Orissa H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is not entitled to the exemption under s. 11 of the Act ?

High Court Of Orissa

Prajatantra Prachar Samity vs. CIT

Sections 254(2)

Asst. Year 1985-86

R.K. Patra & L. Mohapatra, JJ.

SJC Nos. 21 of 1994, 142 & 143 of 1997 and 3 of 1998

15th January, 2003

Counsel Appeared

S.N. Ratho, M.K. Babu & S.K. Mishra, for the Assessee : Standing counsel, for the Revenue

JUDGMENT

R. K. Patra, J. :

In obedience to the order of the Supreme Court, the Tribunal has under s. 256(2) of the IT Act, 1961, referred the following three questions to this Court for opinion :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is not entitled to the exemption under s. 11 of the Act ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in rejecting the method of computing the income followed by the assessee ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in declining to grant exemption to the assessee-trust on a completely new ground made out suo motu without affording an opportunity to the assessee to have its say on the said new ground ?”

2. The facts of all the consolidated references in brief are as follows : The Prajatantra Prachar Samity, Cuttack (hereinafter referred to as “the assessee”), a registered society, is a public charitable trust registered as such with the CIT, Orissa, under s. 12A of the IT Act, 1961 (hereinafter referred to as “the Act”). The objective of the assessee-society are to promote literature, science, fine arts and infuse useful knowledge. It is engaged in publication of books, periodicals, journals and newspapers. For the asst. yr. 1985-86, it filed return of income on 30th Sept., 1985, declaring loss of Rs. 15,76,888 before the ITO, Ward-A, Circle-II, Cuttack. Notice being issued under s. 142(1) of the Act, the assessee appeared with books of account and submitted that from 1st April, 1984, it changed its method of accounting from mercantile to hybrid system of accounting. The AO on examination of the books of account found that during the previous year the assessee had effected total sale of Rs. 1,21,98,772 on account of advertisement, circulation of papers, printing, etc., out of which it received Rs. 91,07,679 and the balance of Rs. 30,91,093 remains unreceived or receivable on the close of the accounting year, i.e., 31st March, 1985. That means, under the so-called hybrid system of accounting its final account had incorporated only Rs. 91,07,679 on the credit side of the income and expenditure account as against the total turnover of Rs. 1,21,98,772. In other words, the sundry debtors to the extent of Rs. 30,91,093 had been excluded from the gross turnover. The AO did not accept the new method of accounting followed by the assessee and by order dt. 28th Jan., 1998, determined the taxable income on accrual basis under s. 143(3) of the Act. Against the said order of assessment, the assessee filed IT Appeal No. 11/ORS/ORA of 1988-89 before the CIT(A), Orissa, Cuttack, who by order dt. 28th Nov., 1988, dismissed the appeal. Being dissatisfied with the order of dismissal, it filed appeal before the Tribunal, Cuttack Bench, Cuttack, which by order dt. 19th Jan., 1990, dismissed the appeal. Thereafter, the assessee made an application under s. 254(2) of the Act for rectification of the order dt. 19th Jan., 1990, and the Tribunal by its order dated 13th Dec., 1990, held that “both legal principles and judicial wisdom demand that the entire order should be recalled and the appeal should be heard afresh”. It accordingly recalled its earlier order dt. 19th Jan., 1990. The Tribunal thereafter reheard the matter and allowed the appeal by order dt. 10th May, 1991. Contending that the Tribunal exceeded its jurisdiction while deciding the application under s. 254 (2) of the Act, the Revenue filed a writ petition bearing OJC No. 2953 of 1991 in this Court challenging the order dt. 13th Dec., 1990. By judgment dt. 2nd Dec., 1991, CIT vs. ITAT (1992) 101 CTR (Ori) 200 : (1992) 196 ITR 564 (Ori), this Court allowed the writ petition by setting aside the Tribunal’s order dt. 13th Dec., 1990, as well as its substantive order dt. 10th May, 1991. The assessee filed special leave petition before the Supreme Court challenging the aforesaid decision of this Court dt. 2nd Dec., 1991. The Supreme Court by its order dt. 24th April, 1996, in Civil Appeal No. 153 of 1993 disposed of the matter with the following observations and directions : “With a view to have a satisfactory decision on all the questions arising herein, we have proposed the following course to which the counsel for both the parties have agreed. The course suggested is that while the assessee shall ask for a reference against the order dt. 19th Jan., 1990, the substantive order of the Tribunal dismissing the appellant’s appeal, the Revenue shall ask for reference against the order of rectification dt. 13th Dec., 1990, and the substantive order of the Tribunal dt. 10th May, 1991. If such applications are filed within sixty days from today, the Tribunal shall refer the questions arising therein for consideration of the High Court. The above course is adopted in the particular facts of this case and with a view to overcome the several technical objections put forward by both parties. We make it clear that we intend no reflection upon the merits of the case of either party. All the questions which arise from the orders of the Tribunal aforesaid shall be open in such reference which may be heard together.”

