1972 (7) TMI 9 - HC - Income Tax

Rectification order under the Incometax Act: rectification is not a fresh assessment and carries no separate right of appeal; alternate remedies apply

Whether an appeal lies against a rectification under section 35(1) of the Incometax Act is decided by holding that rectification does not constitute a ... Rectification Order - right of appeal against an order made by the Income-tax Officer is conferred under section 30 - period of limitation - Whether an appeal lies against an order of rectification made by the Income-tax Officer under section 35, sub-section (1), of the Indian Income-tax Act, 1922 - HELD THAT:- Once an assessment under section 23 is made, it is final and conclusive, unless the conditions exist which entitle the Income-tax Officer to disturb the finality of the assessment under section 34 or section 35. When the Income-tax Officer disturbs the finality of the assessment by rectifying it in exercise of the power conferred under section 35, sub-section (1), he acts de hors section 23 with a view to over-riding an erroneous part of the assessment under section 23. It is impossible to conceive how this act of the Income-tax Officer can be regarded as assessment under section 23. We may point out that there is nothing in the Act which gives a mandate or creates a fiction that, when the Income-tax Officer rectifies an assessment in exercise of the power conferred under section 35, sub-section (1), he must follow the procedure laid down in sections 22 and 23 as we find in section 34 nor is there any fiction created by the statute that when an assessment is rectified in exercise of the power conferred under section 35, sub-section (1), the rectified assessment shall be deemed to be an assessment under section 23 or shall be treated as an assessment under section 23. Though it is true that the consequences of a suggested construction do not alter the meaning of a statutory provision, they certainly help to fix its meaning. If the contention urged on behalf of the assessee were right, the consequence would be that one single order of assessment would have to be compartmentalized into two parts, one part consisting of the original assessment order minus the rectified part and the other consisting of the rectified part and an appeal against the former would have to be filed within the period of limitation computed from the date of the original assessment and an appeal against the latter would have to be filed within the period of limitation computed from the date of the rectification. Thus, there will be two appeals against one single order of assessment, one in respect of one part at one time and the other in respect of the other part at another time. Such an intention cannot be attributed to the legislature, unless there are express words to that effect. The denial of liability contemplated in section 30, sub-section (1), is not confined to absolute or total denial of liability. The assessee may deny his liability to be assessed under the Act in respect of a particular receipt on the ground that in the particular circumstances of the case he is not liable to be assessed, that is, charged to tax in respect of such receipt under any provision of the Act. The assessee denied his liability to tax under the provisions of the Act by saying that the option should be exercised in such a manner that the members of the association of persons are charged to tax and not the assessee as an association of persons. We are, therefore, of the view that the assessee has no right of appeal against an order of rectification made under section 35, sub-section (1), rectifying an assessment under section 23. We may point out that this has been the accepted view of the law at any rate since the decision given in 1953 in Commissioner of Income-tax v. Vellingiri Gounder. The view taken in this decision has held the field for over twenty years and, even if two views were possible, we do not think that we would lightly depart from a view which consistently held the field, particularly when there is always a right of revision to the Commissioner under section 33A and if an order of rectification is made without the conditions of the exercise of the power of rectification being fulfilled, this court can always be approached in the exercise of its jurisdiction under article 226 or 227 of the Constitution for the purpose of quashing and setting aside such order of rectification. Moreover, under the Act of 1961, a right of appeal is expressly provided against an order of rectification under section 246(f). Since the assessee has lost in each of the three references, the assessee will pay the costs of each reference to the Commissioner. Issues: Whether an appeal lies against an order of rectification made by the Income-tax Officer under section 35(1) of the Indian Income-tax Act, 1922.Analysis: Section 30(1) confers a right of appeal against specified orders described by reference to the source of the power under which they are made. The court analysed whether an order of rectification under section 35(1) can be treated as an assessment 'under section 23' for purposes of appeal. Relying on precedent (notably S. Sankappa v. Income-tax Officer) the court held that proceedings for rectification are proceedings for assessment in a procedural sense but that an enhanced assessment resulting from exercise of power under section 35(1) owes its validity to section 35(1) as the source of power, not to section 23. The court construed the phrase 'denying his liability to be assessed under this Act' in section 30(1) to mean denial of liability to be charged with tax under the Act (i.e., liability to be assessed under any provision of the Act), not a challenge to proceedings under a particular provision. The Privy Council's and Supreme Court's interpretations were applied to conclude that challenging a rectification under section 35(1) is not a denial of liability 'to be assessed under this Act' within section 30(1). The court noted existing remedies (revision to Commissioner under section 33A and constitutional writ jurisdiction) and that under the later Act (1961) appealability was expressly provided under section 246(f).Conclusion: An appeal does not lie under section 30(1) against an order of rectification made by the Income-tax Officer under section 35(1); the references are answered against the assessee and in favour of the Revenue.