C.K Banerji, J.:— The appellant, M/s. Jiyajeerao Cotton Mills Ltd., a public company, derived profits and gains from several industries owned by it, one of which was a chemical factory known as Saurashtra Chemicals, situate at Porbander, where during the previous year relevant to the assessment year 1966-67, soda ash was manufactured.
2. There is no dispute that soda ash is one of the items mentioned in Part III of the First Schedule to the Finance Act, 1965, and the appellant was, therefore, entitled to a special rebate of 35 per cent, on the profits and gains attributable to the business of manufacture’ and production of soda ash under Paragraph F of Part I of the First Schedule to the Finance Act, 1965.
3. The appellant had at first filed its income-tax return for the assessment year 1966-67, without claiming the said special rebate under Paragraph F of Part I of the First Schedule to the Finance Act, 1965, in respect of its profits and gains attributable to the business of manufacture and production of soda ash in Saurashtra Chemicals but subsequently filed a revised return claiming such rebate. On or about the 27th February, 1970, respondent No. 1 completed the assessment under s. 143(3) of the I.T Act, 1961, whereby the overall total income of the appellant was computed at Rs. 2,21,29,146 after allowing development rebate on all the said three industries including Saurashtra Chemicals. Respondent No. 1 also allowed the special rebate of 35 per cent, on the profits and gains attributable to the business of manufacture and production of soda ash under Paragraph F of Part I of the First Schedule to the Finance Act, 1965, and in allowing such rebate made a separate computation of the profits and gains attributable to the said business at Rs. 82,20,987 as eligible for such rebate without deducting the development rebate of Rs. 5,50,040 allowed to the appellant in respect of Saurashtra Chemicals, in the computation of its overall total income as aforesaid.
4. Thereafter on or about the 5th May, 1972, the appellant received a notice under s. 154/155 of the I.T Act, 1961, issued by respondent No. 1 for amendment of the said assessment made on the 27th February, 1970, on the ground that there was a mistake apparent from the record within the meaning of s. 154 of the said Act, the reasons whereof were noted in the said notice in the words following:
“Mistake in computing the profits and gains from priority industry for the purpose of tax relief—no development rebate of Rs. 5,50,040 deducted.”
5. By a letter dated the 10th May, 1972, the appellant denied that there was any mistake apparent from the record and asserted that the mistake, if any, could be discovered only by a process of detailed reasoning and arguments on fact and law and there may be two opinions on the points involved and called upon respondent No. 1 to withdraw the said notice.
6. Thereafter the appellant filed a writ petition under art. 226 of the Constitution to this court challenging the said notice and a rule nisi was issued by this court. Ultimately, the said writ petition was finally heard by a single Bench of this court and by a judgment and order dated the 28th November, 1973, the said rule nisi was discharged. Hence, this appeal.
7. The law as to what is a mistake rectifiable under s. 154 of the I.T Act, 1961, as being apparent from the record is well Settled. A glaring and obvious mistake can be corrected under the said section but a debatable issue on the question or which required investigation and arguments as to facts or law to find out if there was a mistake cannot be rectified under the said section.
8. Here the reason for rectification was that the development rebate of Rs. 5,50,040 allowed in the computation of the overall total income of the appellant in its assessment which was not deducted in the computation of the profits and gains attributable to the business of production and manufacture of soda ash for allowing the said special rebate of 35 per cent, was sought to be rectified under s. 154 of the said Act so as to deduct the amount of the said development rebate allowed bat omitted to be deducted in the computation of the said profits and gains eligible for the said special rebate.
9. To appreciate the contentions of the parties raised before us the rele-vantportion of the provisions of Paragraph F of Part I of the First Schedule to the Finance Act, 1965, is set out below:
“Paragraph F
In the case of every company, other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956),—
Rate of income-tax
On the whole of the total income 88 per cent.:
Provided that a rebate shall be allowed in the case of such companies on such income at such rate or rates as are specified hereunder:—
Income on which rebate is to be allowed Rate of rebate I. In the case of a company which— (a) in respect of its income liable to income-tax under the Income-tax Act for the assessment year commencing on the 1st day of April, 1965, has made the pre-scribed arrangements for the declaration and payment within India of the dividends payable out of such income in accordance with the provisions of section 194 of that Act; and
(b) is such a company as is referred to in section. 108 of the Income-tax Act,— (i) where the total income does not exceed Rs. 25,000 on the whole of the total income. 37.5 per cent. (ii) where the total income exceeds Rs. 25,000 (a) on so much of the total income as consists of profits and gains attributable to the business of generation or distribution of electricity or of construction, manufacture or production of any one or more of the articles or things specified in the list in Part III of this Schedule. 35 per cent. ………… …………”
10. The provisions of Para. F of Part I of the First Schedule to the Finance Act, 1965, were replaced by a new s. 80E introduced by the Finance Act, 1966, in Chap. VI-A of the I.T Act, 1961. The only difference between the two provisions is that while Para. F of Part I of the First Schedule to the Finance Act, 1965, allowed a rebate on the income as consists of profits and gains attributable, inter alia, to the business of manufacture and production of the articles or things specified in the list in Part III of the said Schedule, s. 80E allowed a deduction on such profits and gains. It is not disputed that apart from the above difference both Para. F of Part I of the First Schedule to the Finance Act, 1965, and s. 80E are in identical language having the same meaning and the same interpretation and the decisions on either of the said provisions were applicable to each other and, in view of the definition of the expression “total income” in s. 2(45) of the I.T Act, 1961, the parenthetic clause in s. 80E did not affect the position. For a proper appreciation of the position s. 80E of the I.T Act, 1961, as it stood at the material time is set out below:
“80E. Deduction in respect of profits and gains from specified industries in the case of certain companies.— (1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent, thereof, in computing the total income of the company.
