JUDGMENT
K. P. Radhakrishna Menon J.
1. (Original Petition No. 7470 of 1989-L.–20-6-1990). –To recover the tax dues of the company, Rajmohan Cashews (P.) Ltd., Quilon, for the years of assessment 1977-78 to 1982-83, the first respondent initiated proceedings under Section 179 of the Income-tax Act. The notice issued in this regard was responded to by the petitioner by exhibit P-12 statement. Relevant portions of the statement containing the objections are extracted hereunder :
“… The company had incurred heavy losses in its cashew business from the accounting year ended June 30, 1982, relevant to the assessment year 1983-84 due to large fluctuations in the international cashew market. It may be noted that the bulk of cashew kernels are marketed abroad in countries like the U. S. A., Australia and the U. S. S. R. The unexpected and unprecedented financial crisis of the company had arisen consequent to the unexpected fluctuation in export sale of cashew kernels and also due to the restrictions imposed by the State Government in procurement of raw cashewnuts by directing that only the Co-operative Marketing Federation shall procure raw cashewnuts in the State under the Monopoly Procurement Scheme and fixing a high purchase price. The fixation of high minimum wages and bonus to the large number of factory workers by the Government added to the plight of the company … I am also bringing to your kind notice that the company had been remitting monthly instalments of Rs. 1 lakh each towards income-tax from May, 1985, and Rs. 50,000 each towards surtax from January, 1986, till October, 1986. However, since the Commissioner of Income-tax, Central Circle, Bangalore, directed that the entire balance of tax be remitted in lump sum and refused to issue further chalans for remittance of the monthly instalments, the company was not able to make subsequent remittances. The default in remittance of tax dues has arisen only from November, 1986, and due to the continuing stringent financial conditions, the company was not able to make any further tax remittance…. The Indian Overseas Bank, Quilon, was giving the company financial assistance against fully secured goods during the above years and the goods were sold at the then existing price. On December 31, 1986, there was a balance of Rs. 1,19,86,028.67 due to the bank, because of the fluctuation in the international cashew market. Consequently, the bankers refused financial facilities resulting in unexpected and unprecedented financial crisis to the company. Under the circumstances, the remittance of tax dues for prior years has arisen and such circumstances were beyond the control of the company and directors . . . The company is still negotiating with its bankers to grant additional financial facilities to start its business activities again. It is expected by the end of March. Once the company commences its business activities, it will be in a position to remit the tax arrears on instalment basis … I request you to kindly consider the facts stated above and take a very lenient view of the matter and drop your proposal to proceed against me under Section 179 of the Act for the tax arrears of the company.”
2. The first respondent considered the objections and passed exhibit P-13 order entering the finding that the petitioner being a director is jointly and severally liable for the tax arrears of the company. Aggrieved by exhibit P-13 order, the petitioner filed exhibit P-14 revision before the second respondent. In the revision, the petitioner reiterated the contentions she had raised before the first respondent. The second respondent after considering the various aspects of the case passed exhibit P-15 order confirming exhibit P-13 order of the first respondent.
3. Seeking rectification of exhibit P-15 order, the petitioner filed exhibit P-16 under Section 154 of the Income-tax Act. This application stands rejected by exhibit P-18. Exhibits P-13, P-15 and P-18 are under challenge.
4. Learned counsel for the petitioner submits that with effect from October 1, 1975, the company had become a public company within the meaning of Section 43A(1A) of the Companies Act as its annual turnover exceeded rupees one crore and as such the petitioner, though a director, cannot be made liable for the tax dues of the company under Section 179 of the Income-tax Act. Whatever that may be, it is further submitted that the proceedings are liable to be dropped, even assuming that the company at the relevant time was a private company, because the evidence available on record shows that the non-recovery of the tax dues cannot be attributed to any gross neglect, misfeasance or breach of duty on the petitioner’s part in relation to the affairs of the company. These aspects have not been taken into account by the Commissioner when he passed exhibit P-15 order and thereby affirmed the declaration made by the first respondent, exhibit P-13, that the petitioner, being a director of the company which is a private company within the meaning of Section 179, is jointly and severally liable for the tax dues of the company, counsel argues. He, accordingly, submits that exhibits P-13, P-15 and P-18 are liable to be quashed.
