ORDER
R.V. Raveendran, J.
1. The petitioner in these petitions is an assessee under the Karnataka Agrl. IT Act, 1957 ('the Act' for short). In regard to the asst. yr. 1975-76, 1976-77 and 1977-78, the assessing authority (the respondent) passed three orders of assessment on 29th July, 1985. On 31st December, 1985, the petitioner applied for rectification of the said orders under s. 37 of the Act on the ground that there was a mistake apparent from the record in regard to the non-allowance of depreciation. This contention was accepted and the orders of assessment dt. 29th July, 1985 were rectified by three orders of rectification dt. 9th January, 1986 by allowing the depreciation claimed by the petitioner.
2. Thereafter, the assessing authority issued three notices dt. 21st August, 1990 under s. 37 of the Act proposing to rectify certain mistakes apparent from the record relating to (a) Expenditure under superannuation scheme; (b) Brokerage on fixed deposits and Members' deposits; (c) Retainer fee; (d) Entertainment expenses; (e) Expenditure on young and immature plants; and (f) guest room maintenance, in regard to the orders of assessments for the said three years. After considering the objections filed by petitioner, the respondent passed three rectification orders dt. 13th March, 1991 disallowing the said items of expenditure. The petitioner has challenged the said three rectification orders dt. 13th March, 1991 (Annexure 'E', 'E1' and 'E2') in WP Nos. 11430 to 11432/1991.
3. The respondent issued yet another batch of notices dt. 26th November, 1990 proposing rectification of the orders of assessment relating to the said three years, on the ground that there was a mistake apparent on the record in regard to deduction granted in respect of interest paid by the assessee and proposing to disallow the same. After considering the objections filed by petitioner, the assessing authority passed three orders of rectification dt. 3rd May, 1991 disallowing the deduction claimed in regard to interest. The petitioner has challenged the three orders dt. 3rd May, 1991 (Annexures 'M', 'M1' & 'M2') in WP Nos. 13866-68/1991.
4. The petitioner contends that as the orders of assessment were passed on 29th July, 1985, any proceeding for rectification of such orders will be governed by the law as it then stood; and as per s. 37 as it stood on 29th July, 1985, no rectification could be made after the expiry of four years from the date of the order sought to be amended. Relying on the decisions of this Court in K. G. Subramanya vs. Commr. of Agrl. IT 1969 (1) Mys. LJ 274 and E. M. Chokkalingam Chettiar vs. Agrl. ITO ILR 1986 (2) Kar 1126 : TC 53R.668, petitioner contended that the order of rectification should be passed within four years from the date of the order sought to be amended. Alternatively it is contended that even if s. 37 as substituted applied, the proceedings for rectification ought to have been initiated and orders ought to have been passed by the assessing authority before the expiry of five years from the date of the original orders, that is before 29th July, 1990; and as the notices proposing rectification were issued on 21st August, 1990 and 26th November, 1990 and the impugned rectification orders were passed on 13th March, 1991 and 3rd May, 1991 after the expiry of five years from 29th July, 1985, the rectification proceedings were barred by limitation and the orders of rectification dt. 13th March, 1991 and 3rd May, 1991 are liable to be quashed.
5. On the other hand, Sri D'Sa, learned Addl. Government Advocate, contended that s. 37 as substituted w.e.f. 10th October, 1986 will apply as what will be applicable is the law as it stood when the proceedings for rectification were initiated. He also contended that the starting point of limitation was not 29th July, 1985. According to him, when an order of assessment is rectified, the original order merges with the order of rectification and consequently, the period of limitation for the next rectification proceedings will have to be calculated from the date of the order of rectification. He contended that even though the orders of assessment were passed on 29th July, 1985, as they were rectified by orders of rectification dt. 9th January, 1986, the period of five years for the subsequent rectifications should be reckoned from 9th January, 1986 and not from 29th July, 1985; and if so done, proceedings relating to rectification initiated by notices dt. 21st August, 1990 and 26th November, 1990 (resulting in the orders of rectification dt. 13th March, 1991 and 3rd May, 1991) were in time as they were initiated within five years from 9th January, 1986. He contended that there could be any number of rectifications in respect of an order of assessment so long as a proceedings for rectification was initiated within five years from the last of the orders of rectification, as on each rectification, the earlier order merges with the later order of rectification. In this behalf, he relied on the decision of the Supreme Court in International Cotton Corporation (P) Ltd. vs . CTO : [1975]2SCR345 and the decision of this Court in Ambika Industries vs . State of Karnataka .
