Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1959 Supreme(SC) 46

SUPREME COURT OF INDIA
14th April, 1959
B.P. SINHA, J.L. KAPUR AND M. HIDAYATULLAH, JJ.
M/s. Maharana Mills (Private) Ltd., Appellants
Versus
The Income Tax Officer, Porbander, Respondent.
Civil Appeal No. 39 of 1959.
Advocates appeared
Mr. A. V. Viswanatha Sastri, Senior Advocate (Mr. S. P. Mehta, Advocate and M/s. J. B. Dadachanji, S. N. Andley and Rameshwar Nath, Advocates of M/s. Rajinder Narain and Co. with him), for Appellants; Mr. M. C. Setalvad, Attorney-General for India (M/s. R. Ganapathy Iyer and D. Gupta, Advocates, with him), for Respondent.

Advocates:
A.V.VISHWANATHA SASTRI, D.GUTPA, J.B.DADACHAN, M.C.SETALVAD, R.Ganapathy Iyer, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY, S.P.MEHTA

The Income-tax Officer has the power to rectify a mistake in the Written Down Value under S. 35 of the Act, where the mistake is apparent from the record and notice under S. 35(2) is not necessary where the assessee has knowledge of the proceedings and the matter has been discussed with him.

Headnote:
INCOME TAX - Rectification of mistake - Written Down Value - Depreciation - Income-tax Officer has power to rectify mistake in Written Down Value under S. 35 of the Act - Mistake apparent from the record - Notice under S. 35(2) not necessary where assessee has knowledge of the proceedings and the matter has been discussed with him - Explanation to cl. (2) of the Taxation Laws (Part B States) Removal of Difficulties Order, 1950, is intra vires.
Fact of the Case:

The appellant, a private limited company, was assessed to income-tax for the assessment year 1953-54. The Income-tax Officer, on August 8, 1955, received an application from the appellant for rectification of certain mistakes in the assessment order. The Income-tax Officer, by his order dated February 27, 1956, corrected the Written Down Value of the different properties of the appellant and determined the total allowable depreciation to be Rs. 1,94,074. The appellant filed a petition under Arts. 226 and 227 of the Constitution in the High Court of Bombay, alleging that the Income-tax Officer had exceeded his jurisdiction and exercised illegally jurisdiction not vested in him by law under S. 35 of the Act and passed orders, inter alia, suo motu and without giving any prior notice and altered the entire procedure and basis of calculating depreciation on the written down value of buildings and machinery of the petitioners. The High Court dismissed the petition.
Finding of the Court:

The Court held that the Income-tax Officer had the power to rectify the mistake in the Written Down Value under S. 35 of the Act. The mistake was apparent from the record and notice under S. 35(2) was not necessary where the assessee had knowledge of the proceedings and the matter had been discussed with him. The Explanation to cl. (2) of the Taxation Laws (Part B States) Removal of Difficulties Order, 1950, was held to be intra vires.
Issues: 1. Whether the Income-tax Officer had the power to rectify the mistake in the Written Down Value under S. 35 of the Act? 2. Whether the mistake was apparent from the record? 3. Whether notice under S. 35(2) was necessary where the assessee had knowledge of the proceedings and the matter had been discussed with him? 4. Whether the Explanation to cl. (2) of the Taxation Laws (Part B States) Removal of Difficulties Order, 1950, was intra vires?
Ratio Decidendi: 1. The Court held that the Income-tax Officer had the power to rectify the mistake in the Written Down Value under S. 35 of the Act. The mistake was apparent from the record and notice under S. 35(2) was not necessary where the assessee had knowledge of the proceedings and the matter had been discussed with him. The Explanation to cl. (2) of the Taxation Laws (Part B States) Removal of Difficulties Order, 1950, was held to be intra vires. 2. The Court held that the mistake was apparent from the record. The Income-tax Officer had found that the very basis of the different assessments was erroneous because of an initial mistake in determining the Written Down Value. In order to determine the correct Written Down Value, the Income-tax Officer made correct calculations. This was held to be rectifying a mistake apparent from the record. 3. The Court held that notice under S. 35(2) was not necessary where the assessee had knowledge of the proceedings and the matter had been discussed with him. The affidavit of the Income-tax Officer showed that the correctness of the figures for determining the depreciation was discussed with the appellant’s Secretary. The Income-tax Officer also stated that the order of rectification was passed “almost at the end of the financial year, after explaining and discussing all the above calculation along with the relevant rules and regulation of the calculated depreciation”. 4. The Court held that the Explanation to cl. (2) of the Taxation Laws (Part B States) Removal of Difficulties Order, 1950, was intra vires. The Explanation was promulgated under S. 60-A of the Act, which was applicable to the Order made under S. 12 of the Finance Act, 1950.
Final Decision: The appeal was dismissed with costs.

