VOLKART BROTHERS Vs. INCOME TAX OFFICER COMPANIES CIRCLE IV4 BOMBAY

JUDGEMENT

(1.) THIS is a petition under article 226 of the Constitution of India challenging the orders of rectification under section 154 of the Indian Income-tax Act made on February 8, 1965, by the respondent of the assessments of the petitioner No. 1 firm for the assessment years 1958-59, 1960-61, 1961-62 and 1962-63 and for quashing the said orders and the subsequent notices of demand issued in pursuance thereof dated February 9, 1965. The petitioners Nos. 2 and 3 are the two partners of the petitioner No. 1 firm and the firm as well as the partners are being assessed in India as non-residents. The petitioner-firm was duly registered under the Indian Income-tax Act, 1922, and also under the Income-tax Act of 1961. In the original assessments of the firm for the relevant assessment years with which we are concerned, the assessments were made on the slab relates applicable to registered firms in the respective Finance Acts. In the individual assessments of the partners their respective shares in the income of the firm were included and assessed at the maximum rate of non-residents. On February 1, 1965, the petitioner-firm was served with a notice dated January 29, 1965, by the respondent intimating to it that in its assessments for the assessment years 1958-59, 1960-61, 1961-62 and 1962-63 there were mistakes apparent from the record inasmuch as the firm had not been charged at the maximum rates of income-tax under section 17 (1) of the Act of 1922, corresponding to section 113 of Act of 1961, and he, therefore, proposed to rectify the assessment and enhance the tax under section 154 of the Indian Income-tax Act of 1961. The petitioners replied to the said notice contending that there was no mistake either apparent or otherwise in the said assessments and consequently the Income-tax Officer had no power to invoke his jurisdiction under section 154 of the Act. The respondent did not accept the said contentions and rectified the assessments for the said years by applying the provisions of section 17 (1) of the Act of 1922 to the assessments of the firm and followed the said orders made by him by issuing notices of demand on February 9, 1965. The present writ application has thereafter been filed by the petitioners on February 26, 1965, complaining of the said rectification orders and the notices of demand following them and praying for the quashing of the said orders and notices of demand and for prohibiting the respondent from taking any further action in pursuance thereof.

(2.) THE contentions of the petitioners are firstly that the original assessments made on the firm did not suffer from any mistake and, secondly, at any rate, the mistake alleged by the respondent, viz. , that section 17 (1) was not applied in making the assessments of the firm cannot be regarded as a mistake apparent from the record.

(3.) NOW, the power of the Income-tax Officer under section 35 of the Income-tax Act, 1922, or the corresponding section 154 of the Act of 1961, is limited to rectification of mistakes which are apparent from the record. It is well settled that the error apparent from the record is not only confined to an error of fact but may also include errors of law. It is, however, necessary that it must be an error which is apparent on the examination of the record itself without entering into any fresh or additional investigation. Moreover, it must be obvious and patent from the record and an error, which is not obvious and patent and can only be discovered as a result of an argument, cannot qualify as an error apparent from the record. In the present case the error apparent from the record, according to the department, is the non-application of the provision of section 17 (1) of the Act of 1922, or the corresponding provision of section 113 of the Act of 1961, to the assessments of the petitioner-firm. It is argued by the department that the said provision of law was clearly applicable to the case and the non-application there of by the Income-tax Officer constitutes an error apparent from the record, which the respondent was entitled to rectify under the power of rectification given to him under the Act. If the contention of the department that the case of the assessee-firm was clearly and unmistakably governed by the provision of section 17 (1) is correct and there can possibly be no difficulty in coming to an immediate conclusion on a perusal of the said provision that it must apply to the assessee's case, the department would be right in saying that there is an error apparent from the record. It is, however, contended by the assessee-firm that it is clear from the said provision itself and also when considered in the context of the scheme and history of the assessee that the application of the shame and history of the legislation that it has no application to the assessment of a registered firm, nor was it ever intended to have any such application. It is argued on behalf of the assessee that the application of the said provision would lead to the stating result of the income being taxed at more that 100 per cent. and the provision, if interpreted in the manner as contended for by the department, would go beyond the ambit of the charging section, which requires the income-tax to be a tax on the income and, therefore, related to income, and thus would be rendered in operative and invalid. It is argued on behalf of the assessee that it is the action of the Income-tax Officer to apply the provisions of section 17 (1) to the assessee-firm that would qualify to be an error apparent from the record rather than the non-application of the said provision in the original assessments of the firm. In these rival contentions put forward by the department and the assessee, we are inclined to agree with that of the assessee rather than that of the department. At any rate, there is no doubt whatsoever in our mind that the department's contention that on a perusal of the provisions of section 17 (1) there can be no doubt whatsoever that it covers the cases of registered non-resident firms, cannot be sustained. It appears to us that the question whether the said provision can apply to the case of a registered non-resident firm would raise a highly controversial issue in which, much, at any rate, may be capable of being said against its non-applicability to the case of registered non-resident firms, and the controversy could only be decided after and elaborate argument. In that view of the matter we are of the opinion that the respondent was not entitled to invoke his power of rectifying the assessments of the assessee-firm on the ground that they suffered from errors apparent from the record, and the impugned orders of rectification passed by him are without jurisdiction and, therefore, liable to be set aside as prayed for by the assessee. In the view that we are taking, it is not necessary for us to proceed to decide the question as to whether the provision of section 17 (1) is applicable to the case of a registered non-resident firm. We will, however, briefly indicate the reasons why we are inclined to take the view on merits that the provision can have no application.