Posted On by &filed under Judgements.


Income Tax Appellate Tribunal – Lucknow
Deputy Commissioner Of … vs Uttar Pradesh Forest Corporation on 8 September, 2000
Bench: P Parashar, M Singh


ORDER

1. The present matter relates to rectification of mistake in the order of the Tribunal dated 9-9-1996. Although the Department has also filed M.A. Nos. 52 & 53/Lko/2000 relating the similar issue but for the sake of convenience, we proceed to decide the matter, which has been initiated on account of our notice dated 30-8-2000 in respect of order of the Tribunal dated 9-9-1996 in ITA Nos. 1228 & 1229/Alld./1989. The orders on the miscellaneous applications of the Department i.e., M.A. Nos. 52 & 53/Lko/2000 are being passed separately.

2. With a view to rectify mistakes in the Income-tax Appellate Tribunal’s order dated 9-9-1996 in revenue’s appeals in ITA Nos. 1228 & 1229/A/1989 for the assessment years 1985-86 & 1986-87 respectively, the Tribunal issued notice under Section 254(2) of the Income-tax Act dated August 30, 2000 requiring the assessee, M/s. U.P. Forest Corporation, Lucknow and the revenue to state their objections, if any, on or before 5-9-2000 in writing and fix the hearing in the proceedings for 5-9-2000 before the Lucknow Bench camp at PIC-UP Bhavan, Gomti Nagar, Lucknow for which a formal notice of hearing was also enclosed. On behalf of the U.P. Forest Corporation a reply to notices including notice dated 30-8-2000 issued by the Appellate Tribunal to amend its order including order dated 9-9-1996 was filed and Shri S.P. Gupta, Ld. Sr. Advocate alongwith Shri Kanchan Kaushal, Authorised Signatory for U.P. Forest Corporation attended the hearing on 6-9-2000 and made oral submission. On behalf of the revenue, Shri B. Dogra, Sr. A.R, attended. Before considering the reply to the notice and the rival submissions, we consider it necessary to state the facts obtainable and issues involved, which in brief are extracted as under :–

The U.P. Forest Corporation was created by the U.P. Forest Corporation Act, 1974. The Corporation filed its return of income as exempt under Section 10(20) of the Income-tax Act, 1961 claiming it to be a local Authority. Against initiating the assessment proceedings for the assessment year 1976-77, Corporation moved writ petition and the Hon’ble High Court of Judicature at Allahabad vide its order dated 27-1-1978 declared the U.P. Forest Corporation to be a Local Authority, but dismissed the writ petition on the reasoning that the Assessing Authority has power to initiate assessment proceedings because Local Authority is taxable unit under Section 2(31) of the Income-tax Act, 1961 and that every income of the Local Authority is not liable to be excluded under Section 10(20) of the Income-tax Act, 1961. The CIT(A) following the order of the Hon’ble High Court in respect of Local Authority directed the Assessing Officer to decide as to whether the entire income was exempt under Section 10(20) of the Income-tax Act. The Revenue filed an appeal before the ITAT who held that the assessee was not a Local Authority against which the Hon’ble Allahabad High Court in writ petition No. 4424(A)/87, writ petition No. 216 of 1988, writ petition No. 8215 of 87 vide its order, following its earlier order, the Hon’ble High Court held that the assessee was a Local Authority

and also held that the claim of assessee under Section 11(1) appears to be well founded. The operation of order of Hon’ble High Court dated 19-5-1988 was suspended vide order dated 17-1-1989 by the Hon’ble Supreme Court pending the hearing and final disposal of Civil Misc. Petition No. 8687, 8698/1988 in appeal No. 180 to 182/1988 to be carried on but not to recover any tax demand, if any, raised. In view of the same and also in view of reference applications for the assessment years 1979-80, 81-82 & 82-83 were earlier allowed on a similar issue. The ITAT vide order dated 3-12-1990 allowed revenue’s reference applications in R.A. No. 254/Alld./1990 arising out of ITA No. 1927(Alld.) of 1986 for the assessment year 1983-84. The Tribunal, however, vide order dated 15-12-1992 did not allow revenue’s reference application for the assessment year 1984-85 in R.A. No. 211/A/1992 arising out of the ITA No. 1145/Alld./ 1988 by observing as under :–

“As the order of the Tribunal is based on the decision of the Hon’ble High Court, we do not think it proper to refer the same again for opinion merely on the ground that the earlier order of the High Court has been appealed against by the Department before the Hon’ble Supreme Court.”

3. The Revenue’s appeals for the assessment years 1985-86 and 86-87 were dismissed vide order dated 9-9-1996 in ITA Nos. 1228 & 1229/Alld./1989 against the identical grounds, which are as under :–

“(i) That the ld. CIT(A) erred in law and on facts of the case in holding that the assessee-Corporation is exempt under Section 10(20) and 11 of the Income-tax Act, 1961.

(ii) That the Hon’ble High Court’s decision referred to by the ld. CIT(A) has not been accepted and a S.L.P. have since been filed before the Hon’ble Supreme Court. Also, that the appellate order dated 29-7-1988 for the assessment year 1984-85 has not been accepted.

(iii) That in any case, the ld. CIT(A) should have directed the Assessing Officer to verify it the other conditions for exemption under Section 11 are satisfied e.g., registration under Section 12A and accumulation of income beyond prescribed limit etc. These conditions were not raised before the Hon’ble High Court and therefore, not considered in their judgment.”

4. The Revenue filed miscellaneous application against the above order and the ITAT vide order dated 14-8-1997 in M.A. No. 5(Alld.) of 1997 arising out of ITA Nos. 1228 & 1229/A/1989 for the assessment years 1985-86 & 86-87 recalled the order dated 9-9-1996 in respect of applicability of Section 10(20) of the Income-tax Act, but in respect of revenue’s contention regarding Section 11, the Tribunal observed as under :–

“The other aspect of the miscellaneous application relates to applicability of Section 11 of the Income-tax Act on which aspect, a clarification is sought by the Department, neither party addressed us on this aspect. We find that the grounds taken by the Department in this behalf the

Tribunal had merely followed its earlier decision based on the order of the Hon’ble Allahabad High Court in the assessee’s writ petition. Therefore, there is no scope of giving any clarification by the Tribunal on this count alone.”

