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Devendra Prakash v. Income-Tax Officer, Bareilly
Structured Summary of the Opinion (as provided)
Factual and Procedural Background
A partnership began in 1949 with Hirday Narain (father), his major son Yogendra Prakash and four minor sons (Surendra, Gajendra, Devendra and Bhupendra). The firm existed until July 11, 1952, and was reconstituted on July 12, 1952 to exclude the father and admit another minor, Satendra Prakash. An assessment order dated March 28, 1956, apportioned the firm's net income and, under Section 16(3)(a)(ii) of the Income-tax Act, 1922, lumped the income earned by three minors (Gajendra, Devendra and Bhupendra) for the period up to July 11, 1952 with the income of their father, Hirday Narain.
On the same day (March 28, 1956) individual assessment orders were also passed against the partners. Each of the three petitioner-minors was assessed individually only on income of Rs. 13,193 (the income earned from July 12, 1952 to September 27, 1952), with later, unchallenged modifications raising that figure to Rs. 13,990.
Hirday Narain appealed the firm assessment; on January 13, 1959, the Appellate Tribunal held that he should have been assessed in the status of a Hindu Undivided Family and that Section 16(3)(a)(ii) was inapplicable to him. As a result, the earlier lumping of the minors' incomes with their father's income was rendered incorrect and the income of the three minors for the earlier period remained untaxed.
The Income-tax Officer issued notices on August 8, 1959 under Section 35 (rectification) to correct the omission. After objections were overruled, rectification orders dated March 3, 1960 were passed to include the previously omitted sums in the assessments of the three petitioners. Writ petitions challenged those rectification orders and the related notices of demand; the learned single judge partly allowed the writ petitions by quashing the demand for interest but otherwise upheld the rectification orders. The present text records the special appeals directed against that judgment of November 23, 1961.
Legal Issues Presented
- Whether rectification of the petitioners' assessments under Section 35 of the Income-tax Act, 1922, was legally permissible in the circumstances of this case (i.e., whether there was a "mistake apparent from the record" allowing action under Section 35).
- Whether a "mistake apparent from the record" in an assessee's assessment can be detected on the basis of assessment records or judicial decisions that appear on the record of a different person (here, a partner) or on the basis of the Appellate Tribunal's decision in that person's appeal.
- Whether interest could be imposed on amounts found due on rectification without a prior notice of intention to impose such interest (this issue formed part of the writ petitions and was addressed by the learned single judge).
Arguments of the Parties
Appellants' Arguments
- The Income-tax Officer could not validly exercise the power of rectification under Section 35 based upon a mistake that was apparent only on the assessment record of another person (Hirday Narain) and not on the individual assessment records of the petitioners themselves.
- The apparent discrepancy between the income declared by the petitioners and the income assessed was explained by the reference to Section 16(3)(a)(ii) in the firm assessment; therefore there was no true discrepancy on the petitioners' own records.
Income-tax Authorities' Arguments
- The Income-tax Officer could take note of the Appellate Tribunal's judgment and other judicial pronouncements (including Supreme Court decisions) when considering whether an assessment disclosed a "mistake apparent from the record".
- Reliance was placed on Supreme Court decisions (as cited in the opinion) to show that an assessment may be regarded as containing a "mistake apparent from the record" where it is plainly inconsistent with a clear statutory provision, or where it is shown to embody such a mistake in the light of subsequent judicial pronouncements.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| M. K. Venkatachalam, Income-tax Officer v. Bombay Dyeing and Manufacturing Co. Ltd., [1958] 34 I.T.R. 143 (S.C.) | The proposition that an assessment order which is "plainly and obviously inconsistent with a specific and clear provision of the statute" constitutes a "mistake apparent from the record" within the meaning of Section 35. | The opinion records this case as authority for the proposition that the Income-tax Officer need not ignore statutory provisions when assessing whether a mistake is apparent from the record. The Court accepted the principle but did not rest its ultimate conclusion solely on this precedent; it treated the application of such authorities as raising a question whose lawfulness was debatable in the present factual matrix. |
| Walchand Nagar Industries Ltd. v. V. S. Gaitonde, Income-tax Officer, Companies Circle I(3), Bombay, [1962] 44 I.T.R. 260 | An assessment order that was valid when passed may nevertheless be found to embody a "mistake apparent from the record" in the light of a subsequent Supreme Court decision. | The opinion cites this case to show that a subsequent judicial decision may reveal a mistake apparent from an earlier assessment order; the Court used it to explain why the Income-tax Officer can, in principle, consider judicial pronouncements when determining whether a mistake is apparent, but the Court declined to give a definitive ruling on whether the Tribunal's decision in a different person's appeal could be used in the present circumstances. |
Court's Reasoning and Analysis
The court framed the pivotal interpretive question as the meaning of the phrase "mistake apparent from the record of the assessment" in Section 35. The reasoning proceeds in two linked strands:
-
Interpretation of "mistake apparent from the record":
- The court observed that, according to authorities cited, the assessment records in which a mistake must be detected are generally the assessment records of the particular assessee whose assessment is sought to be rectified. It is not permissible to rectify one assessee's assessment on the basis of a mistake apparent only on another person's assessment record.
