COMMISSIONER OF INCOME TAX Vs. SUBRAMANYAM C

JUDGEMENT

(1.) THIS reference by the Tribunal, under S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), relates to the IT asst. yrs. 1973 74 and 1974 75. The question referred for the consideration of this Court is :

(2.) THE assessee and his wife constituted themselves into a partnership firm under a deed of partnership dt. 26th Oct., 1965. There is no other person as a partner in the partnership firm. The firm's assessments were completed and the assessments of the individual persons were also completed on the basis of the assessments made in the hands of the partnership firm. After the assessments were made, the ITO seems to have realised that an error was committed, in that, the income of the wife arising from the partnership firm should have been taxed in the hands of the husband under S. 64(1)(i) of the Act. He accordingly initiated proceedings for rectification of the mistake under S. 154 of the Act and eventually passed orders of rectification under which he included the income of the wife in the hands of the husband and made the assessments.

(3.) BEING aggrieved by the Tribunal's decision, the Revenue sought for and obtained a reference to this Court on the question already specified by us in para one. We have heard learned standing counsel for the Revenue. None is present on behalf of the respondent assessee. Even so, learned standing counsel has taken us through the relevant provisions in the Act and also invited out attention to the decisions bearing on the point. We are in entire agreement with the view expressed by the Tribunal that the provisions of S. 64(1)(i) of the Act are clearly applicable in the present case, as a result of which, the income received by the wife from the partnership firm was liable to be assessed in the hands of the assessee. We are, however, unable to agree with the view expressed by the Tribunal on the second part of the issue, namely, that in terms of S. 154 of the Act, there is no mistake apparent from the record of the assessee. The above view of the Tribunal is largely based on the decision of the Supreme Court in the case of Khorshed Shapoor Chenai vs. Asstt. CED (1980) 14 CTR (SC) 356 : (1980) 122 ITR 21 (SC), wherein the decision of the Karnataka High Court in Ethel Rodrigues vs. Asstt. CED (1963) 49 ITR (ED) 128 (Kar), was referred to and approved. The Tribunal thought that the principle enunciated by the Karnataka High Court and affirmed by the Supreme Court in the above case applied to the matter under consideration in the present case. In the Karnataka case in Ethel Rodrigues (supra), on a perusal of the probate proceedings in the civil Court, a certain error was discovered in the estate duty assessment made and S. 61 of the Estate Duty Act, 1953 (which corresponds to S. 154 of the IT Act), was invoked and the error rectified. The Revenue contended that on a perusal of the probate record in civil Court it was clear that there was an apparent error in the estate duty assessment made and, consequently, the rectification proceedings were correctly taken. The Karnataka High Court rejected the Revenue's contention stating that the record of probate proceedings in a civil Court is quite distinct and separate from the records maintained by the assessing authorities in the IT Department and, consequently, it should be said that the discovery of an error with reference to probate proceedings in a civil Court cannot be considered to be an error apparent on the record of the assessee for the purpose of estate duty. It was found that the record in the estate duty proceedings, by itself, did not reveal any error and it was only on a perusal of the record of probate proceedings in the civil Court that an error was discovered. It was, in these circumstances, the contention of the Revenue was rejected by the Karnataka High Court and the Supreme Court affirmed the said principle. We are afraid this principle could have no application in a case like the present one. The tax affairs of wife in a partnership firm are entirely connected with the record of the partnership firm and also the record of the individual husband. The matters are so intermingled that in order to make appropriate assessments in the hands of the individual husband and the wife, a perusal of the entire record relating to the firm, the husband and the wife is necessary. In that sense, it should be held that it is open to the ITO to look into the records of the firm, the husband and the wife and come to a conclusion regarding the existence of any error patent on the record falling within the terms of S. 154 of the Act. If only the ITO had looked into the records of the partnership firm, it would have clearly indicated, by a perusal of the partnership deed, that the firm consisted of only two persons, namely, the wife and the husband, and that would automatically bring in S. 64 for consideration. It is obvious that the ITO failed to look into the records of the firm while making assessments of the income in the hands of the husband and his wife. That was clearly an omission on the part of the ITO. It was only subsequently that a perusal of the record indicated that indisputably the partnership firm consisted of only the husband and the wife and, therefore, the provisions of S. 64 of the Act were liable to be invoked to include the income of the wife in the hands of the husband. Thus, there was a mistake within the terms of S. 154 of the Act and jurisdiction is conferred on the ITO to rectify such mistake and accordingly the ITO initiated proceedings for rectification of the assessments already made in the hands of the individual husband. Once the provisions of S. 64(1)(i) are rendered applicable, the extent of application of the Explanation to that section is a matter that could be automatically determined. There is no debate involved, inasmuch as the income of the wife is includible in the hands of the husband. We are unable to uphold the order of the Tribunal that, in the facts and circumstances of the case, the rectification of the assessments for 1973 74 and 1974 75 is not called for. We accordingly, answer the question referred in the negative that is to say, in favour of the Revenue and against the assessee. There shall be no order as to costs.