(2) This section applies to—
(a) an Indian company; or
(b) any other company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India,
but does not apply to any Indian company referred to in clause (a), or to any other company referred to in clause (b), if such Indian or other company is a company referred to in section 108 and its total income as computed before applying the provisions of sub-section (1) does not exceed twenty-five thousand rupees.”.
11. There is also no dispute that soda ash is an item which qualified for the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, and for the special deduction under s. 80E of the I.T Act, 1961.
12. Mr. R.N Bajoria, learned advocate for the appellant, contended before us that there was no mistake at all in computing the profits and gains attributable to the business of production and manufacture of soda ash and the development rebate allowed was not deductible in such computation inasmuch as the said special rebate was allowable on the gross or commercial profits and not on the net or taxable profits. Mr. Bajoria further urged that as the statute provided no guidelines for the computation of the said profits and gains, two views thereon were not only reasonably possible but at the material time, there were in fact two views thereon and thus the mistake, if any, was not such which could be rectified under s. 154 of the I.T Act, 1961.
13. In support of his contention, Mr. Bajoria relied on the facts and circumstances of the case as noted by their Lordships of the Gujarat High Court in the judgment in CIT v. Cambay Electric Supply Industrial Co. Ltd., [1976] 104 ITR 744, which are shortly as under.
14. Cambay Electric Supply Industrial Co. Ltd., the assessee, carried on the business of generation and distribution of electricity, a priority industry, and was entitled to the special deduction allowable under s. 80E of the I.T Act, 1961, on the profits and gains attributable to its said business. In its assessment to income-tax for the assessment year 1967-68, the relevant previous year being the financial year 1966-67, the assessee claimed the special deduction under s. 80E on its profits and gains attributable to its said business.! The ITO computed the total income at Rs. 8,02,126 and allowed deduction thereon under s. 80E and thereby computed the net income at Rs. 7,37,956. The assessee had unabsorbed depreciation of Rs. 1,42,955 and unabsorbed development rebate of Rs. 1,11,658 aggregating to Rs. 2,54,613. The ITO set off the same from the said net income of Rs. 7,37,956 and arrived at Rs. 48,34,343 as the income chargeable to tax and levied tax thereon.
15. The Addl. Commissioner, coming to know of the same, took action under s. 263 of the I.T Act, 1961, and being of the opinion that the deduction under s. 80E should have been allowed on the income arrived at after setting off the unabsorbed depreciation and development rebate from the income of the assessee, recomputed the taxable income on that basis and after making certain other adjustments found that the net result was a minus figure of Rs. 2,78,210 and held that the assessee was not entitled to any deduction under s. 80E. The assessee appealed to the Income-tax Appellate Tribunal. The Tribunal held that for the purpose of calculating the deduction under s, 80E neither depreciation nor development rebate was to be deducted from the income as otherwise computed. The Tribunal, therefore, set aside the order of the Addl. Commissioner and restored the order of the ITO. The revenue went up in a reference before the Gujarat High Court. The High Court at first upheld the view of the Tribunal and delivered its judgment on that basis but subsequently recalled the same and delivered a fresh judgment upholding the view of the Addl. Commissioner holding that unabsorbed depreciation and development rebate reserve had to be deducted from-the relevant income before allowing deduction under s. 80E of the Income-tax Act, 1961.
16. Mr. Bajoria urged that the interpretation of the provisions of Paragraph F of Pt. I of the First Schedule to the Finance Act, 1965, or s. 80E of the I.T Act, 1961, and in particular of the expression “profits and gains attributable to the business” required investigation and arguments and was not free from ambiguity or doubt, is clearly established from the fact that the Gujarat High Court in the case of Cambay Electric Supply, [1976] 104 ITR 744, categorically held that the wordings of ss. 85A and 80E of the I.T Act, 1961, were similar and that the reasoning given in interpreting s. 85A in their decision in Addl. CIT v. Cloth Traders (P.) Ltd., [1974] 97 ITR 140 (Guj) applied fully in interpreting s. 80E, where it was held that the special deduction under s. 85A should be allowed on the net income from inter-corporate dividends arrived at after deduction of the expenditure incurred in earning such dividends and not on the gross dividend income. The Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. Cit , [1978] 113 ITR 84, on appeal from the said decision of the Gujarat High Court in Cambay Electric Supply, [1976] 104 ITR 744, accepted the view of the Gujarat High Court on the interpretation of s. 80E of the I.T Act, 1961, but in Cloth Traders (P.) Ltd. v. Addl. CIT, [1979] 118 ITR 243 (SC), on appeal from the decision of the Gujarat High Court, in Cloth Traders (P.) Ltd., [1974] 97 ITR 140, the Supreme Court reversed the decision of the Gujarat High Court on the interpretation of s. 85A of the I.T Act, 1961, and held that the special deduction on inter-corporate dividend income under s. 85A was to be allowed on the gross dividend income.
