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1962 (4) TMI 113 - MADHYA PRADESH HIGH COURT

1962 (4) TMI 113 - MADHYA PRADESH HIGH COURT - [1963] 47 ITR 895 - Miscellaneous Petition No. 223 of 1961 - Dated:- 9-4-1962 - P. V. Dixit (CJ) And K. L. Pandey, JJ. For the Petitioner : K. A. Chitaley and P. D. Pathak For the Respondent : M. Adhikari and R. J. Bhave JUDGMENT K. L. Pandey, J. This petition under articles 226 and 227 of the Constitution is directed against an order dated May 27, 1961, by which the Appellate Assistant Commissioner, Indore, rectified under section 35 of the Indian .....

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nt years 1948-49 and 1949-50, the petitioner, who was assessed as a non-resident, incurred losses for the most part in the Native State of Indore to the extent of ₹ 78,123 and ₹ 3,762 respectively in the life insurance business carried on by it. From December 1, 1949, the petitioner started the business of insurance against fire also. In the proceedings for the assessment year 1950-51, the petitioner claimed, inter alia, ₹ 20,385 as a revenue deduction, being the amount of rese .....

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he total income of the petitioner. In its appeal to the Appellant Assistant Commissioner, the petitioner attacked the disallowance of ₹ 20,385 and of the losses amounting to ₹ 78,123 and ₹ 3,762. By an order dated May 29, 1957, the Appellate Assistant Commissioner did not accept the reserve claimed on account of depreciation of the securities as an allowable revenue deduction, directed that the losses of the previous years be carried forward and set off as claimed and remitted .....

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, 1957, throught that it was ambiguous and, by means of a letter dated April 14, 1961, requested for clarification. Thereupon, the Appellate Assistant Commissioner decided to rectify under section 35 of the Act the direction relating to the carry forward of the losses of the two previous years, issued notice to the petitioner to show cause against the course proposed to be adopted and, after giving to the petitioner a hearing, passed the impugned order dated May 27, 1961. The main reason which i .....

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m the record which needed rectification. The order dated May 27, 1961, has been challenged mainly on the following grounds: "(i) The view that, in the circumstances of the case, losses incurred at Indore and Bombay could not be set off is erroneous and there was, in fact, no error needing rectification. (ii) Where a certain view of facts or of law was deliberately taken by the Appellate Assistant Commissioner and a conclusion was reached, whether right or wrong, it could not be rectified un .....

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tion 24(2) of the Act read as follows: "(2) Whether any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, under the head 'profits and gains of business, profession or vocation', and the loss cannot be wholly set off under sub-section (1), the portion not so set off shall be carried forward to the following year and set off against the profits and ga .....

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day of March, 1944, respectively, shall be carried forward only for one, two, three, four and five years respectively:- Provided that: (a) Where the loss sustained is a loss of profits and gains of a business, profession or vocation to which the first proviso to sub- section (1) is applicable, and the profits and gains of that business, profession or vocation are, under the provisions of clause (c) of sub- section (2) of section 14, exempt from tax, such loss shall not be set off except against .....

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wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on; but no loss shall be so carried forward for mor .....

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sub-section (1) shall not be set off except against the profits and gains accruing or arising in the State of Jammu and Kashmir from the same business, profession or vocation and exempt from tax under the provisions of clause (c) of sub-section (2) of section 14." In Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax [1953] 23 I.T.R. 82,86; [1953] S.C.R. 448, the Supreme Court stated: "...a set-off under section 24(1) can only be claimed when the loss arises under one head an .....

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can be set off under sub-section (1) of section 24, it cannot be carried forward under sub-section (2)...." As shown, this decision was superseded by the Indian Income-tax (Amendment) Act, 1953 (25 of 1953), with effect from April 1, 1952. The amended sub-section (2) in terms provided that the whole loss could be carried forward even where the assessee had no other head of income. The precise question is whether the benefit of the amended sub-section (2) could be claimed for determining th .....

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ssistance to the petitioner. In the first case, the Supreme Court held that, for determining under section 10 of the Act the income under one and the same head, namely, profits and gains of a business for any year, there was no distinction between business in British India and business in Indian States. It is obvious that no question of set-off and carry forward of losses in the sense contemplated by section 24 of the Act, as it stood before the Amendment Act of 1953, arose in that case. In the .....

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4 (S.C.), The third case, in so far as it relates to the assessment under the Act, is similar to commissioner of Income-tax v. Indo-Mercantile Bank Ltd. [1959] 36 I.T.R. 1; [1959] Suppl 2 S.C.R. 256, which was applied to that case. In our opinion, the right to carry forward losses of earlier years and to set off those losses in the relevant previous year is a substantive right which cannot be claimed apart from, and independently of, the provisions of the Act. It is implicit in this view that, w .....

