The Judgment of the Court was delivered by
Dipak Kumar Sen, J.:— In this reference at the instance of the Commissioner of Income-tax, West Bengal-I, the Tribunal has been directed under section 256(2) of the Income-tax Act, 1961, to send up a statement in respect of the following two questions:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no mistake apparent from the record regarding the allowance of Rs. 61,163 as wealth-tax and that accordingly the order of rectification passed by the Income-tax Officer in respect thereof was not justified in law?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the omission to charge interest under section 18A(7) of the Income-tax Act could not be rectified, under section 154 of the Income-tax Act, 1961, and in deleting the charge of Rs. 7,173.63 made by the Income-tax Officer?”
2. The facts found or admitted as will appear from the statement of the case and the annexures thereto may briefly be noted. The assessee is General Electric Co. of India Ltd., Calcutta. At the relevant time, that is, during the assessment year 1959-60, the assessee was known as the Associated Electric Industries (India) Private Ltd. Subsequently, on and from the 29th March, 1967, the assessee first became a public limited company and thereafter suffered a merger pursuant to an order of this court dated the 27th February, 1969.
3. The assessment year involved is 1959-60 in which the assessee was assessed to wealth-tax. In the order of assessment dated the 4th November, 1960, of income-tax, the Income-tax Officer allowed a deduction of the wealth-tax paid by the assessee.
4. Thereafter, on the 5th August, 1964, the Income-tax Officer issued a notice alleging that there was a mistake apparent from the record within the meaning of section 154 of the Income-tax Act, 1961, in the said order of assessment and proposed to rectify the same. The assessee was allowed an opportunity of being heard.
5. The mistakes which the Income-tax Officer had in contemplation were, firstly, that the aforesaid allowance of a sum of Rs. 51,165 paid by way of wealth-tax for the assessment years 1957-58 and 1958-59; and, secondly, the patent omission to charge interest under section 18A(7) of the Indian Income-tax Act, 1922. This section provided that where an assessee underestimated the advance tax payable by him in any of the first three instalments, then in such a case the Income-tax Officer had the power to direct payment of simple interest at the rate of 6 per cent, per annum for the period during which the advance payment fell short of the amount of the actual advance which ought to have been paid. In the original assessment this interest had not been charged.
6. After hearing the representations of the assessee as aforesaid the Income-tax Officer passed an order under section 154 on the 16th November, 1965. Under this order the sum of Rs. 51,165 paid as wealth-tax was disallowed as a deduction. This was done on the basis of a decision of the Kerala High Court in the case of Southern India Tea Estates Co.’ Ltd. v. Commissioner of Income-tax, [1964] 51 ITR 47. The Income-tax Officer further rectified the order of assessment by adding interest under section 18A(7). This amount was calculated at Rs. 7,173.63.
7. Aggrieved by this order of rectification the assessee appealed to the Appellate Assistant Commissioner. The contentions of the assessee in respect of the disallowance of the said sum of Rs. 51,165 paid on account of wealth-tax were accepted by the Appellate Assistant Commissioner, who followed a subsequent decision of this court in the case of Commissioner of Income-tax v. Standard Vacuum Oil Co. Ltd. (later reported in [1965] 57 ITR 384 (Cal)). It was laid down in this decision that the amount paid on account of wealth-tax could be claimed by way of deduction for the computation of income-tax. The Appellate Assistant Commissioner, however, rejected the contention of the assessee in respect of interest which was added by way of rectification on the sole ground that there was no right of appeal against computation of penal interest.
8. From this order of the Appellate Assistant Commissioner the revenue came up on further appeal to the Income-tax Appellate Tribunal. Crossobjections were also filed by the assessee.
