Commissioner of Income Tax vs M.N. Sankaranarayanan Nair, M.N. Vijayan and M.N. Chandrasekharan

K.S. Paripoornan, J.—The following common question of law has been referred for the decision of this court by the Income Tax Appellate Tribunal;

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Income Tax Officer should not have invoked Section 154 of the Income Tax Act, 1961?"

The respondents herein are three assessees. For the year 1972-73, the original assessments were completed u/s 143(1) of the Act, allowing set off of the carried forward "business" loss of the earlier years, against the income from lorry hire returned under "other sources" by the assessees. The assessees returned income from lorry hire under the head "Other sources". The Income Tax Officer assessed the said income under "other sources". The Income Tax Officer subsequently realised the mistake. He initiated proceedings u/s 154 of the Income Tax Act. Orders were rectified by setting off the carried forward business loss against the income under "business". The said orders are Exts. B-1, B-2 and B-3. The above orders were confirmed in appeal by the Appellate Assistant Commissioner, In second appeals filed by the respondents, the Appellate Tribunal held that the Income Tax Officer should have treated the lorry hire charges returned as income from business and should have allowed set off of the carried forward business loss of the earlier years against that amount. The question as to whether the income returned--lorry hire--came under "other sources" was debatable. The Tribunal held that there is no mistake apparent from the record. The fact that the assessees returned the lorry hire charges as income from "other sources" or that such amounts were assessed as income from "other sources" is not conclusive of the issue. It is the nature and character of the receipt that will determine the issue. That alone can determine whether there was a mistake apparent from the record. The income against which loss is set off should be indisputably " income from other sources ". Since it was not so or at least it was a debatable issue, the orders passed u/s 154 of the Act are unsustainable. The appeals filed by the assessees were allowed. On a motion by the Revenue, the question of law, stated in the beginning of the judgment, has been referred to this court for decision.

We heard counsel for the Revenue, Mr. Menon, and also counsel for the assessees (respondents), Mr. Jose. It is common ground that the respondents returned the lorry hire charges under "other sources" and that they were assessed only under "other sources". When it was realised that the set off of the business loss of earlier years could not be allowed against the income under "other sources", the Income Tax Officer initiated proceedings to set right the said mistake. It is seen from exhibits B-1, B-2 and B-3, that the assessees did not file any objection. If the set off allowed therein, that is, set off of the business loss of earlier years against income from "other sources" is a patent mistake, the Income Tax Officer was competent to rectify the same. He did so. At that point of time, unless the officer was told or objection was raised that the income from lorry hire charges should have been assessed as "business income" and so, that itself requires rectification, the officer was justified in holding that the assessment orders passed suffer from a mistake apparent from the record. We are of the view that at that stage, without anything more, the Income Tax Officer was not obliged to demonstrate that the income, against which the loss is set off in the earlier years, should be indisputably "income from other sources". The assessees could have objected to the rectification proceedings or could have in turn initiated proceedings for rectification, so that the entire matter could have been adjudicated satisfactorily. It does not appear that the respondents filed objections to the rectification proceedings. On these premises, the Income Tax Officer was justified in passing rectification orders, exhibits B-l, B-2 and B-3, in the light of the assessment orders, as they stood then. He was not obliged to go behind the assessment orders as the matters stood then and demonstrate about the character of the receipt, i.e., the receipt from lorry charges, which was assessed as income from "other sources", and whether in reality the said income was not "business income". In this view of the matter, we hold that the Income Tax Officer was justified in invoking Section 154 of the Income Tax Act in these cases. We answer the question in the negative, against the assessees and in favour of the Revenue.

In paragraph 12 of the judgment in the appeals (annexure D), the Appellate Tribunal has stated that the plea taken before them that the respondents (assessees) were not given notices before the rectification proceedings, was not adjudicated. It is left open. For the purpose of this reference, we have proceeded on the basis that proper notices were served on the assessees before the rectification proceedings. But this will not fetter or in any way preclude the Appellate Tribunal from deciding the point left open specifically in paragraph 12 of the appellate judgment.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Tribunal as required by law.