JUDGMENT
Dipak Kumar Sen, J.
1. M/s Turner Morrison & Co. Ltd., the assessee, was assessed to income-tax in the assessment year 1951-52, the accounting year ending on December 31, 1950. The assessee’s total income was computed at Rs. 35,80,067. While computing the tax payable on the said total income, the Income-tax Officer applied proviso (i) to Paragraph B of Part I of the First Schedule to the Finance Act, 1951. The total income as reduced by 7 annas in the rupee exceeded the amount of the dividend declared and rebate at the rate of 1 anna per rupee was allowed on the amount of such excess. No order was made under Section 23A(1) of the Income-tax Act, 1961. A tax demand for Rs. 7,30,558 was raised and was set off against the tax paid in advance and deducted at source.
2. An appeal was filed against the said assessment before the Appellate Assistant Commissioner who reduced the quantum of the total income by an order passed on July 13, 1957. A further appeal was preferred by the assessee against the order of assessment before the Income-tax Appellate Tribunal which by its order dated February 22, 1961, allowed further relief to the assessee and the total income of the assessee was reduced further.
3. When the appeal of the assessee before the Appellate Assistant Commissioner was pending, the Income-tax Officer started proceedings under Section 34 of the Indian Income-tax Act, 1922. On April 20, 1956, an order was passed by the Income-tax Officer under Section 23(3) read with Section 34 of the Act of 1922. By the said order, the Income-tax Officer included in the total income of the assessee a sum of Rs. 8,49,959 as the notional dividend under Section 23A of the Act of 1922 received by the assessee on September 29, 1950. The total income of the assessee was, therefore, enhanced to Rs. 44,30,026. The original total income as assessed remained at Rs. 35,80,067. In the said order, rebate was not allowed under proviso (i) to Paragraph B of Part I of the First Schedule to the Finance Act, 1951.
4. Being aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner against the supplemental assessment which was dismissed on November 11, 1959.
5. The assessee went up in further appeal before the Income-tax Appellate Tribunal which allowed the appeal of the assessee and set aside the reassessment made under Section 34 on November 14, 1961.
6. In the meantime, the Income-tax Officer gave effect to the order of the Tribunal passed on February 22, 1961, in the appeal from the original assessment and recomputed the total income at Rs. 4,34,46,439. While recomputing the said income, the supplemental assessment was taken into account but the rebate under the Finance Act of 1951 was not disallowed.
7. On September 16, 1964, the Income-tax Officer passed an order giving effect to the order of the Tribunal dated November 14, 1961, setting aside the reassessment under Section 34. The Income-tax Officer held that by reason of the order of the Tribunal setting aside the supplemental assessment, the fresh demand of Rs, 1,99,373 was no longer valid and allowed the refund of the said amount. The said refund had been adjusted against a demand raised under Section 23A of the Indian Income-tax Act, 1922, for the assessment year 1957-58.
8. The Income-tax Officer thereafter came to hold the opinion that the order of refund passed on September 16, 1964, was prejudicial to the interests of Revenue inasmuch as the Income-tax Officer had continued to treat the rebate on undistributed profits as withdrawn.
9. The Income-tax Officer noticed that the withdrawal of the rebate on undistributed profits had been maintained in all the orders passed by the Income-tax Officer but in 1964 when the predecessor Income-tax Officer wanted to give effect to the Tribunal’s order, he should not have revoked the withdrawal of the rebate.
10. The Income-tax Officer, therefore, called upon the assessee to show cause why the order made on September 16, 1964, should not be rectified. The proposed rectification was further made clear by a subsequent letter of the Income-tax Officer dated January 11, 1968, to the assessee where it was recorded that the withdrawal of the rebate on undistributed profits was made as a result of the order passed under Section 34 of the Act of 1922 which was subsequently annulled by the Tribunal. It was recorded that revocation of such withdrawal of rebate on undistributed profits was erroneous.
11. The Income-tax Officer ultimately passed an order under Section 154 of the Income-tax Act, 1961, on September 12, 1968, and held that an excess refund to the extent of Rs. 42,663 had been allowed to the assessee by the order passed on September 16, 1964.
12. Being aggrieved, the assessee preferred an appeal against the order of rectification to the Appellate Assistant Commissioner. It was contended that there was no mistake in the order dated September 16, 1964, as the withdrawal of rebate had been effected by the Income-tax Officer under the order passed under Section 34 of the Act of 1922. As the said order
under Section 34 had been set aside, it was contended that the Income-tax
Officer was right in cancelling the entire reassessment under Section 34 and revoking the withdrawal of rebate. It was also contended that the rectification could be made only under Section 35 of the Act of 1922 and not under Section 154 of the Act of 1961.
13. The Appellate Assistant Commissioner noted that in none of the earlier orders of assessment, rebate had been withdrawn. He held that the withdrawal of the rebate could only have been effected by rectifying within the period of limitation calculated from the orders of assessment and not by amending the order passed by the Income-tax Officer on September 16, 1964. He also held that the rectification should have been made under the Act of 1922. The appeal of the assessee was allowed.
14. Being aggrieved, the Revenue preferred an appeal before the Income-tax Appellate Tribunal. It was contended before the Tribunal on behalf of the Revenue that the Appellate Assistant Commissioner had erred in holding that the order was illegal as it was passed under Section 154 of the Act of 1961. It was further contended that the order should have been deemed to have been passed under Section 35 of the Act of 1922. It was further urged that the subject-matter of the rectification was not only the withdrawal of rebate on undistributed profits, but there were also other arithmetical mistakes in the order dated September 16, 1964, which had been rectified by the Income-tax Officer.
