Case Note & Summary
The dispute arose from the retrospective amendment of Section 18-A(5) of the Indian Income-tax Act, 1922 by the Indian Income-tax (Amendment) Act, 1953. The respondent-assessee, Bombay Dyeing and Mfg. Co. Ltd., was assessed for the assessment year 1952-53 on October 9, 1952, and was given credit of Rs. 50,603-15-0 as interest on advance tax paid under Section 18-A(5). On May 24, 1953, the Amendment Act introduced a proviso to Section 18-A(5) with retrospective effect from April 1, 1952, which limited the interest payable to the difference between the advance tax paid and the tax assessed. Consequently, the Income-tax Officer invoked Section 35 and rectified the assessment order, reducing the interest credit to Rs. 21,157-6-0 and issuing a notice of demand for the balance of Rs. 29,446-9-0. The assessee challenged this by filing a writ petition under Article 226 of the Constitution in the High Court of Bombay, contending that Section 35 rectification could only correct mistakes apparent from the face of the order and that such mistake must be judged by the law as it stood on the date the order was passed. The High Court accepted this argument and issued a writ prohibiting enforcement of the rectified order and demand. The Revenue appealed to the Supreme Court. The main legal issue was whether a retrospective statutory amendment could render an earlier assessment order erroneous and whether such error was a mistake apparent from the record under Section 35. The Supreme Court noted the legal fiction in the Amendment Act that the proviso was deemed to have been in force from April 1, 1952. It held that the proviso must be read as part of Section 18-A(5) of the principal Act from that date, making the assessment order dated October 9, 1952 inconsistent with the law. The Court relied on the principle that a retrospective change in law creates a legal fiction requiring the court to assume the law as always existing, thereby making the prior order erroneous on its face. It distinguished the High Court’s view that the mistake must be apparent on the date the order was passed, stating that the fiction retroactively alters the legal position. The Court cited Commissioner of Income-tax, Bombay Presidency and Aden v. Khemchand Ramdas and other authorities to support that retrospective legislation can create an error apparent from the record. The appeal was allowed, the High Court’s order was set aside, and the rectification under Section 35 was upheld. The decision clarified that a mistake resulting from a retrospective amendment is rectifiable under Section 35 as a mistake apparent from the record.
Headnote
A) Income Tax – Rectification of Assessment – Mistake Apparent from Record – Retrospective Amendment – Indian Income-tax Act, 1922, Sections 18-A(5) and 35; Indian Income-tax (Amendment) Act, 1953, Sections 1 and 13 – The Income-tax Officer originally allowed credit for interest on advance tax under Section 18-A(5) in assessment year 1952-53. A subsequent 1953 amendment inserted a proviso to Section 18-A(5) with retrospective effect from April 1, 1952, limiting interest to the difference between advance tax paid and tax assessed. The Officer rectified the assessment under Section 35, reducing the interest credit and raising a demand. The High Court held Section 35 inapplicable as the mistake had to be apparent from the face of the order on the date it was passed. The Supreme Court reversed, holding that the retrospective legal fiction made the proviso part of the law since April 1, 1952, rendering the original assessment inconsistent and thus containing a mistake apparent from the record. Held, rectification under Section 35 was justified.
Issue of Consideration
Whether an Income-tax Officer can rectify an assessment order under Section 35 of the Indian Income-tax Act, 1922 on the ground that a subsequent retrospective amendment to Section 18-A(5) rendered the original order erroneous, and whether such error can be regarded as a mistake apparent from the record.
Final Decision
Appeal allowed; Supreme Court set aside High Court's order and held that Income-tax Officer was justified in rectifying the mistake under Section 35
Law Points
- retrospective application
- legal fiction
- mistake apparent from the face of the record
- rectification of assessment
- income tax advance payment interest
