Commissioner of Income Tax vs National Iranian Oil Co.

Thanikkachalam, J.—At the instance of the Department the Tribunal referred the following three questions for the asst. yrs. 1976-77 and

1977-78 for the opinion of this Court, under s. 256(1) of the IT Act, 1961 :

Whether, on the facts and in the circumstances of the case and having regard to the principles laid down by the Supreme Court in T.S.

Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, , the Tribunal was right in holding that there was a

mistake apparent from records within the meaning of s. 154 of the Act and in directing the IAC to rectify the assessment to allow extra relief under

s. 80K of the IT Act ?

Whether, on the facts and in the circumstances of the case, the IAC was not justified in not granting the extra relief under s. 80K to the assessee

on the basis of the certificate, dt. 25th Feb., 1980, issued by the Indian company suo motu when the ITO did not revise the original certificate

issued under s. 197(3) of the Act ?

Whether the Tribunal''s finding that the assessee is entitled to relief under s. 80K as per the certificate dt. 25th Feb., 1980, of the Indian

company is sustainable in law and is a reasonable one taken on the facts of the case ?

The assessee is a non-resident company deriving dividend income from Madras Refineries Ltd. For the asst. yr. 1976-77, it filed a return on

28th May, 1977, declaring a dividend income of Rs. 20,08,440 and claimed deduction under s. 80K of the IT Act, 1961, on Rs. 13,53,689 being

67.4 per cent of the dividend as per the certificate issued by the ITO under s. 197(3), dt. 25th Feb., 1977, to Madras Refineries Ltd. The

assessment was completed on 21st Jan., 1978, determining the income at Rs. 2,73,308. In so doing, the ITO found that the correct percentage of

dividend exempt from tax was only 61.12 per cent and not 67.4 per cent. Similarly, for the asst. yr. 1977-78, the assessment was completed on a

total income of Rs. 28,12,000, after exempting 92.86 per cent of the dividend income as claimed by the assessee.

The Indian company, viz., Madras Refineries Ltd., objected to the relief granted under s. 80J of the Act by the ITO. On appeal, the AAC

following the decision of the Madras High Court in the case of Madras Industrial Linings Ltd. Vs. Income Tax Officer and Others, , held that the

borrowed capital should not be deducted from the capital base for grant of relief under s. 80J of the Act. Based on the said order, the Indian

company requested the ITO to issue a revised certificate under s. 197(3) for the benefit of the relief admissible under s. 80K of the Act in the

hands of the shareholders. The ITO in his letter, dt. 29th Aug., 1979, negatived the assessee''s claim since the High Court''s decision relied on by

the AAC has not been accepted and that the order of the appellate authority has been taken up in appeal. The Indian company, however, suo

motu issued a certificate on 25th Feb., 1980, certifying that 100 per cent of the dividend declared for the year ended 30th June, 1975, and 46.1

per cent of the dividend declared for the year ended on 30th June, 1976, have been paid out of the profits and gains in respect of which the

company is eligible for tax relief under s. 80J of the Act, r/w r. 20 of the IT Rules, 1962. Based on the abovesaid certificate issued by the Indian

company, the assessee sought rectification of the assessments for the asst. yrs. 1976-77 and 1977-78 to allow extra relief under s. 80K and grant

the refund due. The IAC held that there was no apparent mistake in the order, that the question of additional deduction under s. 80K is debatable

and that the order could not be rectified under s. 154 of the Act, in view of the decision of the Supreme Court in T. S. Balaram, ITO vs. Volkart

Brothers (supra).

Aggrieved the assessee preferred an appeal before the CIT(A). The CIT(A) relying on the decision in Mahendra Mills Ltd. Vs. P.B. Desai,

Appellate Assistant Commissioner of Income Tax and Another, , held that there was a mistake apparent from the record and therefore directed

the IAC to grant appropriate relief under s. 80K in accordance with the certificate issued on 25th Feb., 1980, by the Indian company to Madras

Refineries Ltd. The Department went on appeals before the Tribunal. The Tribunal agreed with the conclusion reached by the CIT(A) that there

was apparent mistake in the assessment orders and the CIT(A) was justified in directing the IAC to amend the orders under s. 154. Thus the

Departmental appeals were dismissed.

Before us, it was submitted that the Indian company suo motu issued the certificate on 25th Feb., 1980, certifying that 100 per cent of the

dividends declared for the year ending on 30th June, 1975, and 46.1 per cent of the dividend declared for the year ending on 30th June, 1976,

have been paid out of the profits and gains in respect of which the company is eligible for tax relief under s. 80J, r/w r. 20 of the IT Rules, 1962. It

is stated that this certificate was issued in view of the decision of this Court in Madras Industrial Linings Ltd. vs. ITO (supra). Our attention was

drawn to a later decision of the Supreme Court in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, , wherein the judgment

of this Court in Madras Industrial Linings Ltd. vs. ITO (supra), was overruled. In view of the abovesaid legal position, the order passed by the

Tribunal is set aside and the Tribunal is directed to dispose of the appeals in accordance with the decision rendered by the Supreme Court in Lohia

Machines Ltd. vs. Union of India (supra), after taking into consideration s. 80J relief granted in the case of the company, and after giving an

opportunity of being heard to the assessee. Accordingly, we are returning the questions unanswered. No costs.