- There is an express statutory exception in Sub-section (5) of Section 35 permitting rectification of a partner's assessment on the basis of facts disclosed by the assessment or reassessment of the firm; but this exception does not import a general rule allowing the officer to look at other partners' assessments for all purposes.
-
The role of extraneous judicial pronouncements and assessment records:
- The court recorded the Income-tax authorities' reliance on Supreme Court decisions (M. K. Venkatachalam and Walchand Nagar) holding that an assessment may be considered to contain a "mistake apparent from the record" where it conflicts with clear statutory provisions or is shown to be erroneous in the light of subsequent judicial pronouncements.
- On this basis the authorities argued the Income-tax Officer could, when considering whether there was a mistake apparent, take judicial decisions into account even if those decisions did not sit on the assessee's own assessment record.
- The court declined to resolve definitively whether the Appellate Tribunal's decision in Hirday Narain's appeal could be used as the basis for rectifying the petitioners' individual assessments. The court characterized the legal position on this point as doubtful and held that where the law is doubtful, petitioners cannot insist on a writ being issued in their favour.
-
Independent basis for rectification on the petitioners' own records:
- Even assuming the Income-tax Officer had to confine himself strictly to the petitioners' individual assessment records, the court found a clear and obvious discrepancy between the share of income disclosed by the petitioners in their returns (book figure) and the share ultimately assessed. The rectification order itself recorded that the assessee's disclosed share was Rs. 42,823 while the revised/ final share was Rs. 63,075 and that the assessee had originally been assessed only on Rs. 13,193. The rectification order described this as a "mistake apparent from the record".
- The petitioners' counsel had argued that this discrepancy was accounted for by the firm's assessment order and its reference to Section 16(3)(a)(ii). The court rejected the contention that appellants could both insist that the officer must ignore extraneous records and at the same time demand that the officer look outside the assessee's record to find explanations for apparent discrepancies.
- Because there was nothing on the petitioners' individual assessment records to explain the discrepancy, the court held that the Income-tax Officer was justified in treating the discrepancy as a "mistake apparent from the record" and in acting under Section 35 to rectify the assessments.
Holding and Implications
Holding:
The court held that the Income-tax Officer was justified in treating the discrepancy between the income disclosed by the petitioners and the income actually assessed on their individual records as a "mistake apparent from the record" and in exercising the power of rectification under Section 35.
Implications:
- Direct effect on the parties: The court's analysis upholds the validity of the rectification exercise carried out by the Income-tax Officer insofar as the rectification was based upon an apparent discrepancy on the petitioners' own assessment records. The court considered, but did not definitively decide, the broader question whether an officer may rely on the assessment record or appellate judgment of another person to detect a mistake; it described that legal position as doubtful and declined to lay down a definitive rule in the present opinion.
- On precedent and broader law: The opinion accepts that Supreme Court authority supports the proposition that judicial pronouncements and clear statutory inconsistency may render an assessment a "mistake apparent from the record", but it avoids pronouncing a general new rule about the permissibility of using another person's records or tribunal judgments to rectify an assessee's assessment. No sweeping new precedent is declared on that precise point in the text provided.
- On the issue of interest: The learned single judge had granted relief in the writ petitions by quashing the demand for interest because no notice of intention to impose interest had been issued; the present excerpts do not contain the appellate court's final ruling on that specific point, so no definitive appellate disposition on interest is recorded in the provided text.
1. These three special appeals are directed against the judgment of Hon'ble Brijlal Gupta J., dated November 23, 1961, Devendra Prakash v. income-tax Officer [1963] 47 I.T.R. 501 , by which he partly allowed three writ petitions (Nos. 841 of 1960 and 842 and 843 of 1961), challenging notices of demand issued by the income-tax authorities on the basis of a rectification order passed under Section 35 of the Income-tax Act, 1922.
2. The facts of the case in brief are as follows :
There was a partnership business started in the year 1949, in which the partners were Hirday Narain, his major son, Yogendra Prakash, and four minor sons, Surendra Prakash, Gajendra Prakash, Devendra Prakash and Bhupendra Prakash. This firm remained in existence up to July 11, 1952. But from July 12, 1952, it was reconstituted so as to exclude the father, Hirday Narain, and so as to introduce a later born minor son, Satendra Prakash, as a partner. Surendra Prakash had become major in the meantime, but Gajendra Prakash, Devendra Prakash and Bhupendra Prakash remained minors. An assessment order was passed against the firm on March 28, 1956, in respect of the assessment year 1953-54, apportioning the income among the partners as follows :
"Net income remains at Rs. 3,95,788. The above income is to be apportioned in the ratio of 1 : 5 which will come to Rs. 79,157 and Rs. 3,16,613.