6. Thus, the following points arise for consideration :
(a) Whether the proceedings for rectification will be governed by the law as it stood on the date of the order sought to be rectified or the law as it stands on the date of initiation of rectification proceedings;
(b) Whether the period of limitation is for passing the order of rectification or for initiation of the proceedings for rectification;
(c) Where an order of an authority is rectified, whether the original order merges with the order of rectification; and in the event of a second rectification, whether the period of limitation for such subsequent rectification should be reckoned from the date of the original order or the date of the order of first rectification.
7. Re : Point (a) :
7.1 Sec. 37 of the Act provides for rectification of mistakes. Sec. 37 as it earlier stood (upto 9th October, 1986) provided that no amendment under that section shall be made after the expiry of four years from the date of the order sought to be amended. Sec. 37 was substituted by Karnataka Act 38/1986 w.e.f. 10th October, 1986. As per s. 37 so substituted, the assessing authority, appellate authority or revising authority, may, at any time within five years from the date of the order passed by it, amend such order, with a view to rectifying any mistake apparent from the record. (Sec. 37 as it stood prior to 9th October, 1986 and s. 37 after substitution will hereinafter be referred to as the old s. 37 and new s. 37 respectively, for convenience). If the period of limitation prescribed under s. 37 as it stood on the date of the orders of assessment had expired before the amendment, then the orders of assessment would have become final and prescription of a longer period of limitation by the Amendment Act will not revive the matter. But, if the Amendment Act prescribing a longer period of limitation comes into effect before the expiry of the limitation prescribed under the old provision, then the amended provision will apply.
7.2 In Ganpat Rai Hiralal vs . The Aggarwal Chambers of Commerce : [1953]4SCR752 , the Supreme Court dealing with s. 152 of the CPC, analogous to s. 37 of the Act in certain respects, held :
'There is no warrant for the view that the amendment petition (under s. 152 CPC) is a continuation of the suit or proceedings therein. It is in the nature of an independent proceedings, though connected with the order of which amendment is sought. Such a proceeding is governed by the law prevailing on its date and not by the law prevailing on the date of that proceedings in which the order sought to be amended was passed'.
In this case, as the new s. 37 came into effect before the expiry of four years from the date of the order sought to be rectified (which was the period prescribed under old s. 37), the period of limitation for the proceedings for rectification will have to be reckoned with reference to the period prescribed under the new s. 37. Thus, the period of limitation for the rectification proceedings in these cases is five years from the date of the order proposed to be rectified.
8. Re : Point (b) :
8.1 Sec. 37 provides that the assessing authority, at any time within five years from the date of an order passed by it, amend such order to rectify any mistake apparent from one record. The language employed in the old and new s. 37 are significantly different. Sub-s. (7) of old s. 37 provided that no amendment under s. 37 shall be made after the expiry of four years from the date of order sought to be amended.
