1980 (4) TMI 83 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of wealth-tax paid by the assessee.
2. Impact of the Income-tax (Amendment) Act, 1972, on the deductibility of wealth-tax.
3. Tribunal's power to rectify its order under Section 254(2) of the Income-tax Act, 1961.
4. Finality of Tribunal's order and its rectifiability.

Issue-wise Detailed Analysis:

1. Deductibility of Wealth-tax Paid by the Assessee:
The primary issue was whether the wealth-tax paid by the assessee amounting to Rs. 37,879 was deductible as business expenditure. Initially, the ITO disallowed this deduction for the assessment year 1959-60, and the AAC confirmed this disallowance as the assessee did not press this ground. The Tribunal later allowed the deduction based on the Supreme Court's decision in Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735, which held that wealth-tax was deductible in certain cases. However, the subsequent Income-tax (Amendment) Act, 1972, clarified that wealth-tax was not deductible, impacting the Tribunal's earlier decision.

2. Impact of the Income-tax (Amendment) Act, 1972, on the Deductibility of Wealth-tax:
Sections 2 and 4 of the Income-tax (Amendment) Act, 1972, explicitly stated that wealth-tax was not deductible in computing the total income for assessment years commencing on or after April 1, 1957. This amendment was deemed to have retrospective effect, thereby nullifying the Tribunal's decision to allow the deduction of wealth-tax. The court noted that the amendment should be treated as if it had always been part of the law, thus affecting the deductibility of wealth-tax for the relevant assessment year.

3. Tribunal's Power to Rectify its Order under Section 254(2) of the Income-tax Act, 1961:
The Tribunal rejected the revenue's application to amend its order, citing a lack of power under Section 254(2) of the Income-tax Act, 1961, to amend or modify an order that had attained finality under Section 24(10) of the Wealth-tax Act, 1957. The court, however, held that Section 254(2) authorized the Tribunal to rectify any mistake apparent from the record within four years from the date of the order, including final orders. The court emphasized that the deeming provision of the amendment made the earlier allowance of wealth-tax a mistake apparent from the record, which the Tribunal had the power to rectify.

4. Finality of Tribunal's Order and its Rectifiability:
The Tribunal's stance on the finality of its order was challenged. The court clarified that the expression "any order" in Section 254(2) included final orders. The court referred to precedents, including the Supreme Court's decisions in M. K. Venkatachalam, ITO v. Bombay Dyeing and Manufacturing Co. Ltd. [1958] 34 ITR 143 and S. A. L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149, which supported the rectification of mistakes apparent from the record. The court concluded that the Tribunal's order allowing the deduction of wealth-tax was indeed a mistake apparent from the record due to the retrospective effect of the amendment.

Conclusion:
The court reframed the question to focus on whether the Tribunal was right in holding that there was no rectifiable error in its order dated July 12, 1972, and in dismissing the miscellaneous application made by the department. The court answered in favor of the revenue, stating that the Tribunal was wrong in dismissing the application for rectification. The court held that the Tribunal had the power to rectify its order under Section 254(2) of the Income-tax Act, 1961, and that the amendment made by the Income-tax (Amendment) Act, 1972, made the earlier allowance of wealth-tax a mistake apparent from the record.

Costs:
Each party was ordered to bear its own costs.

Concurring Opinion:
SUDHINDRA MOHAN GUHA J. concurred with the judgment.