5. In re-called proceedings for the assessment years 1985-86 & 86-87 in a common order dated 28-4-1999, the ITAT, ‘A’ Bench, Allahabad in the revenue’s appeals in ITA Nos. 1706 & 1707/Alld./1991 for the assessment years 1977-78 & 80-81, ITA Nos. 77, 78, 79, 80 & 81/Alld./1990 for the assessment years 1979-80, 80-81, 81-82, 82-83 & 83-84 in ITA Nos. 1228 & 1229/Alld./1989 for the assessment years 1985-86 & 86-87 and ITA Nos. 697 & 698/Alld./1990 for the assessment years 1987-88 & 88-89 allowed the revenue’s appeal in respect of exemption under Section 10(20) of the Income-tax Act vide para 9 of the order in view of the Supreme Court decision dated 2-3-1988 and accordingly, decided against the assessee-Corporation but in respect of issue regarding exemption under Section 11 of the Income-tax Act observed as under :–

“On the issue of exemption under Section 11 of the Income-tax Act as issue was not recalled in miscellaneous application before the Tribunal, the revenue may be debarred from pleading this issue before us during the recalled proceedings, but we feel that in view of the Hon’ble Supreme Court’s decision dated 2-3-1998 in the assessee’s own case, the consideration of the same revives, therefore, we restore the issue before the Assessing Officer for decision afresh, after according an opportunity of hearing.”

6. Against the above observations, the assessee-corporation filed miscellaneous application as M.A. Nos. 22 & 23/Alld./2000 respectively for the assessment years 1985-86 & 86-87 claiming that the issue relating to Section 11 of the Income-tax Act became final vide the Tribunal’s order dated 9-9-1996 and even in view of revenue’s miscellaneous application No. 5/A 1997 arising out of ITA Nos. 1228 & 1229/A/1989 for the assessment years 1985-86 & 86-87, which stands rejected. Therefore, the only issue relating to exemption under Section 10(20) of the Income-tax Act was before the Tribunal and not the issue relating to exemption under Section 11 of the Income-tax Act. The observation in respect of exemption under Section 11 of the Income-tax Act constitutes a mistake which is sought to be rectified through the miscellaneous application filed by the assessee-corporation as M.A. Nos. 22 & 23/Alld./2000 respectively against the combined order dated 28-4-1999 for the assessment years 1985-86 & 86-87 arising out of the ITA Nos. 1228 & 1229/Alld./1989.

7. The Tribunal, vide order-sheet entry dated 7-4-2000, issued a notice under Section 254(2) of the Income-tax Act, which partly reads as under :–

“(i) The revenue vide its miscellaneous application for rectification of certain mistakes including a request for clarifying the issue relating to assessee’s claim under Section 11 of the Income-tax Act, 1961 in para 8 of the miscellaneous application had requested….

8. In the alternative-claim of the assessee under Section 11, it may be clarified that the assessee can be made liable to fulfil the conditions of the said Section or should it get blanket exemption regardless of conditions of exemption or exclusion of the sum under Section 11 of the Income-tax Act, which may help the Department to give effect to the Tribunal’s order.”

8. In the alternative, the Tribunal, while deciding the miscellaneous application vide order dated 14th August, 1997 declined to clarify the issue on the ground that the Tribunal having followed its earlier decision based on the order of the Hon’ble Allahabad High Court in the assessee’s writ petition, therefore, there was no scope of giving any clarification in view of the Hon’ble High Court on this count. The observation of the Tribunal as contained in para 6.1 of the order in revenue’s miscellaneous application reads as under :–

“The other aspect of miscellaneous application relates to the applicability of Section 11 of the Income-tax Act on which aspect a clarification is sought by the Department. Neither party addressed us on this aspect. We find that on the grounds taken by the Department in this behalf, the Tribunal had merely followed its earlier decision based on the order of the Allahabad High Court in the assessee’s writ petition. There is, therefore, no scope of giving any clarification by the Tribunal on this count alone.

9. It may be mentioned that the order of the Hon’ble Allahabad High Court dated 19-5-1988 had been reversed by the Hon’ble Supreme Court vide decision dated 2-3-1998 and the Hon’ble Supreme Court vide its order dated 17-1-1989 had earlier suspended the operation of judgment of Hon’ble Allahabad High Court dated 19-5-1988 and the order of the Hon’ble Supreme Court reads as under :–

“Special Leave to appeal is granted. The operation of the impugned judgment of the High Court shall remain suspended during the pendency of the appeal but the assessment proceedings may be taken, no recovery of tax shall be effected.”

The judicial note of the decision of the Hon’ble Supreme Court as above had been taken by the Income-tax Appellate Tribunal in their order dated December 3, 1990 in R.A. No. 254/Alld./1990 (ITA No. 1927/Alld./1986 for the assessment year 1983-84 as per para 5 as under :–

“5. The Revenue being aggrieved from the judgment of the Hon’ble High Court mentioned above, moved the Hon’ble Supreme Court and the Hon’ble Supreme Court vide its order dated 17-1-1989 in civil Miscellaneous Petition No. 8883 to 8686/1968 in appeal Nos. 180 to 182 of 1989 has inter alia observed as under :

“This court do order that pending the hearing and final disposal of this court of appeal aforementioned, the operation of the impugned judgment and order dated 19-5-1988 of the High Court of Judicature at Allahabad in writ petition Nos. 4424 of 1987, 216 of 1988 and 8215/ 1987 is hereby suspended but while the assessment proceedings may

be taken, no recovery of the tax shall be effected.” ” As the matter is still sub judice and pending before the Hon’ble High Court, we deem it proper to keep the matter alive on behalf of the revenue and refer the above questions to the Hon’ble High Court for opinion.”

