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Lala Rajeshwar Pershad v. Income Tax Officer, A Ward, Ambala Cantt., And Another
Concise Analytical Summary of the Opinion
Factual and Procedural Background
This is a petition under article 226 of the Constitution challenging an order dated 19/21 March 1955 made by the Income‑tax Officer, "A" Ward, Ambala Cantt., under section 35 of the Income‑tax Act in respect of the petitioner’s assessment for the year 1945‑46.
The original assessment was made on 28 June 1949, assessing the petitioner's total income at Rs. 1,85,236. That assessment included an item of Rs. 85,957 described as salary/commission/bonus etc., of which Rs. 37,007 had been taken into account for rate purposes only (i.e., not for tax computation). By the March 1955 order under section 35 the amount treated as being for rate purposes only was reduced from Rs. 37,007 to Rs. 21,000, thereby effectively causing part of that sum (Rs. 18,507) to be treated for computation of tax.
On 21 March 1955 the Income‑tax Officer demanded payment of Rs. 13,596-2-0 (after adjustments). The petitioner paid Rs. 7,500 and did not pay the remaining Rs. 6,096-2-0. A further demand was made on 18 April 1955. The petitioner submitted an application on 30 May 1955 contesting the legality of the March 1955 order. Paragraph 12 of the petition avers that the Income‑tax Officer did not act on that application, threatened recovery, and levied a penalty of Rs. 600 under section 46(1) for default. The present petition was filed in July 1958.
Legal Issues Presented
- Whether the rectification made by the Income‑tax Officer under section 35 on 19/21 March 1955 was within the four‑year period prescribed by section 35 (i.e., whether the Officer had jurisdiction to rectify the 28 June 1949 assessment in March 1955).
- Whether the proviso to section 35(1) required the Income‑tax Officer to give notice and an opportunity to be heard before making a rectification which had the effect of enhancing assessment (or reducing refund) as applied to the alteration of the Rs. 37,007 item.
- Whether the petition should be dismissed as barred by delay and laches given the time gap between the impugned order (March 1955), the petitioner’s application (May 1955), and the filing of the petition (July 1958).
Arguments of the Parties
Petitioner's Arguments
- The March 1955 order reduced the amount on which tax was not to be computed from Rs. 37,007 to Rs. 21,000, thereby increasing the tax payable by the petitioner; this was done without any notice as required by section 35 and was therefore unlawful.
- The rectification was made beyond the permissible period of four years from the date of the original assessment order (28 June 1949) and thus was outside the Income‑tax Officer's jurisdiction.
- The order under section 35 was not a permissible “rectification of a mistake apparent from the record” within the meaning of section 35.
Respondents' Arguments
- No notice was necessary under section 35 because the net result of the revision made in March 1955 was a decrease in the total tax liability of the petitioner.
- The petition is belated and should be dismissed on the ground of delay and laches.
- The Income‑tax Officer's rectification was required because adjustments in related assessments (including appeals by R. B. Benarsi Dass & Co. and reductions in share incomes from registered firms) produced necessary changes in the petitioner’s assessment; figures supplied show an overall reduction in demand after the rectification.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Arvind N. Mafatlal v. Income‑tax Officer, North Satara | That in determining whether there is an "error apparent from the record" under section 35, the "record" is not confined to the assessee's assessment order but includes all proceedings which constitute evidence on which the assessment order is passed. | The court relied on this authority to accept that rectification under section 35 may properly take account of other proceedings (for example, appeals by the company) which formed part of the record on which the assessment was based. |
| Sidhramappa Andannappa Manvi v. Commissioner of Income‑tax | The power to rectify under section 35 can be exercised to pass all consequential orders once a mistake is corrected. | The court cited this case to support the view that rectification may extend to consequential matters arising from the correction of an apparent error. |
| Kangas, Law and Practice of Income‑tax (Vol. 1, p.716) | The treatise states that "record" includes assessment order and all proceedings/materials on which the assessment is based, and that the power under section 35 is not confined to mere rectification but extends to consequential orders. | The court used this statement to reinforce the interpretation that rectification may be based on broader record materials and may include consequential adjustments. |
| Himmatlal Harilal Mehta v. State of Madhya Pradesh | That imposition of tax without authority of law and the threat to use coercive machinery to recover it can constitute an infringement of fundamental rights (article 19(1)(g)) and justify relief under article 226. | The court relied on this precedent to justify permitting the petition despite delay, because the petitioner faced an active threat of coercive recovery and potential penal consequences. |
Court's Reasoning and Analysis
The court approached the case by addressing (a) the scope and temporal limits of the power of rectification under section 35, (b) whether notice under the proviso to section 35(1) was required in the circumstances, and (c) whether delay/laches barred the petition.
