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1969 Supreme(Cal) 213
HIGH COURT OF CALCUTTA
K. L. RAY
INDRA CO. LTD. - Appellant
Versus
INCOME-TAX OFFICER - Respondent
Matter 699 Of 1967
Decided On : AUGUST 26, 1969
D.K.SEN, D.PAL
The Income-tax Officer cannot rectify an assessment order after the Appellate Assistant Commissioner's order, and rectification proceedings must be under Section 35 of the Income-tax Act, 1922.
Headnote:
INCOME TAX - RECTIFICATION OF ASSESSMENT - JURISDICTION - INCOME-TAX ACT, 1922, SECTION 35 - INCOME-TAX ACT, 1961, SECTIONS 154, 154(1A), 297(2)(A) - WHETHER INCOME-TAX OFFICER CAN RECTIFY ASSESSMENT ORDER AFTER APPELLATE ASSISTANT COMMISSIONER'S ORDER - WHETHER SECTION 154(1A) OF 1961 ACT APPLICABLE - WHETHER NOTICE UNDER SECTION 154 OF 1961 ACT VALID - WHETHER RECTIFICATION PROCEEDINGS TO BE UNDER SECTION 35 OF 1922 ACT.
Fact of the Case:
The petitioner, an Indian company, claimed a loss of Rs. 2,41,472 in its return for the assessment year 1959-60, including 1,393 bonus shares of Hastings Mills Ltd. valued at Rs. 100 each. The Income-tax Officer disallowed the claim, holding that the alleged sale of shares was a concerted action between sellers and purchasers, and the loss did not arise in the normal course of business. On appeal, the Appellate Assistant Commissioner allowed the entire loss, holding that the petitioner was a dealer in shares and the Income-tax Officer failed to establish that the loss did not arise in the normal course of business. Subsequently, the Income-tax Officer issued a notice under Section 154 of the Income-tax Act, 1961, proposing to rectify the assessment for 1959-60, claiming that the profit on the sale of bonus shares had been under-assessed.
Finding of the Court:
The court held that the Income-tax Officer could not rectify the assessment order under Section 154 of the Income-tax Act, 1961, as the assessment order had merged in the order of the Appellate Assistant Commissioner. The court also held that the provisions of Section 154(1A) of the 1961 Act, which allowed the Income-tax Officer to rectify an order in relation to any matter other than a matter considered and decided by a superior appellate authority, did not apply to this case, as the question of the valuation of the bonus shares had been considered by both the Income-tax Officer and the Appellate Assistant Commissioner. Further, the court held that the notice under Section 154 of the 1961 Act was not a valid notice, as rectification proceedings under the Income-tax Act, 1922, could only be initiated under Section 35 of that Act.
Issues: 1. Whether the Income-tax Officer could rectify the assessment order after the Appellate Assistant Commissioner's order. 2. Whether Section 154(1A) of the Income-tax Act, 1961, was applicable to the case. 3. Whether the notice under Section 154 of the Income-tax Act, 1961, was a valid notice. 4. Whether rectification proceedings were to be under Section 35 of the Income-tax Act, 1922.
Ratio Decidendi: 1. The court held that once an appellate authority has decided an appeal, the effective order is that of the appellate court, and the Income-tax Officer cannot rectify the assessment order under Section 154 of the Income-tax Act, 1961. 2. The court held that Section 154(1A) of the Income-tax Act, 1961, which allows the Income-tax Officer to rectify an order in relation to any matter other than a matter considered and decided by a superior appellate authority, did not apply to this case, as the question of the valuation of the bonus shares had been considered by both the Income-tax Officer and the Appellate Assistant Commissioner. 3. The court held that the notice under Section 154 of the Income-tax Act, 1961, was not a valid notice, as rectification proceedings under the Income-tax Act, 1922, could only be initiated under Section 35 of that Act. 4. The court held that rectification proceedings must be under Section 35 of the Income-tax Act, 1922, as the assessment order had merged in the order of the Appellate Assistant Commissioner.
Final Decision: The court quashed all proceedings pending under the impugned notice and directed the respondents to forbear from taking any further steps in pursuance thereof.
( 2 ) THE petitioner is an Indian company. In its return for the assessment year 1959-60, it claimed a loss of Rs. 2,41,472 in respect of its share-dealing business. The shares on the sale of which the loss was claimed included 1,393 bonus shares of Hastings Mills Ltd. which the assessee had valued in its books at the face value of Rs. 100 each. In the assessment order for the said year the Income-tax Officer, being the respondent No. 1 herein held that the alleged sale of shares was the result of a concerted action between the sellers and the purchasers, both belonging to concerns controlled by the Bangur group and that the loss claimed did not arise in the normal course of the assessee's business and disallowed the claim for loss. It does not appear from the said order that the Income-tax Officer considered the claim for loss in respect of each particular transaction in shares.
( 3 ) ON appeal by the petitioner against the assessment order, the Appellate Assistant Commissioner, by his order dated the 11th December 1964, allowed the entire claim for loss of Rs. 2,41,472 on the ground that the petitioner was a dealer in shares and that the Income-tax Officer had failed to establish that the loss did not arise in the normal course of its business.
( 4 ) BY his letter No. CCI/1967-68/105 dated the 19th April, 1967, the respondent No. 1, inter alia, purported to give notice to the petitioner under Section 154 of the Income-tax Act, 1961, for rectifying the assessment for 1959-60 as the profit on the sale of the said bonus shares to the extent of the face value thereof, viz. , Rs. 1,39,300 had been under-assessed and the present rule was obtained on the 16th November, 1967.
( 5 ) THE reason for the attempt at rectification is that until the decision of the Supreme Court in Dalmia Investment Company's case, in 1964, there was considerable divergence of opinion as to how bonus shares were to be valued. In fact, this court had taken the view that such shares were to be accounted for at their face value. In the above case the Supreme Court laid down the principle for valuation of such shares as the aggregate cost of the shares acquired for value and the bonus shares.
( 6 ) DR. D. Pal, for the petitioner, raised two main contentions against the validity of the impugned notice, viz. , (i) that the assessment order having been merged in the order of the Appellate Assistant Commissioner, it was the latter officer who could have taken any proceedings for rectification of such order, and (ii) that the assessment for the year 1959-60 having been completed under the provisions of the Income-tax Act, 1922, the provisions of the 1961 Act were not applicable to it. For the first proposition Dr. Pal relied on several decisions of the Supreme Court of which mention may be made of (i) Commissioner of Income-tax v. Amritatat Bhogilal and Co. , where the court observed that after an appeal from an order of assessment is decided by the Appellate Assistant Commissioner, the Income-tax Officers's order under appeal merges in the appellate order and (ii) Collector of Customs v. Bast India Commercial Co. Ltd. , where it was held that after the appellate authority had disposed of the appeal, the operative order was the order of the appellate authority whether it had reversed the original order or modified it or confirmed it.
( 7 ) TO appreciate the second contention of Dr. Pal certain provisions of the repealed Income-tax Act, 1922, and the corresponding provisions in the Income-tax Act, 1961, would
