TMI Blog1995 (12) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. According to the assessee, the Income-tax and Surcharge would come to Rs. 92,077 as against Rs. 1,14,295 determined by the Assessing Officer. The Assessing Officer accepted the assessee's contention and passed an order under section 154 dated 15-4-1986. In the said order, the Income-tax and surcharge was calculated at Rs. 92,077. Subsequently the Assessing Officer felt that in the order dated 15-4-1986 a mistake apparent from the record had crept in and that "ordinary rates have been applied by mistake in the revision order instead of maximum marginal rate". Proceedings under section 154 were initiated by issue of notice dated 7-3-1988. The hearing was fixed for 17-3-1988. The assessee in its reply dated 24-3-1988 contended that the Income-tax for the assessment year 1985-86 had been correctly worked out in the order dated 15-4-1986 and in the circumstances no rectification was warranted, by stating as under : "The term 'Maximum marginal rate' is to mean 'the rate of Income-tax (including surcharge on Income-tax, if any) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble of a statute, the interpretation which is beneficial and favourable to the assessee should be adopted --- CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), He relied on the decision of the Cochin Bench of the Tribunal in the case of V.S.V. Trust. He urged that the Calcutta High Court's decision in the case of Surendranath Gangopadhyaya Trust is not applicable to the point at issue here since in that case their Lordships have not interpreted the words "maximum marginal rate". Accordingly he prayed that the order under section 154 dated 27-4-1988 should be set aside. 5. The Departmental Representative filed copies of order under section 154 dated 15-4-1986, notice under section 154 dated 7-3-1988 and the assessee's reply dated 24-3-1988. He supported the order of the CIT (Appeals). 6. We have considered the rival submissions and perused the papers filed before us. The Cochin Bench of the Tribunal in the case of the V.S.V. Trust held that maximum marginal rate of tax does not mean the highest rate of income-tax but is arrived at by taking the maximum rate of tax and surcharge thereon duly marginalised for the difference in rate of tax prescribed for different slabs of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 'maximum marginal rate' means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year." [Emphasis supplied] The rates of income-tax in the Finance Act are mentioned in the First Schedule, Part-I, Paragraph-A and sub-paragraph 2. The highest slab rate of income-tax is provided in 9th clause, which reads as follows : "(9) where the total income Rs. 35,250 plus 55 per cent exceeds Rs. 1,00,000 of the amount by which the total income exceeds Rs. 1,00,000 (excluding surcharge). The amount of income-tax computed shall be increased by a surcharge @ 121/2% of such income-tax." In the present case, the Assessing Officer originally framed the assessment determining the total income at Rs. 1,84,720 and the income-tax thereon (including surcharge) at Rs. 1,14,295. The above income-tax was determined by calculating at the rate of 61.875% (inclusive of surcharge). Thereupon the assessee filed an application on 10-4-1986 under section 154 for rectification of the order. In the petition the assessee claimed that tax must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be calculated up to Rs. 1 lakh as provided in clause 9 of the First Schedule and not at the rate of 55% (being the highest rate) and only on the income over and above Rs. 1 lakh the rate of 55% is applicable. If the contention of the assessee is accepted, then there is no difference between the ordinary rates of tax and the maximum marginal rate of tax. The Legislature had consciously introduced the levy of maximum marginal rate in order to contain the tax evasion by levying highest rate of tax in respect of certain assessees. 6. The contention of the assessee as found from the reply as well as from the orders of the lower authorities is that the maximum marginal rate means the tax referred to in clause 9 of Part-I, Paragraph-A of the First Schedule and the rate of tax of 55% on the income over and above Rs. 1 lakh. This interpretation is not at all acceptable, as it goes contrary to the intention of the Legislature and put the assessee on par with other assessees to whom ordinary rates are applicable. This interpretation is not correct in view of the decision of the Calcutta High Court in the case of Surendranath Gangopadhyaya Trust and the decision of the Madhya Pradesh High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed on 15-4-1986 accepting the claim of the assessee under section 154 is erroneous and what the Assessing Officer did in the present case was to rectify the order dated 15-4-1986, restoring the original assessment order. Hence the order passed by the Assessing Officer on 27-4-1988 is perfectly justified and the assessee cannot succeed either on merits or on technical grounds that the order cannot be rectified under section 154. Even on merits, the term "maximum marginal rate" was defined in Explanation 2 to section 154 and it refers to the rate of tax applicable to the highest slab of income of an Association of Persons specified in the Finance Act and this does not give rise to two opinions to hold that the rectification cannot be made under section 154 of the Act. 9. Under the above circumstances, I uphold the order of CIT(Appeals) and dismiss the appeal filed by the assessee. ORDER On a difference of opinion on the following point, the case was referred to me by the Honourable President, Income-tax Appellate Tribunal, for hearing as a Third Member under section 255(4) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is subject to a surcharge of 121/2% on the said Income-tax." It thus stated that the tax had been correctly worked out and objected to the rectification. The reply of the assessee was not found acceptable by the ITO and he held : "The correct rate of tax as specified in section 161(1A) of the Income-tax Act is at 61.875 including surcharge." He, therefore, revised the order determining the tax at the original figure of Rs. 1,14,295. 4. The assessee appealed to the Commissioner of Income-tax (Appeals) who dismissed the assessee's appeal by stating in paragraph 3 of his order as under : "I have considered the appellant's contention. By virtue of Amendment by Finance Act 84, Sub-section (1A) has been inserted. Under section 161(1A), where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee includes profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. For the purpose of this sub-section, 'maximum marginal rate' shall have the meaning assigned to it in Explanation 2 below sub-section (3) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the rate that is applicable to the highest, slab and not the amount of tax for highest slab, and that it was 55% plus 121/2% surcharge thereon as per clause (9) under Part-I, Paragraph-A, sub-paragraph 2, of the First Schedule to the Finance Act. According to him, otherwise there would be no distinction between the ordinary tax and the tax at maximum marginal rate. He felt that in such circumstances the matter could have been set at rest by referring the same to a larger Bench. He, however, gave an alternative finding, assuming the matter to be debatable. He held that in that case also the ITO was right in revising his order under section 154 dated 15-4-1986 as by that order he accepted the assessee's claim on a debatable issue. What the ITO did in the impugned order dated 27-4-1988, according to him, was to rectify his erroneous order dated 15-4-1986 restoring the original assessment order. He held : "Hence the order passed by the Assessing Officer on 27-4-1988 is perfectly justified and the assessee cannot succeed either on merits or on technical grounds that the order cannot be rectified under section 154." Though initially he felt that the matter should be referred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other hand, the answer is in the negative, no further action would have been necessary. As aforesaid, both the learned Accountant Member and the learned Judicial Member agree on the principle that is the issue regarding the meaning of the term "maximum marginal rate" is a debatable one, and that such a debatable issue cannot be subject-matter of rectification, it being a well-settled principle. The difference, however, lies in the application of the above principle. The learned Accountant Member directed this question with regard to the second order under section 154 dated 27-4-1988 and held that the issue, being debatable, cannot be subject-matter of rectification, and accordingly cancelled this second order under section 154. The learned Judicial Member, on the other hand, considered this issue with regard to the first order of rectification dated 15-4-1986 and held that the ITO accepted the claim of the assessee of a debatable nature and, therefore, that order was erroneous and, therefore, the second order dated 27-4-1988 cancelling the first order under section 154 dated 15-4-1986 was perfectly justified, though he also held that the issue as to the meaning of the term "maxim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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