The Income-Tax Officer, Alwaye Vs. The
Asok Textiles Ltd., Alwaye  INSC 293 (13 December 1960)
CITATION: 1961 AIR 699 1961 SCR (3) 236
CITATOR INFO :
E&D 1987 SC 575 (5)
Income-tax--Rectification, scope of--If can
be equated with review under the Code--Advance Payment of tax-Penal interest
due to additional tax on rectification, if could be imposed- Code of Civil
Procedure (V of 1908), O. 47, r. 1-Indian Income-tax Act, 1922 (11 of 1922),
ss. 18A (8), 35.
After the respondents net assessable income
for the years ,952-53 was determined, it declared dividends which attracted
provisions of the Finance Act, 1952, and became liable to the 237 payment of
additional income-tax, which fact was overlooked by the Income-tax Officer,
who, after giving notice under s. 35 of the Income-tax Act, rectified the error
and imposed an additional tax at the rate of one anna in the rupee. He later
discovered that this was also erroneous and the rate should have been five
anmas in a rupee and rectified the error; by the same order the omission to
impose penal interest under s. 18A(8) was rectified and penal interest was
imposed. The respondent's case before the High Court was that s. 35.of the Act
did not apply and that on the merits the additional tax could not be imposed.
The High Court held that the necessary foundation for the exercise of the
powers under S. 35 bad not been laid and therefore the Income-tax Officer had
no jurisdiction to make the order;
and also that the penal interest under s.
18A(8) of the Act for failure to make advance deposit was also without
Held, that the language and scope of S. 35 of
the Indian Income-tax Act, 1922, could not be equated with that of O. 47, r. 1
of the Code of Civil Procedure. The Income-tax Officer could under S. 35 of the
Act examine the record and if he discovered that a mistake had been made, could
rectify the error both of law and fact. The restrictive operation of the powers
of review under 0. 47, r. of the Code of Civil Procedure was not applicable in
the case of s. 35 of the Income-tax Act.
Held, further, that the s. 18A(8) was a
mandatory one and the Income-tax Officer was required to calculate the interest
in the manner provided under the provisions of that sub-section and had to add
it to the assessment.
Maharana Mills (P.) Ltd. v. Income-tax
Officer,  36 I.T.R. 350 and M. K. Venkatachalam v. Bombay Dyeing &
Manu- facturing Co. Ltd.,  34 I.T.R. 143, discussed.
Commissioner of Income-tax v. Elphinstone
Spinning & Weaving Mills Co. Ltd.  40 I.T.R. 142, Commissioner of
Income- tax, Bombay City v. Jalgaon Electric Supply Co. Ltd.,  40 I.T.R.
184 and Commissioner of Income-tax, Bombay City v. Khatau Makanji Spng. &
Weavg to. Ltd.,  40 I.T.R. 189 not applicable.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 311 of 1959.
Appeal from the judgment and order dated
October 31, 1955, of the Travancore Cochin High Court, Ernakulam, in Original
Petition No. 75 of 1955.
A. N. Kripal and D. Gupta, for the appellant.
Sardar Bahadur, for the respondent.
1960. December 13. The Judgment of the Court
was delivered by 238 KAPUR, J.-This is an appeal pursuant to a certificate of
the High Court of Kerala against the judgment and order of that court and the
question for decision is the applicability of s. 35 of the Indian Income-tax
Act (hereinafter termed the 'Act').
The facts which have given rise to the appeal
are these: The respondent is a limited company which owns a spinning mills at
Alwaye. It commenced business in January, 1951, and its first accounting year
ended on December 31, 1951, and the relevant assessment year is 1952-53. It
filed its return showing an income Rs. 3,21,284 without taking into account the
amount allowable under s. 15C of the Act. On February 2, 1953, the net
assessable income of the respondent was determined at Rs. 1,47,083 after
deducting Rs. 1,79,081 under s. 15C. The respondent however declared a dividend
of Rs. 4,72,415 which attracted the application of s. 2 of the Finance Act,
1952, read with Part B, proviso (ii) of First Schedule and thus it became
liable to the payment of additional income tax and this fact was overlooked by
the Income-tax Officer. After giving notice under s. 35 of the Act, the
Income-tax Officer by an order dated January 25, 1954, rectified this error and
imposed an additional tax at the rate of one anna in the rupee. He later
discovered that this was also erroneous and the rate should have been 5 annas in
a rupee. By an order dated August 12, 1954, he rectified the error. Under s.
18A, advance income tax had to be paid and the respondent company had deposited
5,000 and therefore became liable to penal
interest under s.
18A(8) of the Act. By the same order this
omission to impose penal interest was' corrected and this error was thus
Against this order the respondent company
went in revision under s. 33A(2) to the Commissioner of Income-tax but the
revision was dismissed. Thereupon the respondent company filed a petition in
the High Court of Kerala under Art. 226 of the Constitution on the ground that
s. 35 of the Act did not apply and that on the merits additional tax could not
be imposed. The High Court by its judgment dated October 31, 239 1955 held that
the orders made were without jurisdiction and therefore granted a writ of
certiorari quashing the orders and the Income-tax Officer has brought this
appeal pursuant to a certificate of that High Court.
