TMI Blog1969 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... it was decided that a company under the name of Magniram Bangur Co. (P.) Ltd. would be incorporated and all the assets and liabilities of the firm would be transferred to the said company. In accordance with the said agreement the memorandum and articles of association of the proposed company were executed on October 18, 1960, and the said company was registered under the Companies Act on October 21, 1960. For the assessment year 1961-62, for which the accounting year was the Sambat year 2016, the aforesaid firm claimed before the Income-tax Officer that its income for that year was exempt from taxation under the provisions of section 25(4) of the Income-tax Act, 1922 (hereinafter referred to as the old Act). The Income-tax Officer rejected the contention and made an assessment on the firm for the said year determining the total income at Rs. 6,92,508. In the appeal by the firm against the aforesaid order of assessment the Appellate Assistant Commissioner by his order dated the 31st March, 1967, held, inter alia, that the entire income of the firm was entitled to exemption from tax under section 25(4) of the old Act and similar relief should also be allowed to the partners of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p under sections 16(2) and 18(5) of the old Act and that the assessee was also entitled to his proportionate share of the tax deemed to have been paid on behalf of the firm on the said grossing up. Further, the petitioner challenged the jurisdiction of the respondent-Income-tax Officer to issue the purported notice under section 154 as it was contended that there was no error apparent on the face of the record which could give the respondent-Income-tax Officer the jurisdiction to issue such a notice. This application was moved on the 7th December, 1967, and a rule obtained on the respondent-Income-tax Officer, the Commissioner of Income-tax and the Union of India to show cause why the impugned notice and all the proceedings taken thereunder should not be quashed. An interim injunction was granted restraining the respondent from taking any proceedings under the impugned notice. In the affidavit-in-opposition affirmed by the respondent No. 1 the only ground taken is against the maintainability of the application. It is contended that as, under the order of the Appellate Assistant Commissioner, the entire dividend income of the firm was exempted under section 25(4) of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 154 (old section 35) is not permissible. Before considering the contentions of the petitioners certain provisions of the old Act as well as of the Act of 1961 have got to be considered. Section 16(2) of the old Act, before its repeal by the Finance Act of 1959, provided that " For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him and shall be increased to such amount as would, if income-tax (but not super-tax) at the rate applicable to the total income of the company (without taking into account any rebate allowed or additional income-tax charged) for the financial year in which the dividend is paid, credited or distributed, or deemed to have been paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend. " The material provisions of section 18(5) of the old Act, before its amendment by the Finance Act, 1959, provide as follows : " ...... any sum by which a dividend has been increased under sub-section (2) of section 16, shall be treated as a payment of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Act, which requires to be noticed is section 25, sub-section (3) of which exempts the income of an assessee whose business had suffered tax under the Income-tax Act, 1918, and who had discontinued his business during the accounting year while sub-section (4) allows such exemption in the case of a succession to the business and is to the following effect : " Where the person, who was at the commencement of the Indian Income-tax (Amendment) Act, 1939, carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made, on the basis of the income, profits and gains of the said period, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t question of law had to be decided or where two views were possible, recourse could not be had by the Income-tax Officer to the provisions of section 154 by way of rectification to amend the order of assessment. The first of the contentions referred to was the decision of the Supreme Court in Maharana Mills (P.) Ltd. v. Income-tax Officer, where the scope of section 35 of the old Act was considered and it was observed that : " The power under section 35 is no doubt limited 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 being heard. " In this case the earlier decision of the Supreme Court in Venkatachalam v. Bombay Dying and Manufacturing Co. Ltd. was considered. The next case cited by Dr. Pal was the decision of the Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cie did not exist, but even assuming that upon prima facie examination we are wrong, we are completely satisfied that such an error cannot be corrected under section 154 of the Income-tax Act, 1961. We may also add here that it is not open to the authorities to make 'an error apparent from the record' by ignoring any relevant provision of the law. In the present case we have shown that section 10(2)(vi) had a vital bearing upon the question but in the order of the Income-tax Officer that section was totally ignored, thereby making it appear that the error was a patent and clear error apparent from the record. If the provisions of section 10(2)(vi) are taken into account, questions of a complicated nature would arise in the present case. Such questions cannot be determined under the jurisdiction given to the Income-tax Officer to correct errors apparent from the record. " Finally, Dr. Pal submitted that the question whether the amount by which the dividend income has been grossed up is to be treated as the income of the shareholder is now concluded by the decision of the Supreme Court in Purshottamdas Thakurdas v. Commissioner of Income-tax, where the court made the following obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . D. K. Sen, the learned counsel for the respondent, did not dispute the proposition that where difficult questions of law or of fact are to be determined on which two different opinions are possible the procedure for rectification provided for under section 154 could not be adopted. His submission was that that stage had not yet arrived. The impugned notice gave the petitioner an opportunity to be heard before the Income-tax Officer proposed to pass any orders under section 154. At this stage no prejudice has been caused to the petitioner, and the petitioner is not entitled to come to this court and ask for a high prerogative writ prohibiting the respondent-Income-tax Officer from proceeding with the inquiry. Mr. Sen relied strongly on a very recent decision of B. C. Mitra J. reported in Pilani Investment Corporation Ltd. v. Income-tax Officer. It would be necessary to consider this decision somewhat in detail in order to appreciate and deal with the contention raised by Mr. Sen. In that case the petitioner applied for a writ directing the respondent-Income-tax Officer to recall a notice under section 23A of the Income-tax Act, 1922, in May, 1964, directing the petitioner to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resence of an error apparent on the record and if there is no such error apparent on the record the Income-tax Officer has no jurisdiction to issue any notice under that section. This is well-established by the various decisions cited by Dr. Pal. The question, where tax credit is given to a shareholder under section 49B of the old Act in a case where the shareholder is a registered firm, and, where the shareholder's income is exempt from tax under certain other provisions of the Act, are the partners of the firm in their individual assessment entitled to their share of the credit given to the firm in respect of the grossed up dividend, is a very intricate and difficult question to be decided by the proper Tribunal. The Income-tax Officer cannot assume jurisdiction to decide such a question in the guise of a procedure for rectification of a mistake apparent in his order. The other argument of Mr. Son, which is also based on the aforesaid decision of B. C. Mitra J. that, in any event, as the petitioner has an adequate alternative remedy of going upon appeal against the order under section 154 the court should not exercise its extraordinary jurisdiction under article 226 is also n ..... 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