TMI Blog1978 (12) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... he dividends received from the company by the petitioners as shareholders thereof under s. 16(2) of the Indian I.T. Act, 1922 (hereinafter referred to as " the Act "), at the time of the original assessment of the petitioners on the ground that the company did not pay income-tax which it was liable to pay within three years. The petitioners in Civil Writ Petitions Nos. 132 of 1963 and 133 of 1963, filed appeals against the aforesaid orders passed by the ITO, Kota, before the AAC of Income-tax, Jaipur, who held that the dividends paid by the company to the petitioners should be grossed up under s. 16(2) of the Act and credit for the tax should be allowed under s. 18(5) of the Act. After the aforesaid order was passed by the appellate authority, the ITO gave effect to the orders passed by the AAC of Income-tax, Jaipur, and although he did not pass any formal orders, yet he grossed up the dividend income allowing credit for tax and issued correction slips in respect of the tax payable by the petitioners in the aforesaid two writ petitions. In the case of the other petitioners, the Income-tax Officer, Kota, who was the assessing authority, allowed the dividend income received by the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the petitioners from the company was erroneously grossed up since the company had not paid income-tax on profits out of which the dividends were declared by it and that credit under s. 18(5) of the Act was wrongly allowed to the petitioners and the same was liable to be withdrawn by virtue of the provisions of s. 35(9) of the Act. The ITO also came to the conclusion that the aforesaid mistake was apparent from the record and should be rectified under the provisions of section 35 of the Act. He, therefore, recomputed the total income of each one of the petitioners for the relevant assessment years for the purpose of levying income-tax, super-tax, surcharge, etc., by including therein the amount of dividend income received by the petitioners from the company in respect of their shares and also raised a demand for the difference in the amount of tax payable by the petitioners on the re-computed income and on the income originally computed by him. In these writ petitions, the orders passed by the ITO, Kota, under s. 35(9) of the Act and the demand raised in pursuance thereof have been challenged by the petitioners and it has been prayed that the said orders passed by the ITO an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee : Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard... " " 35. (9) Where the Income-tax Officer is satisfied that the income-tax payable by a company on its profits and gains out of which the company has declared a dividend, has not been paid within three years after the financial year in which the dividend was declared, the amount of income-tax which a shareholder of the company is deemed himself to have paid in respect of such dividend under section 49B, or the amount for which credit is due to him under sub-section (5) of section 18 in respect of such dividend, shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ITO realised that the assessment made in respect of the respective petitioners for the assessment year in question required modification, as the same suffered from a mistake apparent from the record, within the meaning of s. 35 of the Act, and for that purpose the petitioners were required to show cause and appear for a hearing before the ITO concerned or send a written reply to him. The mistake which was proposed to be rectified has also been specified in the notice and it has been clearly mentioned therein that although the company did not pay the income-tax payable by it on its profits and gains during the relevant assessment year, yet the ITO had allowed the petitioners credit for the tax under s. 18(5) of the Act on the amount of the dividend income received by the petitioners from the company and that under the provisions of sub-s. (9) of s. 35 of the Act a recomputation of the income of the petitioners should be made by taking into consideration the income-tax payable by the petitioners on the income received by them from the company by way of dividends. Although the word " satisfaction " has not been used in the notices issued by the ITO to the petitioners under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructions issued by the CIT or any other superior authority. On the other hand, a bare reading of the notices issued under s. 35 of the Act shows that the ITO himself considered the matter and felt that the earlier assessment orders suffered from an error apparent on the face of the record and that they required modification in accordance with the provisions of sub-s. (9) of s. 35 of the Act. In L. Hirday Narain v. ITO [1970] 78 ITR 26 (SC), it was held by their Lordships of the Supreme Court that the exercise of power to rectify an error apparent from the record is conferred upon the ITO to ensure that injustice to the assessee or to the revenue may be avoided. The relevant observations of their Lordships of the Supreme Court in this respect are as under (p. 32) : Exercise of power to rectify an error apparent from the