Judgment

J. L. KAPUR J.: This is an appeal by special leave against the judgment and order of the High Court of Judicature at Bombay dismissing the appellant s petition under Art. 226. The appellant before us is a private limited company carrying on the business of manufacturing and selling textiles and the respondent is the Income-tax Officer of Porbander.

2. Previous to the year 1949, in Porbander which became a part of the State of Saurashtra, there was no income-tax. In 1949 the Saurashtra Income-tax Ordinance (hereinafter termed the Ordinance) was promulgated which was applicable to the State of Saurashtra. By that Ordinance income-tax became leviable and from 1950 onwards when Saurashtra became part of the Union of India the Indian Income-tax Act (hereinafter referred to as the Act) became applicable by reason of the Finance Act of 1950 (Act XXV of 1950). The appellant was taxed for the accounting year 1949 i.e. the assessment year 1950-51. In that year the amount of depreciation allowed under S. 10(2)(vi) of the Act was Rs. 3,43,869. The appellant continued to be assessed to income-tax in the assessment years 1951-52, 1952-53 and 1953-54 and the present appeal relates to the assessment of year 1953-54. According to the assessment order dated June 30, 1955, the amount of depreciation allowed for the assessment year 1953-54 was Rs. 3,48,105. On August 8, 1955 as already stated the appellant made an application for rectification under S. 35 of the Act. In this application he pointed out several mistakes in calculations in regard to the depreciation amount. By his order of February 27, 1956, the Income-tax Officer corrected the Written Down Value of the different properties of the appellant and determined the total allowable depreciation to be Rs. 1,94,074. The order of the Income-tax Officer was as follows:

"To arrive at the Written Down Value of the assets it was necessary to maintain depreciation record. This being not done so far, is done now and working attached.

Depreciation allowance as per rules is worked out at Rs. 1,94,074 as per working sheet attached.

The correct computation of income is as under:-

Income before allowing depreciation as per original assessment order : Rs. 1,00,674

Less charity disallowed wrongly written Rs. 21,889 instead of Rs. 20,124 : Rs. 1,765

Income Rs. 98,909

Less depreciation : Rs. 1,94,074

( - ) Rs. 95,165

Less Dividend income as per original assessment order : Rs. 11,870

Loss Rs. 83,295

Loss on account of depreciation to be carried forward. Declared N. A."

And thus the unabsorbed depreciation amount which under the assessment order of June 30, 1955 was Rs. 2,31,944 was reduced to Rs. 83,295 and this was set off against the appellant s income of the assessment year 1954-55. On February 29, 1956, the Income-tax Officer passed two provisional assessment orders for the years 1954-55 and 1955-56. In both these orders he calculated the depreciation amouns on the basis of the same Written Down Value as he had determined for the year 1953-54. The reasons for calculating them on the new basis were set out by the Income-tax Officer in his order dated May 18, 1956 and they were:-

"Less Depreciation. The depreciation of the Company has not been properly calculated by arriving at Written Down Value as per the Saurashtra Income Tax Ordinance and also as per Indian Income-tax Act. The assessee Company was being assessed regularly even as per Indian Income-tax Act. So Written Down Value of all assets are arrived at by working out the depreciation as per above Ordinance as well as Income-tax Act. The depreciation is worked out as per separate statement keeping in view the following:-

(i) Definition of "assessee" as per Indian Income-tax Act.

(ii) The exact meaning of W. D. V. as per Income-tax Act.

(iii) The meaning of W. D. V. as per the Saurashtra Income-tax Ordinance 1949 and Rules (Page 20 para. 13-5-A).

(iv) I. T. R. Volume 25,558. Decision of Calcutta High Court as regards C.I.T., West Bengal,-M/s. Karnani I

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1959 Supreme(SC) 46

The Income-tax Officer has the power to rectify a mistake in the Written Down Value under S. 35 of the Act, where the mistake is apparent from the record and notice under S. 35(2) is not necessary where the assessee has knowledge of the proceedings and the matter has been discussed with him.

Cases Referred (1)