The litigation was going on a straight track. After the assessee’s appeal was dismissed by the Tribunal, it as an ordinary course could have moved under s. 256 of the Act for reference to this Court. Instead, it opted for a short cut and applied for rectification of the order under s. 254(2) of the Act which has resulted in these proceedings. Therefore, the first question that arises for consideration is whether in exercise of power purported to be under s. 254(2) of the Act, the Tribunal is competent to reverse its earlier decision and make the order dt. 10th May, 1991, in favour of the assessee. Sub-s. (2) of s. 254 lays down that the Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-s. (1). A perusal of the aforesaid provision would clearly show that the Tribunal has been statutorily conferred the power for rectifying any of its mistakes apparent from the record and amend any order passed by it under sub-s. (1).

The expression “mistake apparent from the record” occurring in sub-s. (2) of s. 254 of the Act also finds mention in s. 154 of the Act, the meaning of which came up for consideration before the Supreme Court in T. S. Balram, ITO vs. Volkart Brothers AIR 1971 SC 2204. It has been explained as follows : “A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Gegde vs. Mallikarjun Bhavanappa Tirumale AIR 1960 SC 137, this Court while spelling out the scope of the power of a High Court under Art 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record—See Sidhramappa Andannappa Manvi vs. CIT AIR 1952 Bom 287. The power of the officers mentioned in s. 154 of the IT Act, 1961, to correct ‘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’. In this case it is not necessary for us to spell out the distinction between the expressions ‘error apparent on the face of the record’ and

‘mistake apparent from the record.”

5. The Calcutta High Court (Sabyasachi Mukharji as he then was) in Jeewanlal (1929) Ltd. vs. ITO (1979) 118 ITR 946 (Cal) after considering a number of decisions held as follows : “The position, therefore, is that in order to attract the jurisdiction under s. 154 of the Act the mistake proposed to be rectified must be patent or apparent or obvious and on which there could not conceivably be two points of view. A mistake which has to be established by way of a process of reasoning or of investigation either on facts or by examination of the question of law on which there might conceivably be two views was not a mistake which came within the provisions of s. 154 of the Act. But whether the mistake sought or proposed to be rectified is a mistake which comes within the purview of the section must depend upon the facts and circumstances of each case.”

6. The Calcutta High Court in Niranjan & Co. Ltd. vs. ITAT (1980) 122 ITR 519 (Cal), has held as follows :

“The jurisdiction of the Tribunal on an application under s. 254(2) is to make an amendment of an order passed by it under sub-s. (1) in order to rectify any mistake apparent from the record if such mistake is brought to its notice.. On the other hand, the Tribunal has gone into the merits of the appeal again and found that this order is sound even on the basis of the materials sought to be relied upon. This, in my opinion, the Tribunal could not do. The Tribunal has got no power to review an earlier order or rehear a matter afresh. Its only duty on such rectification application is to ascertain whether there was any mistake apparent from the record or not…”

7. This Court in CIT vs. Jagabandhu Roul (1984) 145 ITR 153 (Ori) after taking notice of an earlier decision of this Court in the case of CIT vs. Dhadi Sahu (1976) 105 ITR 56 (Ori) and the decisions of the Bombay, Madras, Madhya Pradesh and Calcutta High Courts held that : “the Tribunal does not have a power of review. What has been given under s. 254(2) of the Act is one of rectification of mistakes. There can be no two opinions that the power of review has to be statutorily conferred.”