According to the High Court, s. 35 of the Act
was a provision for rectification of "mistakes apparent on the
record" and in the opinion of the High Court it was a mistake analogous to
O. 47, r. 1 of the Code of Civil Procedure for grant of review on the ground of
mistake or error apparent on the face of the record and it construed it in the
following words:- "i.e. an evident error which does not require any
extraneous matter to show its incorrectness. The error may be one of fact but
is not limited to matters of fact and include also errors of law. But the law
must be definite and capable of ascertainment. An erroneous view of law on a
debatable point or a wrong exposition of the law or a wrong application of the
law or a failure to apply the appropriate law cannot be considered a mistake or
error apparent on the face of the record. See Chitaley's C.P.C. Col. III pp.
3549-50, 5th edition." On the ground
that the applicability of proviso (ii) of Part B of the First Schedule of the
Finance Act was a complex question which could not be said to be "apparent
on the face of the record", the High Court held that the necessary
foundation for the exercise of the powers under s. 35 had not been laid and
therefore the Income-tax Officer had no jurisdiction to make the order that he
did. The High Court also held that the levy of penal interest under s. 18A(8)
of the Act for failure to make advance deposit under s. 18A(3) was also without
The learned Judges of the High Court seem to
have fallen into an error in equating the language and scope of s. 35 of the
Act with that of O. 47, r. 1, Civil Procedure Code. The language of the two is
different because according to s. 35 of the Act which provides for
rectification of mistakes the power is given to the various income-tax
authorities within four years from the date of any assessment passed by them to
rectify 240 any mistake "apparent from the record" and in the Civil
Procedure Code the words are "an error apparent on the face of the
record" and the two provisions do not mean the same thing. This court in
Maharana Mills (Private) Ltd. v. Income-tax Officer, Porbandar (1) has laid
down the scope of s. 35 at p. 358 in the following words:- "The power
under section 35 is no doubt limited to rectification of mistakes which are
apparent from the record. A mistake contemplated by this section is not one
which is to be discovered as a result of an argument but it is open to the
Income-tax Officer to examine the record including the evidence and if he
discovers any mistake he is entitled to rectify the error provided that if the
result is enhancement of assessment or reducing the refund then notice has to
be given to the assessee and he should be allowed a reasonable opportunity of
being heard." In that case the error arose because of an initial mistake
in determining the written down value which was subsequently rectified. In an
earlier case M. K. Venkatachalam v. Bombay Dyeing & Manufacturing Co. Ltd.
(2) where as a consequence of a subsequent amendment of the law having
retrospective effect, the Income-tax Officer reduced the amount of interest
under s. 18A(5) of the Act and the assessee obtained from the High Court a writ
of prohibition against the Income-tax Officer on the ground that the mistake
contemplated had to be apparent on the face of the order and not a mistake
resulting from an amendment of the law even though it was retrospective in its
effect, it was held that it was a case of error apparent from the record.
Gajendragadkar, J. in his judgment said:-
"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 had to read
the principal Act as containing the inserted proviso as from April 1,
1952." Thus this court has held that discovery of an error on (1)  36
(2)  34 I.T.R. 143.
241 the basis of assessment due to an initial
mistake in determining the written down value is a mistake from the record and
so is a misapplication of the law even though the law came into operation
retrospectively. The Income-tax Officer, can, under s. 35 of the Act, examine
the record and if he discovers that he has made a mistake he can rectify the
error and the error which can be corrected may be an error of fact or of law.
The restrictive operation of the power of review under 0. 47 R. 1, Civil
Procedure Code is not applicable in the case of s. 35 of the Act and in our
opinion it cannot be said that the order of the Income-tax Officer in regard to
assessment in dispute was without jurisdiction.
In regard to s. 18A (8) also the learned
Judges have misdirected themselves because that section is mandatory.
It provides:- S. 18A(8) "Where, on
making the regular assessment, the Income-tax Officer finds that no payment of
tax has been made in accordance with the foregoing provisions of this section,
interest calculated in the manner laid down in sub-section (6) shall be added
to the tax as determined on the basis of the regular assessment."
Therefore the Income-tax Officer was required to calculate the interest in the manner
provided under the provisions of that sub-section and had to add it to the
Counsel for the respondent sought to raise
the question as to the applicability of proviso (ii) of Part B of First
Schedule of the Finance Act 1952 and relied upon the judgments of this Court in
Commissioner of Income-tax v.
Elphinstone Spinning & Weaving Mills Co.
Ltd. (1) and similar cases reported as Commissioner of Income-tax, Bombay City
v. Jalgaon Electric Supply Co. Ltd.(1) and Commissioner of Income-tax, Bombay
City v. Khatau Makanji Spinning and Weaving Co. Ltd. (3); but the facts of
those cases were different. In the first case there was no total income and the
(1)  40 I.T.R. 142. (2)  40 I.T.R. 184.
(3)  40 I.T.A. 189.
31 242 Finance Act was not applicable in that
case. In the second there was no profit in any preceding year and therefore the
fiction failed because it postulates that there should be undistributed profits
of one or more years immediately preceding the previous year. In the third case
also the Finance Act was inapplicable because the additional tax was not
properly laid upon the total income and what was actually taxed was never a
part of the total income of the previous year.
In our opinion the order of the High Court was
We therefore allow this appeal and set aside
the judgment and order of the High Court with costs in this court and in the