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1951 Supreme(Bom) 118
IN THE HIGH COURT OF BOMBAY
Chagla, C.J. and Tendolkar, J.
Appellants: Sidhramappa Andannappa Manvi
Vs.
Respondent: Commissioner of Income-tax, Bombay
Income-tax Reference No. 1 of 1951
Decided On: 28.08.1951
Counsels:
For Appellant/Petitioner/Plaintiff: R.J. Kola, Adv.
For Respondents/Defendant: G.N. Joshi, Adv.
The power of rectification under Section 35(2) is not limited to rectification of mistakes apparent on the record, and the Tribunal has the power to pass consequential orders after rectifying the mistake.
Headnote:
INCOME TAX - RECTIFICATION OF MISTAKE - POWER OF TRIBUNAL - APPLICATION BY COMMISSIONER - COMPETENCY - MISTAKE APPARENT ON THE RECORD - RECTIFICATION OF ERROR - CONSEQUENTIAL ORDER - APPLICATION BY ASSESSEE - COMPETENCY - BAD DEBT - DATE OF BECOMING BAD DEBT - FINALITY OF JUDGMENT OF HIGH COURT - SUBJECT TO APPEAL TO PRIVY COUNCIL - EFFECT.
Fact of the Case:
The assessee claimed a deduction for a bad debt in the assessment year 1943-44. The Income-tax Officer disallowed the claim, holding that the debt was not advanced in the course of the joint family business. The Appellate Assistant Commissioner held that the debt had become a bad debt many years prior to the year of assessment. The Tribunal held that the debt had become a bad debt on September 29, 1941, when the judgment of the High Court was delivered. The Commissioner applied to the Tribunal for rectification of its order under Section 35, and the Tribunal rectified the order, holding that the debt could not be claimed as a bad debt in the assessment year 1942-43. The assessee also applied to the Tribunal under Section 35, seeking to have the order rectified by taking into consideration his application for leave to appeal to the Privy Council on January 5, 1942. The Tribunal rejected the application.
Finding of the Court:
The court held that the Tribunal had the power to rectify the mistake under Section 35(2), and that the power was not limited to rectification of mistakes apparent on the record. The court also held that the Tribunal was right in refusing to rectify its order at the instance of the assessee, as the mistake alleged by the assessee was not apparent on the record. The court further held that the Tribunal was right in holding that the debt became a bad debt on September 29, 1941, the date of the High Court judgment, as there was no possibility of the debt being realized after that date.
Issues: 1. Whether the Tribunal had the power to rectify the mistake under Section 35(2) at the instance of the Commissioner? 2. Whether the application of the assessee to rectify the order under Section 35 was competent? 3. Whether the Tribunal was right in holding that the bad debt was not a permissible deduction in the assessment year 1943-44?
Ratio Decidendi: 1. The power of rectification under Section 35(2) is the same as the power conferred upon the Commissioner and the Appellate Assistant Commissioner under Section 35(1), which is to rectify on its own motion its own mistake appearing on the face of the record. The power to rectify on its own motion is a larger power than the power to rectify on the application of a party. 2. A mistake must be patent on the record; it must not be a mistake which can be discovered by a process of elucidation, or argument, or debate. The rectification must follow as a necessary logical consequence of the mistake it cannot pass an order which is contrary to the order already passed. 3. A debt becomes a bad debt when there is no possibility of its realization. The finality of the judgment of the High Court, which held that the debt was not realizable, made it impossible for the assessee to realize the debt after September 29, 1941.
Final Decision: The court answered the questions referred to it by the Tribunal as follows: Question No. 1: In the affirmative. Question No. 2: In the affirmative. Question No. 3: In the negative.
Chagla, C.J.
1. The joint family, of which the assessee was at one time a member, had advanced certain loans to the Warad family. On partition of that joint family the debts due to the family came to the share of the assessee. A suit was filed by the assessee for recovery of those debts against the Warad estate but the suit was dismissed by the trial Court. There was an appeal to this Court but this Court dismissed the appeal on September 29, 1941. The question that arose for consideration by the Income-tax authorities was as to when these loans advanced by the family to the Warad estate became a bad debt. The Income-tax Officer held that the loans were not advanced in the course of the joint family business and therefore the claim of the assessee to deduct this amount as a bad debt was disallowed. The Appellate Assistant Commissioner on appeal held that the debt had become a bad debt many years prior to the year of assessment. Then there was an appeal to the Tribunal and the Tribunal held that debt had become a bad debt on September 29, 1941, when the judgment of the High Court was delivered. Now the assessment year which the Tribunal was considering was the year 1943-44 and the accounting year was Shake 1863-64 which corresponds to October 21, 1941, to November 8, 1942. The Tribunal erroneously took the view that September 29, 1941, fell within the Shake year 1863-64 when obviously it did not. On that erroneous assumption the Tribunal allowed the appeal of the assessee and permitted him to include the bad debt in the assessment year 1942-43. The Commissioner then applied to the Tribunal for rectification of its order under Section 35 and the Tribunal acceded to the application of the Commissioner and rectified the order holding that as September 29, 1941, did not fall within the assessment for the year the assessee could not claim to include this bad debt in the as sessment for the year 1942-43. On that view the Tribunal dismissed the appeal of the assessee. Then the assessee also applied to the Tribunal under Section 35, his grievance being that after the judgment of the High court he had applied to the High Court for leave to appeal to the Privy Council on January 5, 1942, and on his petition a Rule was granted by the High Court on January 7, 1942. This Rule was not prosecuted and nothing further happened to the petition filed by the assessee. According to the fact of this application for leave to appeal to the Privy Council was before the Income-tax Tribunal and this fact appeared on the record, but the Tribunal did not take this fact into consideration. As a matter of fact the Tribunal states in the statement of the case that this fact was not brought to its notice at all. The application of the assessee was that the Tribunal should rectify its order by taking into consideration this particular fact and then giving its judgment as to when the debt became a bad debt in light of the fact that the petition for leave to appeal to the Privy Council was made by the assessee on January 5, 1942. The Tribunal rejected the application of the assessee. It is on these facts that three questions have been referred to us by the Tribunal.
2. The first question is with regard to the power of the Tribunal to rectify under Section 35. Mr. Kolas contention is that what the Tribunal has done is tantamount to exercising a power of review or revision and not a power of rectification. He says that that the Tribunal had at first allowed the appeal of the assessee and then purporting to act under Section 35 it has dismissed that appeal. According to him this is exercising the power of review or revision which is not conferred upon the Tribunal. It is also contended by Mr. Kola that the power of rectification can only be exercised by the Tribunal on its own motion. The Tribunal cannot exercise the power of rectification at the instance of the Commissioner. Now when we turn to Section 35(2) the power of rectification which is conferred upo
