Ajit Kumar Sengupta, J.
1. In this reference under Section 256(2) of the I.T. Act, 1961, the Tribunal has referred the following question to this court at the instance of the Commissioner :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that there was no mistake apparent from the record with the meaning of Section 154 of the Income-tax Act, 1961, and in that view cancelling the amendment order made by the Income-tax Officer under the said section ?'
2. The facts which are admitted and/or found by the Appellate Tribunal incorporated in the statement of case are stated as under :
For the assessment year 1967-68, the ITO had granted rebate to the assessee under Section 2(4)(a) of the Finance (No. 2) Act, 1967, in respect of its export sales and profits up to June 5, 1966. In granting the rebate, the ITO had treated the cash subsidy received from the Iron and Steel Controller and also the excise duty drawback received from the Customs Department by the assessee in respect of the export sales as part of the 'sales proceeds' and 'turnover' within the meaning of the relevant provisions of the said Finance (No. 2) Act, 1967, and the rules made thereunder. The successor-ITO considered that the inclusion of the cash subsidy and the excise duty drawback in the 'sale proceeds' and 'turnover' for the purpose of rebate under Section 2(4)(a) of the Finance (No. 2) Act, 1967, and the rules made thereunder was a mistake apparent from the record. He accordingly initiated proceedings under Section 154 of the LT. Act, 1961, for rectification of the assessment. This action of the ITO was opposed by the assessee. The ITO, however, overruled the assessee's contention that the cash subsidy received from the Iron & Steel Controller and the excise duty drawback received from the Customs Department were rightly treated in the original assessment as part of the 'sale proceeds' and 'turnover' within the meaning of the relevant provisions of the Finance (No. 2) Act, 1967, and the rules made thereunder and that there was no mistake apparent from the record to warrant rectification under Section 154 of the Act. As a result of the rectification order made by the ITO under Section 154 of the Act, rebates granted to the assessee on its export sales up to June 5, 1966, under Section 2(4)(a) of the Finance (No. 2) Act, 1967, were reduced. While in the original assessment, the rebates were granted on the 'sale proceeds' and 'turnover' of Rs. 59,18,883, the rebates now allowed to the assessee by the rectification order was on 'sale proceeds' and 'turnover' of Rs. 30,66,052. This reduction, as already stated above, was. consequent to the exclusion of the cash subsidy and the excise duty drawback from the 'sale proceeds' and 'turnover'. On appeal, the AAC upheld the order of rectification passed by the ITO. Being aggrieved, the assessee preferred an appeal before the Tribunal. The Tribunal held that there was no glaring or patent mistake so as to admit of rectification under Section 154 of the Act. According to the Tribunal, the question as to whether the expression 'sale proceeds' or 'turnover' occurring in Section 2(4)(a) of the Finance (No. 2) Act, 1967, or the rules made thereunder means merely the amount received by the seller from the buyer as consideration for the sale or it includes all amounts received by the seller in connection with the sale is a highly debatable issue on which there can conceivably be two views. The Tribunal held that the decision of the previous ITO treating the receipts by way of cash subsidy and excise duty drawback as part of the proceeds of export sale or turnover for the purpose of granting rebate under Section 2(4)(a) of the Finance (No. 2) Act, 1967, or the rules made thereunder cannot be regarded as a mistake apparent from the record. The order of rectification was, therefore, held to be without jurisdiction and was vacated.
3. It is contended by the learned advocate for the Commissioner that under the relevant Finance Act, rebate should be allowed only on sale proceeds of export. Cash subsidy and excise duty drawback though it may have accrued to the assessee out of the export, yet it cannot be said to be a part and parcel of export sale and as such rebate cannot be allowed on such cash subsidy or excise duty drawback. According to the learned counsel, the ITO in allowing rebate on those two items, committed a mistake. This mistake is apparent from the record and can be rectified under Section 154.