9. While the Tribunal was in seisin of the appeal, the Supreme Court decided the case of Travancore Titanium Products Ltd. v. Commissioner Of Income Tax Kerala which was reported in [1966] 60 ITR 277. The Supreme Court confirmed the view of the Kerala High Court in the case of Southern India Tea Estates Co. Ltd., [1964] 51 ITR 47. The Tribunal held that if the Supreme Court's decision had already been there when the Income-tax Officer passed his orders, then the omission to apply the law as laid down by the Supreme Court would be taken as a rectifiable mistake. At the time when the Income-tax Officer passed the order of assessment none of the decisions were in existence and, therefore, at the time when the Income-tax Officer was considering the problem two opinions were possible. The fact that subsequently only one of the said two views was held’ to be the correct view did not make the mistake or error in the original order a rectifiable mistake and did not justify the rectification proceedings. The Tribunal rejected the contentions of the revenue that the Income-tax Officer had not applied his mind to the facts at the time of the original assessment.
10. The Tribunal held that the omission to charge interest under section 18a(7) was also not a rectifiable error. The Tribunal noted that sections 18A(6) and 18A(7) empowered the Income-tax Officer to charge interest but the proviso thereto gave a discretion to the Income-tax Officer to reduce or waive the interest and held that in view of the scope for exercise of such discretion by the Income-tax Officer it could not be held that the omission to lew the interest was an apparent mistake. The Tribuna followed the decision of the Supreme Court in the case of S.A.L Narayan Row v. Ishwarlal Bhagwandas, [1965] 57 ITR 149.
11. The Tribunal also took note of the fact that though the assessment in the instant case was made under the Indian Income-tax Act, 1922, yet the rectification was made under section 154 of the Income-tax Act, 1961. In the case of Sankappa v. Income-tax Officer, [1968] 68 ITR 760, the Supreme Court had held that in cases where returns had been filed before the commencement of the 1961 Act, section 297(2)(a) of the 1961 Act permitted the Income-tax Officer to proceed in such cases under the provisions of the earlier Act. Following the Supreme Court, the Tribunal held that section 154 of the 1961 Act could not be applied in the instant case. Had section 35 been applied, the order would not have been appealable at all but by reason of the application of section 154, though wrongly, the matter had become appellate. The Tribunal held that though an order passed under section 154 could in appropriate cases be treated as an order passed under section 35 of the earlier Act this principle need not be invoked in the instant case as it had already held that there was no rectifiable error.
12. Mr. K. Ray, learned counsel for the assessee, urged a preliminary point at the hearing. He contended that the Tribunal in this case had found and held that section 154 has been wrongly applied and that the order of rectification could have been passed only under section 35 of the earlier Act, i.e, the Indian Income-tax Act, 1922. Mr. Ray submitted that as this finding of the Tribunal had not been challenged the questions referred have become academic.
13. Mr. S. Sen, learned counsel for the revenue, contended on the other hand, that the Tribunal had not come to any finding on the matter as has been wrongly contended on behalf of the assessee. The Tribunal had really decided the matter on the ground that there was no rectifiable error and because the matter was decided on this ground the Tribunal did not go into the other question, viz., whether the order of rectification was made under the wrong Act and was bad on that ground also. In fact, the Tribunal made it quite clear that if there were rectifiable errors in the order of assessment the Tribunal would have held that the correct Act and the correct section would be deemed to have been applied.
14. The contentions of Mr. Sen are not without substance. We have carefully read the order of the Tribunal. It does not appear to us that the Tribunal has decided the matter on the ground that a wrong section has been applied. The actual decision of the Tribunal rests on the finding of the Tribunal as to whether there is a rectifiable mistake or not and this finding has been challenged by the questions in this reference.
15. To come to the questions referred, Mr. Ray on behalf of the assessee rightly contended that question No. 2 is fully covered by the decision of the Supreme Court in the case of S.A.L Narayan Row v. Ishwarlal Bhag-wandas, [1965] 57 ITR 149, fully discussed below. Mr. Sen on behalf of the revenue could not distinguish the facts and circumstances of this case from those before the Supreme Court. Accordingly, we answer question No. 2 in the affirmative and in favour of the assessee.