Income up to July 11, 1952. is allocated as below:
Rs.
Hirday Narain 82,772 Yogendra Prakash 52,772 Surendra Prakash 52,772 Gajcndra Prakash 52,772 Devendra Prakash 52,772 Bhupcndra Prakash 52,772 Income from July 12, 1952, to September 27, 1952. is allocated as below :
Rs.
Yogendra Prakash 13,193 Surendra Prakash 13,193 Gajendra Prakash 13,193 Devendra Prakash 13,193 Bhupendra Prakash 13,193 Satendra Prakash 13,193 Out of the above income the entire profies up to July 11, 1952, will be assessed in the hands of Hirday Narain under Section 16(3)(a)(ii) except for a sum of Rs. 52,772 falling to the lot of Yogendra Prakash and also the sum of Rs. 13,192 falling to the lot of Satendra Prakash, under Section 16(3)(a)(iv)."
3. Thus, the income received by the three petitioners, Gajendra Prakash, Devendra Prakash and Bhupendra Prakash, for the first part of the accounting period (October 10, 1951 to July 11, 1952) amounting to Rs. 52,772 for each of them, was lumped together with the income of their father, Hirday Narain, for the purpose of the assessment of tax, in accordance with the provisions of Section 16(3)(a)(ii), which provides that :
"16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included-
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly--...
(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual as a partner."
4. On the same day the above-quoted assessment order was passed against the firm, i.e., on March 28, 1956, individual assessment orders were passed against the separate partners and each of the three petitioners was assessed on an income of Rs. 13,193 (viz., the amount received from July 12, 1952, to September 27, 1952, only, and not the income received during the earlier period up to July 11, 1952). Subsequent modifications, which have not been challenged in these petitions, were made on November 24, 1956, and January 14, 1958, which had the effect of raising the assessed incomes of the petitioners to Rs. 13,990 each. Meanwhile, however, their father, Hirday Narain, went in appeal against the original assessment order, first to the Appellate Assistant Commissioner and then to the Appellate Tribunal; and on January 13, 1959, the Tribunal held that Hirday Narain should have been assessed in the status of a Hindu undivided family and not as an individual, with the result that Section 16(3)(a)(ii) was inapplicable to his case and the income of his minor sons, Gajendra Prakash, Devendra Prakash and Bhupendra Prakash, could not be lumped together with his income under the provisions of that section. The result was that the three sums of Rs. 52,772 earned by these three minors in the period up to July 11, 1922, remained untaxed either as their income or as part of their father's income. The Income-tax Officer sought to rectify this omission by issuing notices on August 8, 1959, under Section 35 of the Act. The petitioner filed objections, but these were overruled, and on March 3, 1960, orders of rectification were passed to include these amounts in the assessments of the three petitioners. It was these orders of March 3, 1960, together with the notices of demand issued thereon, that where challenged in the writ petitions out of which the present appeals arise, the main contention being that Section 35 could not be invoked in the circumstances of this case and, consequently, the assessments of the petitioners could not be enhanced beyond the figure of Rs. 13,990 shown against each of them in the orders of assessment passed on January 14, 1958.
5. A subsidiary contention raised in the writ petitions was that the amount of income derived by each petitioner from another firm (Choubey Madan Gopal) had been illegally enhanced by the order of March 3, 1960, from Rs. 53 to Rs. 225 without issuing any notice in respect of this item.
6. But it appears that this matter was not pressed before the learned single judge, for it has not been dealt with by him in his judgment; and there is no specific averment about it in the grounds of appeal. We propose, therefore, to ignore this part of the case.
7. The only part of the petitioners' case that found favour with the learned single judge was the plea that they were not liable to pay interest on the amount found due on rectification, because no notice of intention to impose such interest was issued. The petitioners were, therefore, granted relief only to the extent that the demand for interest was quashed ; and, except for this slight modification the rectification orders were held to be valid and were allowed to stand.
8. The crucial point that calls for decision in these special appeals is whether rectification of the petitioners' assessments under Section 35 of the Income-tax Act, 1922, was legally possible or not. The relevant portion of this section runs as follows :
" 35. Rectification of mistake.--...the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the...assessmentor refund..."