4. Mr. R. N. Bajoria, learned advocate for the respondents, has submitted that the mistake sought to be rectified must be a patent or apparent or an obvious one on which there could not conceivably be two points of view. In this case, the mistake, if any, has to be established by a process of reasoning or investigation of facts or by examination of question of law on which there might conceivably be two views. Thus, it is not a mistake which would come within the provisions of Section 154 of the Act. He has also contended that even on merits, the Revenue has no case at all inasmuch as most of the High Courts have taken the view that cash subsidy and excise duty drawback should be treated as a part of export sale.
5. It is now well-settled that a mistake which can be rectified under Section 154 of the Act must be a mistake apparent from the record. It may be a mistake either of law or of fact. However, the power of rectification can only be exercised if there is a mistake apparent from the record. The Supreme Court in the case of Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) , has considered the scope of Section 154 of the Act regarding rectification of mistakes. In that case, the original assessments on the respondent, a firm duly registered under the I.T. Acts, were made on the slab rates prescribed under the respective Finance Acts applicable to registered firms. In the individual assessments of the partners of the firm, the respective shares were included and tax was assessed at the maximum rate, since the partners were assessed as non-residents. Thereafter, initiating rectification proceedings under Section 154 of the I.T. Act, 1961, on the ground that there was a mistake apparent from the record inasmuch as the firm had not been charged at the maximum rate of tax under Section 17(1) of the Indian I.T. Act, 1922, the ITO purported to rectify the assessments by applying the provisions of that section. The respondent firm and its partners applied to the High Court under Article 226 of the Constitution of India and the High Court held that the original assessments were prima facie in accordance, with law and at any rate there was no obvious or patent mistake in those orders of assessment and, therefore, the officer was incompetent to pass the orders of rectification. The matter went before the Supreme Court. The Supreme Court observed as follows (pp. 52-53) :
'The question for decision is whether the first respondent's firm came within the mischief of Section 17(1) of the Indian Income-tax Act, 1922... Unless a firm can be considered as a 'person', Section 17(1) cannot govern the assessment of the first respondent. In the Income-tax Act, 1961, in Section 2(31), the expression ' person ' is defined differently... It is a matter for consideration whether the definition contained in Section 2(31) of the Income-tax Act, 1961, is an amendment of the law or is merely declaratory of the law that was in force earlier. To pronounce upon this question, it may be necessary to examine various provisions in the Act as well as its scheme.
Section 113 of the Income-tax Act, 1961, corresponded to Section 17(1) of the Indian Income-tax Act, 1922, but that section has now been omitted with effect from April 1, 1965, as a result of the Finance Act, 1965.
From what has been said above, it is clear that the question whether Section 17(1) of the Indian Income-tax Act, 1922, was applicable to the case of the first respondent is not free from doubt. Therefore, the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under Section 154 of the Income-tax Act, 1961. A mistake apparent on 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 may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminamyan Hegde v. Mallikarjun Bhavanappa Tirumale : [1960]1SCR890 , this court while spelling out the scope of the power of a High Court under Article 226 of the Constitution, ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record--see Sidhramappa Andannappa Manvi v. Commissioner of Income-tax : [1952]21ITR333(Bom) . The power of the officers mentioned in Section 154 of the Income-tax Act, 1961, to correct 'any mistake apparent from the record' is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an 'error apparent on the face of the record'.'
6. The contention of the assessee has to be accepted in view of the principles laid down in the aforesaid decision of the Supreme Court. Under Section 2(4)(a) of the Finance (No. 2) Act, 1967, in respect of any assessment for the assessment year commencing on the 1st of April, 1967, in the case of an assessee being a domestic company or an assessee other than a company, it is entitled to certain deductions on income-tax from the amount of any profits and gains derived from the exports of any goods or merchandise out of India.