15. It was contended on behalf of the assessee that even if the order of rectification was treated as having been made under the Act of 1922, the appeal of the Revenue was not maintainable. It was further contended that it was clear from the records that the proposed rectification related to the withdrawal of rebate on undistributed profits. The contention of the Revenue that the subject-matter of rectification was something other than the actual subject-matter of the rectification was different from that in respect of which the assessee had been given notice. It was contended that principles of natural justice were thereby violated and accordingly the impugned order of rectification was invalid.
16. It was further contended on behalf of the assessee that the entire order under Section 34 which resulted in the withdrawal of rebate had been annulled by the Tribunal. Therefore, the revocation of such withdrawal was permissible and certainly the same was a controversial issue. The Tribunal held following a decision of the Madras High Court in the case of VR. C. RM. Adaikkappa Chettiar v. CIT [1970] 78 ITR 285, that the appeal filed by the Revenue before the Tribunal was not maintainable though the Appellate Assistant Commissioner rightly or wrongly had entertained an appeal from the original order of rectification.
17. The Tribunal held further that the mistake which was sought to be rectified related to the withdrawal of the rebate and the ascertainment of excess quantum of excess refund on this basis had to be determined by a complicated working. The Tribunal also held that the order under Section 34 of the Act of 1922 having been annulled, the reason for withdrawal of rebate made by the Income-tax Officer consequent to the said order also disappeared. It was noted that while making the original assessment, no order had been passed under Section 35. On this ground also, it was held that the attempt to set aside the revocation of the withdrawal of the rebate by way of rectification raised a controversy. The Tribunal held further that if the mistakes sought to be rectified were something other than those relating to the withdrawal of rebate, then the assessee was not put to notice about the exact nature of the mistake and the impugned order of rectification would be invalid on that ground also.
18. The appeal of the Revenue was dismissed.
19. On an application of the Revenue under Section 256(2) of the Income-tax Act, 1961, the Tribunal was directed to refer the following questions as questions of law arising out of its order for the opinion of this court:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the appeal by the Department against the order of the Appellate Assistant Commissioner was not maintainable ?
2. Whether, on the facts and in the circumstances of this case, the Tribunal was justified in holding that the Appellate Assistant Commissioner was right in cancelling the order under Section 154 ?”
20. The controversy raised in the first question is covered by a decision of this court in Income-tax Reference No. 420 of 1972 intituled CIT v. Shell Petroleum Co. Ltd. [1987] 164 ITR 346. The judgment was delivered on May 19, 1986. It was held in that case, following an earlier decision of this court in Imperial Chemical Industries Ltd. v. CIT [1979] 116 ITR 516, that though an order of assessment had been made under the Act of 1922, when the subsequent Act of 1961 came into force, the Income-tax Officer had jurisdiction to rectify the order of assessment passed under the earlier Act under Section 154 of the Act of 1961. The facts in that case are similar to the facts before us. In the instant case, the order of rectification has admittedly been made under Section 154 of the Act of 1961. This is permitted by Sub-section (2) of Section 297 of the Income-tax Act which provides that where a return of income had been filed before the commencement of the Act of 1961 for any assessment year, proceedings for the assessment of that person for that year may be continued as if the Act of 1961 had not been passed. The word; used being ” may” and not “shall”, we hold,
following the above decisions, that the Income-tax Officer had jurisdiction also to proceed under the provisions of the new Act.
21. We answer question No. 1 in the affirmative and in favour of the Revenue.
22. So far as question No. 2 is concerned, learned advocate for the Revenue drew our attention to the various orders passed in making the assessment and submitted that as successive reliefs had been granted to the assessee in respect of the assessment as also in respect of the supplemental assessment under Section 34 of the Act of 1922, in computing the refund to be granted to the assessee implementing such reliefs, arithmetical mistakes had been committed. Learned advocate for the Revenue sought to demonstrate the mistakes with calculations.
23. We are unable to entertain this contention on behalf of the Revenue at this stage. The Tribunal has found that the rectification proceeding related to withdrawal of rebate granted under the Finance Act, 1951, and not in respect of any other mistake. This finding has not been challenged by the Revenue. The Tribunal has found further that no notice had been given to the assessee in respect of any other mistake occurring in the order dated September 10, 1964, except in respect of withdrawal of the rebate and the assessee had no opportunity to make his representations in respect of rectification of any other mistake. Sub-section (3) of Section 154 makes it obligatory on the Income-tax Officer to give notice to the assessee of the proposed amendment which has the effect of enhancing the assessment or reducing the refund and reasonable opportunity has to be granted to the assessee of being heard.
24. It was not contended on behalf of the Revenue that on the rectification of the order dated September 16, 1964, so far as it concerned the withdrawal of rebate, the matter was free from controversy and could be lawfully made. In any event, the Tribunal has found that the rectification was made on the basis of the withdrawal of the rebate and the amount of excess refund was worked out after complicated calculation. The Tribunal also found that the question of revocation of the withdrawal of rebate was a controversial matter. We see no reason to differ from the view taken by the Tribunal.
25. For the above reason, we answer question No. 2 in the affirmative and in favour of the assessee.
26. In the facts and circumstances, there will be no order as to costs.
Monjula Bose, J.
27. I agree.