16. On question No. 1, it was contended on behalf of the revenue that the law as to the deductibility of wealth-tax in the computation of income-tax has been finally settled by the Income-tax (Amendment) Act, 1972, which came into force on the 26th August, 1972. Section 4 of this Amending Act reads as follows:
“4. Wealth-tax not deductible in computing the total income for certain assessment years,— Nothing contained in the Indian Income-tax Act, 1922 (11 of 1922), shall be deemed to authorise, or shall be deemed ever to have authorised, any deduction in the computation of the income of any assessee chargeable under the head ‘Profits and gains of business, profession or vocation’ or ‘Income from other sources’ for the assessment year commencing on the 1st day of April, 1957, or any subsequent assessment year, of any sum paid on account of wealth-tax.”
17. Mr. Sen contended that this deeming provision in the 1972 Act was retrospective and had to be given its full effect. It is to be deemed that when the original order of assessment was made a mistake was committed by allowing deduction on account of wealth-tax paid. It was also to be deemed that this mistake was a mistake apparent from the record inasmuch as the Income-tax Officer should be deemed to have notice of the law in retrospective when he made the order of assessment.
18. In support of his contentions Mr. Sen cited the following decisions. The first was M.K Venkatachalam, Income-tax Officer v. Bombay Dyeing and Manufacturing Co. Ltd., [1958] 34 ITR 143 (SC). The facts in this case before the Supreme Court were that the Income-tax Officer had assessed the assessee, which was a company, to tax for the assessment year 1952-53 by an order dated the 9th October, 1952. In this assessment order the Income-tax Officer had given a credit to the assessee for Rs. 50,063 being interest at 2% on the tax paid in advance under section 18A(5) of the Income-tax Act. Subsequently, the Indian Income-tax (Amendment) Act, 1953, was passed. In this Amending Act a proviso to section 18A(5) was added providing that an assessee was entitled to interest not on the whole of the tax paid in advance but only on the difference between the tax so paid and the tax as determined on regular assessment. This amending section was deemed to have come into force on the 1st April, 1952, i.e, prior to the date of the assessment order in the instant case. Under this amended Act the assessee was entitled to a lesser sum than what was allowed to him originally on account of interest. After the amending Act was passed, the Income-tax Officer exercised his power under section 35 of the Indian Income-tax Act, 1922 and rectified the mistake in the order of assessment and demanded repayment of the sum which was allowed to the assessee in excess. It was held by the Supreme Court that the amendment to section 18A must be deemed to have been included in the principal Act as from 1st April, 1952 and, therefore, must be deemied to be the law on the date of the passing of the assessment order. Consequently, it was held that the assessment order was inconsistent with the proviso to section 18A and must be deemed to suffer from a mistake apparent from the record and that the Income-tax Officer was justified in exercising his power under section 35 and rectifying the mistake. The Supreme Court laid down further that a glaring and obvious mistake of law can be rectified under section 35 inasmuch as a mistake of fact apparent from the record. The Supreme Court also noted that the Amending Act specifically gave power to the Income-tax Officer to revise his earlier orders. The Supreme Court’ observed as follows— See [1958] 34 ITR 143, 149:
“It is in the light of this position that the extent of the Income-tax. Officer's power under section 35 to rectify mistakes apparent from the record must be determined and, in doing so, the scope and effect of the expression ‘mistake apparent from the record’ has to be ascertained. At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs. 50,603-15-0 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from, the record. If a mistake of fact apparent from the record of the assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record. That is why we think that the Income-tax Officer was justified in the present case in exercising his power under section 35 and rectifying the said mistakes,”
19. Mr. Sen next cited S.A.L Narayan Row v. Ishwarlal Bhagwandas, [1965] 57 ITR 149 (SC). In this case the facts before the Supreme Court were that for the assessment year 1948-49, a notice was served on the assessee under section 18A(1) of the Indian Income-tax Act, 1922, for the payment of advance tax. The assessee first filed an estimate under section 18A(2) and, thereafter, a revised estimate and paid tax accordingly. In the regular assessment made on the 31st March, 1953, it was found that the tax paid on the basis of the estimate of the assessee was less than 80 per cent, of the tax actually assessed. On the unpaid tax no interest was charged. In 1956 on objections from the audit, the Income-tax Officer proceeded under section 35 of the Indian Income-tax Act, 1922, and passed an order charging interest on the ground that the failure to charge interest under section 18A(6) was a mistake apparent from the record and could be rectified. This order was confirmed by the Commissioner of Income-tax under section 33A of the Act. Thereafter proceedings were held under article 226 of the Constitution at the instance of the assessee who prayed for quashing of the order of the Commissioner under a writ of certiorari. A Full Court of the High Court of Bombay quashed the orders pissed by the Income-tax Officer and the Commissioner. An appeal was preferred from the judgment of the Bombay High Court to the Supreme Court.