8.2 Considering the wording of s. 35(2) of the Act similar to old s. 37(7), a Division Bench of this Court in K. G. Subramanya vs. T. V. Reddy, Commr. of Agrl. IT (1969) (1) Mys. LJ 274 held that no order could be made after the expiry of four years period prescribed from the date of order sought to be revised. In view of the different language employed in the new s. 37, the decision in Subramanya's case will not apply. In Shah Vajeshankar Vasudeva & Co. vs. Asstt. Commr. of Commercial Taxes 1974 (2) Kar LJ 401, the question that arose for consideration was whether having regard to the language of s. 25A of the Karnataka ST Act, if notice for rectification of an order was issued within five years from the date of the order, the order of rectification could be passed after five years from the date of the order. Following the decision of Supreme Court in STO vs. Sudarshanam Iyengar & Sons 25 STC 252 this Court held that if notice has been issued in exercise of power under s. 25A of the Act, requiring the assessee to show cause as to why the order on assessment should not be rectified, within a period of five years from the date of the said order, the order of rectification in pursuance of such notice could be passed even after the expiry of five years. This Court observed that :
'One other reason which persuades me to take the view that the present case is indistinguishable from the case before the Supreme Court is that the acceptance of the submissions made on behalf of the assessee would defeat the very purpose for which s. 25A of the Act is intended. As observed by the Supreme Court, it is quite possible for the assessee to defeat the purpose of s. 25A of the Act by either asking for adjournment before the assessing authority to submit his explanation to the show cause notice issued to him or by approaching a higher Court in a collateral proceeding and by obtaining an order of stay resulting in undue delay of rectification proceedings. It is seen that this was one of the considerations which prevailed upon the Supreme Court in the decision cited above to take the view that the expression 'determine' meant 'proceed to assess' in the context of that case'.
8.3 This view was reiterated by a Division Bench of this Court in Baba Associates vs. State of Karnataka : ILR1994KAR28 , in which the Court considered the language used in s. 22(6A) of the Karnataka ST Act, namely; 'with a view to rectifying any mistake apparent from the record, the Tribunal may, at any time within five years from the date of such order amend such order', and held that the said words would mean that the Tribunal may within five years from the date of the order proceed to amend such order by issue of notice and once notice for rectification was issued within five years, the matter can be decided by the authority even after expiry of five years.
8.4 The language employed in new s. 37 is similar to the language employed in s. 25A and 22(6A) of the Karnataka ST Act and is different from the language employed in the old ss. 35 and 37 of the Act. Hence, the period of limitation is not for passing the order of rectification, but only for initiating the proceedings for rectification under s. 37. In other words, it is sufficient if a notice is issued by the assessing authority, appellate authority or revising authority, proposing rectification in respect of his order, or by the assessee seeking rectification, within the period of five years. Once a notice is issued, invoking the power of rectification within the prescribed period, the order of rectification can be passed, after expiry of the prescribed period of five years.
9. Re : Point (c) :
9.1 The Respondent has contended that the original order of assessment merged with the first order of rectification and therefore the limitation for the second rectification should be reckoned from the date of the first order of rectification. Thus, the material point for consideration is, when an order of assessment is rectified, whether the original order merges with the order of rectification. This requires an examination of the meaning and scope of the doctrine of merger.
9.2 What is doctrine of merger It is the fusion or absorption of a lesser right with a greater right; or merger of the order of an inferior Tribunal or authority with the order of a superior Tribunal or authority; or merger of the decree of a lower Court with the decree of the appellate Court or order of a revisional Court. It often becomes a nagging point of dispute relating to limitation and execution.
9.3 The scope of doctrine of merger was considered by the Supreme Court in CIT vs. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) . The Supreme Court held :
'There can be no doubt that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law, the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmation of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement'.
9.4 When a civil Court decides a matter, the facts and reasons and grounds for the decision are contained in the 'judgment' and the formal expression of the adjudication conclusively determining the rights of parties in regard to the matters in controversy in the Suit, that is, the actual decision is contained in the 'Decree'. In England, the word 'judgment' is used to denote both the reasons and the decree. In regard to the orders of authorities and Tribunals, there is no such bifurcation regarding the reasons and decision. The facts and reasons are contained in the preamble to the order and the decision is contained in the operative portion of the order. When there is a decree or order by the appellate or revisional Court or authority, what merges with such decree or order, is the decree or the order of the lower Court or authority and not the reasons for the decision.
