- The question raised in this petition under article 226 of the Constitution is whether the Commissioner of Income-tax, U.P., was competent to cancel a pervious order passed by him allowing interest on excess income-tax paid by an assessee. Raja Jagdambika Pratap Narain Singh is the assessee. The assessment year was 1947-48. At the time of the assessment for that year the Income=tax Officer took the view that 74 currency notes of the denomination of Rs. 1000 each, represented the assessees income during the previous year. When the matter went before the Appellate Tribunal, the Tribunal agrees to reduce the amount of add-back from Rs. 74,000 to Rs. 34,000. At the instance of the assessee the following question of law was referred to this court :

"Whether there was material for assessing the sun of Rs. 34,000 represented by 34 notes of Rs. 1,000 each and cashed by the assessee under the High Denomination Notes (Demonetization) Ordinance, 1947, as income chargeable to income-tax ?"

This question was answered by this court on August 21, 1962, in the negative, and against the department.

In view of the High Courts decision, a sum of Rs. 26,021 was refunded to the assessee. On April 8, 1965, the Commissioner of Income-tax, U.P., passed an order sanctioning payment of Rs. 10,828.30 on account of interest payable under section 66(7) of the Indian Income-tax Act, 1922.

After some years another Commissioner of Income-tax, U.P., took the view that the order dated April 8, 1965, passed by his predecessor-in-office was incorrect. A notice under section 154 of the Income-tax Act, 1961, was issued to the assessee. The assessee submitted that the previous order dated April 8, 1965, was sound. The objection of the assessee was overruled. On March 24, 1969, the Commissioner of Income-tax, U.P., passed an order cancelling the previous order, dated April 8, 1965. The Income-tax Officer took action on the same lines. He decided that the amount of Rs. 10,828.30 had been wrongly allowed in favour of the assessee. A separate order was passed directing the assessee to refund this amount of Rs. 10,828.30. These orders passed by the Commissioner of Income-tax, U.P., and the Income-tax Officer, Faizabad, have been challenged by Raja Jagdambika Pratap Narain Singh in this writ petition.

Annexure "B" to the writ petition is a copy of the order passed by Sri Nadkarni, Commissioner of Income-tax, U.P., on April 8, 1965. It purports to have been passed under section 66 (7) of the Indian Income-tax Act, 1922. According to the petitioner, the present case is governed by the Indian Income-tax Act, 1922. According to the department, the present case of refund is governed by the Income-tax Act, 1961. It will be convenient to refer to the two Acts as the old Act and the new Act, respectively. An important question for consideration in this case is whether the present case is governed by the old Act or by the new Act. The petitioner points out that the matter relates to the assessment year 1947-48. The new Act came into force on April 1, 1962. The various orders passed by the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal in the assessment proceeding were passed long before April 1, 1962. On the other hand, it has been pointed out for the opposite parties that the order of the High Court disposing of the reference is dated August 21, 1962, after April 1, 1962.

Section 297 of the new Act deals with repeals and savings. Sub-section (2) of section 297 of the new Act states :

"Notwithstanding the repeal of the Indian Income-tax Act, 1922...

(a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed;....

(c) any proceeding pending on the commencement of this Act before any income-tax authority, the Appellate Tribunal or any court, by way of appeal, reference or revision, shall be continued and disposed of as if this Act had not been passed;....

(i) where, in respect of any assessment completed before the commencement of this Act, a refund falls due after such commencement or default is made after such commencement in the payment of any sum due under such completed assessment, the provisions of this Act relating to interest payable by the Central Government on refunds and interest payable by the assessee for default shall apply...."

In the present case the High Court disposed of the reference on August 21, 1962. It was Income-tax Reference No. 47 of 1960. Since the reference was pending before the High Court from before April 1, 1962, clause (c) of Sub-section (2) of section 297 of the new Act is attracted. The reference should be deemed to have been disposed of under the old Act.

As already pointed out, the order (annexure "B") dated April 8, 1965, purports to have been passed under sub-section (7) of section 66 of the old Act. Sub-section (7) of section 66 of the old Act ran thus :

"Nothwithstanding that a reference has been made under this section to the High Court, income-tax shall be payable in accordance with the assessment made in the case :

Provided that, if the amount of an assessment is reduced as a result of such reference, the amount over-paid shall be refunded with such interest as the Commissioner may allow..."

It appears that the order (annexure "B") dated April 8, 1965, was passed by the Commissioner of Income-tax, U.P., under the proviso to sub-section (7) of section 66 of the old Act.

