SUGAR DEALERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following three questions for the opinion of this court :

(2.) THE reference relates to the assessment years 1968-69 to 1970-71. THE assessee-firm consisted of 4 partners, three of whom had credit balance in their accounts and were paid interest by the firm on these credit accounts. THE fourth partner, Mahabir Prasad Juthalal, had a debit balance and was charged interest on the same by the firm. In the original assessment for the assessment year 1968-69, the ITO added a sum of Rs. 32,856, being the interest paid by the firm to the three partners. In that year, the assessee had realised Rs. 30,814 as interest from Mahabir Prasad Juthalal, the fourth partner. Subsequently, he revised the assessment under Section 154 and reduced the addition by the amount of Rs. 30,814, being the interest realised by the firm from Mahabir Prasad Juthalal. As a result, the net amount of addition on account of the interest paid to the partners worked out at Rs. 2,042. For the assessment years 1969-70, 1970-71 and 1971-72, the ITO added only that amount which was arrived at after deducting the amount of interest paid by the firm to the three partners reduced by the amount of interest realised from the fourth partner. Subsequently, the successor ITO felt that the order passed by his predecessor was apparently erroneous, inasmuch as the amount of interest realised from the fourth partner could not be deducted from the amount of interest paid to the other three partners and as such issued notice under Section 154 of the Act. THE assessee urged that there was no mistake apparent in the order sought to be rectified and, secondly, that the amount of interest charged from Mahabir Prasad Juthalal was not its income as it had been received from one of its partners. In this context, it was urged that as the firm was only a collective name for all its partners and the assessee-firm could not receive income from its partners. THE ITO, however, repelled these contentions and rectified the order. Appeals before the AAC and the Tribunal have failed.

(3.) COMING now to the second question, the ITO had committed a clear error of law in adjusting the amount of interest received from the fourth partner from the amount of interest paid to the three partners for the reasons already indicated. It is settled that such a palpable mistake could be corrected under Section 154 of the Act.