The doctrine was further examined in Gojer Bros. vs. Ratan Lal : [1975]1SCR394 . The Supreme Court held thus :
'The juristic justification of the doctrine of merger may be sought in the principle that there cannot be, at one and the same time more than one operative order governing the same subject-matter. Therefore, the judgment of an inferior Court, if subjected to an examination by the superior Court, ceases to have existence in the eye of law and is treated as being superseded by the judgment of the superior Court. In other words, the judgment of the inferior Court loses its identity by its merger with the judgment of the superior Court ... The fundamental reasons of the rule that where there has been an appeal, the decree to be executed is the decree of the appellate Court is that in such cases, the decree of the trial Court is merged in the decree of the appellate Court. In course of time, this concept which was originally restricted to appellate decrees on the ground that an appeal is a continuation of suit, came to be gradually extended to other proceedings like revisions and even to proceedings before quasi-judicial and executive authorities'.
9.5 Thus where the subject-matter of the order of a lower authority is the same as the subject-matter of the order of the appellate or revisional authority, the order of the lower authority cannot remain to stand simultaneously with the order of the higher authority on the very same subject-matter. In such an event, the order of the lower authority gets merged with the order of the higher authority, so that there is only one order holding the field. But if the order of the lower authority related to several distinct matters and the appeal or revision is filed only in regard to one or few of the matters, there cannot be a merger of the entire order of the lower authority with the order of the appellate/provisional authority. In that event, subject to any statutory provisions, what will merge in the order of the appellate or revisional authority is not the entire order of the lower authority, but only that part of the order which related to the subject-matter of the appeal or revision. This is recognised by the Supreme Court in the following passage in State of Madras vs. Madurai Mills Co. Ltd. : [1967]1SCR732 :
'But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction'.
9.6 The above principle is best illustrated by the facts of the cases in Amritlal Bhogilal & Madurai Mills (supra) considered by the Supreme Court. In Amritlal Bhogilal's case, the ITO had made a composite order granting registration of the firm and making an assessment on the basis of registration. The assessee challenged the composite order, insofar as the assessment was concerned. The order of registration was not the subject-matter of appeal before the appellate authority. The High Court held that the order of the ITO granting registration to the assessee must be deemed to have merged in the appellate order and therefore the revisional power of the CIT cannot be exercised in respect of it. The Supreme Court reversed the said view holding that the order of the ITO granting registration cannot be deemed to have merged in the order of the CIT(A) in an appeal taken against the composite order of the ITO, in regard to the assessment, as the question of registration was not before the appellate authority.
9.7 In Madurai Mill's case (supra), the facts were : The assessing authority (Dy. CTO) had passed an order of assessment for 1950-51, determining the net turnover at Rs. 15,44,09,109. The assessee filed an appeal aggrieved by the inclusion of two items in the turnover relating to commission and sale proceeds of empty drums. The appeal was allowed in regard to first item and rejected in regard to second item. Thereafter, the assessing authority issued a revised assessment on 28th November, 1952. Thereafter, the assessee preferred a revision contending that it should not have been assessed to tax on Rs. 6,57,971 collected by it by way of tax. The assessee did not raise any other objection regarding the order of assessment dt. 28th November, 1952. The revisional authority (Dy. Commr. of Commercial Taxes) dismissed the revision petition by order dt. 21st August, 1954. On 4th August, 1958, the Board of Revenue issued a notice to the assessee proposing to revise the assessment of the assessing authority by including in the net turnover, Rs. 7,74,62,706 representing the value of cotton purchased by the assessee from outside the State of Madras, on the ground that it was wrongly excluded in the computation of the turnover. The assessee objected to the proposed revision inter alia on the ground that the period of limitation prescribed, namely, four years, should be computed from 28th November, 1952 and if so done, proceedings initiated by the Board of Revenue was barred by time. The Board however including the said turnover relating to cotton purchased from outside the State, by order dt. 25th August, 1958 held that the order of assessment dt. 28th November, 1952 having merged in the order dt. 21st August, 1954 passed by the Dy. Commr. of Commercial Taxes in Revision, the four years period should be reckoned from 21st August, 1954 and therefore the proceedings were not barred. On appeal, the High Court set aside the Order of the Board on the ground that it was barred by limitation. That was affirmed by the Supreme Court in an appeal by the State, holding as follows :
'In the circumstances of the present case, it cannot be said that there was a merger of the order of assessment made by the Dy. CTO dt. 28th November, 1952, with the order of the Dy. Commr. of Commercial Taxes dt. 26th August, 1954 (21st August, 1954 ?) because, the question of exemption of the value of yarn purchased from outside the State of Madras, was not the subject-matter of revision before the Dy. Commr. of Commercial Taxes. The only point that was urged before the Dy. Commr. of Commercial Taxes was that a sum of Rs. 6,57,971 collected by the respondent by way of tax should not be included in the taxable turnover. This was the only point raised before the Dy. Commr. of Commercial Taxes and was rejected by him in the revision proceedings. On the contrary, the question before the Board of Revenue was whether the Dy. CTO, Madurai was right in excluding from the net taxable turnover of the respondent, the sum of Rs. 7,74,62,706 which was the value of cotton purchased by the respondent from outside the State of Madras. We are, therefore, of the opinion that the doctrine of merger cannot be invoked in the circumstances of the present case'.