1. Interpretation of the four‑year period under section 35:
Section 35(1) differentiates between (i) orders passed "in appeal or revision" by the Commissioner or Appellate Assistant Commissioner and (ii) assessment or refund orders passed by the Income‑tax Officer. The court held that the Income‑tax Officer's rectifying power applies to his own assessment or refund orders and the four‑year period for the Officer must be computed from the date of the assessment order passed by him. There is nothing in the statute to permit an Income‑tax Officer to rectify mistakes in orders made by the Appellate Assistant Commissioner. In this case the assessment order was dated 28 June 1949 and the rectification was made in March 1955, which is beyond four years; therefore the Income‑tax Officer lacked jurisdiction to make that rectification in March 1955.
2. Requirement of notice under the proviso to section 35(1):
The proviso requires notice and a reasonable opportunity to be heard where a rectification would enhance an assessment or reduce a refund. The respondents urged that the overall effect of the March 1955 revision was a net decrease in the petitioner's assessment and therefore no notice was necessary. The court rejected a purely net‑result approach when an individual item was altered in a manner prejudicial to the assessee without notice. Specifically, the court found the alteration of the Rs. 37,007 item (which had earlier been treated for rate purposes only) to be prejudicial to the petitioner: if he had not obtained certain reductions by way of appeals in other proceedings, the altered treatment of that item would have increased his assessment. Therefore the proviso applied and the petitioner was entitled to be given notice and an opportunity to be heard before that item was changed for purposes of computation of tax.
3. Delay/Laches:
The court considered the chronology: the Income‑tax Officer made demand on 18 April 1955; the petitioner applied on 30 May 1955 pointing out illegality; the Officer took no steps thereafter; threatened action to recover arrears in June 1958 prompted filing of this petition in July 1958. The court found the explanation for delay plausible and observed that the petitioner was under a continuing threat of coercive recovery and penal consequences. Citing Himmatlal Harilal Mehta, the court held that an unlawful imposition and a threat to use coercive machinery can infringe fundamental rights and justify relief under article 226 despite delay. Accordingly the petition was not barred by laches.
4. Use of precedents and treatise:
The court relied on Arvind N. Mafatlal and the treatise by Kangas to accept that "record" for section 35 purposes includes materials and proceedings beyond the assessment order itself, and on Sidhramappa to accept that consequential orders may be passed in the exercise of rectification power. However, after applying the statutory wording and temporal limits, the court concluded that the Income‑tax Officer could not validly exercise rectification jurisdiction in March 1955 because the action was taken after the four‑year period applicable to the assessment order.
Holding and Implications
Holding: For the reasons stated, the petition is allowed and the order of the Income‑tax Officer dated 19th/21st March, 1955 is hereby quashed.
Implications:
- The immediate effect is that the specific rectification made by the Income‑tax Officer on 19/21 March 1955 (as challenged) is set aside; the petitioner succeeds on his challenge to that order.
- The court directed that the parties are to bear their own costs in this court.