20. The Supreme Court held that the High Court was right insetting aside the orders passed by the Income-tax Officer and the Commissioner of Income-tax. The Supreme Court found that section 18A(6) had been amended retrospectively by an Amendment Act of 1953 and the retrospective operation commenced from the 1st April, 1952. Under this amendment, a proviso was added to section 18A(6) providing that in cases falling under the said section and under the circumstances that may be prescribed the Income-tax Officer could reduce or waive the interest payable. The Supreme Court by its majority judgment held that by virtue of this retrospective amendment the order which was made by the Income-tax Officer on the date of the assessment and which was plainly inconsistent with the terms of the section as it then stood became an order which he was competent to pass in exercise of his powers. The Income-tax Officer in view of the retrospective amendment was bound to consider whether the assessee was entitled to reduction or waiver of interest under the added proviso and if interest was not charged it could not be said that there was necessarily a mistake apparent from the record.
21. Mr. Sen on the strength of this decision urged that in the instant case the law which was passed retrospectively in 1972 must be deemed to have been there at the time of the order of assessment as also at the time of the order of rectification and as such this deduction allowed on account of wealth-tax paid was a mistake apparent or deemed to be apparent from the record.
22. Lastly, Mr. Sen cited the case of Government of Andhra Pradesh v. Hindustan Machine Tools Ltd., (1975) 2 SCC 274 : AIR 1975 SC 2037. The facts in this case and the statutes involved are different and do not advance the case of the revenue any further.
23. On behalf of the assessee, Mr. K. Ray, on the other hand, contended that whether a mistake was apparent on the face of the record or not was a question of fact. The Tribunal had come to a conclusion in the instant case that this mistake was not apparent. This finding of fact was a matter of subjective determination and could not be challenged in the manner as the revenue has sought to do. Mr. Ray further contended that the 1972 Act was not before the Tribunal when the Tribunal disposed of the matter and, therefore, the finding of the Tribunal cannot be held to be erroneous taking into account subsequent legislation which the Tribunal did not have occasion to consider. In support of his contentions Mr. Ray cited two decisions.
24. The first was Cit v. Durga Prasad More, [1971] 82 ITR 540 (SC). Mr. Ray relied on the following passage in the judgment of the Supreme Court (pages 546-547 of the report):
“Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact-finding authority is made conclusive by law.”
25. Mr. Ray also cited the case of K.M Shanmugam v. S.R.V.S (P.) Ltd., AIR 1963 SC 1626. Mr. Ray relied on the following passage of the judgment of the Supreme Court (at page 1630 of the report);
“Das Gupta J. makes yet another attempt to define the expression when he says in Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale, AIR 1960 SC 137, at page 141 thus:
“An error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. As the above discussion of the rival contentions show the alleged error in the present case is far from self-evident and if it can be established, it has to be established by lengthy and complicated arguments.’