10. There is however, a well-recognized exception to the principle that when an appeal is restricted to a part of the order of the lower authority, the merger will only be to that extent and the remaining portion of the order of lower authority will not merge in the appellate order. Where the statute confers plenary jurisdiction on the appellate authority, that is power to examine the entire subject-matter of the order of the lower authority, even where the appellant restricts the appeal to a part of the order of the lower authority, the entire order of the lower authority will merge with the order of the appellate authority. This is because, it is the subject-matter of the appeal and not the subject-matter of the order of the appellate authority that determines the extent of merger. When the statute gives plenary jurisdiction to the appellate authority, irrespective of whether the appellate authority chooses to exercise such plenary jurisdiction or not, as the subject-matter of the appeal for the consideration of the appellate authority, is the entire order of the lower authority, the merger will be of the entire order of the lower authority.
10.1 The Supreme Court explained the difference between a Court of appeal under the CPC and an appellate authority functioning under a statute (IT Act) providing for plenary jurisdiction thus, in CIT vs. Rai Bahadur Hardutroy Motilal Chamaria : [1967]66ITR443(SC) .
'It would be wholly erroneous to compare the powers of the AAC with the powers possessed by a Court of appeal, under the CPC. The AAC is not an ordinary Court of appeal. It is impossible to talk of a Court of appeal when only one party to the original decision is entitled to appeal and not the other party, and in view of this peculiar position, the statute has conferred very wide powers upon the AAC once an appeal is preferred to him by the assessee. It is necessary also to emphasise that the statute provides that once an assessment comes before the AAC, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the ITO not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the ITO and determined in the course of the assessment'.
10.2 This Court has consistently taken the view that the entire order of the lower authority will merge in the appellate order, where under the statute, the appellate authority is given plenary jurisdiction over the entire order, irrespective of the appeal being restricted to only a part of the order of the lower authority or the appellate authority dealing with and deciding only a few matters from out of the subject-matter of the order of the assessing authority [See Addl. CIT vs. Vijayalakshmi Lorry Service : [1986]157ITR327(KAR) and CIT vs. Hindustan Aeronautics Ltd. : [1986]157ITR315(KAR) ]. The High Courts of Allahabad, Patna and Madhya Pradesh have also subscribed to the said view in J.K. Synthetics Ltd. vs. Addl. CIT : [1976]105ITR344(All) ; CIT vs. Rameshwar Das Pannalal 34 STC 296 and CIT vs. Mandsaur Electric Supply Co. Ltd. : [1983]140ITR677(MP) . However, the High Courts of Bombay, Calcutta, Madras, Gujarat and Punjab & Haryana have subscribed to the view that the merger will be only in regard to such matters dealt with by the appellate authority and parts of the assessment order which were left untouched by the appellate authority, will not merge in the appellate order in CIT vs. Sakseria Cotton Mills Ltd. : [1980]124ITR570(Bom) , Singh Mica Mining Co. Ltd. vs. CIT : [1978]111ITR231(Cal) , Puthuthottam Estates Ltd. vs. State of Tamil Nadu : [1980]125ITR41(Mad) ; Karsandas Bhagwandas Patel vs. G. V. Shah, ITO : [1975]98ITR255(Guj) and New Diwan Oil Mills vs. CIT .
