M. K. VENKATACHALAM, I. T. O. AND ANOTHER vs. BOMBAY DYEING AND MFG. CO., LTD.

CIVIL APPEAL No. 122/1956Supreme Court[1959] 1 S.C.R. 70328 April 1958Bench: 3 JudgesAuthor: T.L. VENKATARAMA AIYYAR, P.B. GAJENDRAGADKAR, A.K. SARKAR11 pages
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What were the facts?

The Income-tax Officer (ITO) assessed the respondent, Bombay Dyeing and Manufacturing Co. Ltd., for assessment year 1952-53 on October 9, 1952. The assessment order granted credit for Rs. 50,603-15-0 as interest on advance tax paid under Section 18-A(5) of the Income-tax Act. Subsequently, the Indian Income-tax (Amendment) Act, 1953, effective from April 1, 1952, introduced a proviso to Section 18-A(5) limiting interest to the difference between advance tax paid and the assessed amount. The ITO, acting under Section 35, rectified the assessment order, reducing the interest credit to Rs. 21,157-6-0 and demanding the balance of Rs. 29,446-9-0. The respondent filed a writ petition in the Bombay High Court, which quashed the rectified order.

What did the Supreme Court hold?

The Supreme Court held that the Income-tax Officer was justified in exercising his powers under Section 35 to rectify the mistake. The Court reasoned that due to the legal fiction of the retrospective operation of the Amendment Act, the newly inserted proviso to Section 18-A(5) must be considered as part of the principal Act from April 1, 1952. Consequently, the assessment order dated October 9, 1952, which granted credit for Rs. 50,603-15-0, was inconsistent with this proviso and suffered from a mistake apparent from the record. The Court cited the Privy Council decision in Commissioner of Income-tax, Bombay Presidency and Aden v. Khemchand Ramdas, which held that subsequent events forming part of the record could render an earlier order erroneous and justify rectification under Section 35. The Court concluded that the High Court was in error in quashing the rectified order and the notice of demand. The appeal was allowed, and the writ issued by the High Court was set aside.

What were the issues?

1. Whether an error resulting from the retrospective enforcement of an amended law constitutes an error apparent from the record that can be rectified under Section 35 of the Indian Income-tax Act, 1922, especially when the original order was valid when passed? Assessee's contention (as per High Court's reasoning): The High Court argued that Section 35 applies only to mistakes apparent on the face of the order and that such mistakes must be judged in light of the law as it stood when the order was passed. A subsequent amendment, even if retrospective, does not create a mistake apparent from the record in an order that was correct at the time of its making. Revenue's contention: The revenue contended that the High Court erred in law by holding that the ITO was not entitled to rectify the mistake under Section 35. They argued that the retrospective operation of the Amendment Act meant the proviso to Section 18-A(5) must be read as part of the Act from April 1, 1952, rendering the original assessment order inconsistent with the law.

Which sections of the Income-tax Act were involved?

Section 18-A,Section 35,Section 29,Section 23,Section 33,Section 34,Section 26A,Section 1,Section 13

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• • • S.C.R. SUPREME COURT REPORTS M. K. VENKATACHALAM, I. T.

0.

AND ANOTHER v. BOMBAY DYEING AND MFG. CO., LTD. (VENKATARAMA AIYAR, GAJENDRAGADKAR and A. K. SARKAR JJ.) 703 Income-tax-Rectification of order of assessment--Amendment of law with retrospective enforcement-Error resulting from such enforcement, if an error apparent from the record-If such error can be rectified-Indian Income-tax Act, r922 (XI of r922), ss. r8-A and 35-Indian Income-tax (Amendment) Act, r953 (XXV of r953), SS. I and IJ. The Income-tax Officer, by his order dated October 9, 1952, assessed the respondent for the assessment year 1952-53 and gave him credit for Rs. 50,603-15-0 as representing interest on tax paid in advance under s. l8-A(5) of the Income-tax Act. On May 24, 1953, the Indian Income-tax (Amendment) Act, 1953, came into force adding a proviso to s. l8-A(5) of the Act to the effect that the assessee was entitled to interest not on the whole of the advance tax paid by him but only on the difference between the payment made and the amount a.ssessed. The Amendment Act provided that it shall be deemed to have come into force on April l, 1952. The Income-tax Officer, ac

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