17. Mr. Bajoria referred to the wordings of s. 80E and s. 85A of the I.T Act, 1961, and submitted that the wordings of the two sections were similar and urged that although the Supreme Court in its earlier decision held that the gains referred to under s. 80E were the net profits and gains after making all allowable deductions, yet in its later decision in Cloth Traders (P.) Ltd., [1974] 118 ITR 243 (SC), the Supreme Court held that the income referred to in s. 85A was the gross income and not the net income after making all allowable deductions, and thus the earlier decision of the Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84 on the interpretation of s. 80E was greatly shaken, if not impliedly overruled, by the decision in Cloth Traders Co. (P.) Ltd., [1979] 118 ITR 243 (SC).
18. Mr. Bajoria next urged that that there was scope for two views in interpreting the provisions of Para. F of Pt. I of Schedule I to the Finance Act, 1965, and of s. 80E of the I.T Act, 1961, is established from the fact that in interpreting similar expressions in other sections of the I.T Act, 1961, the High Courts have taken the view that the income on which deduction or rebate is allowed, was the gross income or commercial profits and not the taxable income or net profits after allowing all admissible deductions and rebates and he referred to the following decisions:
(a) CIT v. Darbhanga Marketing Co. Ltd., [1971] 80 ITR 72, where this court interpreted s. 99 of the I.T Act, 1961, which gave to certain dividend income received by a company exemption from super-tax that the dividend income referred to in the said section was not the taxable dividend income but the dividend as received by the assessee.
(b) Commissioner Of Income-Tax v. New Great Insurance Co. Ltd., [1973] 90 ITR 348 (Bom). A similar view was taken by the Bombay High Court in interpreting s. 85A of the I.T Act, 1961, that the dividend income referred to in the said section on which deduction was allowed was not the taxable dividend income but the gross dividend received by the assessee.
(c) A similar view was taken by the Madras High Court in Madras Auto Service v. ITO, [1975] 101 ITR 589. In interpreting s. 80M of the I.T Act, 1961, which was approved by the Supreme Court in Cloth Traders (P.) Ltd., [1979] 118 ITR 243.
19. Mr. Bajoria next urged that the time-limit for the rectification of a mistake being four years from the date of the order, the said alleged mistake could not be rectified after the 27th February, 1974, and even if the said alleged mistake became apparent on the record because of the subsequent decision of the Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84 delivered on the 11th April, 1978, even then it could not be rectified as that would enlarge the time-limit specified in s. 154(7) and would be in violation of the provisions thereof.
20. In support of his contentions, Mr. Bajoria cited the following decisions:
1. CIT v. General Electric Co. of India Ltd., [1978] 112 ITR 246 (Cal). Here a Division Bench of this court considered the effect of the I.T (Amend.) Act, 1972, on a proceeding for rectification of a mistake initiated under s. 35 of the Indian I.T Act, 1922, before the enactment of the said Amendment Act, by s. 4 whereof any sum paid by an assessee on account of wealth-tax was made non-deductible in the income-tax assessment with retrospective effect, and observed as follows (p. 255):
“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
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?
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 (of the Indian Income-tax Act 1922)?
The apparency of a mistake has to be considered and established…………… 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 record. We do not propose to include the expression ‘deemed to be apparent’ in section 35 of the Act.
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.”
2. An unreported decision of a Division Bench of this court in Appeal No, 185 of 1972 intituled ITO v. Textile Mills Agents Private Ltd. [see p. 733 (Appendix) infra]. Here on the basis of a finding in a subsequent assessment year that certain cash credits in the accounts of the assessee were bogus, the ITO initiated proceedings under s. 147 of the I.T Act, 1961, for reopening the assessment of an earlier year. The assessee made a writ petition to this court challenging the said proceedings under s. 147 of the Act. In the meantime, the AAC found in the said subsequent assessment year that the cash credits were genuine and deleted the addition made by the ITO. The rule nisi obtained by the assessee in the said writ petition being made absolute, the revenue preferred an appeal therefrom and a Division Bench of this court, which heard the said appeal, observed as follows (See p. 736 infra):
“It has to be noted that the finding of the Appellate Assistant Commissioner was arrived at on the 22nd August, 1968; while the impugned notice had been issued on the 22nd March, 1968. In order to determine whether the Income-tax Officer had jurisdiction to issue the impugned notice we must consider the facts as they were on the date when the impugned notice was issued. Subsequent discovery of any new fact would not confer upon the Income-tax Officer; jurisdiction if he did not have the jurisdiction at the time of issuance of the notice. Similarly, subsequent information regarding the falsity of the case or casting doubt on the genuineness of the information upon which the Income-tax Officer had acted would not defeat the jurisdiction of the Income-tax Officer if he had jurisdiction to issue the impugned notice on the materials before him. Subsequent decision of the Appellate Assistant Commissioner would not either confer jurisdiction if the Income-tax Officer had not originally the jurisdiction at the time of issuance of the notice or defeat the jurisdiction of the Income-tax Officer if he had at the time of issuance of the notice.”
