Cit vs Wajid Sons (P) Ltd.

ORDER R.K. Agrawal, J.

The Income Tax Appellate Tribunal, Delhi has referred the following questions of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this court :-

"Whether on the facts and in the circumstances of the case, the Tribunal has been correct in law in upholding the Commissioner (Appeals) order directing accepting of the assessee's request made under section 154 of the Income Tax Act, 1961 that it was an industrial undertaking and the mistake of its being treated as non-industrial one, was apparent on the face of the record in respect of assessment years 1972-73 to 1975-76?"

2. Briefly stated, the facts giving rise to the present reference are as follows:-

The reference relates to the assessment years 1972-73 to 1975-76. The respondent is a private limited company. The original assessments were completed and revised in respect of all the, four assessment years, whereunder the rate of tax of 65% plus surcharge was applied. The respondent moved separate applications dated 16-4-1981 seeking rectification of the assessment orders on the ground that the rate of tax should be 55% plus surcharge as it was an industrial company. In the return filed by the respondent it had mentioned at page 2 of Part I that it was a trading company. Before the Income Tax Officer, the respondent took a stand that it was the duty of the assessing officer to allow statutory benefits and there was no question of taking advantage of its ignorance as to its rights. The Income Tax Officer, however, rejected the applications under section 154 of the Act and declined to treat the respondent as an industrial company in view of its own stand vis-à-vis the return filed. Feeling aggrieved by the orders, the respondent preferred separate appeals before the Commissioner (Appeals) who had allowed the appeals by observing that the capacity in which the respondent was to be assessed and the rate which was to be properly applied, was not dependent upon the description given in the return by it but really depended upon the correct nature of its operation. He further held that it is clear that in this case the respondent has been treated as an industrial company by the Appellate Authority and, in fact, in the assessment order for the assessment year 1978-79, which was passed by the Income Tax Officer on 24-1-1979, the Income Tax Officer has himself treated the company as an industrial company and, in these circumstances, when a request was made by the respondent, the Income Tax Officer should have rectified the assessment and applied the correct rate and he cannot reject the application merely on the ground that in the return the respondent itself has not claimed the correct status. The Income Tax Officer was consequently directed to tax the company on the basis of that it was an industrial company. Feeling aggrieved by the aforementioned order, the department preferred separate appeals before the Income Tax Appellate Tribunal. The Tribunal has upheld the order of the Commissioner (Appeals). It has taken into consideration the fact that in respect of the assessment year 1978-79 the Income Tax Officer himself had treated the respondent as an industrial company and in respect of the assessment year 1979-80, the order dismissing the revenue's appeal wherein it has been treated as an industrial undertaking, has been accepted by the department and no reference had been sought. It has also taken into consideration the fact that in respect of the assessment year 1977-78 the Income Tax Officer ,himself, vide order dated 4-9-1980, had modified the tax payable by the respondent @ 55% treating it to be an industrial company under section 154 of the Act.

3. We have heard Sri A.N. Mahajan, learned Standing counsel for the revenue, and Sri Vikram Gulati, learned counsel appearing for the respondent.

4. The learned counsel for the revenue submitted that the respondent itself had declared it to be a trading company in its return and, therefore, there was no mistake apparent on the record which could have been rectified under section 154 of the Act. The Tribunal has committed a manifest error of law in upholding the order of the Commissioner (Appeals) for treating the respondent as an industrial company by relying upon the orders passed by the Income Tax Officer for the assessment years 1977-78 and 1978-79. In support of his aforesaid submissions, he has relied upon the following decisions:

(i) T. S. Balaram, ITO v. Volkart Bros. ( 1971) 82 ITR 50 (SC); and

(ii) CIT v. Hero Cycles (P) Ltd. (1997) 228 ITR 463 (SC).

5. The learned counsel for the respondent, on the other hand, submitted that the respondent was an industrial company as it was engaged in the manufacture, sale and export of brass art wares, a fact which is not being disputed by the revenue. According to him, the Income Tax Officer himself has treated the respondent as an industrial company during the assessment year 1978-79 and had also rectified the mistake under section 154 of the Act in respect of the assessment year 1977-78 by treating it as an industrial company. In respect of the assessment year 1979-80, the Tribunal has also held the respondent to be an industrial company. He submitted that the respondent ought to have granted the benefit of lower rate of tax if the same was admissible and merely because a mistake was committed by the respondent in not staking a claim, the benefit should not have been denied. He relied upon a circular issued by the Central Board of Direct Taxes dated 11-4-1955 to the effect that where an assessee was entitled to certain relief, it should not be denied merely because of the assessee's ignorance. In support of the aforesaid submissions, he has relied upon the following decisions :-

(i) Navnit Lal C. Javeri v. K.K. Sen, AAC (1965) 56 ITR I98 (SC);

(ii) Ellerman Lines Ltd. v. CIT (1971) 82 ITR 913 (SC); and (iii Addl. CIT v. District Co-operative Bank Ltd. (1979) 119 ITR 142 (All).

6. Having heard the learned counsel for the parties, we find that it is not in dispute that in the return filed by the respondent it had mentioned that it was a trading company. The assessment proceeded on that basis and a higher rate of tax of 65% plus surcharge which was applicable to a company in which the public are not substantially interested and is not an industrial company, was applied. We also find that the Income Tax Officer in respect of the assessment year 1978-79 it treated the respondent as an industrial company and in respect of the assessment year 1977-78 he had allowed the application filed by the respondent under section 154 of the Act and had treated the respondent as an industrial company. It is not clear as to whether in respect of the assessment year 1978-79 the respondent had declared itself as an industrial company in the return of income or not. Moreover, merely because the Income Tax Officer had allowed the application under section 154 of the Act in respect of the assessment year 1977-78 and thereby treated the respondent as an industrial company, would not lead to the conclusion that a mistake apparent on the record has necessarily crept in the assessment orders for the assessment years in question liable to be rectified under section 154 of the Act. The proceeding under section 154 of the Act can be taken only when there is a mistake apparent on the record otherwise not. It may be mentioned here that each year of assessment is an independent unit and the orders passed in the sub-sequent assessment year cannot and should not form the basis for taking recourse to the proceeding under section 154 of the Act.