10. However, in subsequent revenue’s reference application dated 15-12-1992 in R.A. No. 211 (All.) of 1992 for the assessment year 1984-85, I.T.A. No. 1154 (All.) of 1988 the reference of Hon’ble Supreme Court decision dated 17-1-1989 suspending the operation of Hon’ble High Court order dated 19-5-1988 has not been made.

11. The Hon’ble Supreme Court has held that the assessee-corporation is not a Local Authority, therefore, its income is not exempt under Section 10(20) of the Income-tax Act and in respect of assessee’s claim that its income is not liable to be taxed in view of Section 11, the Hon’ble Supreme Court has directed the Assessing Authority to consider the claim of the assessee-corporation that its income is not liable to be taxed in view of provisions of Section 11 of the Act and the Institution has got to be registered and has to fulfil the conditions for registration under Section 12A of the Income-tax Act as well as other conditions for claiming exempting under Section 11.

12. In view of Hon’ble Supreme Court decision referred to above, a need to rectify the order passed by the Tribunal in revenue’s M.A. No. 5/Alld./ of 1987 dated 14-8-1997 arose on the point of revenue’s request seeking clarification as per para 8 of its miscellaneous application more specifically in view of the fact that the operation of the order of Hon’ble High Court in a writ petition dated 19-5-1988 was suspended by the Hon’ble Supreme Court vide its order dated 17-1-1989 in Civil Miscellaneous Petition of 1988 filed by the revenue against the order of the Hon’ble High Court dated 19-5-1988 allowing the assessment proceedings to be taken and not to effect recovery of tax and these facts were already before the . Tribunal in view of order dated 3-12-1990 (supra). Moreover, the revenue has taken specific ground before the Tribunal in I.T.A. Nos. 1228 & 1229 (All.) of 1989 referred to above and the revenue’s ground No. 1 (ii) and (iii) are as under:

“(ii) that Hon’ble High Court decision referred to by the CIT (Appeals) has not been accepted and S.L.P. has since been filed before the Hon’ble Supreme Court and also the appellate order dated 29-7-1988 for the assessment year 1984-85 has not been accepted.

(iii) That in any case, the learned CIT (Appeals) should have directed the A.O. to verify if the other conditions for exemption under Section 11 are satisfied that is regarding registration under Section 12A and accumulation of income beyond prescribed limit etc. These conditions were not raised before the Hon’ble High Court, therefore, not considered in their judgment.”

13. Under the circumstances, specially when the operation of the order of the Hon’ble High Court dated 19-5-1988 has since been suspended by the

Hon’ble Supreme Court vide its order dated 17-1-1989 and the Tribunal has-already taken note of the same as per order dated 3-12-1990 in R.A. No. 254 (All.) of 1990 (supra) and now that the Hon’ble Supreme Court has already reversed the order of the Hon’ble High Court dated 19-5-1988, the operation of which already stood suspended vide order 17-1-1989 of the Hon’ble Supreme Court, a rectifiable mistake is apparent on the face of record. Therefore, the Tribunal issued notice dated 7-4-2000 to rectify its order dated 14-8-1997 in M.A. No. 5/A/97 arising out of I.T.A. No. 1228/ 1229/A/89 and subsequently issued notice 30-8-2000 to rectify the order of the Tribunal dated 9-9-1996 in I.T.A. Nos. 1228 & 1229 (AD.) of 1989 for the assessment years 1985-86 & 1986-87 because the rectifiable mistake originally occurred in that order which led to departmental M.A. registered as M.A. No. 5/Alld./97. The revenue also filed miscellaneous applications registered as M.A. Nos. 52 & 53/Alld. 2000 respectively for the assessment years 1985-86 & 86-87 raising almost the similar issues requesting the Tribunal to amend its earlier order dated 9-9-1996 as on the issue of exemption under Section 11 it stated that it had merely followed its earlier decision based on the order of the Hon’ble Allahabad High Court in writ petition and held that there is no scope for giving any clarification on this issue, whereas not only the operation of the order of the Hon’ble High Court dated 2-3-1988 has already been suspended by the Hon’ble Supreme Court vide its order dated 17-1-1989 but has finally been reversed the order of the Hon’ble High Court vide order dated 2-3-1988 not only holding that the appellant-assessee is not a Local Authority so as to claim exemption under Section 10(20) but has also directed the Assessing Officer to examine the claim of the assessee-Corporation for exemption under Section 11(1) and in view of the same, the revenue has pleaded to suitably amend the order dated 14-8-1987 of the I.T.A.T. in view of Hon’ble Supreme Court decision (supra).

14. Therefore, the issues for consideration before us are in respect of Tribunal’s notice dated 7-4-2000 in respect of M.A. No. 5/Alld./19 and also in respect of I.T.A.T. notice dated 30-8-2000 in I.T.A. Nos. 1228 & 1229/ Alld./89 for the assessment year 1985-86 & 86-87 and also in respect of revenue’s M.A. Nos. 52 & 53 (All.) of 2000 in respect of revenue’s earlier M.A. arising of Tribunal’s order dated 14-8-1997 in I.T.A. No. 1228 and 1229/Alld./89. Besides above, the assessee-Corporation has also filed M.A. In respect of Tribunal’s recalled order dated 9-9-1996 for the assessment year 1985-86 and registered as R.A. Nos. 22 & 23/All./2000 for the assessment years 1985-86 & 86-87 in respect of Tribunal’s combined order dated 28-4-1999 (supra).

15. On the date of hearing, Shri S.P. Gupta Sr. Advocate on behalf of the assessee-corporation made submissions in the light of reply to notices dated 7-4-2000and 30-8-2000 issued by the L.T.A.T. for amending Tribunal’s order dated 14-8-1997 and 9-9-1996 and so also in respect of proceedings under Section 254(2) of the Income-tax Act in respect of M.A. Nos. 52 & 53 / Lko/2000 for the assessment years 1985-86 & 86-87 (arising out of I.T.A.

