Commissioner of Income Tax vs Bhima Bros.

T. L. Viswanatha Iyer, J.—The Income Tax Appellate Tribunal, Cochin Bench, has referred the following question of law for the opinion of this court u/s 256(2) of the Income Tax Act, 1961 ;

" Whether, on the facts and in the circumstances of the case, the rectification order is valid ?"

The assessment year concerned is 1977-78 for which the return was due by June 30, 1977. It was actually filed only on August 31, 1977. While completing the assessment on January 31, 1978, the Income Tax Officer charged interest u/s 139(8) for the belated filing of the return. Subsequently, he rectified the assessment u/s 154 of the Act by his proceedings dated June 20, 1978, and reduced the amount of interest to Rs. 2,855 reckoning the delay in filing the return as one month. The audit raised objections and the order was again rectified u/s 154 on April 28, 1979, enhancing the interest to Rs. 5,680 reckoning the delay as two months. The Commissioner of Income Tax (Appeals) confirmed this order, but the Tribunal, on appeal by the assessee, held that there was genuine scope for debate on the question whether the interest is to be reckoned for one month or two months and, therefore, it was not a case for rectification u/s 154. The appeal was, therefore, allowed and the second order of rectification passed on April 28, 1979, was cancelled. It is on these facts that the reference has been made on the question mentioned earlier.

The Tribunal noted that u/s 139(8) as it stands, the default will be for a period of 60 days as the return was filed only on August 31, 1977, while it was due on June 30, 1977. But then rule 119A which lays down the procedure to be followed in calculating interest, required that in calculating the interest to be paid by an assessee the period for which the interest is to be calculated shall be rounded off to a whole month and for this purpose any fraction of a month shall be ignored. The Tribunal was of the opinion that a debatable question arose reading Section 139(8) along with rule 119A, since the word "month" occurring in rule 119A has to be reckoned as a calendar month in accordance with the definition of the word "month" in Section 3(35) of the General Clauses Act, 1897.

Since the reference arises in a proceeding u/s 154, what we have to see is whether there is an error liable to be rectified u/s 154. The Supreme Court has stated in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, that a mistake liable to be rectified u/s 154 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 is not a mistake apparent from the record.

The senior standing counsel for the Department was, therefore, at pains to establish that the mistake was one which was apparent and obvious and that rule 119A did not admit of any interpretation other than that canvassed by the Revenue. He relies on the Notes on Clauses appended to the Taxation Laws (Amendment) Bill, 1969, by which Section 295(2)(kk) was sought to be introduced in the Act. It is under the said provision that the Central Government is empowered to make rules prescribing the procedure to be followed in calculating the interest payable by the assessee including the rounding off of the period for which such interest is to be calculated where such period includes a fraction of a month. Counsel pointed out that the fraction of a month referred to can only be a small portion of the month and it cannot be more than half of a month. He would submit that rule 119A which states that any fraction of a month should be ignored, requires the month to be rounded off to the nearest whole month, so that where it is more than half it shall be treated as a whole month for the purpose of levying interest under rule 119A. He also referred to the decision of the High Court of Madras in T.S. Rajam Vs. Controller of Estate Duty, Madras, , where the court observed that the mere complexity of the problem or the fact that genuine argument is necessary to discover the mistake may not by themselves be sufficient to oust the jurisdiction of a Tribunal to rectify such a mistake.

We do agree that there is much to be stated in favour of the view propounded by Sri P. K. Ravindranatha Menon for the Department, but we are dealing with a matter arising out of rectification proceedings and, therefore, our jurisdiction is limited to consider whether the question involved is beyond controversy or debate or whether there is scope for debate on the question. We are not therefore pronouncing finally on the question raised. In particular, we may mention that a learned single judge of the Karnataka High Court has in B.V. Aswathaiah and Bros. Vs. Income Tax Officer, Assessment-4, Circle-II, Bangalore, held that having regard to the definition of the term "month" in the General Clauses Act, 1897, interest has to be calculated with reference to a whole month and not with reference to any period of less than a month. In that case, the return was filed on August 31, 1976, while it was due on July 31, 1976. The learned judge held that interest u/s 139(8) of the Act read with Rule 119A of the Income Tax Rules was not leviable as the period of delay was only less than a month.

Having regard to these conflicting views on the point we are not inclined to hold that the answer to the question raised is so obvious or patent that it does not admit of any doubt at all The question on the other hand poses grounds for debate or argument and the matter will have to be examined before any decision could be arrived at on the scope of Rule 119A. It is true that on the terms of Section 139(8), the interest will be leviable for 60 days and the rule as interpreted by the Karnataka High Court will reduce the period for which the interest is leviable. Suffice it to say that the point is not beyond controversy and that there can be no rectification u/s 154 treating the point as self-evident. The Tribunal was well aware of the conflicting views and has therefore, cancelled the order u/s 154 as not valid. We are in agreement with the Tribunal.

The reference is therefore answered in the affirmative, that is in favour of the assessee and against the Revenue.

Communicate a copy of this judgment under the seal of this court and the signature of the Registrar to the Income Tax Appellate Tribunal, Cochin Bench, for information.