TMI Blog1986 (3) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... alled " Standard Radiators (Pvt.) Ltd. (hereinafter referred to as "the company "). The only shareholders of the company were the two partners of the assessee-firm. The assessee-firm disclosed gross profit of Rs. 2,21,720 but showed loss in the profit and loss account so far as the business of radiators was concerned. Apart from this business activity, there arose income by way of deemed business profit under section 41(2) of the Act and capital gains as a result of transfer of the assessee-firm's business assets to the company. The Income-tax Officer, while framing the assessment for the assessment year 1966-67, included an amount of Rs. 2,90,750 in the total income of the assessee-firm as capital gains. It is not disputed that the correct figure of capital gains was Rs. 3,00,750 and not Rs. 2,90,750 included in the total income of the assessee-firm. There was thus a mistake of Rs. 10,000 in the computation of capital gains. The Income-tax Officer also found that he had committed a mistake in calculation of deemed business profits under section 41(2) of the Act and in setting off these profits against capital gains. He also found that tax payable by the assessee-firm on the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as Hasanali Khanbhai's case), came to his notice. By this decision, it was held that a registered partnership firm was liable to pay tax on the capital gains component of its total income under section 114 of the Act. The Appellate Assistant Commissioner, therefore, issued notice to the assessee-firm proposing to amend his appellate order dated June 30, 1975, by which he had upheld the contention of the assessee-firm that whether or not tax was to be paid on capital gains was debatable and consequently set aside the order of the Income-tax Officer passed under section 154 of the Act. The assessee resisted the proposed action of the Appellate Assistant Commissioner. The Appellate Assistant Commissioner overruled the objection raised by the assessee-firm and held that having regard to the decision of this court in Hasanali Khanbhai's case, he had committed a mistake apparent oil the face of the record in partly allowing the assessee's appeal and setting aside the order of the Income-tax Officer determining tax on capital gains. The Appellate Assistant Commissioner, by his order dated March 7, 1978, amended his earlier order dated June 30, 1975, and restored the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onceivably be two opinions. It was observed that a decision on debatable point of law is not a mistake apparent on the record. Therefore, the question to which we have to address ourselves is whether there was mistake apparent on the record which was an obvious and patent mistake and not something which could be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. The rectification order was passed by the Income-tax Officer on March 6, 1975, and by this order, amongst other things, he sought to correct the mistake of Rs. 10,000 in the computation of capital gains and of determining the tax payable on the capital gains. The argument of the assessee is that it was debatable whether the assessee, a registered partnership firm, was liable to pay income-tax on capital gains and, therefore, it was not open to the Incometax Officer to determine the tax payable on capital gains. It was not disputed that there was a mistake of Rs. 10,000 in the computation of capital gains and that the Income-tax Officer in the exercise of power conferred on him under section 154 of the Act could have rectified the computation of capital gains by adding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to know from a decision given by the Income-tax Appellate Tribunal that the amounts claimed by it in respect of provision for taxation were deductible in computing the net wealth of the petitioner. The petitioner thereupon made applications to the Wealth-tax Officer for rectification of the orders of assessment under section 35 of the Wealth-tax Act which corresponds to section 154 of the Act on the ground that there was an error apparent on the face of the record. The applications were rejected by the Wealth-tax Officer on the ground that there was no error of law apparent on the face of the record in the assessment orders. The petitioner's revision petitions to the Commissioner were unsuccessful. The petitioner thereupon approached this court under article 226 of the Constitution and applied for writs to quash the orders refusing to rectify the assessment orders and for a direction to rectify the assessment orders. It was contended for the Revenue that there was no error apparent on the face of the record and also, as the assessee had not preferred appeals from the assessment orders, no writs could be issued. It was urged that the orders of assessment to wealth-tax made on the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt owed' by the assessee within the meaning of section 2(m) of the Act, merely stated what the law had always been and must always be understood to have been. The fact that these decisions were not before the Wealth-tax Officer when he made the orders of assessment in the petitioner's cases has, therefore, no material bearing on the question whether the said orders disclose any mistake apparent from the record. If that be the correct legal position, and we hold that it is, the only conclusion possible is that the assessment orders, in so far as they disallowed the claim of the petitioner for deduction in respect of the amount of provision for taxation, proceeded on a wrong view of the law and the said orders were bad at their very inception, on the date on which they were made. The orders of assessment thus disclosed a mistake apparent from the record and were liable to be rectified in exercise of the powers conferred under section 35 of the Act. In our opinion, therefore, the Wealth-tax Officer committed an apparent error