1. This appeal has been filed by the department against the order, dated 20-4-1982, of the Commissioner (Appeals), by which she allowed the petition under Section 154 of the Income-tax Act, 1961 ('the Act') filed by the assessee, relating to the assessment year 1975-76.
2. The original assessment in this ease was completed on 18-9-1978.
During the previous year under consideration, the assessee sold certain agricultural land and realised some surplus therefrom. The case of the assessee was that the capital gains arising out of the sale of agricultural land was exempt from tax. Hence, the assessee did not return any income from capital gains. In the course of the assessment proceedings, it was contended by the assessee that the amendment made to the Act charging capital gains arising from the transfer of agricultural land was ultra vires the Constitution, and, so, such capital gains could not be charged to income-tax. The ITO observed in the assessment order, dated 18-9-1978, as follows : The assessee's contention challenging the amendment cannot be accepted and the capital gains arising out of the transfer will be subjected to tax as capital gains. However, as the assessee has pointed out that the amendment made to the Income-tax Act has been challenged in the High Court of Bombay as void and ultra vires in some other case of this group, the demand relating to the capital gains on sale of agricultural land included in the total income assessed will be kept in abeyance till the High Court's orders are known in those cases.
3. It so happened that the Bombay High Court disposed of the above matter as per their judgment dated 18-7-1980 in the case of Manubhai A.Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87. In this judgment, the Bombay High Court struck down the amendment as ultra vires, and held that the surplus arising out of the transfer of agricultural land could not be taxed under the Income-tax Act.
4. Soon after the aforesaid decision of the Bombay High Court became known to the assessee, it filed a petition dated 19-9-1981 addressed to the ITO. In this letter, the assessee drew the attention of the ITO to the original assessment order dated 18-9-1978, and requested him to rectify the said order in the light of the decision of the Bombay High Court in the case of Manubhai A. Sheth {supra). It was specifically stated in this petition that there was a mistake apparent from the record in the original assessment order inasmuch as capital gains arising out of the transfer of agricultural land had been erroneously taxed therein.
5. In reply to the aforesaid letter dated 19-9-1981 of the assessee, the ITO wrote the following letter dated 16-10-1981 : Kindly refer to your letter dated 19-9-1981 in respect of assessment year 1975-76.
The question of exemption of capital gains tax has been decided by the High Court in Misc. Petition Nos. 1132 of 1973 and 214 & 215 of 1974 in the case of S/Shri Manubhai A. Sheth, M.A. Sheth and Jitendra A. Sheth, respectively. As per the order of the Bombay High Court, fresh assessment is to be made after excluding from the total income the profit or gains made on the sale of land mentioned in the said petition.
The order of the High Court has not been accepted by the department and appeal against the said order has been filed in the Supreme Court on 24-10-1980.
You are not a party to the petition in question and, hence, the said relief cannot be given to you.
In the circumstances, the stay granted to you for the payment of the demand for the assessment year 1975-76 is hereby vacated and you are requested to pay the demand of Rs. 101367 immediately.
6. The assessee appealed to the AAC against the aforesaid refusal of the ITO to rectify the original assessment order under Section 154 of the Act. It was urged that the Bombay High Court has clearly decided the issue in favour of the assessee, so that what was provisionally taxed in the original assessment order no longer has become taxable. In view of such a categorical decision of the Bombay High Court which was binding on the ITO sitting in Bombay, it was urged that the mistake was apparent from the records and the same should have been rectified.
Reliance was placed on the decision of the Allahabad High Court in the case of Omega Sports & Radio Works v. CIT [1982] 134 ITR 28 for the proposition : A mistake apparent from the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there can be two opinions.
If there is a decision on a particular point by the High Court of a State, it is binding on the income-tax authorities in that State and merely because there is some judicial divergence of opinion on that point between some High Courts, it cannot be said that there is still scope for a debate on the points and that, therefore, Section 154 of the IT Act, 1961, is not attracted to the case.
The Commissioner (Appeals) found force in the above argument. Following the aforesaid decision of the Allahabad High Court, she allowed the appeal of the assessee.
7. Shri G. Krishnan, the learned representative for the department, urged before us that the Commissioner (Appeals) erred in her decision.
