COMMISSIONER OF INCOME TAX Vs. ORIENTAL CO LTD

JUDGEMENT

(1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment years 1977-78 and 1978-79, the following question of law has been referred to this court :

(2.) Shortly stated, the facts are that the assessee is a limited company deriving income from business in money-lending, interest on securities and dividend. The Income-tax Officer had completed the original assessments allowing reliefs under Section 80M of the Act on the gross amounts of dividend following the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT. Subsequently, the Income-tax Officer passed orders under Section 154 on October 25, 1983, reducing the reliefs given in the original assessments. The Income-tax Officer calculated the proportionate expenses relatable to the dividend income of the assessee on estimate. This, he deducted and estimated the expenses from the gross dividends and allowed reliefs under Section 80M on the net balances. Thus, the Income-tax Officer reduced the reliefs under Section 80M by passing the rectification orders in which he reduced the amounts of dividends by estimating the amounts of expenses and allowing reliefs on the net balances so arrived at.

(3.) On appeal, the assessee contended that the Income-tax Officer was not justified in assuming jurisdiction under Section 154 to estimate the expenses attributable to the earning of dividend income and reduce the reliefs under Section 80M by confining the said reliefs to the net amounts after deducting the said expenses. It was also urged that such an exercise involved debatable issues on which there could be more than one opinion and so the said issues were outside the purview of Section 154 of the Act. The Commissioner of Income-tax (Appeals) agreed with the contention of the assessee that there could be a debate about the exact amounts that could be said to be relatable to the earning of dividends and so it was not a matter which could be said to be a mistake apparent from the record. Relying on the Supreme Court decision in T.S. Balaram, ITO v. Volkart Bros. the Commissioner of Income-tax (Appeals) held that the Income-tax Officer erred in passing the rectification orders which he cancelled.