TMI Blog1982 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e same under s. 154 of the I.T. Act, enhancing the penalty to Rs. 3,674 on the basis of the tax computed in the status of an unregistered firm, as contemplated by sub-s. (2) of s. 271. On appeal, the AAC affirmed the order. On further appeal, the Tribunal allowed the appeal and set aside the penalty on the ground that, as the law then stood, no penalty whatsoever was leviable on the firm for the reason that it had paid more tax under s. 140A than was due from it for the said assessment year. It pointed out that cl. (i) of sub-s. (1) of s. 271 at the relevant time provided for levy of penalty in sum equal to two per cent. of the tax for every month during which the default continued but not exceeding in the aggregate fifty per cent. of the tax. The word " tax " in the above clause was construed by the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), as tax due on the date of imposition of the penalty. Following that decision, the Tribunal held that inasmuch as the assessee-firm had paid more tax under s. 140A than was due from it for the said assessment year, no tax was due from it on the date of levy of penalty; and if so, no penalty whatsoever could be levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to rectify the order, dated January 30, 1969, under s. 154 of the Act, but that the Tribunal had not expressed its opinion on the contention. The Tribunal accordingly proceeded to deal with that contention on this occasion. It held that the error, if any, in the order, dated January 30, 1969, cannot be said to be a glaring or a patent error apparent from the record, warranting its rectification under s. 154. It would be appropriate to set out the reasoning of the Tribunal in its own words : " The Income-tax Officer sought to rectify the alleged mistake in his order, dated January 30, 1969, on the ground that the assessee was a registered firm and, according to the provisions of section 271(2) of the Incometax Act, 1961, the quantum of penalty should be calculated by treating it as an unregistered firm. We do not think that the error that is alleged is so glaring or patent from the records. We may mention that even the constitutionality of collecting interest from a registered firm at the prescribed rate on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm, under the provisions of section 139(1) as they stood prior to April 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74, and no exception can be taken thereto. When once the levy of penalty is itself not warranted in law, it equally follows that the power under s. 154 to rectify such an order and to enhance the amount of penalty is equally unavailable. But this position has undergone a substantial change by virtue of the aforesaid Amendment Act. The effect of enacting the Amendment Act with retrospective effect is that we must assume that the amended provisions were there at all times. If this amended provision is thus assumed to be there when the ITO passed his order dated January 30, 1969, there can be little dispute about the proposition that the levy of penalty was valid. Since the order, dated January 30, 1969, levying penalty was made in ignorance of sub-section (2) of s. 271, it was open to the ITO to rectify his order by invoking his power under s. 154 and to enhance the penalty. It is this position in law which the Department sought to bring to the notice of the Tribunal by its miscellaneous application. A fact to be kept in mind in this case is that this is not a case where the ITO has sought to rectify the original order with reference to the Amendment Act. The ITO did not pass any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Amendment Act is enacted with retrospective effect and, secondly, that the retrospective amendment in this case cannot be said to constitute or furnish the requisite ground, viz., error apparent on the face of the record within the meaning of s. 154 or s. 254, as the case may be, since it is a debatable and arguable question. Strong reliance is placed by the learned counsel upon the decision of the Supreme Court in ITO v. S. K. Habibullah [1962] 44 ITR 809 (SC), as also on the decision of the Bombay High Court in J. M. Shah v. J. M. Bhatia, AAC [1974] 94 ITR 519 (Bom). In Bombay Dyeing Company's case (1958] 34 ITR 143 (SC), the assessment was completed on the company by an order, dated October 9, 1952, whereunder the ITO gave credit for a sum of Rs. 50,063 being interest at two per cent. on the advance tax paid by the company under s. 18A(5) of the Indian I.T. Act, 1922. This order became final. After the making of this order, Parliament enacted the I.T. (Amend.) Act, 1953, with restrospective effect from April 1, 1952. This Amendment Act, inter alia, inserted a proviso to s. 18A(5), the effect of which was that the assessee was entitled to interest, not on the whole of the adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the effect and meaning of retrospectivity of a statute. It observed at pp. 149 and 