11. The next question is where the authority who passed the order, has occasion to reconsider the matter and passed a subsequent order, whether there is any merger, and if so to what extent. There are two circumstances where an authority has occasion to reconsider his own order : (a) by way of review; and (b) by way of rectification. Normally, review is contemplated where new and important matter or evidence comes to light or where there is a mistake or error apparent on the face of the record. Rectification is resorted to, to correct clerical or arithmetical errors. When the authority grants an application for review of an order, the order in regard to which review is granted stands vacated or set aside and the order subsequently passed on review (either modifying, reversing or confirming the earlier order) will supersede the original order. In such a case, there is no question of merger, as the second order supersedes the first order and only the second order remains in existence. On the other hand, when an application for rectification is allowed, the original order is 'rectified' or corrected. The 'Rectification' presupposes the continuance of the original order with the change incorporated. Rectification is the process by which an order which contains an error is set right. If the entire order is to be replaced by a new order by the same authority, such an order is not an 'order of rectification', but an 'order on review'. When rectification is directed, there is no merger, as there is no order into which the original order can merge. When an order of rectification is made, the effect is that the original order has to be read subject to the corrections/modifications made by the rectification order. The correction is incorporated in the original order, as for example, where merely a figure is altered or typographical correction is made. However, having regard to the nature of original order and rectification order, if the correction cannot be incorporated in the original order, the rectification becomes an addendum to the original order, both being read together as in the case of a will and a codicil. The effect of an order of rectification is succinctly stated by a Division Bench of this Court in B. Basamma vs. Agrl. ITO 1964 (2) Mys. LJ 245 thus :
'When a mistake in an order is rectified, the original order is not set aside, the original order remains on record and the mistakes or omissions are corrected therein'.
12. The following principles thus emerge in regard to the doctrine of merger :
(i) Where any order of decree of a Court, authority or Tribunal is subjected to an appeal or revision and the appellate or revisional authority passes an order modifying, reversing or affirming the original order, the original order merges with the order of the superior authority on the principle that there cannot be more than one order operating at the same time.
(ii) If the appeal or revision is restricted to a delinkable part or portion of the original order or one of the several matters or issues dealt by the original order, then, only that part of the original order which is the subject-matter of the appeal or revision will merge in the order of the superior authority and the remaining portion of the original order which is not subjected to appeal or revision will remain undisturbed.
(iii) Where the appellate authority has given plenary jurisdiction over the entire matter dealt with by the original order, irrespective of the fact whether appeal is filed in regard to the entire matter or part of the matter, the entire original order will merge in the order of the appellate authority. However, where such appellate authority entrusted with plenary jurisdiction consciously restricts the scope of scrutiny to only a part of the original order, then, whether only that part of the original order which is subjected to scrutiny and not the entire order will get merged with the order of the appellate authority, is a matter on which there is divergence of views. The view of this Court in such cases has been that the merger will be in respect of the entire order.
(iv) The doctrine of merger is not a doctrine of rigid and universal application. The applicability of the doctrine depends on the nature of appellate or revisional order in each case and the scope of statutory provision conferring the appellate or revisional jurisdiction.
(v) There will be no merger at all where the subsequent order is passed by the same authority, either by way of review or rectification. Where an order is passed on review, the original order gets wiped out as it is set aside by the order granting review and is superseded by the order made on review. There is thus no 'merger'. Where an order is passed rectifying any mistake in the original order, there is neither 'merger' nor 'supersession'. The original order gets amended by the order of rectification by correcting the error.