of law in rejecting the petitioner's application for rectification of the mistake and the Commissioner of Wealth-tax likewise committed an error of law apparent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er disclosed any mistake apparent on the record. When this court held that capital gains were taxable in the hands of a registered firm, it merely stated (p. 656 of 100 ITR) : " What the law had always been and must always be understood to have been." Therefore, as already observed, it is immaterial that the decision of this court was not before the Income-tax Officer when he made the assessment order. If the capital gains were liable to payment of tax as has been held by this court in Hasanali Khanbhai's case [1987] 165 ITR 195, the only conclusion possible is that the assessment order in so far as it failed to determine the tax payable on capital gains proceeded on a wrong view of law and was bad from its very inception, i.e., from the date on which it was made. The assessment order thus disclosed a mistake apparent on the face of the record and was liable to be rectified in exercise of the powers conferred under section 154 of the Act. In our opinion, therefore, the Income-tax Officer had acted within his powers in rectifying the assessment order and determining the tax payable on the capital gains. Once this conclusion is reached, it is obvious that the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration for the purpose of calculation of income-tax payable by the registered firm under the provisions of section 182 of the Act. Subsequently, on June 18, 1968, the Income-tax Officer thought he had committed a mistake in the original assessment for the year 1964-65 inasmuch as he had not included the capital gains in the income of the firm for the purpose of determining the income-tax payable by the firm. He treated the mistake as a mistake apparent on the face of the record and initiated proceedings under section 154 of the Act by way of rectification. The assessee objected to this both on merits as well as on the legality of the proceedings under section 154 of the Act. The Income-tax Officer, however, rejected the contentions of the assessee and held, both as regards the maintainability of the proceedings as well as on the merits, against the assessee. On appeal, the Appellate Assistant Commissioner dismissed the appeal and upheld the order of the Income-tax Officer on both the grounds. The assessee carried the matter in appeal before the Tribunal. The Tribunal held that for the purpose of computing the total income-tax payable by registered firm under section 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 154 of the Act. We, therefore, find ourselves unable to agree with learned counsel for the assessee that the facts in the instant case are identical and, therefore, the ratio of the decision in Navinchandra Tribhovandas' case [1987] 165 ITR 192 will govern the instant case. Learned counsel for the assessee next sought to rely on the decision of this court in Lilavatiben Harjivandas Kotecha v. J. V. Shah, ITO [1980] 122 ITR 863. It was urged that since there was a view taken by another High Court contrary to the view taken by this court, a debatable issue arose and in the case of such issue, rectification proceedings under section 154 of the Act were not maintainable. That was a case in which the assessee was a partner in three firms. In one of the firms, two of her minor sons were admitted to the benefits of the partnership while in the other two, three of her minor sons were admitted to the benefits of the partnership. Clause 6 of the partnership deeds of the said two partnership firms was in identical terms. In the earlier portion of the said clause 6, it was stated (headnote) : ".. ...... the minors admitted to the benefits of the partnership shall be entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be a mistake, apparent from the record since the decision on a debatable point of law is not a mistake apparent on the record. The point was held to be debatable on three grounds, namely: (1) There is scope for discussion, debate and argument as regards interpretation of clause 6 of the partnership deed, (2) When this court rendered the decision in Dayalbhai's case [1966] 60 ITR 551, its attention was not drawn to the circular of the Central Board of Revenue issued as far back as 1944, and (3) If the aforesaid circular dated July 4, 1944, issued by the Central Board of Revenue was brought to the notice of this court particularly in the context of the decision of the Supreme Court in Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198, this court would not have taken the view which it took. Further, other High Courts had taken a view contrary to the view taken by this court. It was, therefore, that this court held that there cannot be said to be a mistake apparent from the record since the question on a debatable point is not a mistake apparent from the record at all. In our opinion, this decision cannot be of any assistance to the assessee in the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of the Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer." In view of this decision of the Supreme Court, the Income-tax Officer and the Appellate Assistant Commissioner were bound to follow the decision of this court in Hasanali Khanbhai's case [1987] 165 ITR 195. If they failed to do so, it would undermine the respect for the law laid down by the High Court and the constitutional authority of the High Court and their conduct would, therefore, be apprehended by the principles underlining the law of contempt. Under the circumstances, it must be held that both the Income-tax Officer and the Appellate Assistant Commissioner were within their powers in rectifying the orders in the manner they have done. In the result, we answer the question referred to us in the affirmative and against the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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