1. In this miscellaneous petition filed by the revenue on 3-9-1985, it is contended that there is a mistake in the order of the Tribunal in IT Appeal No. 426 (Nag.) of 1980 dated 8-4-1982, in that the Tribunal has accepted the assessee's claim for deduction of a sum of Rs. 1,30,682 constituting mess expenses incurred for food and beverages provided to its constituents as expenditure not in the nature of entertainment expenditure, whereas by a retrospective amendment made to Section 37(2A) of the Income-tax Act, 1961 ('the Act') with effect from 1-4-1976 by introduction of Explanation 2, the 'entertainment expenditure' would include expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to its employees in office, factory or other place of their work. In view of the above retrospective amendment, it is claimed that the deduction allowed is a mistake apparent from record in the order of the Tribunal inasmuch as it is not in consonance with the express provisions of law.
2. When the matter was posted for hearing on 8-8-1986 the assessee raised the following objections by his written submissions : 1. The proposed rectification under Section 254(2) of the Income-tax Act, 1961 cannot now be made since the order proposed to be rectified is dated 8th April, 1982 and four years have passed since.
The rectification if made will thus be barred by limitation.
2. On merits also Explanation 2 to Section 37(2A) as inserted by the Finance Act, 1985 with effect from 1-4-1976 does not overrule the decision of the Bombay High Court in CIT v. Shah Nanji Nagsi [1979] 116 ITR 292 and the views taken by the Tribunal earlier do not call for any rectification.
The matter was once again reposted on 10-10-1986 and again on 9-1-1987 and 16-1-1987. The assessee did not appear on the dates of hearing, but by its letter dated 25-9-1986 stated that it has already made written submissions and the orders be made without their physical appearance.
Accordingly, the matter is disposed of after hearing the learned departmental representative and perusing the record.
3. In view of the retrospective amendment made to Act by introduction of Explanation 2 with effect from 1-4-1976, by which the expenditure incurred on provision of food or beverages to the assessee's constituents would have to be treated as entertainment expenditure, the order of the Tribunal holding that the assessee is entitled to deduction of Rs. 1,30,682 suffers from a mistake apparent from record as it is directly opposed to the express provisions of law. As such, this mistake, which is apparent from record, requires to be rectified.
The assessee's objection is that the Tribunal has followed the decision of the Bombay High Court in CIT v. Shah Nanji Nagsi [1979] 116 ITR 292, while allowing the relief to the assessee and this judgment of the High Court has not been overruled and as such, the proposed rectification is not correct. We do not agree. When the law is expressly amended with retrospective effect, the law on the date when the Tribunal's order is passed would have to be taken as it stood amended. Examined from this angle the order of the Tribunal suffers from a mistake which requires to be rectified. As the judgment of the Bombay High Court has been pronounced on the basis of the law as it existed before the amendment, that judgment would not have any application to the issue under consideration. In the circumstances, we are of the opinion that a rectification of the earlier order is called for. The decisions of the Gauhati High Court in CIT v. Smt. Eva Raha [1980] 121 ITR 293 and the Calcutta High Court in CIT v. Kelvin Jute Co. Ltd. [1980] 126 ITR 679 are authorities clearly supporting the above proposition.
4. The other objection taken by the assessee against the proposed rectification is that the said rectification cannot be made now, as the order sought to be rectified is passed on 8-4-1982 and time limit of four years prescribed under Section 254 of the Act has already passed since then. It is clear that if the rectification is made now, it will be barred by limitation. In this connection it has to be noticed that the revenue has filed its rectification application within the period of limitation, i.e., on 3-9-1985. If the Tribunal, which is the authority to rectify its mistake, does not take steps to rectify its mistake within the period of limitation, though an application is filed within time, the party cannot be made to suffer. The Allahabad High Court in the case of Vithaldas v. ITO [1969] 71ITR 204, held that it was the duty of the ITO under Section 35 of the Act to make the rectification and when he had failed to do so, the High Court had power to issue a writ directing the ITO to make a rectification even though the period of four years fixed in Section 35 had expired. In that case the assessee applied for rectification of the assessment within the period of four years, but due to the delay on the part of the ITO, such a rectification order had not been passed. While disposing the above matter, the Allahabad High Court has noticed several authorities where it was held that it was an elementary principle of law that no person can put forward his own default in defence to a right asserted by the other party--All India Groundnut Syndicate Ltd. v. CIT [1954] 25 ITR 90 (Bom.). A mandamus will lie to compel the performance of a public duty by a public officer although the time prescribed by statute for the performance of it has passed.--Rex v. Hanley 3 KB 518. The commentary in Halsbury's Laws of England, Third edn., Vol. XI, paragraph 172 runs as follows : If public official or a public body fail to perform any public duty with which they have been charged, an order of mandamus will lie to compel them to carry it out, even though the time prescribed by statute for the performance of the duty may have passed. (P. 91) It had also noticed with agreement the decision of the Calcutta High Court in CIT v. Duncan Bros. & Co. Ltd. [1955] 28 ITR 427 wherein the Calcutta High Court had to examine the provisions of jurisdictions in Section 66(1) of the Act, in which it was held as follows : The true distinction between a provision which is directory and a provision which is mandatory is that in the former case disregard of the provision does not by itself invalidate the act done, whereas in the latter case it does. The rule of conduct expected to be followed by the public authority addressed by the provision is, however, not different in the two cases. The difference lies only in the consequences of a breach.
Where the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts done in neglect of that duty would work serious general inconvenience or injustice to persons who had no control over those entrusted with the duty, and at the same time would not promote the main object of the Legislature, such provisions should be construed as being directory only and not imperative. (p. 427) 5. In view of the above position of law explained by the Calcutta and Allahabad High Courts, we have to hold that the stipulation in Section 254(2) that rectification of the order has to be made within a period of four years from the date of the order under Section 254(1) is only directory and not mandatory. This will be specially so where the party concerned has filed an application for rectification within the period of limitation and for some reason or other no action was taken by the Tribunal to dispose it of within the period of limitation. Even otherwise, it is axiomatic that no party to a suit should be allowed to suffer on account of the mistakes committed by the Court. If such mistakes are brought to the notice of the Court, Court is bound to rectify such mistakes. In this case the ITO has applied for rectification within the period of four years before which rectification could be made and it is because of the mistake of the Tribunal or its office the order rectifying the mistake could not be passed within the period of four years. Such delay on the part of the rectifying authority, which is not under the control of the assessee or the revenue, cannot take away their statutory rights to have the orders rectified in accordance with law, if there is a mistake apparent from record. In this view of the matter, we are of the opinion that the Tribunal is bound to rectify the mistake, even though the period of four years have elapsed, since the party concerned has applied for such rectification well in advance, and the delay in rectification is not attributable to it. In view of the above, the order of the Tribunal in IT Appeal No. 426 (Nag.) of 1980 dated 8-4-1982 stands amended as follows : In paragraph 2 of the Tribunal's order dated 8-4-1982 in place of the last two sentences : We find that the same issue has been decided in favour of the assessee by the Bombay High Court in the case of CIT v. Shah Nanji Nagsi [1979] 116 ITR 292. Respectfully following the above decision, we reject the ground raised by the revenue in this behalf.
In view of the retrospective amendment, by way of introduction of Explanation 2 to Section 37(2A), the amount of Rs. 1,30,682 will have to be treated as entertainment expenses within the meaning of Section 37(2A) and the assessee will be entitled to claim the amount as deduction. The ITO will however allow deduction to the assessee, to the extent permitted under that section if it is not already allowed and disallow the balance.