21. Mr. Bajoria further contended that the development rebate was not an expenditure but was really a part of the profits of the business which was allowed as development rebate, it could not, therefore, be deducted in the computation of the profits and gains attributable to a priority industry. In support of his contention, Mr. Bajoria relied on the following observation of the Supreme Court in P.K Badiani v. Commissioner Of Income Tax, Bombay , [1976] 105 ITR 642, 648, 649, 652:
“In the Finance Act of 1955, a provision was made to allow a development rebate of 25 per cent, of the cost of all new plant and machinery installed for business purposes instead of the then existing initial depreciation allowance of 20 per cent. It would thus be seen that by way of an incentive for installation of new machinery and plant, initial depreciation allowance of 20 per cent, was replaced by a development rebate of 25 per cent. But it was, like grant of export rebate by way of incentive to make more exports, in the nature of an incentive for setting up new machineries and plants. We do not find any warrant for accepting the contention of Mr. Rajgopal that the initial depreciation or the development rebate was allowed as an extra deductible allowance of business expenses in the year of installation of new machinery for meeting the ever increasing costs of its replacement in future years. In our opinion, it was meant merely to reduce the tax liability of the assessee in order to give him an incentive to install new ‘machineries or plants We do not feel persuaded to accept the argument of the assessee and equate the initial depreciation or the development rebate with the normal depreciation. In our opinion, such an allowance is in no sense a deductible item of cost or expenditure in the process of settlement of the commercial profits. Although it does not form part of the assessable profits, undoubtedly, it does form part of the commercial profits the development rebate reserve created by the company by duly charging the amount of profit and loss account, although liable as a deduction under the 1922 Act, constituted accumulated profits of the company within the meaning of section 2(6A)(e).”
22. Mr. Bajoria submitted that s. 2(6A) of the Indian I.T Act, 1922, corresponded to s. 2(22) of the I.T Act, 1961, and the above observations of the Supreme Court equally applied to development rebate under the I.T Act, 1961. In this connection, he also referred to the statements made in para. 10 of the petition where it is, inter alia, alleged that in allowing the said special rebate, the profits and gains attributable to the said business had to be computed in the commercial sense without taking into consideration the development rebate allowable thereon as the development rebate was not an item of expenditure which would be or was required to be taken into consideration in determining the profits and gains of the said business. Mr. Bajoria contended that the learned judge in the court below did not consider this aspect of the matter and proceeded on the basis of taxable income as will appear from the observations made by him that an apparent error was committed in computing the income of Saurashtra Chemicals by not deducting the amount of the development rebate allowed to the extent of Rs. 5,50,040 from the income of the said industry.
23. Mr. Bajoria next urged that whenever the Legislature thought of computation of income after deduction of any allowance or rebate it made specific provision in that behalf and he referred to s. 15C(1) and (3) of the Indian I.T Act, 1922 and s. 84(1) and (5) of the I.T Act, 1961, which are set out below:
Indian I.T Act, 1922.
“15C. Exemption from tax of newly established industrial undertakings.— (1) Save as otherwise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial-undertaking or hotel to which this section applies as do not exceed six per cent, per annum on the capital employed in the undertaking or hotel, computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue ……….
(3) The profits or gains of an industrial undertaking or a hotel to which this section applies shall be computed in accordance with the provisions of section 10.”
I.T Act, 1961.
“84. Income of newly established industrial undertakings or hotels.— (1) Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking or business of a hotel or from any ship, to which this section applies, as does not exceed six per cent, per annum on the capital employed in such undertaking or business or ship, computed in the prescribed manner …………
(5) The profits and gains derived from an industrial undertaking or business of a hotel or from a ship to which this section applies shall be computed in accordance with the provisions contained in Chapter IV-D.”
24. In this context, Mr. Bajoria also cited a decision of the Supreme Court in CIT v. S.S Sivan Pillai, [1970] 77 ITR 354, where the Supreme Court observed as under (p. 357):
“The profits or gains derived from an industrial undertaking within the meaning of sub-section (1) of section 15C are not business profits; they are taxable profits computed in accordance with the provisions of section 10 of the Income-tax Act. Under section 15C(1) no tax is payable by the industrial undertaking on its taxable profits equal to six per cent, per annum of the capital employed Exemption under section 15C(1) from payment of income-tax is not related to the business profits; it is related to the taxable profits. The language of sub-section (3) is clear: the profits or gains of an industrial undertaking have to be determined under section 10 of the Act.”
25. Mr. B.L Pal, learned advocate for the’ respondents, contended on the other hand, that a plain reading of the provisions Contained in Para. F of Part I of the First Schedule to the Finance Act, 1965, or s. 80E of the I.T Act, 1961, clearly showed that the profits and gains attributable to the priority industries specified therein could not be the gross or commercial profits or gains and could only mean the net or taxable profits or gains after allowing all admissible deductions including development rebate. Mr. Pal referred to the following provisions of the I.T Act, 1961, relevant portions whereof are as under:
(a) Section 2(45). —“total income” means the total amount of income referred to in section 5, computed in the manner laid down in the Act.
(b) Section 5.— Scope of total income.— (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income derived from whatever source
(c) Chapter III containing sections 10 to 13 which provides for exclusion of various amounts in computing the total income.
(d) Chapter IV containing sections 14 to 59 which lays down the mode and manner of computation of total income and provides for various allowances to be made in making such computation and sections 33 and 34 are the provisions for allowance of development rebate in computing such total income under the said Chapter.
26. Mr. Pal submitted that the above provisions clearly show that the total income has to be computed after allowing all admissible deductions and allowances including development rebate and thus the profits and gains attributable to priority industries which are included in or form part of the total income under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, or s. 80K of the I.T Act, 1961, cannot but be the net profits and gains after allowing such deductions and allowances. The calculation made by the ITO was basically wrong inasmuch as the profits and gains attributable to the said priority industry included in the total income had to be ascertained in accordance with the above provisions of the I.T Act, 1961, and for that purpose the development rebate allowed had to be deducted in computing such profits and gains. This was not done by the ITO. If the said profits and gains were the commercial profits on which the said special rebate under the said provisions of the Finance Act, 1965, had to be allowed then the development rebate had to be first deducted to ascertain the profits and gains to be included in the total income and had to be added over again for allowing the said special rebate on the commercial profits. But in computing the profits and gains of the Saurashtra Chemicals, the ITO did not first deduct the development rebate allowed by him in respect of the said industry and add the same again which he should have done if he had allowed the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, on the commercial profits. Mr. Pal urged that the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, was in fact a slice of what was included in the total income and was a part of the net income or profits.