Nos. 1228 & 1229 (All.) of 1989. Shri Gupta at the out-set mentioned that the hearing the respect of R.A. No. 5 (A) for which notice dated 7-4-2000 had earlier been issued, had already been concluded, therefore, the submissions made in respect thereof may also be taken into consideration; while disposing of the notices referred to above and applications of the revenue register as M.A. Nos. 52 & 53 Lko./2000. Shri Gupta also submitted that besides the reply of notices referred to above as well as in respect of M.As. filed by the revenue as M.A. Nos. 52 & 53, be disposed of all at one go for which he also made fresh submissions mostly with reference to reply to notices.

16. Looking into the facts and circumstances and after perusal of the appeal folders available before the Tribunal, we consider it apt and necessary to decide the issues involved in notice in respect of Appellate Tribunal’s order dated 9-9-1996 in revenue’s I.T.A. Nos 1228 & 1229 (All.) 1989 for the assessment years 1985-86 & 86-87, because the M.As. and other issues all arise from the same order and all controversies can be set at rest which will help us in minimising number of proceedings and their consequences. Therefore, we are considering the submissions, replies and arguments relevant in respect of order dated 9-9-1996 (supra). Regarding the issue of exemption under Section 11(1) of the Income-tax Act, Shri Gupta maintained that there is no rectifiable mistake in the order of Tribunal dated 9-9-1996 in view of Hon’ble High Court’s order dated 19-5-1988 and the Tribunal has decided the controversy by rejecting the M.A. No. 5 arising out of the Tribunal’s order in I.T.A. Nos. 1228 & 1229 holding that the applicability of Section 11 the Income-tax Act, on which aspect a clarification is sought by the Department, neither party addressed us on this aspect. We find that on the grounds taken by the Department in this behalf, the Tribunal had merely followed its earlier decision based on the order of the Hon’ble Allahabad High Court in assessee’s writ petition. There is, therefore, no scope of giving any clarification by the Tribunal on this count alone. Therefore, the issue became final and there remained no rectifiable mistake which the revenue and for that matter Tribunal can rectify by filing an M.A. and issuing notice in respect thereof respectively. Shri Gupta further submitted that since the issue of the applicability or clarification sought by the revenue with regard to Section 11 was not pressed, therefore, in view of order dated 14-8-1997 the same can be said to have been withdrawn or abandoned by the revenue, therefore, no rectification lies. Shri Gupta also referred to para 9 of I.T.A.T.’s order dated 28-4-1999 observing that “the revenue may be debarred from pleading this issue (of exemption under Section 11 of the Act) before us during the recall proceedings but we feel that in view of the Hon’ble Supreme Court decision dated 2-3-1998 in assessee’s own case the consideration of the same revives, therefore, we restore the issue before the Assessing Officer for decision afresh”. Shri Gupta pleaded that in view of order dated 14-8-1997, the issue was not there at all as the revenue has already abandoned it. Now, through

another miscellaneous application, revenue wants the Tribunal to review its earlier order which is not permissible in law, in view of Hon’ble Allahabad High Court judgment in Laxmi Electronic Corporation Ltd. v. CIT [1991] 188 ITR 398, because the Tribunal has not omitted to deal with the ground urged by the party but has not answered as the same was not pressed at the time of hearing. Shri Gupta further submitted that in view of Andhra Pradesh State Roadways Corporation, (the order of the Hon’ble Supreme Court), High Court upheld the character of U.P. Forest Corporation as charitable and the Tribunal merely followed it in its order dated 9-9-1996. Therefore, the issue of exemption under Section 11 cannot be raised. So far as the judgment of the Hon’ble Supreme Court is concerned, it only sought that the issue of Section 11 cannot be raised for the first time before the High Court in its writ petition – and in respect of Section 11, no issue has been decided by the Hon’ble Supreme Court. It has merely directed the Assessing Officer to examine the applicability of the same in respect of the assessee-corporation after giving opportunity of hearing. Shri Gupta objected seriously that the revenue cannot argue on the points raised by the ITAT in its notice to rectify its order dated 9-9-1996 and reiterated that the decision of the Hon’ble Supreme Court dated 2-3-1998 does not lay down any law.

17. On the other hand the D.R. Shri B. Dogra submitted the decision of the Hon’ble Supreme Court has to be followed by the lower courts including the Hon’ble High Court in view of the provisions of Article 141 of the Constitution of India. A compliance of statutory provisions of the Income-tax Act should be examined by a proper forum i.e. Assessing Officer etc. Therefore, the observation of the Hon’ble Supreme Court has laid down the law and unless the same is followed, it cannot be said to proper on the party of the Hon’ble High Court to hold that the exemption is available under Section 11 of the Income-tax Act – to the assessee – Corporation, without examination of claim. Regarding the charge of mala fide, Shri Dogra submitted that the ld. Sr. Advocate has not filed any documentary evidence and mere assertion orally is not sufficient to prove the mala fide and something more is required to be proved for alleging mala fide. Regarding the delay factor, Shri Dogra submitted that even the assessee filed cross objection after lapse of several years and if there is delay of less than four years, the Revenue is within its rights to seek rectification within the prescribed time limit. So far as the issue of notice by the Tribunal is concerned, the ld. Sr. Advocate has not specifically stated as to whether the IT AT is within its powers to issue its notices suo motu regarding which Shri Dogra submitted that power to issue notice is inherent in view of several decisions including K.T.M.S. Umma v. CIT [1983] 144 ITR 890 (Mad.), Sidhramappa Andannappa Manvi v. CIT [1952] 21 ITR 333 (Bom.), CIT v. Kelvin Jute Co. Ltd. [1980] 126 ITR 679 (Cal.), CIT v. Jagabandhu

