COMMISSIONER OF Income Tax vs CALCUTTA STEEL CO. LTD.

AJIT K. SENGUPTA J. - In this reference u/s 256(2) of the Income Tax Act, 1961, for the assessment years 1963-64, 1964-65 and 1965-66, the following question of law has been referred to this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the mistake sought to be rectified by the Income Tax Officer was not a mistake apparent from record within the meaning of section 154 of the Income Tax Act, 1961 ?"

The facts are that the assessee - company which is engaged in the manufacture of steel rolling mills, started a new industry for the manufacture of hot rolled mill steel and high carbon wire rods in the previous year corresponding to the assessment year 1962-63. There was no profit from this new unit during that year. There were, however, profits in the assessment years under reference. The assessee, in the circumstances, made a claim u/s 84 of the Act. The Income Tax Officer computed the amount of profits in the respective years on which, according to him, the relief was allowable, at Rs. 3,10,331 for the assessment year 1963-64, Rs. 3,97,761 for the assessment year 1964-65 and RS. 5,61,146 for the assessment year 1965-66. In arriving at these figures, the Income Tax Officer had to compute the capital employed in the new industrial undertaking. While computing such capital, the value of uninstalled plant and machinery was included :

Subsequently, the Income Tax Officer thought that the above amount was not to be included in the computation of capital. He, accordingly, wrote a letter to the assessee on February 7, 1969, stating that the said uninstalled plant and machinery were not actually used in the business in the respective years and as such there did not exist any prima facie case for allowance of rebate under sections 84 and 101 of the Act on their values. By the above letter, he called upon the assessee to show cause why the rebate wrongly allowed should not be withdrawn.

The assessee objected to the proposed rectification but the Income Tax Officer passed three different orders for. the above three years on July 18, 1969, by which he recomputed the capital employed in the newly established industrial undertaking excluding the value of the uninstalled machinery and withdrew the rebate u/s 84 of the Act on such excluded amounts.

The assessee appealed to the Appellate Assistant Commissioner. The first contention before him was that the provisions of section 154 were not applicable to the facts of the assessees case. The next contention of the assessee before him was that even if it were held that the provisions of section 154 were applicable, no rectification was called for on the merits of the case and the value of the uninstalled plant and machinery had to be included in the capital employed by the new industrial undertaking. The Appellate Assistant Commissioner rejected both these contentions and confirmed the Income Tax Officers orders on the above points.

The assessee came in appeal to the Tribunal. Learned counsel for the assessee made before the Tribunal the same submissions which were made by him before the Appellate Assistant Commissioner.. The Tribunal held that it was difficult to accept that the provisions of section 154 of the Act could be applied to the case of the assessee. According to the Tribunal, on an interpretation of the provisions, two conceivable opinions were possible and accordingly it cannot be a case u/s 154 of the Act. Thus, the Tribunal allowed the appeal of the assessee.

The question before us is whether, on these facts, the Tribunal was right in holding that there was no mistake apparent from the record to be rectified u/s 154 of the Act. It is now well-settled that the jurisdiction of the Income Tax Officer to make an order of rectification depends upon the existence of a mistake apparent on the face of the record. Such a mistake must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law cannot be a mistake apparent from the record. The question whether the machinery which was not used in the business could or could not be included in the computation of capital would depend on the interpretation of section 84 (1) of the Income Tax Act and rule 19 (1) of the Income Tax Rules, 1962. If the determination of the mistake depends on the interpretation of the provisions of the Act, it cannot be a mistake apparent from the record. Before the Tribunal, the assessee and the departmental representative made elaborate arguments on the interpretation and scope and effect of the said provisions of the Act and the Rules as to whether the value of the uninstalled machinery should be included in the computation of the capital or not. In such a case, there cannot be any mistake apparent from the record and the Tribunal was justified in allowing the appeal of the assessee. In any event, it must be observed that even on merits, the question has been decided in favour of the assessee. In other words the Income Tax Officer, in the original assessment, rightly included the value of the uninstalled and unsecured plant and machinery In Commissioner of Income Tax Vs. Indian Oxygen Ltd., , this court has held that whether an asset is used or not, it will still be included in the capital employed in the business.

For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee.

There will be no order as to costs.

K. M. YUSUF J. - I agree.