C.N Ramachandran Nair, J.:— Even though several questions are raised in the appeal filed by the Revenue against the order of the Income-tax Appellate Tribunal, we feel only two issues arise from the findings of the Tribunal. The first one is with regard to the correctness of the rectification order issued by the Assessing Officer under section 154 of the Act by which the relief granted in the original assessment under section 32AB of the Income-tax Act, 1961, was partly withdrawn excluding share income received from the partnership firms. The second issue is on the respondent's eligibility for deduction under section 32AB on income received as shares from the partnership firms.
2. We have heard counsel appearing for both sides. The respondent-asses-see besides being engaged in production of steel in their factory was a partner in three firms during the assessment year 1990-91.
3. In the assessment completed under section 143(3) of the Act, the respondent-assessee was granted relief under section 32AB at 20 per cent, of the total income from business including the share income received from the three partnership firms. Admittedly, the business income earned by the assessee was Rs. 20,67,542. However, while granting relief in addition to 20 per cent, of this amount, the officer allowed 20 per cent, of the share income received by the assessee from the three firms which amounts to Rs. 14,81,010. The assessment so completed granting relief under section 32AB to the extent claimed was later rectified under section 154 of the Act whereby the Assessing Officer withdrew the deduction granted on the share income received from the partnership firms, i.e, 20 per cent, of Rs. 14,81,010. In the appeal filed by the assessee, the appellate authority allowed the claim on the merits but did not consider the grounds raised by the assessee against the validity of rectification order. However, when the Department took a second appeal to the Tribunal, the Tribunal in addition to deciding the matter on the merits in favour of the assessee also held that the rectification proceedings issued under section 154 was invalid as the issue was a debatable one and not an apparent mistake. It is against this order of the Tribunal the Department has filed this appeal.
4. Even though the first question to be considered is about the validity of rectification order passed by the officer which was held invalid by the Tribunal, we feel it would be easier for us to decide this question after deciding the issue on the merits because a decision on the merits will make it clear whether the disallowance later made in rectification proceeding was in fact correcting an apparent mistake. The assessee was admittedly engaged in an eligible business which entitles it under section 32AB to a deduction on the investment in purchase of plant, machinery etc., for the industry or on making a deposit in a special account within the time prescribed therein subject to a ceiling of 20 per cent, of the total business income earned by the assessee. There is no dispute with regard to the eligibility for deduction in all other respects except in regard to the amount involved. As already stated above, Rs. 14,81,010 does not represent business income of the assessee, but the said amount is the total of share income received by the assessee as partner in three separate firms. The question is whether this amount also can be treated as business income for the purpose of 20 per cent, ceiling provided in clause (ii) of section 32AB(1). For easy reference we extract herein the relevant portion of section 32AB.
“32AB.(1) Subject to the other provisions of this section, where an assessee whose total income includes income chargeable to tax under the head ‘Profits and gains of business or profession’, has out of such income,—
(a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or
(b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a),
in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of—
(i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or
(ii) a sum equal to twenty per cent, of the profits of eligible business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5),
whichever is less:
Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or, as the case may be, any member of such firm, association of persons or body of individuals…
(2) For the purposes of this section,—
(i) ‘eligible business or profession’ shall mean business or profession, other than—
(a) the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking which is not a small scale industrial undertaking as defined in section 80HHA;
(b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small scale industrial undertaking as defined in section 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule.”
5. The proviso to the main section makes it very clear that in respect of profits of eligible business or profession of a firm, the deduction can be claimed and granted only in the hands of the firm and not to the individual partners. In this case the respondent-assessee is a limited company which has claimed deduction along with its own eligible profit, share income from three partnership firms received by it. By virtue of the proviso to the section, the respondent-assessee which is a company would not have been eligible for any deduction under section 32AB in respect of the share income received from the firms. The question is whether this position is altered because the assessee itself has income from eligible business. We are of the view that what is expressly prohibited by the proviso cannot be got over by clubbing the ineligible amount that is, the assessee's share income from the firms with the assessee's own profit from eligible business. Therefore, the assessee was rightly held to be ineligible for deduction under section 32AB in respect of share income received from the three partnership firms. This finding of ours answers the question on the merits against the assessee and in favour of the Revenue.
6. Counsel for the assessee contended that only apparent errors or mistakes could be rectified under section 154 as held by the Supreme Court in T.S Balaram, ITO v. Volkart Bros., [1971] 82 ITR 50. Counsel also pointed out that the question is a debatable one and the same is evident from the fact that the two appellate authorities interpreted the section in favour of the assessee which itself is enough evidence to show that it is a debatable issue. Standing counsel on the other hand contended that the issue would have been debatable but for the proviso introduced later by an amendment which expressly bars the claim. As stated above, the proviso is capable of no other meaning other than as a prohibition against partners claiming deduction under section 32AB in respect of share income from the firm. Therefore, what is claimed and originally granted which is the deduction of share income received by the respondent-assessee from the partnership firms is contrary to the express prohibition contained in the proviso to the section. Since the section is not capable of any other meaning, we are of the view that the original assessment completed under section 143(3) allowing relief in terms of the claim, is a mistake apparent and the officer rightly rectified it later by invoking powers under section 154 of the Act. In fact, there is no discussion about the claim in the original assessment and probably the officer would have overlooked the proviso to the section which would have led to the wrong allowance granted to the assessee. We find the Division Bench decision of this court in Commissioner Of Income-Tax v. Kesaria Tea Co. Ltd., [1998] 233 ITR 700 supports our view, wherein the court held that overlooking of a mandatory provision of law which allows no discretion to the taxing authority is a mistake apparent liable to be rectified under section 154 of the Act.
7. We, therefore, allow the appeal by cancelling the order of the Tribunal and restore the rectification order issued by the Assessing Officer under section 154 of the Act.