Commissioner of Income Tax vs Mohan Lal Kansal (3 Partners)

The Commissioner of Income Tax, Patiala, has filed this petition u/s 256(2) of the Income Tax Act (hereinafter referred to as "the Act") for a direction to the Tribunal to refer the following question of law to this court which arises out of its order dated February 12, 1976, in I.T.A. No. 880 of 1974-75

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in affirming the order of the Appellate Assistant Commissioner of Income Tax quashing the order of the Income Tax Officer u/s 154 of Income Tax Act, 1961 ?"

The assessee is a firm of contractors. The assessment for the year 1970-71 was originally completed on December 15, 1970, and the total income was assessed at Rs. 52,920 by applying a rate of ten per cent. on receipts of Rs. 5,35,626 subject to the allowance of depreciation. The receipts, admittedly, did not include the value of material''s supplied by the Government to the assessee for execution of the Contract. The Income Tax Officer, in view of the judgment of this court in BRIJ BUSHAN LAL Vs. COMMISSIONER OF Income Tax, PUNJAB., , rectified this assessment and included in the total income a further sum of Rs. 11,576 representing ten per cent, of the value of the materials amounting to Rs. 1,15,756 supplied by the Government. On appeal by the assessee, the Appellate Assistant Commissioner reversed the said order on the ground that no mistake was apparent from the record to justify the rectification u/s 154 of the Act. Having failed in the appeal before the Tribunal, the revenue filed an application requiring the Tribunal to refer the above-mentioned question of law to this court which was also dismissed by the Tribunal, vide order dated July 13, 1976. Hence this petition.

From the facts and circumstances narrated above, it is apparent that a question of law, as framed, does arise. The Tribunal, after noticing that there was a conflict of opinion in the various High Courts on the matter as to whether the value of the materials supplied by the Government could be included, refused to refer the question on the ground that the matter stands settled by the decision of the Supreme Court in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, wherein it was held:

"A mistake apparent on the record 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 conceivably be two opinions, A decision on a debatable point of law is not a mistake apparent from the record."

Mr. D. N. Awasthy, the learned counsel for the revenue, contended that so far as the authorities under the Act situate within the jurisdiction of this court are concerned, they are bound by its decision and, therefore, in the present case, it cannot be said that the mistake was not apparent on the record or that it required a long drawn process of reasoning to discover the same.

Mr. D. K. Gupta, the learned counsel for the assessee, on the other hand, submitted that there being a conflict in the various High Courts on the issue involved, it cannot be said that there was a mistake apparent on the record and in support of his contention relied on a recent decision of the Karnataka High Court in Commissioner of Income Tax (Central), Madras Vs. Moolchand Naraindas, . In this case, the Income Tax Officer gave deduction for the interest paid by the assessee-firm to the Hindu undivided family, one of the partners of the firm. Subsequently, the Income Tax Officer, purporting to exercise powers u/s 154 of the Act, rectified the said assessment on the ground that u/s 40(b) of the Act, any interest paid to a partner has to be disallowed. The said order of rectification was reversed on appeal by the Appellate Assistant Commissioner, whose order was further affirmed by the Tribunal. Relying on T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, , the Tribunal opined that it was not a case where there could not be more than one view and declined the application for reference. Obviously, this decision has no bearing on the facts of the present case because here the mistake was rectified on the basis of the judgment of this court. The Income Tax authorities, so long as the decision in BRIJ BUSHAN LAL Vs. COMMISSIONER OF Income Tax, PUNJAB., stands, are bound to follow the rule laid down therein. As the point in issue was no more debatable, the Tribunal was not justified in refusing to refer the question noted above on the basis of the decision of the Supreme Court in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, .

In view of the foregoing reasons, we allow this petition and direct the Tribunal to state the case and refer the following question of law to this court for decision :

"Whether, on the facts and circumstances of the case, the Tribunal was right in law in affirming the order of the Appellate Assistant Commissioner that there was no mistake apparent on the record so as to justify rectification of the original assessment u/s 154 of the Income Tax Act ?"