TMI Blog1976 (7) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and was admittedly converted into a public limited company with effect from February 24, 1961. It derives its income from manufacture and also from malleable cast iron, forged fittings, etc. The petitioner in its original return filed on September 30, 1975, claimed deduction under section 84(2) of the Act amounting to Rs. 78,247. The relevant portion of section 84 is : " (1) Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking or hotel to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking or hotel, computed in the prescribed manner. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:-- (i) It is not formed by the splitting up, or the reconstruction of, business already in existence." This claim by the petitioner was disallowed by the Income-tax Officer on January 31, 1967, at the time of the original assessment made under section 143(3) of the Act, but the order was set aside on appeal by the Appellate Assistant Commissioner with a direction to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arently the assessee was entitled to the exemption in the assessment year 1965-66, under section 84 of the Act and accordingly on December 18, 1973, he allowed the claim of the assessee under that section, rectifying the previous order dated December 30, 1969. The order of Mr. N. Prasad, the Income-tax Officer, dated December 18, 1973, is annexure " 2 " to this writ petition. The petitioner, thereafter, moved a petition in the High Court at Patna in C.W.J.C. No. 1273 of 1974, but the writ petition was permitted to be withdrawn on August 20, 1974, with the observation that the petitioner has got adequate alternative remedy of challenging the order of rectification by filing an application in revision before the Commissioner of Income-tax under section 264(1) of the Act. The order of the High Court is annexure " 3 ". The petitioner then filed a revision petition before the Commissioner of Income-tax, Bihar-II, Patna, under section 264(1) of the Act against the order of rectification. The revision petition was rejected on January 16, 1975. It was held by the Commissioner of Income-tax that the Income-tax Officer was perfectly justified in rectifying the mistake under section 154 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be discovered by a process of elucidation, or argument, or debate. The mistake being patent on the record, rectification must be limited to correcting that mistake only without any further argument or debate...... It may be that the Tribunal might have taken a different view if they had considered this application, but in asking the Tribunal to come to a different conclusion on a consideration of this fact the assessee is really asking the Tribunal to revise or review their own decision and not rectify an apparent error on the face of the record .......... the Tribunal was equally right in refusing to rectify its order at the instance of assessee." He also brought to our notice several other decisions in support of this submission : (1) M. Kumaran v. First Additional Income-tax Officer [1958] 33 ITR 290 (Ker). (2) Budhram Kashiram v. State of Bihar [1970] 26 STC 505 (Pat). (3) T. S. Balaram, Income-tax Officer v. Volkart Brothers [1971] 82 ITR 50 (SC). (4) Commissioner of Income-tax v. Naya Sahitya [1972] 84 ITR 567 (Delhi). (5) Commissioner of Income-tax v. Rajnagar Tea Co. Ltd. [1973] 87 ITR 669(Cal). (6) Commissioner of Income-tax v. Premraj Ganpatraj Co. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are simple: The petitioner claimed deduction under section 84(2) of the Act. Its claim was rejected by applying the provisions of section 84(2)(1). That clause, as already said, provides that exemption can be allowed when an industrial undertaking is not formed by the splitting up or by the reconstruction of a business already in existence. Deduction is not allowable to a company which is formed by the splitting up or the reconstruction of the business already in existence. The petitioner was previously a private limited company incorporated in 1955 and was subsequently converted into a public limited company with effect from February 24, 1961. The Income-tax Officer rejected the claim for deduction at the time of original assessment and also at the time of reassessment on the ground that it was not entirely a new industrial undertaking, rather it was reconstruction of previous private business. Later on, the Income-tax Officer found out on his own motion the mistake and took the view that the assessee-company, namely, the petitioner, was a new industrial undertaking and that it had wrongly been treated as having been found by splitting up or reconstruction of the business which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to look at the substance of the transaction and not the form. If, looking at the substance of the transaction, it is a sale, then the concept of reconstruction must be ruled out for in such a case there is no scope for speaking about any reconstruction of an existing business ". This view was approved in Commissioner of Income-tax v. Naya Sahitya [1972] 84 ITR 567 (Delhi) and was also referred to in Capsulation Services Pvt. Ltd. v. Commissioner of Income-tax [1973] 91 ITR 566 (Bom). The aforesaid observation shows that if the ownership of a business or an undertaking changes hands not ostensibly but in reality and effectively that would not be reconstruction. In a case of reconstruction of a business, its identity is not lost and the original undertaking continues to function with some minor changes or alterations. The present is not a case of that type. There was no change in the business. The previous identity was completely lost and the original undertaking acquired a new status. The former status as a private company was lost and a new status as a public limited company came into existence. There was no alteration in the original undertaking but it was entirely a new indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 50,063 being interest on tax paid in advance was given credit for under section 18A(5) of the Act. Subsequently, there was an amendment of the Act by which the interest became allowable only on difference between the amount of tax paid and what was actually determined. As a consequence of this, the Income-tax Officer purporting to act under section 35 of the Act, rectified the mistake and reduced the amount of interest credited to Rs. 21,157 and issued a demand for the difference. The assessee obtained a writ of prohibition against the Income-tax Officer on the ground that the mistake contemplated under that provision had to be apparent on the face of the order and it was not contemplated to cover a mistake resulting from an amendment of the law even though it was retrospective in its effect. The revenue applied to the Supreme Court. Thus, the question for decision in that case was whether an order proper and valid when made could be said to disclose a mistake apparent from the record merely because it became erroneous as a result of a subsequent amendment of the law which was retrospective in its operation. In delivering the judgment of the court, Gajendragadkar J. said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that an observation was made by the Appellate Assistant Commissioner in another case of assessment for the year 1966-67 to the effect that section 84 refers to profits and gains derived from the new industrial undertaking which clearly implies that emphasis falls on the new industrial undertaking rather than the assessee claiming benefit of section 84. Reliance was placed on the case of Income-tax Officer v. S. K. Habibullah [1962] 44 ITR 809 (SC). In my opinion, the facts of that case are entirely different. In that case, the question was whether the Income-tax Officer had jurisdiction under sub-section (5) of section 35 of the old Income-tax Act, 1922 (as enacted by the Income-tax (Amendment) Act, 1973), to rectify the assessment of a partner consequent on the assessment of the firm, in cases where the firm's assessment was completed before 1st April, 1952. The facts were these : One Mohideen who was a partner in two firms submitted returns of his income incorporating therein the estimated share of losses in the two firms for the assessment years 1946-47 and 1947-48. The estimates of the assessee were accepted by the Income-tax Officer who completed the assessments for the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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