27. Mr. Pal next urged that the case of Cambay Electric Supply, [1976] 104 ITR 744 (Guj) related to the allowance of a special deduction allowed to priority industries under s. 80E of the I.T Act, 1961, which replaced Para. F of Pt. I of the First Schedule to the Finance Act, 1965, while the case of Cloth Traders (P.) Ltd., [1974] 97 ITR 140 (Guj) related to s. 85A of the I.T Act, 1961, which dealt with inter-corporate dividends, an entirely different subject. The wordings of the two sections are also not similar and the Gujarat High Court was wrong in observing in Cambay Electric Supply, [1976] 104 ITR 744 that the wordings of ss. 80E and 85A were similar. The Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84 did not accept such a view and did not feel it necessary even to refer to the decision of the Gujarat High Court in Cloth Traders (P.) Ltd., [1974] 97 ITR 140. Section 85A of the I.T Act, 1961, provided for a deduction from a particular category of income, namely, inter-corporate dividends. The crucial expression therein was only descriptive of a particular category of income and did not relate to any amount included in the total income computed in accordance with the provisions of the I.T Act, 1961. Mr. Pal submitted that the Supreme Court in its decision in Cloth Traders (P.) Ltd., [1979] 118 ITR 243 did not accept the interpretation put by the Gujarat High Court on s. 85A of the I.T Act, 1961, and observed as under (p. 256):
“This section (section 85A) lays down a condition for its applicability in its opening part by using the words ‘where the total income of an assessee… includes any income by way of dividend from an Indian company the condition is that the total income must include income by way of dividends from an Indian company. It is only if this category of income forms the component part of total income that the provision enacted in the section is attracted and the assessee becomes entitled to the rebate on income calculated with reference to the ‘income so included’. The argument of the revenue was that the words ‘income so included’ must mean the quantum of the income included in the total income and, therefore, rebate on income-tax granted under s. 85A can only be in respect of dividend income computed in accordance with the provisions of the Act and forming part of the total income and not in respect of the full amount of dividend received by the assessee. This argument is, in our opinion, fallacious. It is based on a misreading of the words ‘income so included’ and ignores the context in which these words occur. If the opening part of the section refers to inclusion of the particular category of income denoted by the words ‘income by way of dividends from an Indian company’ the words ‘so included ‘cannot have reference to the quantum of the income included, but they must be held to refer only to the category of income included, that is, income by way of dividends from an Indian company. The meaning of the section would become clear if we substitute the words ‘income by way of dividends from an Indian company’ for the words ‘income so included Then it would be obvious—indeed it would need no argument to hold—that the rebate on income-tax is to be calculated by applying the average rate of tax to the ‘income by way of dividends from an Indian company’ which can only mean the full amount of dividend received from an Indian company.”
28. Mr. Pal urged that reference by the Gujarat High Court in its decision in Cambay Electric Supply, [1976] 104 ITR 744 to its decision in Cloth Traders (P.) Ltd., [1974] 97 ITR 140 was wholly irrelevant and its decision in Cambay Electric Supply, [1976] 104 ITR 744 neither rested nor was based on its decision in Cloth Traders (P.) Ltd.
29. Mr. Pal submitted that the decisions of this court in Darbhanga Marketing, [1971] 80 ITR 72, of the Bombay High Court in New Gujarat Insurance Co., [1973] 90 ITR 348 and of the Madras High Court in Madras Auto Service, [1975] 101 ITR 589 were not at all relevant inasmuch as the interpretations of the sections involved in those cases were materially different from the provisions of Paragraph F of Pt. I of the First Schedule to the Finance Act, 1965, and s. 80E of the I.T Act, 1961. In those cases, the expression “dividend income” in the relevant sections was merely descriptive of a category of item of income and did not refer to any amount of income computed in accordance with the provisions of the I.T Act, included in the total income. Mr. Pal urged that the said decisions, therefore, did not support the contention of Mr. Bajoria that in view of the interpretations put on those sections by the different High Courts there was a divergence of views on the scope or interpretation of the provisions of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, at the time when the ITO assumed jurisdiction under s. 154 of the I.T Act, 1961. Mr. Pal contended that there is also no basis for the contention that there were two views on the scope or interpretation of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, or s. 80E of the Income-tax Act, 1961, at the time when the ITO assumed jurisdiction under s. 154 of the I.T Act, 1961, or made the assessment sought to be rectified. Mr. Pal contended that the interpretation given by the Gujarat High Court to s. 80E in Cambay Electric Supply, [1976] 104 ITR 744 was the only interpretation possible on a plain reading of the said section which was affirmed by the Supreme Court and he referred to the relevant observations of the Gujarat High Court and of the Supreme Court. The Gujarat High Court in Cambay Electric Supply, [1976] 104 ITR 744 observed as under (p. 766):
“The purpose for which section 80E is enacted is to provide for certain deduction to be made in computing total income in the case of specified industries. This deduction is over and above other general deductions contemplated by the Act. Depreciation allowance and development rebate— whether current or carried forward—go to reduce the figure of total income and hence the assessee concerned has to pay less tax to the extent to which the said figure stands reduced. The special deduction contemplated by section 80E(1) was not intended to result in a double benefit on the same amount. If the contention of the assessee is accepted it would obviously result in a double benefit…
The legislature has, therefore, provided three important steps in section 80E(1). These steps are: (i) Find out, without reference to the provisions of section 80E, what is the total income of the concerned assessee if the same is computed in accordance with the other provisions of the Act. (ii) Having done that, find out whether any of the components of the total income thus arrived at represents profits and gains of business attributable to the industry specified in section 80E- (iii) If there is any component of the type referred to in (ii), deduct 8% thereof from such profits and gains, and then compute the total income which becomes exigible to tax.