5. Sri P. K. Raveendranatha Menon, learned counsel for the Revenue, refuted the above argument of counsel for the petitioner. He submits that the argument of the petitioner that the company at the relevant time had become a public company within the meaning of Section 43A(1A) of the Companies Act was for the first time raised only in her application under Section 154 of the Income-tax Act. The documents in proof of this case, particularly exhibit P-1, the letter of the Registrar of Companies stating that the certificate under Section 43A(1A) is enclosed therein, indisputably were produced only along with the application under Section 154. It is thus clear that these documents (assuming that they show that the company with effect from October 1, 1975, had become a public company within the meaning of Section 43A(1A) of the Companies Act) were not there when the assessments, treating the company
as a private company, were made. The petitioner has also accepted the orders of assessment and that that is so can be seen from exhibit P-14 where the only contention raised by the petitioner is the one covered by the second limb of Section 179(1). In this connection, counsel made particular reference to the following statement in exhibit P-14 :
“Your petitioner prays that the facts stated above be favourably considered and since the default in remittance of the tax dues by the company was beyond the control of the company and not due to any negligence, default or breach of duty on the part of any directors, they may please be absolved from personal liability for the tax arrears of the company.”
6. The error sought to be corrected, therefore, cannot be said to be an error apparent from the record. Touching upon the case of the petitioner that in any event exhibits P-13 and P-15 are liable to be set aside, counsel argued thus : The finding that the petitioner is jointly and severally liable, based on which exhibit P-13 order was passed, is a finding of fact. The petitioner has no case that the said finding is perverse. Whatever it be, no such contention has been raised in the revision petition (exhibit P-14). The said finding thus has become final. If that be so, there is no scope to interfere with exhibits P-13 and P-15 orders.
7. The questions thus arising for consideration are : (1) whether the error sought to be corrected is an error apparent from the record, and (2) are the grounds urged in the original petition sufficient to interfere with exhibit P-13 and exhibit P-15 orders.
8. The answer to the first question depends upon the construction of Section 154 of the Income-tax Act. I shall now extract the relevant part of the section :
“154. Rectification of mistake.–(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in Section 116 may, —
(a) amend any order passed by it under the provisions of this Act ; …”
9. The Commissioner of Income-tax is one of the authorities mentioned in Section 116 and, therefore, he, under Section 154, has the power to rectify any obvious mistake (whether it be mistake of law or mistake of fact) and amend any order passed by him provided it is established that the mistake is one apparent from the record (see M. K. Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 (SC)). The power thus conferred is confined to rectifying mistakes in the order passed by the Commissioner himself. To
say that a mistake is apparent from the record, the same must, therefore, 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. Thus a decision on a debatable point of law cannot be said to be a mistake apparent from the record (see Satyanarayan Laxmi-narayan Hegde v. Mallikarjun Bhavanappa Tinumale, AIR 1960 SC 137 and T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC)). Viewed from another angle the principle can be stated thus : The mistake must be something which appears to be so ex facie and is incapable of argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification. Alongside we have to keep in view what the word “record” means and implies in the context. From the plain and unambiguous language employed in the section it is clear that the record contemplated thereunder only means the record of the particular proceeding dealt with by a particular income-tax authority. For instance, if the Commissioner in exercise of his revisional jurisdiction considers the validity of an order of assessment, then undoubtedly he has the power to look into entire record pertaining to the assessment while dealing with a petition for rectification of an order revising the order of assessment under Section 154. These are some of the well-established principles that should be borne in mind while considering a petition under Section 154.
10. Applying the above principles to the facts of the case I am of the view that the mistake, if there is any at all, is not a mistake apparent from the record. The records of the case, assuming that the records of the assessment proceedings also can be taken into account, do not contain any material to show that the company at the relevant time had been treated as a public company within the meaning of Section 43A(1A). The documents relied on by the petitioner to show that the company had become a public company within the meaning of Section 43A(1A) were for the first time produced only along with the petition under Section 154. That means these documents did not form part of the record of the assessment proceedings. Neither could it be said that they form part of the record of the proceedings which the authority concerned initiated under Section 179 imposing personal liability for the tax assessed on the company. Regarding these documents relied on by the petitioner to show that the company had become a public company within the meaning of Section 43A(1A), the Department has a case which is stated thus by the Deputy Commissioner of Income-tax (Assessment), the first respondent :
“. . . The Revenue in the above circumstances and in the light of exhibits R-(1)(a) to R-(1)(g) cannot be blamed if the Revenue suspects
manipulation in exhibit P-l in some form and an investigation by an appropriate authority is ordered.”
11. Dilating on this aspect, the Commissioner in his counter-affidavit dated June 7, 1990, has stated thus :
“Before ordering an enquiry by an appropriate authority into the preliminary enquiry conducted by the Revenue, it is submitted has prima facie led to the suspicion entertained by the Deputy Commissioner that exhibit P-l could be a fabricated document and an afterthought (sic). The preliminary enquiry by the Revenue has, for the time being, revealed a few facts. On an inspection of the document file (File No. 2292–of Rajmohan Cashews (P.) Ltd., Quilon, maintained in the office of the Registrar of Companies, it was noticed by an officer of the Revenue that the office copy of the letter No. 2292/PC 2C/R 850/77, dated February 26, 1977, addressed to Rajmohan Cashews Pvt. Ltd., Vadakkevila, P. O. Quilon-10, which is marked as exhibit P-l is not available in the document file. The correspondence file, it understood, would not be made available for inspection …. Details of certain order sheet entries extracted from the document file are as under :
Document
Date of order
Details
No.