13. The learned Addl. Government advocate however contended, relying on the decision of this Court in Ambika Industries vs. State of Karnataka 92 STC 82 that when an order of rectification is passed by the authority, the original order of assessment gets replaced by the order of rectification. In Ambika Industries' case, arising under the Karnataka ST Act, the assessment order was passed on 30th January, 1979. That order was rectified on 3rd March, 1981, under s. 25A of the said Act increasing the turnover relating to one item (turnover relating to fried gram). The appellate authority set aside the rectification order and remanded the matter by order dt. 22nd July, 1981. On 18th August, 1981, the assessing authority made a fresh order on the basis of the remand order recomputing the turnover. Thereafter, the Dy. CIT initiated revision proceedings under s. 21(2) and passed an order dt. 29th November, 1985, increasing the taxable turnover. The assessee contended that an assessment involved turnover and taxable turnover, that by the order dt. 22nd July, 1981, there was no change in the total turnover and only the taxable turnover was modified and, therefore, the limitation for revision had to be reckoned from the date of the original assessment order (30th January, 1979) and not from 18th August, 1981. The Court held that proceedings for rectification are proceedings for assessment and consequently the effect of rectification was to rectify the taxable turnover which was part of the total turnover, and the process of rectification involved the consideration of the question as to what was the turnover of the petitioner and, therefore, the order of rectification replaced the original order of assessment and initiation of proceedings by the Dy. Commr. of Commercial Taxes to revise the order was within the period of limitation. This decision does not help the State. In that case, the assessing authority passed a fresh order of assessment after remand by the appellate authority in the appeal against the order of rectification. The Court on the peculiar circumstances, held that the fresh order dt. 18th August, 1981, replaced the original order dt. 30th January, 1979. The Court proceeded on the basis that the fresh order was virtually an order on review replacing the earlier order. This Court did not hold that an order of rectification supersedes the original order. That question is directly covered by the decision of the Division Bench in Betageri Basamma's case (supra). Hence the contention that on an order of rectification being passed, the original order gets merged with the rectification order is liable to be rejected.
14. He next relied on the decision of the Full Bench in CIT vs. Hal referred to above. That decision dealt with doctrine of merger when appellate orders are passed. It does not deal with effect of rectification orders by the very authority which passed the original order. Hence, that decision is also not of any assistance to the State.
15. Lastly, the learned addl. Government advocate relied on the decision in International Cotton Corporation (P) Ltd. vs. CTO : [1975]2SCR345 , affirming the decision of this Court in 35 STC 12. In that case, the order of assessment was rectified in regard to a particular aspect. Subsequently, the assessing authority sought to rectify the order of rectification on the ground that the first rectification was a mistake. The initiation of second rectification proceedings was within the time if reckoned from the date of the first rectification but barred by time with reference to the original order. The assessee's contention that the rectification proceedings initiated by the Department was beyond the period of limitation, was negatived. The Court considered the matter with reference to r. 38 of Mysore ST Rules, 1957, relevant portion of which was as follows :
'An assessing, appellate or revising authority or the Tribunal may, at any time within five years from the date of any order passed by it, rectify any mistake apparent on the record ...'
It was held that the first rectification was an order passed by the assessing authority which could be subjected to rectification proceedings and as what was sought to be rectified was not the original order but the first order of rectification, the limitation of four years had to be reckoned from the date of the first order of rectification and not the original order. In other words, for the purpose of limitation, the Supreme Court held that an order rectifying an earlier order of rectification cannot be treated as an order rectifying the original order. The detailed reasonings of the Division Bench of this Court in I.C. Corporation (supra) is relevant :
'The argument of Sri Srinivasan is that every order of rectification made under r. 38 gets merged or relates back to the earlier order of assessment. In that view, any subsequent rectification under r. 38 would also be a rectification of the assessment order which stood rectified once earlier ...... r. 38 clearly refers to rectification of mistake apparent on the record in any order passed by an assessing, appellate or revising authority or the Tribunal. The words 'any order' occurring in the rule are wide enough to take within their ambit any order made in the course of the assessment proceedings, and their effect need not be confined to an assessment order as contended for by Sri Srinivasan. Further, the rule enjoins a rectification of a mistake apparent on the record. In our view, this provision enables rectification of an earlier mistake which is apparent from the record. Since the earlier rectification made at the instance of the assessee was a mistake, it can be rectified by a fresh proceeding under r. 38 of the State Rules. It, therefore, follows that the period of limitation under this Rule should be computed commencing from the time when the mistake sought to be rectified crept into the record'.
