Commissioner of Income Tax vs V. Ramakrishna Sons Ltd. <BR>V. Ramakrishna Sons Ltd. Vs Commissioner of Income Tax

R. Jayasimha Babu, J.—These references relate to the assessment year 1974-75. References have been made at the instance of the

Revenue and also at the instance of the assessee.

The questions referred at the instance of the Department are :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the order passed by the Income Tax

Officer u/s 154(1A) on November 3, 1978, to rectify the mistake in the calculation of additional Income Tax u/s 104 ?

Whether the Appellate Tribunal''s view that there was merger of the order of the Income Tax Officer passed u/s 104 with the order of the

Appellate Assistant Commissioner and, therefore, no rectification u/s 154 was possible is sustainable in law especially when the points on which

the appeal preferred and the rectification made are entirely different ?

The questions referred at the instance of the assessee are :

Whether the Income Tax Appellate Tribunal is right in holding that the order of the Income Tax Officer under Sections 154 and 155(7) of the

Income Tax Act did not require the approval of the Inspecting Assistant Commissioner of Income Tax ?

Whether the Income Tax Appellate Tribunal was right in holding that the Income Tax Officer in his order made under Sub-section (7) of Section

155 of the Income Tax Act, could rectify a mistake made in the original order, which had nothing to do with any subsequent proceedings under the

Act ?

The assessee, V. Ramakrishna Sons Ltd., is a company in which the public are not substantially interested. Its distributable income for the

assessment year 1974-75 was higher than the amount actually distributed. The Income Tax Officer therefore initiated proceedings u/s 104 of the

Income Tax Act and levied additional tax of Rs. 3,20,171 on March 25, 1977. In that order, the Income Tax Officer had calculated the tax on

only 90 per cent. instead of 100 per cent. of the distributable income. In appeal at the instance of the assessee that order was affirmed on

December 31, 1977, by the Appellate Assistant Commissioner. Subsequently, the Income Tax Officer discovered his mistake in calculation and

issued a notice to the assessee u/s 154 of the Act proposing to correct the mistake in the assessment order made on March 25, 1977. The

assessee objected and claimed that the order of the Income Tax Officer had merged in the order in appeal. Overruling that objection, a

rectification order was passed on November 3, 1978, and additional tax of Rs. 45,467 was demanded. The assessee''s appeal to the

Commissioner against that order was rejected on March 11, 1980, on the ground that that part of the assessment order which was rectified had

not been the subject-matter of the earlier appeal to the Appellate Assistant Commissioner. The Tribunal on further appeal accepted the assessee''s

arguments and set aside the rectification order dated November 3, 1978.

On March 10, 1979, the Income Tax Officer in exercise of his powers u/s 155(7) of the Act revised the assessment order u/s 104 originally

passed on March 25, 1977, as rectified on November 3, 1978, in view of the fact that the principal assessment order on the company''s income

for the year had been revised on March 10, 1978, and that order necessitated an upward revision of the amount of distributable income. The

amount of distributable profit as revised was Rs. 10,90,649 as against the sum of Rs. 9,89,275 shown in the rectified order dated November 3,

1978. The assessee did not dispute the correctness of the figure of Rs. 10,90,649. Nevertheless, the assessee appealed to the Commissioner on

the ground that a second rectification was impermissible. That appeal was rejected and the rejection affirmed in further appeal by the Tribunal.

The question raised at the instance of the Revenue would arise for consideration only if the first order of rectification made by the Income Tax

Officer on November 5, 1978, is required to be considered. That order stood superseded by the further order made by the Income Tax Officer

on March 10, 1979, u/s 155(7) of the Income Tax Act, which order for the reasons which we will presently set out, is a lawful order. As to

whether the earlier order of rectification is or is not valid, in the circumstances of the case, is a question which does not require any further

consideration. We do not deem it necessary to consider those questions referred to us at the instance of the Revenue, and decline to answer the

same.

As regards the questions referred at the instance of the assessee, the questions have to be answered against the assessee, and in favour of the

Department. Section 155(7) of the Act reads as under :

Section 155(7): Where, as a result of any proceeding under this Act, in the assessment for any year, of a company in whose case an order u/s

104, has been made for that year, it is necessary to recompute the distributable income of that company, the Income Tax Officer may proceed to

recompute the distributable income and determine the tax payable on the basis of such recomputation and make the necessary amendment, and the

provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being

reckoned from the date of the final order passed in the case of the company in respect of that proceeding.

The approval of the Inspecting Assistant Commissioner is required only for the proposal to levy the additional tax u/s 104 of the Income Tax

Act and not for the rectification u/s 155(7) of the order made after seeking such approval. We cannot read into Section 155(7) of the Income Tax

Act any additional requirements which are not stipulated therein. The legislative intention was clearly that before proposing to levy the additional

tax, the responsible senior officer, who is empowered to do so, should apply his mind as to whether the proposal to levy additional tax be

proceeded with. After an order u/s 104 has been properly made, corrections of errors which may have crept in that order, would not require the

approval of the Inspecting Assistant Commissioner. Moreover, the order to be made u/s 155(7) is only a consequential order, the recomputation

having become necessary by reason of any other proceeding under the Act. We must also observe here that the second question referred to us is

wrongly worded as the reference made to subsequent proceedings in that question is wholly inapposite. The rectification u/s 104 of the Income

Tax Act had admittedly become necessary by reason of the original order of assessment having been rectified. The second question is, therefore,

reframed by omitting the words, ""which had nothing to do with any subsequent proceedings under the Act.

We, therefore, hold that the order passed u/s 155(7) of the Income Tax Act is not one which requires approval of the Inspecting Assistant

Commissioner. The Revenue shall be entitled to costs in the sum of Rs. 1,500 (rupees one thousand and five hundred only).