- The court did not purport to create a new legal precedent; it applied existing authorities and statutory interpretation to the facts before it. The opinion interprets the temporal scope of the Income‑tax Officer's power under section 35 and confirms the application of the proviso requiring notice where a rectification affects an assessee prejudicially, but it does not record an express declaration of a new principle beyond these applications to the facts stated.
Petition allowed. Order quashed. Costs: parties to bear their own costs.
- This is a petition under article 226 of the Constitution impugning an order made by the Income-tax Officer, "A" Ward, Ambala Cantt., on 19/21st March, 1955, under section 35 of the Income-tax Act with regard to the assessment of the petitioner for the assessment year 1945-46.
The assessment order with regard to the petitioners income for the aforesaid year was originally made on 28th June, 1949, when his income was assessed at a figure of Rs. 1,85,236. One of the items which had been taken into account was of Rs. 85,957 which included the petitioners income from salary, bonus etc. In this amount, Rs. 37,007 had been included for the purposes of rate only. No tax, however, was payable on the aforesaid amount of Rs. 37,007 as the same had been assessed in the hands of the company after the petitioner had withdrawn the pay etc. Later on the order which is being challenged was made in March, 1955, and the result of that order was that the amount of Rs. 37,007 on which tax not be computed was reduced to Rs. 21,000. The case of the petitioner is that this resulted in an increase of the tax levied on him and, as he was not served with any notice to show cause why such an order should not be made, it merited quashing. On 21st March, 1955, the Income-tax Officer wrote to the petitioner demanding payment of a sum of Rs. 13,596-2-0 after making adjustments for other years. The petitioner deposited only Rs. 7,500 which were due according to him, but did not deposit the balance of Rs. 6,096-2-0. On the 18th April, 1955, the Income-tax Officer made a demand for the said amount and on 30th May, 1955, the petitioner submitted an application to the Income-tax Officer clarifying the whole position and pointing out the illegality committed by him while making the order in March, 1955. It is alleged in paragraph 12 of the petition that the Income-tax Officer did not take any action on the petitioners application but has now threatened to recover the amount in question from the petitioner and that a penalty of Rs. 600 had been levied under section 46(1) of the Income-tax Act for the petitioners default in making the aforesaid payment. The present petition was filed in July, 1958.
The case of the respondents is that no notice was necessary under section 35 of the Act as the net result of the order made in March, 1955, was a decrease in the amount of tax levied on the petitioner and that the petition is very much belated and merits dismissal on that ground as well. Now the facts according to paragraph 2 of the written statement are these :
"That the facts stated in paragraph 2 of the petition are admitted to the extent that the Income-tax Officer had, vide his order dated the 28th June, 1949, computed the total income of the petitioner for the assessment year 1945-46 at a figure of Rs. 1,85,236 and not at Rs. 1,83,236 as stated in the petition. In this total income amounting to Rs. 1,85,236 the following items, besides others, were included :
A.
Share from registered firms.
(i) N.W.R. Purchasing Agency, Ambala (registered firm) Rs. 9,065
(ii) Central Purchasing Agency, Ambala (registered firm) Rs. 33,952 B.
Under the head Salary:
The details of figure of salary are as under :
Rs. 85,957
(a) Salary from R. B. Benarsi Dass & Company Ltd. (for tax and rate purposes).
Rs. 14,770
(b) Commission (styled as remuneration by the Income-tax Officer from R. B. Benarsi Dass & Co. Ltd. for tax and rate) Rs. 34,180
(c) Salary from R. B.Benarsi Dass & Company Ltd. (for rate purposes only) Rs. 12,730
(d) Directors commission from R. B. Benarsi Dass & Company Ltd. (for rate purposes only).
Rs. 9,277
(e) Bonus from R. B. Benarsi Dass & Co. taking (for rate purposes).