The Supreme Court affirmed this view as follows :
'The other attack that the rectification order is beyond the point of time provided in r. 38 of the Mysore ST Rules is also without substance. What was sought to be rectified was the assessment order rectified as a consequence of this Court's decision in Yaddalam's case. After such rectification the original assessment order was no longer in force and that was not the order sought to be rectified. It is admitted that all the rectification orders would be within time calculated from the original rectification order. Rule 28 itself speaks of 'any order' and there is no doubt that the rectified order is also 'any order' which can be rectified under r. 38'.
The above observations cannot be construed as laying down a principle that the original order got merged with the order of rectification. It only means that, in regard to the subject-matter of rectification, the original order ceased to apply and the order of rectification would apply.
16. Where an order of an authority is rectified by the said authority in regard to a specified subject or issue, the period of limitation for a second rectification should be reckoned from the date of the original order, if the subject-matter of the second rectification is different from the subject-matter of the first rectification. If the second rectification is, however, in regard to the subject-matter of the first rectification, the period of limitation should be reckoned from the date of the first rectification order.
17. Let me examine the impugned order in the light of the aforesaid principles. As the subject-matter of these petitions are subsequent orders passed by the authority who passed the original orders and are not orders of any appellate or revisional authority, the doctrine of merger is inapplicable. The original orders were passed on 29th July, 1985. There were rectified on 9th January, 1986, in regard to non-allowance of depreciation at the instance of petitioner. The assessing authority passed a second set of rectification orders dt. 13th March, 1991, in pursuance of notices dt. 21st August, 1990, in regard to six matters, which had nothing to do with the subject-matter of the first order of rectification dt. 9th January, 1986, which related to depreciation. He again passed a third set of rectification orders dt. 3rd May, 1991, in pursuance of notices dt. 26th November, 1990 in regard to disallowance of interest, which is also a matter which had nothing to do with the subject-matter of the first rectification dt. 9th January, 1986. Therefore, to find out whether the second and third rectifications were in time, the period of five years has to be calculated from the date of original orders (29th July, 1985) and not from the date of the first order of rectification (9th January, 1986). The contention that the original order of assessment dt. 29th July, 1985, merged with the first order of rectification dt. 9th January, 1986, and, therefore, the period of five years should be calculated from 9th January, 1986, and not from 29th July, 1985, is not tenable as there is no 'merger' in regard to orders of rectification. Even on applying the decision of the Supreme Court in International Cotton Corporation (supra), the date of the first order of rectification (9th January, 1986) will be the starting point only if the second rectification related to subject-matter of the first rectification. If the subject-matter of the subsequent rectification is not the subject-matter of the first rectification, then necessarily the five years period will have to be calculated from the order of assessment dt. 29th July, 1985. The subject-matter of second and third rectifications which were initiated by the notice dt. 21st August, 1990 and 26th November, 1990, resulting in the orders dt. 13th March, 1991, and 3rd May, 1991, have no connection to the subject-matter of the rectification order dt. 9th January, 1986. The initiation of rectification proceedings by notices dt. 21st August, 1990, and 26th November, 1990 and orders dt. 13th March, 1991, and 3rd May, 1991, are, therefore, barred by time. Hence, these petitions are allowed. Annexures 'E', 'E1' and 'E2', dt. 13th March, 1991 in WP Nos. 11430-32/1991 and Annexures 'M', 'M1', and 'M2', dt. 3rd May, 1991, in WP Nos. 13866-68/1991, are hereby quashed.