Southern Industrial Corporation Ltd. v. Commissioner Of Income-Tax

The Judgment of the Court was delivered by

R. Jayasimha Babu, J.:— The question referred for our consideration is at the instance of the assessee and concerns the assessment year 1977–78.

2. The initial assessment for that year was made on February 20, 1980. As the assessee had a grievance in respect of a portion of the order of assessment, it filed an appeal, which was allowed. While allowing the appeal, the entire order of assessment was set aside and certain directions were given to the assessing authority to redo the assessment. Thereafter, a fresh assessment came to be made on February 2, 1983. That order of assessment was later revised and the revised order of assessment was made on March 11, 1985. The assessee did not have any grievance against the order of assessment, dated March 11, 1985, in which the Assessing Officer had taken the gross amount of the technical fees received by the assessee for the purpose of deduction under section 80-0. On July 1, 1985, the Supreme Court rendered a judgment in the case of Distributors (Baroda) Pvt. Ltd. v. Union of India, [1985] 155 ITR 120 in which it was held that the Legislature by enacting section 80M had intended to grant relief with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received from the paying company. It is rightly not disputed by learned counsel for the assessee that the law laid down in that case with regard to section 80M is equally applicable to section 80-0 as well.

3. After that judgment of the apex court became available, the assessing authority issued a notice to the assessee to show cause as to why only the net receipt of the technical fee, after deducting the expenses incurred by the assessee for receiving that fee, should not be taken into account for the purpose of deduction under section 80-0 and the order of assessment dated March 11, 1985, be rectified. The assessee did not reply to that notice and the Assessing Officer, thereafter, proceeded to make the order dated September 20, 1985, in which he reduced the amount of deduction allowable under section 80-0, that amount being the difference between the gross receipt by way of fees for the technical know-how received by the assessee and the expenses incurred for earning that receipt. After making that rectification it was found that the assessee was liable to pay tax in the sum of Rs. 46,093. It may be mentioned here that under the assessment made on March 11, 1985, the assessee was not required to pay any tax. The assessee having been unsuccessful in challenging the order made on September 20, 1985, first before the appellate authority and thereafter before the Tribunal, at the instance of the assessee, the following two questions have been referred to us for our consideration:

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the rectification of the order dated March 11, 1985, under section 154 by the order dated September 20, 1985, is not barred by limitation?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the overruling of the decision of the Supreme Court in the case of Cloth Traders (P) Ltd. v. Additional Cit, Gujarat-I, [1979] 118 ITR 243 by the later decision of the Supreme Court in Distributors (Baroda) Pvt. Ltd. v. Union of India, [1985] 155 ITR 120 gave rise to the rectification of the order passed on March 11, 1985?”

4. Learned counsel for the assessee submitted that the order dated September 20, 1985, rectifying the order of March 11, 1985, has been made beyond the period of limitation prescribed under section 154(7) of the Income-tax Act.

5. According to learned counsel, as the assessee had been given the deduction under section 80-0 even in the earlier assessment order on February 20, 1980, the period of limitation must be computed with reference to that order dated February 20, 1980.

6. As already noticed, the assessment order dated February 20, 1980, was set aside in an appeal filed by the assessee and that order ceased to exist. Thereafter, the assessment made was by the order of February 2, 1983. It is that order which was sought to be rectified and was in fact rectified by the order dated September 20, 1985.

7. Sub-section (7) of section 154 reads thus:

“Save as otherwise provided in section 155 or sub-section (4) of section 186, no amendment under this section shall be made after the expiry of four years from the date of the order sought to be amended.”

8. Sub-section (7) of section 154 thus refers only to “the order sought to be amended”. The order sought to be amended in this case being the order dated February 2, 1983, the rectification made by the order of September 20, 1985, was well within the period of four years from the date of the order which was sought to be amended. The first question referred to us is, therefore, required to be and is answered in favour of the Revenue and against the assessee.

9. As regards the second question, the assessment made on February 2, 1983, was on the face of the record not in conformity with the law laid down in the case of Distributors (Baroda) Pvt. Ltd. v. Union of India, [1985] 155 ITR 120(SC), decided on July 1, 1985. The rectification order passed within the period of limitation for giving effect to that law was a perfectly proper exercise of power. When a statutory provision is interpreted by the apex court in a manner different from the interpretation made in the earlier decisions by a smaller Bench, the order which does not conform to the law laid down by the larger Bench in the later decision which decision would constitute the law of the land and is to be regarded as the law as it always was, unless declared by the court itself to be prospective in operation, would clearly suffer from a mistake which would be apparent from the record. The rectification under section 154(1) on the ground that the order sought to be rectified-is not in conformity with the law declared by the apex court is required to be upheld. The second question referred to us is also answered in favour of the Revenue and against the assessee.