Rs. 15,000 Total :
Rs. 85,957"
The figure at (c), (d) and (e) amounting to Rs. 37,007 were taken for purposes of rate only. R. B. Benarsi Dass & Company Ltd. had also filed an appeal before the Tribunal in its own assessment, the result of which was that it was allowed the payment of commission of Rs. 9,277 as also the payment of salary of Rs. 9,230. Thus, that company got a reduction of tax on a sum of Rs. 18,507. This meant that in the assessment of the petitioner a sum of Rs. 18,500 out of Rs. 37,007 only could have been taken for the purposes of rate and the balance amount of Rs. 18,507 had to be taken into account both for the purposes of rate and computation of tax. This the Income-tax Officer had failed to do and, according to the respondents, he rectified that mistake under section 35 in March, 1955. There were some other appeals which had been filed by N.W. Railway Purchasing Agency and the Central Purchasing Agency, and the share income of the petitioner was consequently reduced to Rs. 6,129 and to Rs. 19,557 respectively from Rs. 9,065 and Rs. 33,952 as taken into account in the original assessment. The petitioner was given the benefit of these reductions. Thus, his total income was reduced to Rs. 1,67,905 and the figure of salary etc., remained at Rs. 85,957, out of which the amount considered for rate purposes was reduced to Rs. 21,000 only. On the whole, therefore, by the revision made under section 35 in March, 1955, the petitioners assessment was reduced and not increased. The learned Advocate-General, who appears on behalf of the respondents, has filed a statement giving the figures of the various assessments which are as follows :
1. Demand as per original assessment order dated 28th June, 1949.
Rs. 84,356-7-0
2. Demand as revised under section 31 dated 4th April, 1951.
Rs. 76,774-2-0
3. Demand as revised under section 35 dated 19th March, 1955.
Rs. 69,903-14-0
4. Refund allowed under section 35 dated 19th March, 1955.
Rs. 6,871-1-0 According to him the net result was that the assessee after rectification under section 35 got a relief to the extent of Rs. 6,871-1-0.
The learned counsel for the petitioner does not challenge the correctness of the figures or other facts stated above, but his contention is that he was entitled as of right to the benefit which was given to him with regard to the share from the N.W. Railway Purchasing Agency and the Central Purchasing Agency, because of other proceedings by way of appeals etc., but that when the item of Rs. 37,007, which was included for purposes of rate only, was reduced to Rs. 21,000 that was bound to lead to an increase n the assessment of the income-tax, as admittedly in the original order the entire sum of Rs. 37,007 was taken into consideration for purposes of rate only and later on when the order was made in March, 1955, a sum of Rs. 18,507 out of that amount was added for consideration both for purposes of rate and computation of tax. This was done without any notice which was mandatory under the provisions of section 35. It is further contended that the order made under section 35 in March, 1955, was beyond the period of four years from the date of the original assessment order and that was not possible under the statutory provisions. A further question has been raised whether the impugned order could be regarded to be one of rectification of a mistake at all within the meaning of that expression as employed in section 35 of the Act. There does not appear to be much difficulty so far as the last point is concerned. In Arvind N. Mafatlal v. Income-tax Officer, North Satara, it has been held that in ascertaining whether there is an error apparent from the record, the Income-tax Officer need not confine himself to the order of assessment of the assessee alone. All proceedings which constitute evidence on which the assessment order is passed must be regarded as record for the purposes of section 35. In Sidhramappa Andannappa Manvi v. Commissioner of Income-tax, it was laid down that the power to rectify under section 35 could be exercised to pass all consequential orders as well after the mistake is corrected. In Kangas Law and Practice of Income-tax, Volume 1, at page 716, it is stated that the "record" consists not merely of the assessment order but includes all proceedings and materials on which the assessment is based, and that the power conferred by section 35 is not confined to mere rectification of the mistake apparent from the record but extends to passing all consequential orders. It appears to me that if as a result of the appeal preferred by Benarsi Dass & Company a rectification became necessary in the assessment of the petitioner, it was open to the Income-tax Officer to do the same under section 35, but that could be done only within the periods prescribed, and this brings me to the other point that has been raised, namely, that the Income-tax Officer had no jurisdiction to make any rectification after a lapse of four years from the date when the original order of assessment was made. In this connection reference may be made to the provisions of section 35 of the Act which are as follows :
"35. (1) The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under section 33A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee :
Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard."