Roul [1984] 145 ITR 153 (Ori.), Niranjan & Co. Ltd. v. ITAT [1980] 122 ITR 519 (Cal.), and H.H. Maharaja Martant Singh JuDeo v. CIT [1988] 171 ITR 586 (MP) and accordingly, Shri Dogra submitted that power to amend includes the power to pass an order and all consequential orders, which may upset even the entire order, Sidhramappa Andannappa Manvi’s case (supra) Shri Dogra further submitted that since the operation of Hon’ble Allahabad High Court judgment was suspended in 1989, the Tribunal was not justified in following the order in view of Hon’ble Supreme Court decision and therefore, the order of the Tribunal is not in consonance with the decision of the Hon’ble Supreme Court, Shri Dogra also relied upon Kil Kotagiri Tea and Coffee Estates Co. Ltd, v. ITAT [1988] 174 ITR 579 (Ker.) holding that an order based on decision of a court which is ultimately found wrong, constitute a mistake of law since the order of the Hon’ble High Court is reversed by the Hon’ble Supreme Court, hence the Tribunal is within its rights to take up issue for rectification. In rejoinder, Shri Gupta reiterated that he failed to understand as to what law has been laid down by the Hon’ble Supreme Court so as to find any mistake in the order of ITAT dated 9-9-1996. Even the rectification application filed for the second time has not specified the mistake in the order of the Tribunal. Therefore, Shri Gupta pleaded that the notices issued by the ITAT are misconstrued and M.As. filed for the second time by the Revenue are liable to be rejected.

18. We have considered the rival submissions and have perused the records in respect of ITAT’s orders, including orders in R.A. Nos, and M.As., the reference of which has been made in the extracted facts.

The basic issue before us is as to whether the Tribunal can rectify its order dated 9-9-1996 in view of Hon’ble Supreme Court’s order, especially in the background that the operation of the Hon’ble High Court’s order dated 19-5-1988 was suspended by the Hon’ble Supreme Court vide its order dated 17-1-1989 and the judicial note of the same has earlier been taken by the Tribunal in its order dated December 3, 1990 in R.A. No. 254/Alld/ 1990 arising out of ITA No. 1927/Alld./1986 for the assessment year 1983-84.

19. The primary objection of the assessee, as contained in para 2 of its reply is that Section 254 of ITAT does not give inherent power to the Tribunal to rectify a mistake. In support of this objection, the assessee has also placed reliance on the decision in CIT v. K.L. Bhatia [1990] 182 ITR 361 (Delhi) and K. Kunhi Mohammad Hajee v. State of Kerala [1974] 93 ITR 193 (Ker.).

This objection of the assessee, in our opinion, is not sustainable. Section 254(2) of the Income-tax Act confers inherent jurisdiction on the Tribunal

to rectify a mistake committed by it. In the case of K.T.M.S. Umma Salma (supra) the Hon’ble Madras High Court has held as under :–

“. . . The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under Sub-section (1) and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer, “We are not concerned with the proviso to Section 254(2) of the Act as also Section 254(3) of the Act. Section 254(4) of the Act states : Save as provided in Section 256 orders passed by the Appellate Tribunal on appeal shall be final”. Section 254(2) of the Act confers inherent jurisdiction on the Tribunal to rectify a mistake committed by it.”

In the case of Sidharamappa Andannappa Manvi (supra), the Hon’ble Bombay High Court has held that the power of Appellate Tribunal under Section 35 of the Indian Income-tax Act, 1922 to rectify its own mistake on its own motion is a larger power than the power to rectify on the application of a party. It was further held by the Hon’ble Court that the power is not confined to mere rectification of a mistake which is patent on the record. According to Hon’ble Court, after the mistake is corrected, it has the power to pass all consequential orders. The relevant portion of the observations of the Hon’ble Court is extracted below :–

“. . . The power to rectify on its own motion is a large power than the power to rectify on the application of a party. When a statute confers a power upon a Tribunal to make an order on the application of a party that is a limited power. The power is limited to rectification on an application being made by a party. If an application is not made even if the Tribunal realises its own mistake or finds out its own mistake it has no power to correct it.

But when a statute confers a power upon a Tribunal to rectify a mistake suo motu that power is a wider power, a larger power, and can be exercised without an application being made by any party. Therefore, when the Tribunal exercises this power on the application of the Commissioner or at the instance of the Commissioner it is doing something which it can do on its own motion and in doing the same at the instance of the Commissioner, it is exercising a narrower power than the power conferred upon it by Section 35(3).”

Thus the legal position is clear that the Tribunal has suo motu power of rectification under Section 254 of the Act. Not only this, a duty is cast upon the Tribunal to rectify any mistake which comes to its notice or which is pointed out in its order by any of the parties.

In the case of Maharaja Martant Singh Ju Deo (supra), the Hon’ble M.P. High Court also considered the issue relating to the powers available to the Appellate Tribunal under Section 254(2) of the Income-tax Act and held that the Tribunal has got power to rectify its mistakes by making necessary amendments. In that case, the assessee claimed exemption under Section 54 of the Act on the sale of a house at Bombay. The Tribunal, vide

its order dated 8-12-81, held that the house in question was owned by a group of two owners which constituted an artificial juridical person. Subsequently, the assessee made an application for rectification which was allowed by the Tribunal vide its order dated 2-9-82 and deleted the earlier findings by making substitution to the effect that the house in question initially was owned by Hindu Undivided Family comprising of the assessee, his wife and minor children and a partition took place in July, 1971 whereby the property was divided into three portions. The Tribunal also observed that in holding that a considerable portion of the property was a vacant land, it had committed an error. The order of the Tribunal was upheld by the Hon’ble High Court by observing as under :–

“Section 254(2) of the Act, inter alia, provides that the Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectify any mistake apparent from the record, amend any order passed by it under Sub-section (1) and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer. In the instant case, as indicated above, a mistake apparent from the record had been committed by the Tribunal. This mistake was brought to its notice within four years from the date of the order by the assessee and was rectified by the Tribunal by making necessary amendments in the earlier order. The case, therefore, squarely fell within the purview of rectification of mistakes as contemplated by Section 254(2) of the Act and it was not a case where the Tribunal could be said to have reviewed its earlier order.”