According to Dr. Misra, appearing for the opposite parties, the order dated April 8, 1965, was not sound. Relying upon clause (i) of section 297(2) of the new Act, Dr. Misra contended that the question of refund was governed by the appropriate provisions of the new Act. Reliance was placed upon a decision of this court in Hiralal Jagarnath Prasad v. Commissioner of Income-tax (Civil Misc. Writ No. 389 of 1969 decided on 8-5-1969). In that case it was held under similar circumstances that the question of refund was governed by the provisions of the new Act. That decision no doubt lends some support to Dr. Misras contention. But there was no discussion as to whether the assessment was completed before the commencement of the new Act. In the present case it is the contention of the opposite parties that the decision of the High Court dated August 21, 1962, has not yet been communicated to the Appellate Tribunal. Consequently, the Appellate Tribunal and the Income-tax Officer have not yet passed consequential orders. If that is the position, it is doubtful whether the assessment can be said to be complete even now. It is by no means clear that the case is in fact governed by section 297(2)(i) of the new Act, Further, the Commissioner of Income-tax, U. P., purported to act under section 66(7) of the old act, when he passed the order dated April 8, 1965. It cannot be said that the Commissioner of Income-tax, U.P., was clearly wrong in passing orders under the proviso to sub-section (7) of section 66 of the old Act. Admittedly, the High Courts decision dated August 21, 1962, has become final. So, the assessment has to be modified in the light of the High Courts decision. A sum of Rs. 26,021 was refunded to the assessee as far back as 1963. There is no indication on the record of this case that there was any attempt on the part of the department to cancel that refund of Rs. 26,201. If the refund of Rs. 26,021 were to stand, the department should have no serious objection to the award of interest to the extent of Rs. 10,828.30 under the proviso to sub-section (7) of section 66 of the old Act.

Annexure "E" is the impugned order passed by the Commissioner of Income-tax, U.P., on March 24, 1969. The order purports to have been passed under section 154 of the new act. section 154 of the new act provides for rectification of mistakes. Sub-section (1) of section 154 of the new Act states :

"With a view to rectifying any mistake apparent from the record -

(a) the Income-tax Officer may amend any order of assessment or of refund or any other order passed by him;...

(c) the Commissioner may amend any order passed by him in revision under section 263 or section 264."

It will be seen that section 154 of the new act confers limited power on the Commissioner to rectify mistakes. The power is confined to orders passed in revision under section 263 and 264 of the new Act. In the present case the Commissioner had at no stage passed any order in revision under section 263 or 264 of the new Act. So, the Commissioner had no power to rectify any mistake under clause (c) of Sub-section (1) of section 154 of the new Act.

Dr. Misra points out that this point was not raised by the assessee before the Commissioner, when the assessee filed his objection on February 27, 1969. It is true that in annexure "D" to the writ petition the assessee did not raise the question of competence under section 154 of the new act. But it is always open to a petitioner to satisfy this court that a certain order was passed by an authority beyond its jurisdiction. As explained above, opposite party No. 2 had no jurisdiction to correct the previous order dated April 8, 1965, under section 154 of the new act.

Dr. Misra contended that the Commissioner had inherent power to correct his mistakes. Reliance was placed upon S. B. Singh & Sons v. Income-tax Appellate Tribunal It was held in that case that all courts of plenary jurisdiction have inherent jurisdiction to rectify mistakes. Consequently, the Appellate Tribunal acting under section 19(2) of the Act also has such inherent power. It was pointed out in that case that there was a lacuna in the Excess Profits Tax Act, 1940, inasmuch as there is no express power to rectify mistakes. But in the Income-tax Act, 1961, there is express power to rectify mistakes. There is, therefore, no need to invoke the general principle of inherent jurisdiction to rectify mistakes. Is S. B. Singar Singhs case it was observed on page 631 :

"... the power of review which inheres in every court of plenary jurisdiction to prevent miscarriage of justice or to correct grave and palpable errors committed by it."

In the first place, the Commissioner acting under section 66(7) of the old act was not exercising the power of any court. Secondly, it cannot be said that the order dated April 8, 1965, disclosed a grave and palpable error. As discussed above, the allowance of interest appears to be sound on merits. There was, therefore, no question of exercising inherent power in order to correct any grave and palpable error.

Now we pass on to a consideration of the various orders passed by the Income-tax Officer, Faizabad, in April, 1969. Section 154(1)(a) of the new Act confers on the Income-tax Officer power to amend any order relating to refund. Had the Income-tax Officer, Faizabad, passed an independent order of refund, he could have corrected such an order under section 154(1)(a) of the Act. But the order dated April 8, 1965, was not passed by the Income-tax Officer, Faizabad, but by the Commissioner of Income-tax, U.P. Annexure "H" to the writ petition is an order of the Income-tax Officer, Faizabad, dated April 7, 1969. In that order the Income-tax Officer observed :

"In view of the Commissioner of Income-taxs order No. 267 dated March 24, 1969, for cancelling the interest amounting to Rs. 10,828.30, the mistake is quite apparent from the record and is rectified accordingly."

It is obvious from the order (annexure "H") that the Income-tax Officer was not arriving at any independent conclusion as regards the validity of the order of refund. He was merely carrying out the decision of the Commissioner of Income-tax dated March 24, 1969. So, the Income-tax Officers order cannot be supported under section 154(1)(a) of the new Act. Since the decision of opposite party No. 2 dated March 24, 1969, is invalid, the consequential orders passed by opposite party No. 1 must also be struck down.

Dr. Misra raised a preliminary objection that the writ petition is premature. According to Sri. K. N. Srivastavas counter-affidavit, the decision of the High Court dated August 21, 1962, has not yet been communicated to the Appellate Tribunal, Allahabad. But the petitioner has shown that in consequence of the various orders passed by the two opposite parties, the petitioner is being compelled to refund the amount of Rs. 10,828.30.

In view of the contemplated action against the petitioner, it cannot be said that the writ petition is premature.

The petition is allowed with costs. The order dated March 24, 1969, passed by the Commissioner of Income-tax, U.P. (annexure "F" to the writ petition), and the two orders passed by the Income-tax Officer, Faizabad, on April 7, 1969 (annexures "H" and "I" to the writ petition), are quashed.

Petition allowed.