8. The rectification application was allowed by the Tribunal (consisting of Shri T.V.K. Natarajachandran, A.M., and Shri K.R. Dixit, J.M.) by order dt. 13th Dec., 1990, with a direction to hear the appeal afresh. The appeal was heard by the Tribunal (consisting of Shri S. L. Banerjee, J.M., and Shri N. Pachuau, A.M.) which by order dt. 10th May, 1991, allowed the appeal in favour of the assessee. In the above order dt. 13th Dec., 1990, the Tribunal held that the assessee’s grievance was with regard to rejection of its method of accounting for the purpose of computation of its income and the grant of exemption under s. 11 of the Act. But while considering the appeal on the merits, the Tribunal in its order dt. 19th Jan., 1990, applied the provisions of s. 11(4A) of the Act and denied relief to the assessee without confronting to it with the possibility that the said provision would be invoked for which it had no opportunity to object to its application. This, according to the Tribunal, is a clear and apparent error in the order, because it was nobody’s case that the said s. 11(4A) would be applicable to the assessee’s case.

In the substantive order of the Tribunal dt. 10th May, 1991, besides the above mistake [applicability or non- applicability of s. 11 (4A)], the Tribunal has given an additional ground of apparent mistake. That “mistake”, according to the Tribunal is—the assessee for the first year of assessment, i.e., for the disputed year 198586, having adopted a hybrid system of accounting, the question of changing the method of accounting to adopt dubious way of avoiding tax does not arise.

9. Keeping in view the decisions referred to above and the finding recorded by the Tribunal in its orders dt. 13th Dec., 1990, and 10th May, 1991, we have no hesitation to hold that the order of the Tribunal dt. 19th Jan., 1990, dismissing the assessee’s appeal suffered from the mistake apparent from the record and, therefore, the application made under s. 254(2) of the Act for rectification of the order dt. 19th Jan., 1990, was rightly accepted by the Tribunal by its order dt. 13th Dec., 1990. As mentioned above, Tribunal thereafter set down the case for hearing afresh and passed a substantive order on 10th May, 1991. The Supreme Court has asked us also to consider the validity and propriety of the said order dt. 10th May, 1991. Sub-s. (2) of s. 254 of the Act states that the Tribunal while rectifying mistake apparent from the record may amend any order passed by it under sub-s. (1). We have already noted that in exercise of that power the Tribunal can only make changes in the original order consequent on the rectification and it cannot go further and deal with the entire appeal afresh. A perusal of the aforesaid substantive order dt. 10th May, 1991, would clearly show that in the garb of rectification/amendment, the Tribunal has substituted a fresh order which, in our opinion, is in excess of its jurisdiction. Therefore, having regard to the nature of the issue that was before the Tribunal and in view of what has been stated above, we think it proper to set aside that order dt. 10th May, 1991, and direct the Tribunal to consider the case on all the points arising out of the CIT’s order dt. 28th Nov., 1988. While considering the matter, the Tribunal will also keep in view the provision of s. 11(4A) of the Act which came to be inserted by the Finance Act, 1983, w.e.f. 1st April, 1984.

In the result, we answer question No. (3) in favour of the assessee and against the Revenue. The references are returned unanswered in respect of question Nos. (1) and (2) in view of our direction to the Tribunal as mentioned above.

L. MOHAPATRA, J. :

I agree.

[Citation : 264 ITR 160]

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