This is the plain and simple scheme of section 80E which does not admit of any complications. This scheme is definitely suggestive of the fact that working out of the total income contemplated by the first part of the section is a condition precedent to the working out of 8% deduction contemplated by its second part.”
30. The Supreme Court in ([1978] 113 ITR 84) affirming and approving the said decision of the Gujarat High Court in Cambay Electric Supply, [1976] 104 ITR 744 (Guj) adopted the same reasoning as taken by the Gujarat High Court and observed as under (p. 91):
“On reading sub-section (1) it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e, in accordance with all the provisions except section 80E; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity); and, thirdly, if there be profits and gains so attributable, deduct 8% thereof from such profits and gains and then arrive at! the net total income exigible to tax… As indicated earlier, sub-section (1) contemplates three steps being taken for computing the special deduction permissible thereunder and arriving at the net income exigible to tax and the first two steps read together contain the legislative mandate as to how the total income—of which the profits and gains attributable to the business of the specified industry forms a part—of the concerned assessee is to be computed and according to the parenthetical clause, which contains the key words, the same is to be computed in accordance with the provisions of the Act except section 80E and since in this case it is income from business the same will have to be computed in accordance with sections 30 to 43A which would include section 32(2) (which provides for carry forward of depreciation) and section 33(2) (which provides for carry forward of development rebate for eight years). In other words in computing the total income of the concerned assessee, items of unabsorbed depreciation and unabsorbed development rebate will have to be deducted before arriving at the figure that will become exigible to the deduction of 8% contemplated by section 80E(1).”
31. Mr. Pal urged that the unreported decision of this court in Textile Mills Agents Private Ltd. [see p. 733 (appendix) infra] was a case of reopening of assessment under s. 147 and has, therefore, no application to this case and in the other decision of this court in General Electric Co. of India Ltd., [1978] 112 ITR 246, admittedly, there was divergence of views, on the question whether wealth-tax paid by an assessee was a deductible expenditure in the income-tax assessment or not. As there was no divergence of views on the interpretation of the said relevant provisions of the Finance Act, 1965, or of s. 80E of the I.T Act, 1961, the said decision has no application to this case. Mr. Pal contended that the said relevant provisions of the Finance Act, 1965, did not admit of any divergence of view on its scope and interpretation and the ITO failed to deduct the development rebate allowed by him on a misreading of the said provisions and thus the same fell within the purview of s. 154.
32. In support of his above contention, Mr. Pal cited a decision of this court in ITO v. Raleigh Investment Co. Ltd., [1976] 102 ITR 616. In this case, in the original assessment of the assessee, the tax was computed on the dividend income at 25% thereof. The tax so computed was thrice rectified under s. 154 of the I.T Act, 1961, on the ground that there was a mistake in the calculation of the tax but in all the said rectifications the tax was calculated at 25% of the dividend income as in the original assessment. Thereafter, a further notice under s. 154 of the I.T Act, 1961, was issued by the ITO for rectification of the assessment on the ground that there was an error in the calculation of tax on the dividend income. ‘The assessee made a writ petition to this court and the rule nisi issued thereon was ultimately made absolute and the notice under s. 154 of the I.T Act, 1961, was quashed. The revenue appealed against the said judgment and order. A Division Bench of this court which heard the appeal, construing the provisions of s. 85A of the I.T Act, 1961, found that there was a mistake as a result of miscalculation of the tax and observed as follows (p. 620);
“It appears that the Income-tax Officer misread the section. He thought that section 85A provided for a charging section and laid down the rate of tax on the dividend income of this type. What the section on the other hand stipulated was a deduction from the general average rate applicable. It did not provide for any rate of tax for dividend income.”
33. Mr. Pal submitted that the Supreme Court held that the interpretation put by the Gujarat High Court in Cloth Traders (P.) Ltd., [1974] 97 ITR 140, on the language of s. 85A, which was replaced by s. 80M, was erroneous and relied on the following observation of the Supreme Court in Cloth Traders (P.) Ltd., [1979] 118 ITR 243, at p. 259:
“It is true that the Gujarat High Court has taken a contrary view in Addl. CIT v. Cloth Traders (P.) Ltd., [1974] 97 ITR 140, which is the subject-matter of Civil Appeals Nos. 118 and 117 of 1975, but we think it proceeds on an erroneous interpretation of the language of s. 80M, sub-s. (1). It wrongly construes the words ‘such income’ to be referable to the quantum of income includible in the gross total income, overlooking the fact that the opening words in the section, namely, ‘where the gross total income of an assessee… includes any income by way of dividends from a domestic company’ refer only to the inclusion of the category of income by way of dividends from a domestic company and they are not indicative of the quantum of the income included in the gross total income.”
