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TMI Blog1971 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... , in I.T.R. No. 3253 of 1964-65. The questions read as follows : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer's order of rectification under section 154/155 of the Income-tax Act, 1961, in so far as it imposed the special surcharge on the assessee's income from share in the income of his various firms was illegal? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer's enhancement of the penal interest under section 18A(6) of the Income-tax Act, 1922, by resorting to the provisions of section 154/155 of the Income-tax Act, 1961, without giving a specific notice to the assessee in this respect was illegal ?" When the statement of case was being prepared, the assessee brought it to the notice of the Tribunal that the, question regarding levy of special surcharge was concluded by a finding or fact and no question of law arose from the order of the Tribunal. But, as regards the question of levy of extra penal interest the assessee agreed that the question of law did arise but it should not be referred to in view of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective Income-tax Officers. The Income-tax Officer had first issued a notice under section 35 of the old Act on December 17, 1962, which was served on the assessee on December 19, 1962. A second notice was later issued on April 15, 1963, and this was under section 155 of the new Act, as in the meantime the new Act had come into force. The are sent a reply to the notice dated April 15, 1963, by his letter dated April 23, 1963. It was stated in the reply that the assessee agreed to the substitution of the reported share income from the various firms in place of the figures taken provisionally in the original assessment but he objected to the levy of special surcharge on his share income from the firms and stated that he was actively engaged in the conduct of the business of the firms, not only in those carrying on business in Delhi, but also in those firms carrying on business outside Delhi. The Income-tax Officer overruled the objection of the assessee and passed an order under section 154/155 of the new Act not only enhancing the share income but also levying special surcharge in respect of the assessee's share from all the firms except those at Kanpur and Delhi. The Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject-matter of rectification under section 154/155 of the new Act, as this point could be decided only after prolonged investigation and after hearing the arguments of the assessee. The contention found favour with the Appellate Assistant Commissioner and it was held that the question whether special surcharge was leviable in respect of the share income of the assessee in the various out-station, firms, could be decided only after going into the particular facts of each case, as to whether or not the assessee was actively engaged in the conduct of the business of the firm. In the opinion of the Appellate Assistant Commissioner, this could not be said to be a mistake apparent from the records which could be rectified under section 154/155 of the new Act. The Appellate Assistant Commissioner relied on a decision of the Supreme Court in the case of Income-tax Officer,V Circle, Madras v. S. K. Habibullah, and observed that a mistake which becomes apparent only from the records of the firms is not a mistake from the records as far as the assessment of the partners is concerned. The Appellate Assistant Commissioner, therefore, held that, in the circumstances of the case, the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm or not. The Tribunal also found that the assessment on the Calcutta firm was completed on June 13, 1959, for 1958-59 assessment year and the report which the Income-tax Officer had sent to the Income-tax Officer, Delhi, was in May, 1963, i.e., nearly four years after the completion of the assessment of the Calcutta firm. In the circumstances, the Tribunal held that the presumption of the Income-tax Officer, Calcutta, was not based on any finding of fact in the assessment order of the Calcutta firm completed in 1959. The Tribunal, therefore, did not attach any importance to the presumption made by the Calcutta Income-tax Officer on which the revenue was relying. In any case, the Tribunal was of the opinion that this was not a mistake which was apparent from the records and, therefore, could not be rectified under section 35 of the old Act or section 154/155 of the new Act as it involved investigation into fresh facts and the point was a debatable one. As regards the additional penal interest levied in the rectification order under section 154/155 of the new Act the Tribunal held that the levy of additional interest was illegal because the assessee was pot given any specific no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed provisionally at the figure disclosed in the return, was shown as earned, income but in the order made by the Income-tax Officer on May 23, 1963, the Income-tax Officer came to the conclusion on the basis of a letter received by him from the Income-tax Officer, Calcutta, on May 17, 1963, that the assessee was not actively engaged in the conduct of the business of the Calcutta firm. His share income was, therefore, enhanced. A similar situation had arisen in a case decided by the Mysore High Court in Commissioner of Income-tax v. M. M. Thimmaiah, where the question of law : was in the following terms : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer, while passing the order under section 155 of the Act, was not justified in treating the share income of profit from the partnership firms as unearned ?" It was held that it may be that the Income-tax Officer erred in treating that portion of the income as earned income. The mistake committed by him may be apparent from the record but such mistakes cannot be rectified under section 155. That section deals with amendment of assessment of a partner or a membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and though he refused to allow earned income relief to the in respect of the share income from the Kanpur firm in connection with the 1957-58 assessment year, the Appellate Assistant Conimissioner on appeal allowed earned income relief after going through voluminous correspondence after satisfying himself that all the partners of the Kanpur firm including the assessee were actively engaged in the conduct of the business of that firm. The Tribunal no doubt largely based itself on the presumption arising under the letter dated May 17, 1963, received from the Income-tax Officer, Calcutta, and held that the presumption did not arise. It also held that, in any event, this was not a mistake which was apparent from the records but the Tribunal did not upset the order of the Appellate Assistant Commissioner and in a way actually affirmed the same, by observing that it was conceded by the departmental representative that earned income relief was allowed to the assessee in the past in respect of his share income from various out-station firms. In this view of the matter, the question referred to us is answered in favour of the assessee and against the revenue, but there will be no o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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