He urged that the facts of Omega Sports & Radio Works' case (supra) were different as that case was concerned with the question as to whether there was a change in the constitution of the firm, or a succession of the business. Further, he urged that the Allahabad High Court was dealing with a matter under the Income-tax Act. On the other hand, the Bombay High Court in the case of Manubhai A. Sheth (supra) was dealing with a constitutional issue. He urged that the decision given by the Allahabad High Court may be final at that stage but the decision given by the Bombay High Court was bound to be taken to the Supreme Court by the Income-tax Department, and so, it cannot be said to have become final.
8. Next, Shri G. Krishnan relied on the decision of the Calcutta High Court in the case of Jiyajeerao Cotton Mills Ltd. v. ITO [1981] 130 ITR 710, for the proposition that merely because subsequently a decision was given by the High Court or the Supreme Court on a particular issue, it cannot be said that there was no divergence of opinion on the said issue before the said decision was given. His point was that the ITO was justified in refusing to rectify the assessment on the ground that the point involved was debatable and controversial. He relied on the decision in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC) in support of his contention.
9. Shri S.E. Dastur, the learned representative for the assessee, on the other hand, supported the order of the Commissioner (Appeals). He stated that the ITO has admitted in assessment order itself that he was introducing an apparent mistake therein, because the matter was sub judice before the Bombay High Court. Once the matter decided by the Bombay High Court, the ITO was duty-bound to rectify the assessment order in accordance with the decision of the Bombay High Court, as stated by him in his own assessment order. According to him, the promise to rectify the order was implied in the assessment order already extracted above.
10. Apart from the above, Shri S.E. Dastur contended that the decision of the Bombay High Court in the case of Manubhai A. Sheth {supra) was binding on the ITO sitting at Bombay, and so, it was no longer open to him to entertain any doubt whatsoever on the issue in the face of a clear and categorical decision of the Bombay High Court on the said issue. He relied on the decision in the case of Omega Sports & Radio Works (supra) in support of his contention. He pointed out that the facts therein might be different but the principle decided therein applies squarely to the facts of this case. The said principle has already been extracted above. He also referred to other decisions of other High Courts, which have also laid down the law that there can be a mistake apparent from the records after the decision of the Supreme Court or the appropriate High Court is given on a certain point. He referred to the decision of the Gujarat High Court in the case of CIT v. Ramjibhai Hirjibhai & Sons [1977] 110 ITR 411, decision of the Punjab & Haryana High Court in the case of CIT v. Mohan Lai Kansal [1978] 114 ITR 583 and the decision of the Bombay High Court in the case of Blue Star Engineering Co. (Bombay) (P.) Ltd. v. CIT [1969] 73 ITR 283. In all these cases, the same principle is reiterated, namely, that a mistake apparent from the record can arise as a result of the decision of the Supreme Court or the appropriate High Court.
11. Referring to the decision in the case of Jiyajeerao Cotton Mills Ltd. (supra), Shri S.E. Dastur stated that the facts stated therein were entirely different. In that case, the High Court was considering the situation obtaining at a point of time prior to the decision of the Supreme Court or the appropriate High Court. On the other hand, in the instant case, what is to be considered is the situation obtaining at a point of time after the decision of the Bombay High Court has been given. He stated that a similar point has been considered and decided in favour of the assessee by the Tribunal in the case of Indian Card Clothing Co. Ltd. v. ITO [1983] 5 ITD 38 (Bom.).
12. We have considered the contentions of both the parties, as well as the facts on record. We find force in the contentions raised for the assessee. The ITO himself has stated in the original assessment order that the demand relating to the capital gains under consideration was being kept in abeyance by him because of the pendency of the issue before the Bombay High Court. Such a statement, evidently, involves an implied commitment to rectify the assessment order after the decision of the Bombay High Court is known. Besides, there is force in the other contention raised for the assessee. All the cases referred to above have laid down the rule that the decision of a High Court which is binding on an authority has to he accepted by him without any further debate or doubt. Consequently, the mistake becomes glaring and apparent. The case of Jiyajeerao Cotton Mills Ltd. (supra) is indeed distinguishable on facts, inasmuch as in that case, the High Court was not considering a situation at a point of time when the decision of the appropriate High Court or the Supreme Court has already been rendered.
For the above reasons, we agree with the Commissioner (Appeals) in her decision. Hence, we have no hesitation in upholding her order.