Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the relief under s. 80M given to the assessee originally was a mistake rectifiable by the ITO under s. 154 of the IT Act, 1961?

High Court Of Delhi

Hotz Hotels (P) Ltd. vs. CIT

Section 154

Asst. Year 1968-69, 1969-70

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. No. 128 &129 of 1978

17th October, 2000

Counsel Appeared

Nemo, for the Petitioner : R.C. Pandey with Ms. Prem Lata Bansal, for the Revenue

JUDGMENT

ARIJIT PASAYAT, C.J. :

In these two cases, at the instance of assessee the following question has been referred for the opinion of this Court under s. 256(1) of the IT Act, 1961 (in short, the Act) by the Tribunal, Delhi Bench : “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the relief under s. 80M given to the assessee originally was a mistake rectifiable by the ITO under s. 154 of the IT Act, 1961?” Above being the position our judgment shall govern each of the two case, i.e. IT Ref. No. 128 & 129/1978.

2. Factual position as indicated in the statement of case is as follows : For the asst. yrs. 1968-69 and 1969-70, assessee a private limited company, filed its returns of income showing loss of Rs. 54,055 and Rs. 1,14,945 respectively, in respect of incomes from (a) interest on securities, (b) house property, (c) business of running hotels at Agra and Kasauli and plying of taxis in U.P. (d) dividends and (e) capital gains. Assessments were completed for the two years on 31st Dec., 1971 and 12th Jan., 1972 respectively Computation of income for two years was done as follows : “1968-69 Rs. Rs. (a) Interest on securities 135 (b) Income from house property 21,817 (c) Business (loss) 89,313* (d) Income by way of dividends 59,435 Less : Deduction under s. 80M @ 50% 35,661 23,774 (e) Long-term capital gains 14,994 Balance loss to be set off 50,545** * Business loss of Rs. 90,030 set off by profit under s. 41(2) of Rs. 1,717. ** In the above calculation there was a mistake in that items (a) and (b) were left out of account due to oversight. Development rebate of Rs. 16,335 had also been deducted in working out the business loss “1969-70 Rs. Rs. (a) Interest on securities 143 (b) Income from house property 20,028 (c) Business (loss) 78,634* (d) Income by way of dividend 74,001 Less : Exempt under s. 80L 500 Exempt under s. 80M @ 60% 44,600 29,401 49,572 Balance loss 29,002 Loss carried forward from asst. yr. 50,545 1968-69 79,607 *There was a mistake in the computation in that dividends added back for separate consideration was taken as Rs. 7,400 instead of Rs. 74,001. The figure takes into account depreciation of Rs. 53,249 and Dev. rebate of Rs. 6,605 wrongly mentioned in the assessment order as Rs. 53,247 and respectively. It also includes a profit of Rs. 4,060 assessable under s. 41(2) On 22nd March, 1973, orders under s. 154 of the Act in respect of both the assessment years were passed by the ITO. He was of the opinion that deductions permitted under s. 80M had been wrongly computed while making original assessment. Before passing order under s. 154, the assessee was granted an opportunity to have its say. Objections were filed by the assessee questioning legality of proceedings and the proposed manner of computation. The AO did not accept the stand and proceeded to pass orders under s. 154 of the Act and income was computed in the following manner for the two years : 1968-69 Rs. (f) Income from capital gains 14,994 * The figure is due to variation in the correct figure of depreciation (+Rs. 444 and exclusion (Rs. 16,335). Thus, the previous figure of Rs. 90,030 becomes Rs. 78,139. ** Balance of Development rebate of Rs. 11,360 (sic) is allowed to be carried forward 1969-70 Rs. (a) Interest on securities 143 (b) House property income 20,028 (c) Income from dividends 74,001** 94,172 (d) Less : Business loss 1,04,723* 10,551 (e) Profit under s. 41(2) 4,060 Net loss 6,491 * This corrects the figure of Rs. 7,400 into Rs. 74,001 excludes Rs. 4,060 under s. 41(2) and takes into account a depreciation of Rs. 56,902 ** The development rebate of Rs. 6,605 pertaining to this year and Rs. 11,360 pertaining to 196869 are deducted to be carried forward. Assessee challenged the orders passed under s. 154 before the AAC. The said authority was of the view that the issue as to whether the relief allowable under s. 80M was computed correctly at the time of original assessment is not an issue which can be treated to be a mistake apparent from the record. He was of the view that interpretation of s.

80M raises issues which are of controversial nature. That being the position, he cancelled the orders. Revenue carried the matter in appeals before the Tribunal. It was urged before the Tribunal by the Revenue that the mistakes in computation were clearly discernible from record and orders under s. 154 of the Act had been rightly passed. Assessee’s stand, on the other hand, was that the problem was not free from difficulty and needed interpretation of ss. 80A and 80B(5) and 80M. That being the position s. 154 had no application Tribunal proceeded to examine computation as done by ITO on merits. After referring to the definitions of various provisions it came to hold that the second stage in the process of computation related to arriving at figure of gross total income. It went on to compute the deductions under ss. 80L and 80M and it did not find any substance in the plea of the assessee that controversial issues were involved. The orders of the ITO were restored by setting aside the order passed by AAC in the first appeal. On being moved for reference, the question as set out above has been referred.