34. Mr. Pal next urged that there is no difference in the legal position when a statute is promulgated with retrospective operation and the law is declared by a decision of the Supreme Court. In the former case the statute takes effect from the date of its retrospective operation while in the latter case the law as laid down and declared by the Supreme Court becomes the law which remained in operation all along since its promulgation and it could not be said that such law came into operation only when it was laid down or declared by the Supreme Court. In support of his contention, Mr. Pal cited the following decisions:
(a) M.K Venkatachalam, ITO v. Bombay Dyeing & Manufacturing Co. Ltd., [1958] 34 ITR 143 (SC). In this case, in the income-tax assessment of the assessee, the ITO by his assessment order dated October 9, 1952, gave credit for Rs. 50,603-15-0 representing interest at 2% on advance tax paid by the assessee under s. 18A(5) of the Indian I.T Act, 1922. On May 24, 1953, the Indian I.T (Amend.) Act, 1953, came into force with retrospective effect from the 1st April, 1952. By the said Amendment Act a proviso was added to s. 18A(5) whereby the 2% interest was made available to the assessee not on the whole of the advance tax as before but only on the difference between the advance tax paid and the tax assessed. The ITO thereupon initiated proceedings under s. 35 of the Indian I.T Act, 1922, and rectified his previous order by determining the credit allowable to the assessee at Rs. 21,157-6-0 as interest on the advance tax paid in place of the original allowance of Rs. 50,603-15-0. The assessee challenged the said action of the ITO in a writ petition before the Bombay High Court which made the rule absolute. The revenue appealed to the Supreme Court and the Supreme Court made the following observation (p. 149):
“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.”
(b) S.A.L Narayan Row v. Ishwarlal Bhagwandas, [1965] 57 ITR 149 (SC). Here, in the income-tax assessment of the assessee for the assessment year 1948-49, the ITO did not charge interest under s. 18A(6) of the Indian I.T Act, 1922. Subsequently, he charged the said interest by taking recourse to s. 35 of the Indian I.T Act, 1922, on the ground that the said interest was not charged by mistake which was apparent from the record. This was confirmed by the Commissioner under s. 33A. By Act 25 of 1953, a proviso was added to s. 18A(6) with retrospective effect from the 1st April, 1952, whereby power was given to the ITO to reduce or waive the interest and r. 48 of the I.T Rules was introduced for giving effect to the said new proviso. In these circumstances, the Supreme Court observed as follows (p. 163):
“The amendment and the rules which came into operation later must, in view of the retrospective operation, be deemed to be then extant, and the fact that the Income-tax Officer could not in making the assessment have adjusted his approach to the problem before him in the light of those provisions is irrelevant in considering the legality of his order. The order of the Income-tax Officer which did not take note of the law deemed to be in force must be regarded as defective. The matter was brought before the Commissioner of Income-tax and it is unfortunate that the Commissioner, in considering the matter under section 33A, assumed that the Amending Act 25 of 1953 had no retrospective operation and rejected the claim of the assessee on the ground that at the date when the order of assessment was made, Act 25 of 1953 had not come into operation, and that the Act became effective as from December, 1953, when the rules were framed. In so holding, the Commissioner committed an error of law apparent on the face of the record.”
35. Mr. Pal urged that the decision of this court in General Electric Co. of India Ltd., [1978] 112 ITR 246 cited by Mr. Bajoria was decided on its special and peculiar facts and, therefore, had no application to this case. Mr. Pal contended that the theory of the possibility of two views on the interpretation of the relevant portion of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, could not be based on the decision of the Supreme Court in Cloth Traders (JP.) Ltd., [1979] 118 ITR 243, which dealt with ss. 85A and 80M of the I.T Act, 1961, which were differently worded. There were no two views on the date when the order of assessment was made by the ITO allowing the special rebate on the priority industry or on the date when he issued the notice under s. 154. The subsequent decision of the Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84 could not be left out of consideration in determining whether two views were possible or not. In support of his contention, Mr. Pal relied on a decision of this court in Amalgamated Coal Fields Ltd. v. CIT, [1979] 116 ITR 383. Here the ITO allowed interest to the assessee under s. 214 of the I.T Act, 1961, and also a refund on the ground that the assessee had computed and paid a larger sum as advance tax than that determined as payable by it in its regular assessment. Subsequently, the ITO passed an order under s. 154 of the I.T Act, 1961, reducing the amount refundable to the assessee and withdrew the said interest allowed on the ground of mistake apparent from the record. On these facts, a Division Bench of this court observed as follows (p. 386):
“The law is, however, well settled. The proceedings under s. 154 cannot be initiated if two opinions may conceivably be taken on the legal issue involved in it. Merely because the Chloride case, [1977] 106 ITR 38 (Cal) was decided subsequent to the appellate order of the Tribunal, it cannot be said that it must be left out of our consideration in determining this issue.
Further, the case of General Electric Co. of India Ltd., [1978] 112 ITR 246 (Cal) was decided on its special and peculiar facts and in our opinion the principles stated therein are not of universal application and do not apply to the instant case before us,”
36. We are unable to accept the contention of Mr. Bajoria that the subsequent decision of the Supreme Court in Cloth Traders (P.) Ltd., [1979] 118 ITR 243 has greatly shaken or impliedly overruled its earlier decision in Cambay Electric Supply, [1978] 113 ITR 84. We agree with Mr. Pal that the sections of the I.T Act, 1961, under consideration in the above two cases were different and the wordings thereof also were not strictly similar and the said sections were, therefore, differently interpreted by the Supreme Court. We are, however, unable to accept the contention of Mr. Pal that the principle of retrospective legislation is applicable to the decisions of the Supreme Court declaring the law or interpreting a provision in a statute. The law is laid down or a provision in, a statute is interpreted by the Supreme Court only when there is a debate or doubt on the interpretation of any provision; of a statute requiring interpertation by the Supreme Court or when there is a conflict of judicial opinion on a provision of a statute between the different High Courts of India which is required to be resolved and settled by the Supreme Court. The law laid down by the Supreme Court, in our opinion, cannot be said to have retrospective operation in the sense that although a debate or doubt or a conflict of judicial opinion is resolved and settled by the Supreme Court, yet still that does not obliterate the existence of such debate or doubt or conflict that existed prior to the decision of the Supreme Court setting at rest such debate or doubt or conflict.