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me, could not be availed of by the petitioner for the obvious reason that it was not in force in the accounting years 1948-49 and 1949-50. This conclusion is reinforced by another consideration. Clause 3 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, reads: "Where in any previous year prior to the previous year for the assessment for the year ending on the 31st day of March, 1950, an assessee has sustained a loss of profits or gains in any business, profession o .....

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if, as urged before us, section 24(2), as amended, provided merely a process of arriving at or fixing the assessable income. The point is also no longer in doubt. In Indore Malwa United Mills Ltd. v. Commissioner of Income-tax [1959] 35 I.T.R. 271, the Bombay High Court held that the assessee, which mainly carried on business in the Native State of Indore and incurred in that State a loss of ₹ 5,19,590 in the year 1948-49, could not carry it forward for being set off against the profits an .....

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s Order, 1950, and that right is that if the law of his own State permitted him to carry forward the losses, then that right is preserved under the Indian Income-tax Act". These observations were quoted with approval by the Supreme Court in Commissioner of Income-tax v. Helen Rubber Industries Ltd. [1962] 44 I.T.R. 714 (S.C.). Also, in the appeals filed by the assessee against the above-mentioned decision of the Bombay High Court, the Supreme Court upheld it and dismissed the appeals (Indor .....

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5 to rectify 'mistakes apparent from the record' must be determined; and, in doing so, the scope and effect of the expression 'mistake apparent from the record' has to be ascertained. At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to .....

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it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of .....

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to rectification of mistakes which are apparent from the record. A mistake contemplated by this section is not one which is to be discovered as a result of an argument but it is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake he is entitled to rectify the error provided that if the result is enhancement of assessment or reducing the refund then notice has to be given to the assessee and he should be allowed a reasonable opportunity of .....

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he High Court seem to have fallen into an error in equating the language and scope of section 35 of the Act with that of Order XLVII, rule 1, Civil Procedure Code. The language of the two is different because according to section 35 of the Act which provides for rectification of mistakes the power is given to the various income-tax authorities within four years from the date of any assessment passed by them to rectify any mistake 'apparent from the record' and in the Civil Procedure code .....

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r provision of clause 3 of the Taxation Laws (Part B States) (Removal of difficulties) Order, 1950. In our opinion, this was a mistake apparent from the record which could be corrected under section 35 of the Act. The last ground raises the question whether, having regard to the fact that there was an appeal to the Tribunal, the Appellate Assistant Commissioner had jurisdiction to rectify an error in his own order after the Tribunal had passed an order in appeal. It is well established that, whe .....

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kram Bahadur [1910] 37 I.A. 70; I.L.R. 32 All. 295. In Commissioner of Income-tax v. Amritlal Bhogilal & Co. [1958] 34 I.T.R. 130, 136, 138-9; [1959] S.C.R. 713, the Supreme Court held that these principles applied to the proceedings under the Act and observed: "There can be no doubt that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision o .....

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s whether this principle can apply to the Income-tax Officer's order granting registration to the respondent". In the Supreme Court case, the question was whether the order of registration passed by the Income-tax Officer was affected by the order passed by the Appellate Assistant Commissioner. This is what their Lordships observed: "It is true that, in dealing with the assessee's appeal against the order of assessment, the Appellate Assistant Commissioner may modify the assess .....

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uthority. Even after the appeal is decided and in consequence the appellate order is the only order which is valid and enforceable in law, what merges in the appellate order is the Income- tax Officer's order under appeal and not his order of registration which was not and could never become the subject-matter of an appeal before the appellate authority. The theory that the order of the Tribunal merges in the order of the appellate authority cannot therefore apply to the order of registratio .....

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ned to dealing with the subject-matter of the appeal and the subject-matter of the appeal is constituted by the grounds of appeal preferred by the appellant. So in Puranmal Radhakishan & Co. v. Commissioner of Income-tax [1957] 31 I.T.R. 294, 304, the Bombay High Court observed: "Now, the jurisdiction of the Tribunal is to be found in section 33(4), which is in very wide terms: 'The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass s .....

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not travel outside the appeal. This decision is to be found in Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax [1945] 13 I.T.R. 272." In New India Life Assurance Co. v. Commissioner of Income-tax [1957] 31 I.T.R. 844, 856, that High Court stated: "Sub-section (4) of section 33 provides that the Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to th .....

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