In the case of Laxmi Electronic Corporation Ltd. (supra) the Hon’ble Allahabad High Court has also observed as under:–

‘… It is a well settled proposition that an act of High Court (which, in the context, means and includes a Tribunal of the nature of the Income-tax Appellate Tribunal) should not prejudice a party: In such a case, it would not be just to drive the party to a reference under Section 256. It must be left to the Tribunal to reopen the appeal if it finds that it has omitted to deal with an important ground urged by the party. We are not persuaded to agree that the expression “record” in the phrase “mistake apparent from the record” in Section 254(2) means only the judgment. The record means the record before the Tribunal. Failure to deal with a preliminary objection of the nature concerned herein certainly amounts to a mistake apparent from the record.”

The decisions reference and relied upon by the assessee are distinguishable on facts. In the case of Shew Paper Exchange v. ITO [1974] (93 ITR 186), the Hon’ble Calcutta High Court considered the issue relating to the power of review and rectification. It was held by the Court that the right of review in the circumstances, as claimed by the petitioner, cannot be assumed unless expressly given by the Statute or by rules having the force of the Statute.

In the case of K.L. Bhatia (supra), the assessment was framed in respect of some property against the assessee and his objection was that the

property does not belong to him but to his wife. The CIT in appeal accepted this contention. The ITAT on appeal came to the conclusion that the wife of the respondent was only a Benamidar and property in fact belonged to the respondent (assessee). Later on, petition under Section 254(2) was filed, in which it was pointed out that some material facts were not correctly noted by the Tribunal in its earlier order. The Tribunal accepted this application and noted that this was an application under Section 254 of the Act. It also recalled its order. Being aggrieved, the assessee filed a reference application under Section 256(1) which was rejected. There-after reference petition under Section 256(2) was filed. In that context, the Hon’ble High Court held that the ITAT can have no power to pass any order on merits, in exercise of its alleged inherent powers, if such orders are not contemplated to be passed under the provisions of the Income-tax Act. It was also observed by the Hon’ble Court that the Tribunal has no inherent power of reviewing its own order on merits and it can, after disposing of the appeal under Section 254(1), rehear the matter on merits only within the purview of Section 254(2).

Thus the two authorities cited by the ld. Sr. counsel for the assessee are not directly on the point that the Tribunal has no inherent power to make rectification of the mistakes committed by it.

20. The Ld. counsel for the assessee has also made reference to the following case laws in support of his objections that in the instant matter, the power of rectification under Section 254 of the Income-tax Act is not available to the Tribunal:–

1. Mahakoshal Ceramics v. CIT [2000] 243 ITR 969 (MP) (sic).

2. Laxmi Electronic Corporation Ltd. (supra).

3. CIT v. ITAT [1992] 196 ITR 838 (Ori.).

4. CIT v. Krishna Rana [1987] 167 ITR 652 (Pat.).

5. Geep Industrial Syndicate Ltd. v. CBDT [1987] 166 ITR 88 (Delhi).

After going through these cases, we find that the same are distinguishable on facts. So far as the case of Mahakoshal Ceramics (supra) is concerned, the issue in that case related to the order of the Tribunal, which was passed on the application for withdrawal. It was held by Hon’ble High Court that Section 154 provides that a rectification can be done only if there is an error apparent on the face of record. It was also held that the withdrawal of appeal amounted to a statement made by the assessee that the appeal was not competent and in dismissing the appeal as withdrawn, the Tribunal dismissed appeal as not competent. Under these circumstances it was held that merely because by reason of subsequent decision that the view of law had changed, it could not be said that there was an error apparent on the fact of record.

The case of Laxmi Electronic Corporation Ltd. (supra) also does not help the assessee. In that case, on the other hand, it was held that the Tribunal should not derive a party to reference under Section 256 of the Income-tax Act and if it fails to admit or deal with an important contention affecting merits of an appeal, it must be deemed to be mistake apparent from record, which empowers the Tribunal to reopen the appeal and rectify the same if it is so satisfied.

In the case of Dr. (Mrs.) Krishna Rana (supra), the Hon’ble Patna High Court has held that the Tribunal has no power to review its own orders. The power of rectification is different from that of review. The case of Geep Industrial Syndicate Ltd. (supra) related to distinguishable facts. In that case, the Income-tax Officer had given effect to the order of ITAT and the issue related to the scope of 154 of ITAT. Thus the authorities cited on behalf of the assessee in support of various objections do not help it.

In view of the above, we are of the opinion that the Tribunal has got inherent and suo motu power to rectify its mistakes and in the present case as the mistake is on account of application of incorrect and invalid law, the Tribunal has ample power to rectify such a mistake.

21. In para 3 of the reply, the contention of the assessee is that the power to rectify a mistake can be exercised only on a complaint or application by an aggrieved person. This contention is also not acceptable in view of the authorities cited above. In paras 4, 5, 8, 15, 17, 18, 20 and 21, the objections of the assessee are that the order of the Tribunal dated 9-9-1996 became final and the issue relating to the applicability of Section 11 of the Income-tax Act to the income of the assessee became final. It is also averred that the Hon’ble Supreme Court did not decide any issue of question of law which had direct or indirect bearing on the orders of the Tribunal dated 9-9-1996 or 14-8-1997. According to ld. Sr. Advocate, the Hon’ble Supreme Court has not laid down any such law that the order dated 9-9-1996 may be taken to suffer from mistake and it be altered or modified. According to the ld. Sr. Advocate, the Hon’ble Supreme Court had only demanded the matter before the Assessing Officer and did not decide any issue relating to Section 11 of the Income-tax Act and in such a situation, the order of Tribunal dated 9-9-1996 cannot be said to be suffering from any apparent mistake.