150 : " 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 has 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 Rs. 50,603-15-0 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie it may appear somewhat strange that an order which was good and valid when 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 subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of subsection (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm. (6) Where the excess profits tax or the business profits tax payable by an assessee has been modified in appeal, revision or any other proceeding, or where any excess profits tax or business profits tax has been assessed after the completion of the corresponding assessment for income-tax (whether before or after the commencement of the Indian Income-tax (Amendment) Act, 1953), and in consequence thereof it is necessary to recompute the total income of the assessee chargeable to income-tax, such recomputation shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub-section (1) shall apply accordingly, the period of four years, referred to in that sub-section being computed from the date of the order making or modifying the assessment of such excess profits tax or busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in giving a greater retrospectivity to the provision than is warranted by the plain words used by the Legislature." It was observed that the orders which the ITO rectified on March 27, 1954, were passed long prior to April 1, 1952, to which date alone the retrospective operation of sub-s. (5) of s. 35 was limited by Parliament. It was held that the orders which have become final before April 1, 1952, could not have been revised or rectified under s. 35 because that would amount to giving the provision a greater retroactivity than was expressly provided by Parliament. In this context, they contrasted the language of sub-s. (5) with the language of sub-s. (6) which provided that where excess profits tax or business profits tax payable by an assessee has been modified or where the same has been assessed after the completion of the corresponding assessment of the assessee under the I.T. Act and it is necessary to recompute the total income of the assessee chargeable to income-tax in consequence of the orders relating to excess profits or business profits, such recomputation shall be deemed to be rectification of a mistake apparent from the record within the meaning of sub-s. (6). It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which the Amendment Act must be deemed to have been in force. Any such principle would not only run counter to the principle enunciated in Bombay Dyeing Company's case but also to the well-established principle underlying the effect of the retrospective operation given to a statute. Some of the decisions affirming the said principle were referred to and affirmed in Bombay Dyeing Company's case. Shri Srirama Rao, however, commended to us the reasoning of the Bombay High Court in J. M. Shah's case [1974] 94 ITR 519 (Bom), where the learned judges opined that there is a clear divergence of opinion between these two decisions. We may briefly refer to the facts and reasoning of the Bombay High Court by which they came to the aforesaid conclusion. The case arose under the W.T. Act. The AAC allowed the assessee's appeal on June 26, 1970, holding that the value of the jewellery was not liable to be included in the wealth of the assessee, in the light of s. 5(1)(viii) of the Act, as it then stood and as it was interpreted by the Supreme Court in CWT v. Arundhati Balkrishna [1970] 77 ITR 505, this order became final. On August 10, 1971, Parliament enacted the Finance (No. 2) Act, 197l, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther case. We may incidentally mention that the subsequent decisions of the Supreme Court in Devinatha Nadar's case [1968] 68 ITR 252 and K. S. Rashid's case [1972] 85 ITR 118, do not lay down any principle different from Habibullah's case [1962] 44 ITR 809 (SC), as indeed observed by the learned judges of the Bombay High Court also. They have also not been relied on before us by the learned counsel for the assessee. Now, coming back to the facts of the present case, it would be noticed that the amendment concerned herein was given retrospective effect right from the date of the commencement of the 1961 Act. It must, therefore, be deemed that the words " assessed tax " and the Explanation put in by the said Amendment Act were always there at all points of time. If so, the order of the ITO, dated January 30, 1969, levying penalty was valid and competent. Once that order is valid and competent, then its rectification by the ITO on the ground that he had ignored the provisions of sub-s. (2) of s. 271 must be held to be competent and valid. The Tribunal, therefore, ought to have revised its order dated July 30, 1974, and upheld the ITO's order, dated June 1, 1972. It ought to have al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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