23
22-1-1977
A/R made up to 30-12-1974
24
do.
Special resolution passed on 8-10-1973
25
do.
Special resolution passed on 30-12-1974
26
do.
Special resolution passed on 12-5-1975
27
16-2-1977
Particulars of charge created on 1-4-1975 for Rs. 6,00,000
28
11-3-1977
A/R made up to 31-12-1973
29
do.
A/R made up to 30-12-1976
From the above notings in the order sheet it appears that on February 26, 1977, no such document (i.e., exhibit P-l) has been issued from the office of the Registrar of Companies. Hence, the document produced before the Hon’ble High Court as exhibit P-l can be resaonably presumed, for the time being, to be a fabricated document . . . while filing this covering letter as exhibit P-1 before the Hon’ble High Court, the petitioner did not file the enclosure to the covering letter. The document being an important one could have been “issued” from the document file only. Since the office copy of this document is not available in the document file, it is doubtful whether the Registrar of Companies has sent to the assessee such a communication on February 26, 1977. . .”
12. It is also relevant in this context to note that there are no other documents or evidence from which it can be inferred that the company, at the relevant time, had been treated as a public company. Assuming that the company at the relevant time was a public company, even then the question whether the directors of the said company can be made jointly and severally liable for the tax dues of the said company cannot be decided without a debate on a point of law and questions of fact. In other words such a mistake can be established only by a long drawn process of reasoning. The following averments contained in the counter-affidavit of the first respondent can profitably be considered in this context :
“20. The next question to be considered is, whether Section 179 of the Income-tax Act, 1961, excludes from its ambit ‘private companies’ deemed to be public, under Section 43A of the Companies Act. The Section (179 of the Income-tax Act) only speaks of ‘private companies’ and ‘private company’ has not been specifically defined in the Income-tax Act. But since Section 2(17) of the Income-tax Act specifically defines ‘public companies/substantially interested companies’, it follows that on factual basis if a company does not fall within Section 2(18) of the Income-tax Act, it would fall under private companies. As already detailed earlier, the provision under Section 43A of the Companies Act was enacted entirely in a different context, i.e., to see that private companies having substantial turnover did not misuse certain privileges denied to public companies. At the same time such companies continued to be private companies in all other respects (i.e., shares were not quoted/ enlisted in a stock exchange, ownership continued to vest in a family group, transfer of shares prohibited, etc.). Coming to Section 179, only private companies were brought within its fold for obvious reasons–tax evasion, habitual default in tax payment, etc., are to be expected from family groups (private companies) and not Government undertakings. Hence, as far as Section 179 is concerned, it is irrelevant whether the company is a private company or a ‘private company deemed to be a public company’. Suffice it to say that Section 179 is to be resorted to when a family group wilfully defaults in tax payment out of gross negligence and breach of duty … To sum up, Rajmohan Cashews cannot by any stretch of imagination fall under Section 18 of the Income-tax Act and precisely for this reason cannot be absolved from Section 179 by harping on the flimsy ground of a ‘deemed public company’ since Section 179 does not preclude such companies, which to all intents and purposes are private companies, retaining their family group ownership of the company.”
13. This being the position, the petition under Section 154, in my view, has rightly been rejected. Exhibit P-18, therefore, is unassailable.
14. Regarding the second question, this is covered by the second limb of Section 179. Section 179 provides that every person who was a director of the private company at any time during the relevant previous years shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. The case the petitioner had put forward both before the Recovery Officer as also the Commissioner was that the non-recovery cannot be attributed to any gross neglect or misfeasance or breach of duty on her part in relation to the affairs of the company. After elaborately considering the various aspects of this contention both the Recovery Officer as also Commissioner have found that the petitioner has not been successful in establishing the above contention. The findings are based on materials and, therefore, they cannot be said to be perverse. There is, therefore, little scope to interfere with the said findings. It is relevant in this context to note that the findings of the Recovery Officer (see exhibit P-13) that inasmuch as the company is a private company and the petitioner being a director of the said company, is jointly and severally liable, has not even been challenged by the petitioner before the Commissioner (vide exhibit P-14 revision petition). Exhibits P-13 and P-15, therefore, are beyond challenge.
15. The original petition for the reasons stated above is liable to be dismissed. Accordingly, the same is dismissed. In the circumstances, no order as to costs.