There is no appearance on behalf of the assessee in spite of notice. We have heard the learned counsel for the Revenue Since reference has been made by the Tribunal, we have taken up the cases for hearing on merits, notwithstanding assessee’s non-appearance. Counsel for the Revenue submitted that what would be the computation under s. 80M is a matter of pure arithmetic and calculation. Even if some analysis of the provisions is called for in this regard, that does not affect the powers conferred under s. 154 of the Act. A bare book at s. 154 of the Act makes it clear that a “mistake apparent from the record “is rectifiable. In order to attract the application of s. 154, the mistake must exist and the same must be apparent from the record.The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. “Mistake” means to take or understand wrongly or inaccurately to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception. “Apparent” means visible, capable of being seen, obvious, plain. It means open to view, visible, evident, appears, appearing as real and true conspicuous, manifest obviously seeming.” A mistake which can be rectified under s. 154 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration. In our view amendment of an order does not mean obliteration of the order originally passed and its substitution by a new order. What the Revenue intends to do in the present case is precisely the substitution of the order which according to us is not permissible under the provisions of s. 154 and, therefore, the Tribunal was not justified in holding that there was mistake apparent on the face of the record. In order to bring in application under s. 154, the mistake must be “apparent” from the record. Sec. 154 does not enable an order to be reversed by revision or by review, but permits only some error which is apparent on the face of the record to be corrected. Where an error is far from self-evident, it ceases to be an apparent error. It is, no doubt, true that a mistake capable of being rectified under s. 154 is not confined to clerical or arithmetical mistakes. On the other hand, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. As observed by the apex Court in Master Construction Co. (P) Ltd. vs. State of Orissa (1966) 17 STC 360, an error which is apparent from record should be one which is not an error which depends for its discovery on elaborate arguments on questions of fact or law. Similar view was also expressed in Satyanarayan Laxminarayan Hegde vs. Mallikarajun Bhavanappa Tirumale AIR 1960 SC 137. It is to be noted that the language used in O.XLVII, r. 1 of the CPC, 1908 is different from the language used in s. 154 of the Act. Power is given to various authorities to rectify any mistake “apparent from record” under s. 154 of the Act. In the CPC the words are “an error apparent on the face of the record”. The two provisions do not mean the same thing.

The power of Tribunal in s. 154 to rectify “any mistake apparent from the record” is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an error apparent on the face of the record [See T.S. Balaram, ITO vs. Volkart Bros. (1971) 82 ITR 50 (SC) : TC 53R.165]. “Mistake” is an ordinary word but in taxation laws, it has a special significance. It is not an arithmetical error which after a judicious probe into the record from which it is supposed to emanate are discerned. The word “mistake” is inherently indefinite in scope, as to what may be a mistake for one may not be one for another. It is mostly subjective and the dividing line in border areas is thin and indiscernible. It is something which a duly and judiciously instructed mind can find out from the record. In order to attract the power to rectify under s. 154, it is not sufficient if there is merely a mistake in the order sought to be rectified. The mistake to be rectified must be one apparent from the record. A decision on a debatable point of law or a disputed question of fact is not a mistake apparent from the record.

The plainmeaning of the word “apparent” is that it must be something which appears to be so ex facie and it is incapable of argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification. On the facts of the present case we find that there was no mistake apparent from the record which would be rectified under s. 154 of the Act. We find that as the Tribunal proceeded to deal with the matter as if it was dealing with an appeal regarding computation of income. It referred to various provisions to work out the details. It is to be noted that in the order under s. 154 the ITO observed that in his opinion s. 71 is not relevant to the provision (s. 80M) regarding allowability of decisions mentioned in Chapter VIA. On the other hand, Tribunal while working out the figures observed in paras 7 and 8 of the order as follows : “7. We think that the first step towards the application of ss. 80L and 80M is the determination of the gross total income for which all we have to do is to compute the total income as it would be before making the deductions under ss. 80L and 80M, the first step would be to classify the items of income and losses under the various heads. This presents no difficulty whatever. The computation under s. 14 will be as follows for the two assessment years in question. Head of Income 1968-69

1969-70 Rs. Rs. (a) Interest on securities 135 143 (b) Income from house property 21,817 20,028 (c) Profits and gains of business or profession 76,422 1,00,663 (d) Capital gains 14,994 Nil (e) Income from other sources (dividends) 59,435 74,001 (ii) Now we come to the second stage of arriving at the figure of gross total income. For asst. yr. 1968-69. Sec. 71(2) is attracted. The loss of Rs. 76,422 is first set off against items (a), (b) and (c) having a surplus of Rs. 4,995 and deducting development rebate. There is a resultant Nil figure.

This leaves the figure of capital gains alone (before relief under s. 80T) as the figure of gross total income. But this amount of capital gains before 80T relief is not available and we shall, therefore, refer to it as the gross capital gains. So far as 1968-69 is concerned, the provision is very simple for the gross total income is a negative figure since the business loss is so heavy as to remain unabsorbed wholly by the income derived by the assessee under various heads.

8. Now we have to allow the reliefs under ss. 80L and 80M. In doing so we must bear in mind that s. 80R(2) (sic) contains a mandate that the aggregations of the deductions under Chapter VI-A cannot exceed the gross total income. In the asst. yr. 1968-69, the ITO has to consider deduction under ss. 80T and 80M, he has allowed the former and so the deduction under s. 80M cannot exceed Rs. 14,994 (which is the figure of gross total income minus s. 80T relief). In the asst. yr. 1969-70, the gross total income being Nil, there can be deduction under ss. 80L and 80M at all.” It is, therefore, clear that while ITO ruled out application of s. 71, Tribunal proceeded on the footing that for the asst. yr. 1968-69. Sec. 71(2) is attracted. That being the position, the Tribunal was clearly in error in holding that no debatable issues were involved thereby permitting application of s. 154 of the Act to the facts of the case. In the background of legal propositions, which we have analysed, inevitable conclusion is that so-called mistakes were not of the nature covered by s. 154 of the Act. Our answer to the question is, therefore, in the affirmative in favour of the assessee and against the Revenue.

ARIJIT PASAYAT, C.J. : IT Ref. No. 129 of 1978

For orders, see IT Ref. No. 128 of 1978

[Citation : 248 ITR 647]

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