The contention of the learned Advocate-General is that the period of four years in the present case should be computed from 4th April, 1951, when an order was made by the Appellate Assistant Commissioner with regard to the assessment of the petitioner for the year 1945-46. This order was made in an appeal preferred against the order of the Income-tax Officer dated 28th June, 1949. The language employed makes a clear distinction between the order passed in appeal or revision by the Appellate Assistant Commissioner or Commissioner, and an assessment order or refund order passed by the Income-tax Officer in exercise of his jurisdiction. There is no indication whatsoever in the statute to show that an Income-tax Officer can rectify a mistake or error in the order made in appeal by the Appellate Assistant Commissioner or the Commissioner. The power of rectification has been given to each of these authorities with regard to their own orders, and, therefore, the period of four years has to be calculated from the date of the assessment order in the present case. That order was made on 28th June, 1949, and the order under section 35 having been made in March, 1955, it was clearly beyond the period of four years as prescribed by the statute.
The next question that has to be examined is whether any notice was necessary for the purpose of making a rectification in the present case. The proviso to section 35(1) makes an express provision for such notice if the effect of the rectification is one of enhancement of the assessment or reduction of the refund. The assessee has also to be given a reasonable opportunity of being heard. This provision is in consonance with the principles of natural justice as well. The submission of the learned Advocate-General is that the effect on the assessment has to be seen as a whole and not with regard to each item. That, however, cannot mean that if the assessee is entitled to the benefit of reduction as a result of certain other proceedings before the appellate authorities and by giving him reduction as the authorities are bound to do with regard to those items, some other item can be increased and the amount raised simply because the net result after final calculation is going to be a reduction in the total figure of assessment. So far as the item of Rs. 37,007 was concerned, the petitioner was certainly prejudicially affected by the absence of notice as that figure was altered for purposes of rate and, if the petitioner had not been given the benefit of certain reductions made in other proceedings, his assessment would have been increased and not decreased. I consider, therefore, that the proviso was applicable and that the petitioner was entitled to a notice.
Lastly, the contention of the learned Advocate-General with regard to the effect of delay and laches has to be examined. It is true that the impugned order was made in March, 1955, but as stated before when the Income-tax Officer made a demand on 18th April, 1955, the petitioner submitted an application on 30th May, 1955, pointing out the illegal nature of the impugned order. Thereafter, the Income-tax Officer took no further steps for the realisation of the aforesaid amount and it is contended on behalf of the petitioner that he was under the impression that his objection had been accepted, but when action had been threatened for realisation of arrears in June, 1958, the present petition was filed. The reason suggested for not filing the petition earlier appears to be plausible. Even otherwise the petitioner is under a threat of being subjected to the penal and other consequences provided by the statute if he does not satisfy the aforesaid demand. I do not consider that in these circumstances the present petition can be dismissed simply on the ground that the impugned order was made in the year 1955 and the petition was filed much later. In Himmatlal Harilal Mehta v. State of Madhya Pradesh, it was observed that the imposition of sales tax on the appellant in that case was without authority of law, and that being so a threat by the State by using the coercive machinery of the impugned Act to realise it from the appellant was a sufficient infringement of his fundamental right under article 19(1)(g), and the appellant was clearly entitled to relief under article 226 of the Constitution.
For the reasons stated above, this petition is allowed and the order of the Income-tax Officer, dated 19th/21st March, 1955, is hereby quashed. Considering all the circumstances of the case, I leave the parties to bear their own costs in this court.
Petition allowed.
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