On perusal of the entire record, including the assessment orders for 1985-86 and 1986-87, the grounds of appeal and the appellate orders, as well as the orders of ITAT for these two years, it is clear that the anchor and main basis of the submission of the assessee for claiming exemption from Income-tax under Section 10(20) and 11(1) of ITAT by the order of the Hon’ble High Court dated 19-5-1988 rendered in WTA No. 4424(A)/ 1987 No. 216/88 and No. 8215/(A)/1987, the Assessing Officer declined to allow the claim of the assessee by observing that the matter is sub-judice before the Hon’ble Supreme Court. However, the ld. CIT(A), following the above mentioned judgment of the Hon’ble High Court,

allowed the relief and the Appellate Tribunal in the Assessment year 1984-85 vide its order dated 26-2-1992 upheld the order of the ld. CIT passed by him after following the decision of the Hon’ble High Court, referred to above. So far as ITA Nos. 1228 and 1229 (A)/1989 for the Assessment years 1985-86 and 1986-87 are concerned, although specific ground (ground No. 2) was taken by the department, stating that an SLP is pending before the Hon’ble Supreme Court against the order of the Hon’ble High Court, but the ITAT after making reference to the order of the Hon’ble High Court followed the orders of the predecessor Benches dated 26-2-1992 for the Assessment year 1984-85. In M.A. No. 5 also, the Income-tax Appellate Tribunal made reference to the order of the Hon’ble High Court.

In view of the above facts, it is clear that the ITAT has followed the judgment of the Hon’ble Allahabad High Court and did not decide the issue relating to the exemption under Section 11 on merits. Since the order of the Hon’ble High Court was suspended vide order of the Hon’ble Supreme Court dated 17-1-1989 and was finally reversed by the Hon’ble Supreme Court vide its decision dated 2nd March, 1998 reported in CIT v. U.P. Forest Corporation [1998] 230 ITR 945, a relevant portion of which has been reproduced in para 2 of the notice, the judgment of the Hon’ble High Court which was followed by the Tribunal did not remain a valid law and, therefore, by virtue of the decision of the Hon’ble Supreme Court, the situation has arisen for rectification of the orders of Tribunal which are based on invalid law. It is to be pointed out that if a provision of law is retrospectively amended or is declared invalid, or if a decision of the Court is reversed, then the earlier existing legal provision or the decision will have no force and cannot be treated to be a valid law. In the case of K.T.S. Umma Salma, the Hon’ble Madras High Court has held that the effect of retrospective operation of amendment to Section 271(1)(d) of the I.T. Act is that it shall be deemed to have been included in the Act as from April 1, 1962. In the case of Kelvin Jute Co. Ltd. (supra) the Hon’ble Calcutta High Court also held the same view and observed that because the amending provision should be deemed to have been there, in the original principal Act from the very beginning, a mistake was apparent from record even though the Tribunal finally disposed of the appeal and Section 254(2) authorises the Tribunal to rectify such a mistake. The issue relating to the overriding effect of the subsequent decision was considered by the Hon’ble High Court of Kerala in the case of Bhagheeratha Engg. Ltd. v. CIT [1997] 227 ITR 504. In that case, the assessee-company which was engaged in the civil constructions of dams etc. claimed investment allowance in respect of plant and machinery used for the purpose of its business. The Assessing Officer denied the claim but on appeal, the ld. CIT, following the orders of the Tribunal allowed the claim. The appeal of Revenue was dismissed by the Tribunal and the order of the ld. CIT was

upheld. Subsequently, the Tribunal recalled its earlier order in view of the judgment of Hon’ble Supreme Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412 and withdrew the investment allowance granted to the assessee for the assessment year 1985-86. The Tribunal also rejected the reference application under Section 256(1). This approach of the Tribunal was upheld by the Hon’ble Kerala High Court which held that the judgment of the Hon’ble Supreme Court holds the field in view of Article 141 of the Constitution of India and is binding on all Courts within the territory of India.

The issue relating to the effect of subsequent judgment reversing the earlier judgment was also considered by the Hon’ble Kerala High Court in the case of Kilkotagiri Tea & Coffee Estates Co. Ltd. (supra). In this case, the matter related to allowability of interest on delayed payment of advance tax. Vide its order dated 31-10-1987, the Tribunal held that the belated payments are not to be taken into account as advance tax for the purpose of Section 214 of the Income-tax Act, 1961 and so interest is inadmissible for such belated payments. The Tribunal held so in view of the decision of Kerala High Court in the case of A. Sethumadhavan v. CIT [1980] 122 ITR 587. This decision of the Single Bench was reversed by a Division Bench of the Hon’ble High Court vide its judgment dated 22-1-1982, Thereafter the petitioner filed application for rectification of the order of Tribunal in view of the judgment of the Division Bench Santha S. Shenoy v. Union of India [1982] 135 ITR 39 (Ker.). However, the Tribunal dismissed the petition under Section 154 of the Income-tax Act on the ground that the rectification under Section 154 of the Income-tax Act must be of a mistake which is a mistake in the eye of law in force at the time when the orders sought to be rectified was passed and at the subsequent decision of the High Court has no retrospective operation as in the case of subsequent legislation or the decision of the Hon’ble Supreme Court. This approach of the Tribunal was not found justifiable. The Hon’ble Court held that when the Division Bench overruled the decision of the Single Bench, the said decision was never the law on the point at all times, which was as stated by the Bench in the subsequent decision and, therefore the original order of the Tribunal discloses a mistake apparent from the record, namely, that the assessee was not entitled to interest on the advance tax paid beyond the due date which should be rectified under Section 254(2) read with Section 154 of the Income-tax Act.