37. In the affidavit-in-opposition filed in the court below affirmed by respondent No. 1 on the 2nd August, 1973, no case had been made out by respondent No. 1 that he misread the provisions of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, or that the development rebate was not deducted by him due to such misreading. We are, therefore, unable to accept the contention of Mr. Pal that respondent No. 1 misread the provisions of Para. F of Pt. I of the First Schedule to the Finance Act, 1965.
38. Apart from repeating the language of s. 154, respondent No. 1 has not also given any reason or explanation in his said affidavit, why he did not deduct the development rebate allowed in respect of Saurashtra Chemicals in computing the profits and gains attributable to its priority industry in granting the said special rebate.
39. It is not in dispute that s. 80E of the I.T Act, 1961, is in pari materia with Para. F of Pt. I of the First Schedule to the Finance Act, 1965, the correct interpretation whereof was laid down by the Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84 and, therefore, the profits and gains attributable to the business of manufacture or production of the articles or things specified in Part III of the First Schedule to the Finance Act, 1965, here, soda ash, which qualified for the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, could not be gross or commercial profits or gains but were the net or taxable profits or gains computed after allowing all allowable deductions and rebates including the development rebate but without allowing the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965. We are unable to accept the contention of Mr. Bajoria that the said profits or gains were the gross or commercial profits and not the net or taxable profits.
40. In view of the decision of the Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84, it cannot now be disputed any more that in computing the said profits and gains of Saurashtra Chemicals for allowing the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, the ITO was wrong in not deducting the development rebate allowed to Saurashtra Chemicals. Even though that was a mistake committed by the ITO but still the question remains whether that was a mistake apparent from the record rectifiable under s. 154 of the I.T Act, 1961. The answer to the question would depend on whether at the material time the question was a debatable one or for resolving the question it required investigation or elaborate arguments on facts or law.
41. The assessment year involved in this case is the assessment year 1966-67. The assessment of the appellant was completed by the ITO on or about the 27th February, 1970, and the notice under s. 154 of the I.T Act, 1961, which is undated was received by the appellant on or about the 5th May, 1972. In Cambay Electric Supply, [1976] 104 ITR 744 (Guj), the assessment year involved was 1967-68 one year later than the assessment year in the case before us. The ITO allowed deduction under s. 80E(1) of the I.T Act, 1961, on the profits and gains attributable to its priority industry without deducting the development rebate. The Addl. Commissioner revised the said order of the ITO and held that the deduction under s. 80E was allowable after setting off, inter alia, the development rebate. The Tribunal set aside the order of the Addl. Commissioner - and restored the order of the ITO holding that the development rebate was not deductible from the income for allowance of the deduction under s. 80E. On a reference; the Gujarat High Court upheld the view of the Addl. Commissioner and held that in allowing the deduction under s. 80E the taxable profit had to be computed and thus the development rebate allowable had to be deducted from the income. The Supreme Court affirmed the view of the Gujarat High Court. Thus, it is clear that there was some debate as to the interpretation of the provisions of s. 80E of the I.T Act, 1961, and there was divergence of views amongst the ITO, the Addl. Commissioner, the Tribunal and the High Court which ultimately had to be settled by the Supreme Court. Thus, it could not be said that on a plain reading of the section it was not possible to come to any other view or to give it any other meaning than that ultimately laid down by the Supreme Court. The case of Cambay Electric Supply, [1978] 113 ITR 84 clearly shows that there was a good deal of debate on the question of interpretation of s. 80E and different views were taken by the income-tax authorities, the Tribunal and also by the High Court. The Gujarat High Court itself at first took one view and delivered its judgment on the 11th December, 1976, holding that the carried forward development rebate was not to be deducted in allowing the deduction under s. 80E of the I.T Act, 1961, but, subsequently, it changed its view and recalling the said judgment delivered a fresh judgment on the 24th December, 1975, taking an entirely different and contrary view.
42. In the above facts and circumstances, we are unable to accept the contention of Mr. Pal that on a plain reading of the provisions of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, or s. 80E of the I.T Act, 1961, no two views were possible or that there were no two views either on the date of the order of assessment or on the date when the notice under s. 154 was issued by the ITO.
43. The appellant, therefore, succeeds in this appeal. The appeal is allowed and the decision of the court below is set aside. The notice under s. 154/155 of the I.T Act, 1961, for the assessment year 1965-66, issued by respondent No. 1 is quashed and the rule is made absolute.
44. On the view that we have taken it is not necessary for us to deal with the contention of Mr. Bajoria that if the subsequent decision of the Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84 enabled the ITO to rectify the mistake under the impugned notice under s. 154 of the I.T Act, 1961, the same would result in the enlargement of the period prescribed for such rectification under sub-s. (7) of s. 154 and the order of rectification would be in violation of the said sub-section. There will be no order as to costs.
R.M Datta, J.:— I agree.
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