26. The learned judge here lays down the complex nature of the arguments as a test of an apparent error of law. This test also may break, for what is complex to one judicial mind may be clear and obvious to another it depends upon the equipment of a particular judge. In the ultimate analysi the said concept is comprised of many imponderables it is not capable of precise definition, as no objective criterion can be laid down, the apparent nature of the error, to a large extent, being dependent upon the subjective element. So too, in some cases the boundary between error of law and error of fact is rather thin. A tribunal may hold that 500 multiplied by 10,000 is 5 lakhs (instead of 50 lakhs); another tribunal may hold that a particular claim is barred by limitation by calculating the period of time from 1956 instead of 1961; and a third tribunal may make an obvious error deciding a mixed question of fact and law. The question whether the said errors are errors of law or fact cannot be posited on a priori reasoning, but falls to be decided in each case. We do not, therefore, propose to define with any precision the concept of “error of law apparent on the face of the record’; but it should be left, as it has always been done, to be decided in each case.”
27. The cases cited by Mr. Ray are not of much assistance in the instant case.
28. We do not accept the contentions of Mr. Ray that a conclusion or finding as to whether there is a mistake apparent from the records in a particular case is a pure question of fact to be determined subjectively by the Tribunal. If there is a mistake apparent from the record it ought to be capable of being demonstrated objectively. In a given set of facts and records thereof it is to be determined first if there is a mistake and if so it is also to be determined if such mistake was apparent from the records. The questions arising from such determination appear to us to be at the least a mixed question of fact and law.
29. We also do not accept the contention of Mr. Ray that the High Court in its advisory jurisdiction under the Income-tax Act cannot consider or take into account law which was not considered or cited before the Tribunal.
30. The relevant and basic facts in the instant case are that the Amending Act was promulgated in 1972. The order of assessment was made on the 4th November, 1960, and the order of rectification was passed on the 16th November, 1964.
31. The law is well settled. If an Act is passed with retrospective effect the deeming provision must be given its full and logical effect. All the incidents which follow from retrospective legislation has to be given effect to. The proposition was laid down by Lord Asquith in the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] AC 109, 132; [1951] 2 All ER 587, 599 (HL) in the following language:
“If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs. It does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.”
32. This passage has been quoted with approval by the Supreme Court in the case of Bombay Dyeing and Mfg. Co. Ltd., [1958] 34 ITR 143.
33. In the instant case the Amending Act has to be imagined as existing on the date of the order of assessment and on the date of the order of rectification, the amendment being retrospective, but would the records of any particular case change their character?
34. The Amending Act no doubt would give rise to a mistake which will be deemed to have occurred in the original order of assessment and continued up to the time of the order of rectification. But should it be also deemed that such a mistake was apparent within the meaning of section 35?
35. The apparency of a mistake has to be considered and established objectively.
36. In the case of Bombay Dyeing, [1958]-34 ITR 143 (SC), the amendment had already been promulgated when the Income-tax Officer sought to rectify under section 35 of the 1922 Act. The records as it stood at the relevant time disclosed an apparent mistake. In the case of Narayan Row, [1965] 57 ITR 149 (SC) the Amending Act with retrospective effect was also in existence at the time when the Income-tax Officer proceeded to rectify the order and could determine whether the records disclosed an apparent mistake in the background of the amended Act. In the instant case the Amending Act came into existence long after the order sought to be rectified and the order of rectification. Therefore, at the relevant time, the mistake, though deemed, could not be apparent from the records. We do not propose to include the expression “deemed to be apparent” in section 35 of the Act.
37. We hold that though it could be deemed that there was a deemed mistake in the order at the relevant time yet there was no rectifiable mistake apparent on the face of the record. In this view, we answer the question No. 1 also in the affirmative and in favour of the assessee.
38. In the facts and circumstances, there will be no order as to costs.
Deb, J.:— I agree.