In view of the abovementioned decisions, it is clear that the judgment of the Hon’ble Allahabad High Court after having been reversed by the Hon’ble Supreme Court did not remain a valid law and the orders of the Tribunal based on such invalid law required to be rectified. Hence we are

of the considered view that the judgment of the Hon’ble Supreme Court of India which has laid down the law has to be followed by all the authorities. So far as the issue relating to exemption under Sections 11 and 12 of the Income-tax Act is concerned, the Hon’ble Supreme Court of India has reversed the order of the Hon’ble High Court and has directed the Income-tax Authorities to investigate the same afresh. It is immaterial that the judgment of the Hon’ble Supreme Court of India relates to different assessment years. The position will not be different in other assessment years so far as the basic issue relating to exemption under Sections 11 and 12 is concerned and the process formulated by the Hon’ble Supreme Court of India has to be adopted in other years also.

In view of the above, we do not find force in the objections of the assessee referred to above.

22. The assessee has also raised several other objections in its reply dated 6-9-2000. One of the main objections of the assessee is that after the decision in M.A. 5 of 1997 and rejection of the prayer of the deptt. by the Tribunal, the issue relating to applicability of Section 11 of the Income-tax Act became final as it should be deemed that the deptt. had abandoned its claim after the decision of the Tribunal on this issue. In support of this contention, the ld. counsel for the assessee made reference to the decision of the Hon’ble Supreme Court of India in the case of Sarguja Transport Service v. S.T.A. Tribunal, AIR 1987 SC 1988. The contention of the ld. Sr. Advocate was that as the deptt. did not address the Tribunal during the course of hearing of the MA. No. 5, relating to the applicability of Section 11 and in view of the findings of the Tribunal recorded in para 6.1 of its order dated 14-8-1997, in M.A. No. 5(A)/1997, the department cannot come again to seek rectification.

After going through the relevant record, we are of the view that the department has never relinquished its claim or withdrew any petition, by making any specific prayer. The mere fact that the parties did not specifically address the Tribunal on the applicability of Section 11, cannot mean and cannot be taken that the department had withdrawn its claim specifically when there was specific ground taken by the department in R.A. as well as in M.A. It is to be pointed out that the Revenue R.A. No. 300(A)/1996 and 301(A)/1996 arising out of ITA No. 1228 and 1229(A)/ 1989 for the assessment year 1985-86 and 1986-87 respectively relating to these three assessment years are still pending. It is further to be pointed out that in these RAs, question No. 2 sought to be referred relates to the applicability of Section 11 of the Income-tax Act. So far as the judgment of the Hon’ble Supreme Court in the case of Surguja Transport Services (supra) is concerned, that involved a different issue and was on different facts. In that case, the petitioner had withdrawn the petition without permission to file fresh petition and a subsequent petition was again filed by the petitioner. In the instant case, the department had never withdrawn any petition and has not filed any subsequent petition. It is also to be

pointed out that the judgment of the Hon’ble Supreme Court is in relation to the principle underlying Rule 1 of the Order 230 CPC and writ petition under article 226/227 of the Constitution of India. In view of the facts of that case, the decision is not applicable and is distinguishable. In view of the above the averments of the ld. Sr. Advocate on these aspects are not acceptable. We are, therefore, unable to accept the same.

23. The ld. Sr. Advocate, Shri Gupta also submitted that by virtue of the order of the Tribunal dated 14-8-1997 passed in M.A. No. 5, the entire matter relating to the applicability of Section 11 of the Income-tax Act stand finally settled and therefore, the same cannot be re-opened by the Tribunal in exercise of its power of rectification under Section 254(2) of the Income-tax Act as the same will amount to reviewing its order dated 9-9-1996 and 14-8-1997, which power is not available to the Tribunal. This contention was repelled by the ld. Sr. D.R., who emphatically argued that in view of the judgment of the Hon’ble Supreme Court of India dated 2-3-1998, there is a mistake apparent on the face of record in the order of the Tribunal which needs rectification.

24. We have considered the rival submissions. In our opinion, the judgment of the Hon’ble Supreme Court of India referred to above, has a direct bearing on the issue relating to the applicability of Section 11 of the Income-tax Act in the instant case and has reversed the legal position declared by the Hon’ble High Court in its order dated 19-5-1988 referred to above and therefore, it cannot be said that the matter or the issue has been finally settled. There is, in our view therefore, a mistake apparent on record, which requires rectification. The plea of abandonment of the claim or the doctrine of res judicata are also not applicable in the instant matter in the facts and circumstances pertaining to this matter. We are further of the view that rectification of the mistake in view of our notice dated 30-8-2000 will not amount to review of our order. We want to point out here that after the decision of the Hon’ble Supreme Court of India on the issue relating to applicability of Section 11 of the Income-tax Act, it becomes our bounden and legal duty to correct the mistake by rectifying/ amending our findings in our order dated 9-9-1996, which findings are solely based upon the legal position declared by the judgment of Hon’ble High Court, which judgment no more remains valid and does not retain legal validity on the issue involved.

25. In view of the above facts and observations, we find no force in the objections raised on behalf of the assessee – Corporation against our notice dated 30-8-2000 and, therefore, we reject the same.

26. On the basis of our notice dated 30-8-2000 and the discussions made above, we hold that in view of the order of the Hon’ble Supreme Court of India dated 17-1-1989 and its judgment dated 2-3-1998 there is a mistake apparent on the face of record in the order of the Tribunal dated 9-9-1996 rendered in I.T.A. Nos. 1228 & 1229/A/1989 for the assessment years 1985-86 & 1986-87 inasmuch as ground Nos. 1, 2 & 3 taken by the revenue

before the Tribunal in those appeals relating to the applicability of Section 11 of the Income-tax Act have not been decided in accordance with law. We, therefore, order rectification of our order dated 9-9-1996 passed in the said income-tax appeals and recall our order in respect of the applicability of Section 11 of the Income-tax Act for decision afresh in accordance with the decision of the Hon’ble Supreme Court of India referred to above and as per law, for which purpose, the matter would come up before us on 9-11-2000.


Leave a Reply

Your email address will not be published. Required fields are marked *

* Copy This Password *

* Type Or Paste Password Here *

8 queries in 0.120 seconds.