record is conferred upon the Income-tax Officer in aid of enforcement of a right. The Income-tax Officer is an officer concerned with assessment and collection of revenue, and the power to rectify the order of assessment conferred upon him is to ensure that injustice to the assessee or to the revenue may be avoided. It is implicit in the nature of the power and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 35 of the Act. The decision of their Lordships of the Supreme Court in Sirpur Paper Mills' case [1970] 77 ITR 6 (SC) is fully applicable to the facts of the Writ Petition No. 133 of 1963. It cannot be disputed that the functions performed by the ITO under s. 35 of the Act are quasi-judicial in nature and a discretionary power has been given by the Act to the ITO to rectify the mistake which might have crept in the original order of assessment. The Supreme Court has clearly laid down the law on the subject in Sirpur Paper Mills' case [1970] 77 ITR 6 (SC), that when the authority concerned is exercising quasi-judicial powers then he must act with an unbiased mind, consider the matter impartially and according to the principles of natural justice. As the ITO appears to have issued a notice under s. 35 of the Act to the petitioner in Writ Petition No. 133 of 1963 on the instructions of the CIT, it is clear that he did not apply his own mind independently to the facts of the case but he simply acted on the instructions or directions given to him by the CIT. As such, we hold that the notice issued by the ITO, C-Ward, Kota, in Writ Petition No. 133 of 1963 was invalid for the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment will allow an adjustment to the petitioners in respect of such payments. We need not deal with this aspect any further, in view of the aforesaid assurance given by the learned counsel for the revenue. Then it was argued by the learned counsel for the petitioners that on the date of the notice as well as on the date on which the rectification order was passed by the ITO, s. 35(9) of the Act had been repealed and as no corresponding provision has been made in the I.T. Act, 1961, in this respect, the proceedings for rectification under s. 35(9) of the Act were vitiated. The provisions of s. 297(2) of the I.T. Act, 1961, provide a complete answer to the aforesaid contention advanced by the learned counsel for the petitioners and proceedings for rectification under s. 35 of the Act are maintainable under the provisions of the Act in respect of all assessments which have been made under the Act. Clause (a) of sub-s. (2) of s. 297 of the I.T. Act, 1961, provides that where a return of income has been filed before the commencement of that Act, by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(5) of the Act. It appears that, as a matter of fact, the ITO, while acting under sub-s. (9) of s. 35 of the Act, was not purporting to rectify in the case of the petitioners in these two writ petitions, any mistake which might have occurred in his own earlier order but he had proceeded to rectify the order passed by the AAC on appeal, because the ITO in both these cases had earlier also taken the view that the dividend income received by the petitioners in these two writ petitions could not be grossed up, on the ground that the company had not paid income-tax and the same order has been passed by the ITO even after rectification under the provisions of s. 35(9) of the Act. It has also been stated before us that after the direction was given by the AAC in the appeals preferred by these two petitioners that their dividend income should be grossed up and credit for tax be allowed to the petitioners under s. 18(5) of the Act, no formal order was passed by the ITO, but he merely gave effect to the order passed by the AAC and issued correction slips as a consequence to the appellate order. The question which, therefore, arises in these two writ petitions, is as to whether the ITO was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified was the order of the Tribunal and 'the ITO had no jurisdiction to rectify his own order, which had ultimately merged in the order of the Tribunal. In J. K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344, the Allahabad High Court also held that where the assessment order was appealed against, that order merged in the appellate order passed by the AAC and the only operative decision in law, which is effective and can be enforced, is the decision of the appellate authority. In Jeewanlal (1929) Ltd. v. Addl. CIT [1977] 108 ITR 407, the Calcutta High Court held that the application of the doctrine of merger depends on the nature of the appellate or revisional order in each case. Mr. L. R. Mehta, appearing for the revenue, argued that it was only the ITO, who is authorised under sub-s. (9) of s. 35 of the Act to rectify the assessment order passed by him. Although the ITO has the power to rectify his own order, yet he has no power to rectify the order passed by the AAC on appeal, more particularly in respect of the very question on which the appellate authority had set aside the order passed by the ITO. If the contention of Mr. L. R. Mehta is accepted then the ITO would have un ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
