LUCKOSE K C Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) AFTER careful and anxious consideration of the interesting question of law involved in this appeal, we think the learned judge was right in his reasoning and conclusion. We have no hesitation in agreeing with the same. The appellant was assessed to income-tax for the year 1964-65. Exhibit P-1 dated January 18, 1967, is a copy of the order of assessment. It was found that the appellant had sold eight vehicles for a sum of Rs. 2,05,000 ; out of which a sum of Rs. 10,000 had to be deducted for the value of four routes as fixed in 1957-58 assessment. The sab proceeds of the vehicles alone was thus worked out at Rs. 1,93,000. From this was deducted a sum of Rs. 83,919 representing the cost of two new vehicles and the balance sale price was Rs. 1,11,081. AFTER allowing deduction for the written down value, the profit under Section 41(2) was computed at Rs. 65,077 and the income from the vehicles at Rs. 15,470, to make up a total income of Rs. 80,547. This was rounded up to Rs. 80,550 and on this income the assesses was assessed. The assessee preferred a revision to the Commissioner under Section 264 of the Income-tax Act, 1961. This was disposed of by exhibit P-5 order dated February 5, 1970. The Commissioner maintained the total sale price at Rs. 2,05,000 less Rs. 10,000, viz., Rs. 1,95,000. From out of this he deducted the cost of two vehicles, viz., Rs. 92,943, and the balance sale price of three vehicles was computed at Rs. 1,02.057. The original cost of the three vehicles being Rs. 88,450 and their written down value Rs. 37,748 the profit under Section 41(2) was worked out at Rs. 50,702. To this extent, the assessee gained an advantage. But the Commissioner also took the view that the difference between the sale price of Rs. 1,02,057 and the original cost of the three vehicles, Rs. 88,450, viz., the sum of Rs. 13,607, attracted liability for capital gains, The business income of the assessee was also reduced by the Commissioner. Ultimately, as a result of this revision the tax liability of the assessee was fixed on the basis of a total income of Rs. 70,160 as against the total income of Rs. 80,550 arrived at by the Income-tax Officer. The assessee filed O.P. No. 2923 of 1970 to quash exhibit P-5 order of the Commissioner on the ground that in the revision filed by him under Section 264 of the Income-tax Act the Commissioner had no jurisdiction to vary an assessment order to the prejudice of the assessee. The learned judge held that the revision was one really under Section 264 of the Income-tax Act, but was of the opinion that the order cannot be said to be one prejudicial to the assessee as the net result of the tax liability arrived at by the Commissioner was favourable to the assessee, and not prejudicial to him. In that view the learned judge dismissed the writ petition. Sections 263 and 264(1) of the Income-tax Act, 1961, read as follows:

(2.) BEFORE us, however, counsel for the appellant maintained that the revisional power could properly be exercised only under Section 263 of the Act, and, therefore, would attract to itself the limitation of two years from the date of the order sought to be revised, provided for by Clause 2(b) of that section. We are satisfied that this contention also should fail. Under section 263, it is only an order which is "erroneous in so far as it is prejudicial to the interests of the revenue" that can be revised by the Commissioner, Counsel for the assessee contended that an order can be said to be "prejudicial to the interests of the revenue" even where there had been an omission to tax certain heads of income such as, in this case, the assess-ability to tax on capital gains, and that it did not matter that the ultimate effect of the tax distributed among the newly included heads of income was less onerous to the assessee. Giving the matter our careful attention, we feel that there is no warrant for such a conclusion. It is true that the Commissioner on revision brought to book the tax on capital gains which had escaped taxation at the hands of the Income-tax Officer. Bat even after such recomputation the ultimate incidence of tax liability on the aasessee was lesser than what it was prior to the order passed on revision. As noticed earlier, the tax. liability was reduced from one on an income of Rs. 80,558 to one on an income of Rs. 70,160, On the analogy of the Privy Council decision in the Tribune Trust's case, [1948] 16 ITR 214 (PC) we cannot hold the order revised to be erroneous in so far as it is prejudicial to the interests of the revenue. As a result of that order the revenue was not placed in a different and worse position than the Commissioner's order passed in revision. Section 263 is not attracted. The two years' period of limitation also cannot apply to the assessment.