7. In the case of Volkart Bros. (supra) the Apex Court has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning on the point on which there may be conceivably two notions and a decision on the debatable point of law is not a mistake apparent from the record. In the aforesaid case, the facts were that the original assessment of Volkart Brothers, a firm duly registered under the Act, were made on the slab rate prescribed under the respective Finance Act applicable to registered firm. In the individual assessment of the partners of the firm, their respective shares were included and the tax was assessed at the maximum rate since the partners were assessed as Non-Resident. The Income Tax Officer initiated the proceeding under section 154 of the Act as there was a mistake apparent on the record inasmuch as the firm had not been charged at the maximum rate of tax under section 17(1) of the Indian Income Tax Act, 1922. The Income Tax Officer rectified the assessment by applying the provisions of that section. On these facts, the Apex Court has held that the question whether sections 17(1) and 22 of the Indian Income Tax Act, 1922 was applicable to the case of the firm was not free from doubt and it was not open to the Income Tax Officer to go into the true scope of the provisions of the Act in a rectification proceeding under section 154 of the Act and the Income Tax Officer was wrong in holding that there was a mistake apparent from the record of assessment of the firm.

8. In the case of Hero Cycles (P) Ltd. (supra) the Apex Court has held that the rectification under section 154 of the Act can only be made when a glaring mistake of fact or law committed by the officer while passing the order, becomes apparent. The rectification is not possible if the question is debatable. Moreover, a point which was not examined on facts or in law cannot be dealt with as a mistake apparent from the record and where the dispute raised is a mixed question of fact and law, the mistake cannot be said to be a mistake apparent on the record.

9. In order to determine as to whether the mistake was apparent on the record or not, we have to see as to whether the respondent can be said to be an industrial company or not. The lower rate of tax has been prescribed for the assessment years in question in respect of an industrial company by the respective Finance Acts. In the Finance Act, which were applicable to assessment years in question, the definition of industrial company has been given as follows:

"industrial company' means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining.

ExplanationFor the purposes of this clause, a company shall be deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining, if the income attributable to any one or more of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VIA of the Income Tax Act) is not less than fifty-one per cent of such total income;"

10. It necessarily involves determination of the question as to whether the respondent is engaged in the manufacture and processing of goods or not and further whether the income attributable to any one or more of the activities included in its total income of previous years as computed before making any deduction under Chapter VIA of the Act is not less than 51% of such total income. These are all facts which have to be determined before a company can be said to be an industrial company. The necessary details may or may not be available on record and merely because the respondent had claimed itself to be a trading company under some mistake, would not ipso facto mean that it is an industrial company. If there are material available on record in respect of each assessment year that the respondent is engaged in the business of manufacturing and processing of goods and its income not less than 51% before deduction under Chapter VIA of the Act is attributable to such manufacturing or processing activities, it would be an industrial company.

11. In the case of Anchor Pressings (P) Ltd. v. CIT (1986) 161 ITR 159, the Apex Court has held that an obligation is imposed on the Income Tax Officer by section 84 of the Act to grant relief thereunder and it could not be refused merely because the assessee had omitted to claim the relief. But mere existence of such an obligation on the Income Tax Officer is not sufficient. Before the Income Tax Officer can grant relief, there must be clear data in the assessment record sufficient to enable him to consider whether the relief should be granted under section 84 of the Act and if there is no such material, no fault can be found with the Income Tax Officer for not making an order under section 84 favouring the assessee. The Apex Court has further held that the jurisdiction under section 154 of the Act to rectify the mistakes is wider than that provided under rule 1 of order XLVII of the Code of Civil Procedure, 1908. Nonetheless, there must be material to support the claim to relief under section 84 and unless such material can be referred to, no grievance can be made if the Income Tax Officer refuses relief.

12. From the perusal of the order of the Commissioner (Appeals) as well as the Tribunal, we find that none of them have addressed themselves on the question as to whether there was sufficient material and evidence on record to hold that the respondent was an industrial company or not. They have held that the respondent as an industrial company simply on the basis that the Income Tax Officer had for the subsequent assessment year himself rectified the order under section 154 of the Act and in another assessment year he had treated the respondent-company to be an industrial company. In our opinion, that was not sufficient to allow the application under section 154 of the Act and to hold that there was a mistake apparent on the record. The principle laid down by the Apex Court in the case of Anchor Pressings (P) Ltd. (supra) is applicable in the present case. In this view of the matter, we are of the considered opinion that the Tribunal was not correct in upholding the order of the Commissioner (Appeals) directing to accept the request of the respondent made under section 154 of the Act. The Tribunal ought to have considered the matter from the point as to whether from the material available on record in each of the assessment year the respondent-company could be treated as an industrial company or not.

13. The three decisions relied upon by the learned counsel for the respondent relates to the binding effect of the circulars issued by the Central Board of Direct Taxes. There cannot be any dispute about the principles laid down in those cases. The question which has been referred is regarding the scope of section 154 of the Act and, therefore, these decisions are not applicable to the facts of the present case.

14. In view of the foregoing discussion, we answer the question referred to us in the negative, i.e., in favour of the revenue and against the assessee. However, the Tribunal shall decide the appeal afresh in the light of the observations made above. There shall be no order as to costs.