9. The question is what is the precise significance of the words " mistake apparent from the record of the assessment ". From the rulings that have been cited before us, it would appear that the assessment records in which the mistake has to be detected, before the Income-tax Officer can assume jurisdiction under Section 35, must be the assessment record of the particular assessee concerned. It is not possible to rectify an assessee's income on the basis of some mistake that may be apparent on the assessment record of some other person, even though that other person may be a close relation or a business partner of the assessee in question. An exception to this rule has been introduced by Sub-section (5) of Section 35, which permits the assessment of a person who is a partner in a firm to be rectified on the basis of facts disclosed by the assessment or reassessment of the firm; but that does not mean that the assessments of other partners can be looked into for the purpose of discovering mistakes in the assessment of that person. Learned counsel for the appellants, consequently, argues that in the present case it was not open to the Income-tax Officer to exercise the power of rectifying the petitioners' assessments under Section 35 on the basis of a mistake revealed by the judgment given by the Appellate Tribunal on January 13, 1959, in the appeal filed by Hirday Narain, because that appellate judgment did not form part of the assessment records of the petitioners but was only to be found on the record of the assessment of a separate partner (Hirday Narain).
10. Mr. Gopal Behari, who appears for the Income-tax authorities, maintains, however, that the Income-tax Officer could take note of the judicial decision given by the Appellate Tribunal, even though it did not form part of the petitioners' records ; and in this connection he has drawn our attention to the Supreme Court pronouncements in M. K. Venkatachalam, Income-tax Officer v. Bombay Dyeing and Manufacturing Co. Ltd., [1958] 34 I.T.R. 143 (S.C.) and Walchand Nagar Industries Ltd. v. V. S. Gaitonde, Income-tax Officer, Companies Circle I(3), Bombay, [1962] 44 I.T.R. 260. In the first of these cases it has been laid down that, where an assessment order is " plainly and obviously inconsistent with a specific and clear provision of the statute ", it must be held that there is a " mistake apparent from the record ", within the meaning of Section 35. And in the second case an assessment order, which was on the face of it a good order at the time when it was passed, was found to embody a " mistake apparent from the record " in the light of a subsequent Supreme Court decision. It is clear, therefore, that the Income-tax Officer does not have to shut his eyes completely to all extraneous matters when judging whether a particular assessment record reveals a " mistake apparent from the record ". He can take into account statutory provisions and pronouncements of the Supreme Court. We see no reason why this principle should not also apply to a case where a High Court has given a decision that shows an existing assessment order to be erroneous; and if the argument is taken to its logical extreme, the Income-tax Officer should be able to take note of any judicial pronouncement by any court or tribunal, when considering whether there is a "mistake apparent from the record" of a prior assessment. Once the Income-tax Officer read the judgment of the Appellate Tribunal in Hirday Narain's appeal, he would immediately discover that Section 16(3)(a)(ii) had been wrongly applied to the case of the petitioners, and there would be a "mistake apparent from the record" which would entitle him to take action under Section 35.
11. It is unnecessary, however, for us to give any definite ruling on this aspect of the case; it is enough to hold that the legal position with regard to the power of the Income-tax Officer to look into the Appellate Tribunal's decision, while considering if there was any " mistake apparent from the record " of the petitioners' assessments, is doubtful. Where there is doubt as to the true legal position, the petitioners cannot demand that a writ be issued in their favour.
12. Furthermore, we find that, even if the view be taken that the Income-tax Officer had to confine himself rigorously to the individual assessment records of the petitioners-appellants, he could still claim to have detected an error therein, for there was an obvious discrepancy between the amounts disclosed by the petitioners themselves as their income and the amounts on which tax had actually been levied. This is made clear by the rectification order itself (annexure I to the writ petitions) which opens with the following words :
" One of the sources of income of the assessee in the relevant previous year was share in the registered firm, M/s. Hirday Narain Yogendra Prakash, Bareilly. The share of the assessee was disclosed in the return at book figure in the amount of Rs. 42,823. The revised and the final share in the firm comes to Rs. 63,075. The assessee was originally assessed on a share of Rs. 13,193. Thus, it is obvious that the correct share of the assessee has not been assessed to tax. This is a mistake apparent from the record and as such it was sought to be rectified under Section 35 of the Income-tax Act."
13. Learned counsel for the appellants objects that the so-called discrepancy between the declared income and the income actually assessed was no discrepancy at all, because it stood explained by the reference to Section 16(3)(a)(ii) in the assessment order of the firm dated March 28, 1956. But the appellants cannot have it both ways; if the Income-tax Officer was precluded from looking into extraneous assessment records for the purpose of detecting a " mistake apparent from the record " on the assessment records of the appellants, he was in no way required in the initial stage to look into extraneous record for explanations that might be forthcoming to account for apparent mistakes. Admittedly, there was nothing on the individual assessment records of the appellants to explain the discrepancy that has been pointed out; and, in the circumstances, we feel that the Income-tax Officer was justified in treating this discrepancy as a "mistake apparent from the record " and in taking action thereon in accordance with Section 35.
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