Judgment:
T.D. Sugla, J.
1. This is an assessee's reference. The assessment years involved are 1966-67 to 1969-70. The Income-tax Appellate Tribunal has referred to this court the following two questions of law under section 256(1) of the Income-tax Act, 1961 :
'1. Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 280ZB, the Tribunal erred in law in holding that there was a mistake apparent from the record within the meaning of section 154 and in upholding the action of the Income-tax Officer in taking back the benefit of tax credit certificates originally granted in respect of the following items of receipts :
(a) Profits on sale of assets.
(b) Interest on bank deposits.
(c) Rent received.
(d) Other Interest
2. Whether, on the facts and in the circumstances of the case and having regard to the fact that the assessee-company was wholly engaged in the manufacture and production of biscuits and confectionery, the Tribunal erred in law in holding that the items mentioned in question No. 1 above, though formed part of the business income, were not income attributable to the manufacture or production of biscuits and confectionery within the meaning of section 280ZB ?'
2. The assessee was admittedly entitled to relief under section 280ZB of the Income-tax Act, 1961, on profits and gains attributable to the manufacture and/or production of articles mentioned in the First Schedule to the Industries (Development and Regulation) Act, 1951. There is no dispute that the assessee has been deriving profits and gains attributable to such an activity. Accordingly, while completing the assessee's assessments for the assessment years 1966-67 to 1969-70, the Income-tax Officer granted to the assessee tax credit certificate of amounts representing 20% of the difference between the tax payable on the income in the base year, i.e., assessment year 1965-66, and the tax payable in the subsequent assessment years involved herein.
3. Subsequently, however, the Income-tax Officer felt that, while computing the amount of tax credit certificates, he had committed a mistake. The mistake was that, instead of difference in tax on the entire income of the assessee for different years, he should have taken the tax on the portion of income only which was attributable to the assessee's manufacture and/or production activities. Accordingly, after giving notices to the assessee he rectified the assessment orders under section 154 of the Income-tax Act, 1961. As a result of the rectification orders, he excluded the income such as rent received, profits on sale of assets, interest on bank deposits and miscellaneous receipts from the total income of the assessee both for the base year and other years, calculated the tax payable on the income so reduced and correspondingly reduced the amount of relief allowable under section 280ZB. This was done on the assumption that such types of income were not attributable to the manufacturing and/or production activities.
4. The assessee filed appeals. The Appellate Assistant Commissioner agreed with the assessee that the question whether the kind of income such as rent received and profits on sale of assets do or do not constitute profits or gains attributable to the assessee's manufacturing and/or production activities was not free from doubt. Accordingly, he held that the rectification orders passed by the Income-tax Officer in that behalf were not tenable in law.
5. The matter was carried on the Tribunal by the Department. The Tribunal agreed with the Department in that mistake pointed out by the Income-tax Officer was apparent and glaring. There could possibly be no debate or doubt about it and, therefore, the Income-tax Officer was justified in passing the orders under section 154 rectifying the original assessment orders. The Tribunal also held that even though the items of income in dispute formed part of the business income, they were not attributable to the assessee's manufacture or production of biscuits and confectionery.
6. Counsel have been heard at length. The first question as urged by Dr. Balasubramanian, for the Revenue, is whether it was open to the Appellate Assistant Commissioner or the Tribunal to go into the merits of the impugned rectification orders. He pointed out that the orders of rectification herein clearly referred to two facts, namely (i) that the order of assessment for the assessment year 1965-66 was rectified which was not challenged and had thus become final; and (ii) that the order for the assessment years 1966-67 and other years had already been rectified excluding rental income, interest income, etc., as not being profits and gains attributable to the assessee's manufacture and/or production activities, the rectification orders in dispute being only to give effect to such orders i.e., to reduce the amount of tax credit certificates issued under section 280ZB.
7. In our judgment, this argument of learned counsel requires to be rejected for more than one reason. In the first place, both the Appellate Assistant Commissioner and the Tribunal have proceeded on the basis that these were the only orders of rectification and there were no other orders. Secondly, we have not been shown by learned counsel for the Revenue that the Income-tax Officer had passed any rectification order earlier either for the assessment year 1965-66 or for the years under reference. That apart, the manner in which the computation is made in the impugned order of rectification for the assessment year 1966-67 clearly suggests that these are the only orders of rectification. If the impugned orders were passed merely as a consequence of earlier rectification orders, there would be no necessity of referring to different kinds of income in the impugned order. The Income-tax Officer, in that case, would have merely referred to the profits and gains attributable to the assessee's manufacture and/or production activities already computed in the earlier orders of rectification. Accordingly, we would proceed on the basis that these are the only rectification orders and the Appellate Assistant Commissioners and the Tribunal correctly considered them on merits.
8. Our court has already held in the case of Century Spinning and ., v. N N Mistry, Addl. ITO : [1984]145ITR435(Bom) , that the question whether the income by way of miscellaneous receipts such as rent, interest and surplus on sale of assets under section 41(2) in the case of a manufacturing company is or is not attributable to the manufacturing activities is not free from doubt. In the above view of the matter, it is not possible to accept that, for the purpose of our considering the validity of the orders of rectification, this question is free from doubt. Accordingly, we hold that rectification of the assessment orders for this purpose by taking recourse to the provisions of section 154 was not justified. The law in this regard is well-settled in view of the Supreme Court decision in the case of T S Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) that a mistake which is not glaring and obvious from the records could not be rectified under section 154 of the Income-tax Act, 1961. It cannot certainly be said in a case like the one before us that a mistake, if any, was patent or glaring on the face of the record.
9. There is another aspect argued before us by Shri Dilip Dwarkadas. He stated that while the condition for the application of section 280ZB is that the assessee must be engaged in the manufacture or production of certain articles and liable to pay any tax in respect of its profits for the assessment year 1965-66, the relief to be computed under section 280ZB is on the difference between tax which the assessee is liable to pay in the base year and in the subsequent year. This argument was not advanced by the assessee before the Appellate Assistant Commissioner and the Tribunal. In any event, it was certainly not advanced in the manner in which it is advanced before us. Since, in our view, this is only one more aspect of the question, having regard to the Supreme Court decision in the case of CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) , we are inclined to consider this aspect of the matter also.