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Central Indian Insurance Co. Ltd. Versus Income-Tax Officer, A-Ward, Indore and another

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 Income-tax Act, 1922 (hereinafter called the Act), an order of his .....

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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 reserve provided to meet the fall in the value of securities which were .....

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ssistant 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 the case to the Income- tax Officer to give effect to that directio .....

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ted 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 induced the Appellate Assistant Commissioner to rectify the mistake .....

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61, 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 under section 35 of the Act as an error apparent from the record part .....

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ee 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 gains, if any, of the assessee from the same business, profession or .....

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r 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 profits and gains accruing or arising in India, but outside the ta .....

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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 more than six years and a loss arising in the previous years for the a .....

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d 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 and the profit against which it is sought to be set off arises under .....

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arried 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 the profits of the previous year preceding the assessment year 1950-5 .....

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eld 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 second case, the Kerala High Court held that assessment, which incl .....

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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, when by an enactment, a right is given to carry forward losses, then .....

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n 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 or vocation carried on by him, and such loss would, had the State la .....

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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 and gains in the taxable territories, that the loss could be set off .....

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ermitted 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 (Indore Malwa United Mills Ltd. v. Commissioner of Income-tax [1962] 45 I .....

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termined; 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 the respondent for ₹ 50,603-15-0 is plainly and obviously in .....

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tue 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 the said proviso and must be deemed to suffer from a mistake appar .....

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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 being heard". Their Lordships pointed out that if the very bas .....

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guage 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 the words are 'an error apparent on the face of the record' .....

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al 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, when an appeal or revision has been preferred against a decree, the po .....

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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 of the Tribunal, it is obvious that it is the appellate decision tha .....

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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 assessment, reverse it or send it back for further inquiry, but any order .....

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ppellate 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 registration passed by the Income-tax Officer in the present case". In th .....

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t-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 such orders thereon as it things fit, and shall communicate any such .....

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r 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 the assessee and to the Commissioner. The expression 'thereon' .....

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