1958 (4) TMI 4 - SC - Income Tax

Supreme Court overturns High Court ruling, supports Income-tax Officer's rectification order

The Supreme Court held that the High Court erred in ruling against the Income-tax Officer's rectification order. The court found the demand for Rs. ... Whether an order which was proper and valid when it was made can be said to disclose a mistake apparent from the record if the said order would be erroneous in view of a subsequent amendment made by the Amendment Act when the Amendment Act is intended to operate retrospectively ? Held that:- The High Court of Bombay was in error in coming to the conclusion that the notice issued by the Income-tax Officer calling upon the respondent to pay the sum of ₹ 29,446-9-0 was not warranted by law. The result is the order passed by the High Court issuing a writ against the appellants is set aside and the appeal is allowed Issues Involved:1. Construction of Section 35 of the Income-tax Act.2. Retrospective operation of the Indian Income-tax (Amendment) Act, 1953.3. Application of Section 18A(5) and its amended proviso.4. Rectification of mistakes apparent from the record under Section 35.5. Finality of assessment orders and their modification.Issue-wise Detailed Analysis:1. Construction of Section 35 of the Income-tax Act:The primary issue was whether Section 35 of the Income-tax Act could be invoked to rectify an assessment order based on a subsequent amendment that had retrospective effect. The court examined whether an order, valid when made, could be deemed erroneous due to a retrospective amendment, thus constituting a 'mistake apparent from the record.'2. Retrospective Operation of the Indian Income-tax (Amendment) Act, 1953:The Amendment Act, effective from April 1, 1952, introduced a proviso to Section 18A(5), altering the interest calculation on advance tax payments. The court emphasized that the retrospective operation meant the proviso must be considered as part of the principal Act from April 1, 1952. This legal fiction required treating the amendment as if it had always been in effect.3. Application of Section 18A(5) and its Amended Proviso:Initially, the assessee was credited Rs. 50,603-15-0 as interest on advance tax under Section 18A(5). Post-amendment, the credit was recalculated to Rs. 21,157-6-0, aligning with the new proviso. The court noted that the original credit was valid under the unamended Act but erroneous under the amended provisions.4. Rectification of Mistakes Apparent from the Record under Section 35:The court determined that the Income-tax Officer was justified in rectifying the mistake under Section 35. The retrospective amendment made the original credit calculation inconsistent with the law as it stood post-amendment. The court cited the principle that both factual and legal mistakes apparent from the record could be rectified under Section 35, including those arising from retrospective legislative changes.5. Finality of Assessment Orders and Their Modification:The respondent argued that completed assessments should not be reopened due to the retrospective amendment. The court rejected this, stating that the original order was not 'final' in the literal sense, as it was always subject to modification under Section 35. The court referenced the Privy Council's decision in Commissioner of Income-tax v. Khemchand Ramdas, supporting the view that subsequent legal changes could retroactively form part of the record, justifying rectification.Conclusion:The Supreme Court concluded that the High Court of Bombay erred in ruling against the Income-tax Officer's rectification order. The notice demanding Rs. 29,446-9-0 was legally warranted. The appeal was allowed, and the High Court's order was set aside, with costs awarded to the appellants. The judgment underscored the principle that retrospective legislative amendments could necessitate rectifying past assessment orders to align with the amended law.