior authority. On the other hand, a bare reading of the notices issued under Section 35 of the Act shows that the ITO himself considered the matter and felt that the earlier assessment orders suffered from an error apparent on the face of the record and that they required modification in accordance with the provisions of Sub-section (9) of Section 35 of the Act. In L. Hirday Narain v. ITO [1970] 78 ITR 26 (SC), it was held by their Lordships of the Supreme Court that the exercise of power to rectify an error apparent from the record is conferred upon the ITO to ensure that injustice to the assessee or to the revenue may be avoided. The relevant observations of their Lordships of the Supreme Court in this respect are as under (p. 32): "Exercise of power to rectify an error apparent from the record is conferred upon the Income-tax Officer in aid of enforcement of a right. The Income-tax Officer is an officer concerned with assessment and collection of revenue, and the power to rectify the order of assessment conferred upon him is to ensure that injustice to the assessee or to the revenue may be avoided. It is implicit in the nature of the power and its entrustment to the authority invested with quasi-judicial functions under the Act, that to do justice it shall be exercised when a mistake apparent from the record is brought to his notice by a person concerned with or interested in the proceeding." Their Lordships quoted with approval the observations of Lord Blackburn in Julius v. Bishop of Oxford [1880] 5 App Cas 214 (HL) to the effect that (p. 32) "the enabling words give a power which prima facie might be exercised or not, but if the object for which the power is conferred is for the purpose of effectuating a right there may be a duty cast upon the donee of the power to exercise it for the benefit of those who have that right when required on their behalf ". ;