7. The amount of deduction is linked with the sale proceeds received or receivable by the assessee in respect of the export. The question is whether on a correct interpretation of the provision of Section 2(4)(a) of the Finance (No. 2) Act, 1967, and the rules framed thereunder, the cash subsidy and excise duty drawback received by the assessee would form part of the sale proceeds. The question as to whether the expression 'sale proceeds' occurring in Section 2(4)(a) of the Finance (No. 2) Act, 1967, means merely the amount received by the seller as consideration for the sale Or it includes all amounts received by the seller in connection with the sale is a debatable issue. There can conceivably be two views on this issue. Section 2(4)(a) of the Finance (No. 2) Act, 1967, has not denned the expression 'sale proceeds'. The Explanation to Section 2(4)(a)(ii) of the Finance (No. 2) Act, 1967, has specified that the expression 'sale proceeds' does not include freight or insurance attributable to the transport of articles beyond the Customs station as defined in the Customs Act, 1962. It does not define what should be included in the 'sale proceeds'. The amount of any profits and gains derived from the export of any goods or merchandise out of India in respect of which deduction of income-tax is admissible under the Finance (No. 2) Act, 1967, shall be computed in accordance with the Income-tax (Determination of Export Profits) (No. 2) Rules, 1967. These rules, inter alia, provide that where it is not possible to ascertain the profits and gains on exports, the value of the turnover of exports has to be taken into consideration. The question whether the cash subsidy or excise duty drawback could be included in the value of the turnover is again a debatable issue.
8. As a matter of fact, most of the High Courts in construing similar provisions of different Finance Acts, have taken the view that the sale proceeds would include not only the actual consideration but also what are received in connection with the export sale. In the case of CIT v. Wheel and Rim Company of India Ltd. : [1977]107ITR168(Mad) , the question before the Madras High Court was whether under the provisions of Section 2(5)(a) of the Finance Act, 1966, the cash subsidy and the income derived from the sale of import entitlements would form part of the profits and gains derived from the export of any goods or merchandise. The Madras High Court held that the cash subsidy and income from the sale of import entitlements would necessarily constitute business receipts referable to, or derived from, the export of cycle rims by the assessee and as such the assessee is entitled to the rebate under the Finance Act, 1966, on the aforesaid two items.
9. In the case of Hindustan Lever Ltd. v. CIT : [1980]121ITR951(Bom) , the question before the Bombay High Court was whether the profits earned or the savings effected by the assessee in importing articles on the strength of the import licences granted to it for importing the goods formed a part of its profits on export within the meaning of Section 2(5)(i) of the Finance (No. 2) Act, 1962. The Bombay High Court however answered the said question in the negative. The Bombay High Court was of the view that the word 'derived' should be given a narrow meaning. It means a direct derivation. In other words, only the proximate source has to be considered and not the source to which it may ultimately be referable. It .was held that giving the word 'derived' in Section 2(5)(i) of the Finance (No. 2) Act, 1962, a meaning consistent with the restricted sense, the words 'derived from exports' cannot be accepted as equivalent to 'referable to exports.'.
10. The Gujarat High Court in the case of Ahmedabad . v. CIT : [1982]137ITR616(Guj) , construed the provisions of Section 2(5)(a) of the Finance Act, 1964, regarding the profits derived from exports and held that cash subsidy or allowance given on export of goods is directly connected with the export of goods and rebate under Section 2(5) can be claimed in respect of it. However, the savings effected on account of import of raw materials at a price lower than the ruling home-market price under import entitlements and import licences which are not transferable cannot be regarded as profits derived from exports and the rebate under Section 2(5) cannot be claimed in respect of it. The view of the Gujarat High Court is that income derived from the sale of transferable import entitlements and import licences cannot be said to have a direct nexus with the export of goods.
11. The Madhya Pradesh High Court in the case of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT : [1983]143ITR590(MP) , was concerned with the interpretation of Section 2(5) of the Finance (No. 2) Act, 1962, and Rule 2(3) of the Income-tax (Determination of Export Profits) Rules, 1962. The assessee-company carried on the business of manufacturing, inter alia, staple fibre and art silk fabrics and of exporting its goods outside India. For the purpose of computing the tax deduction allowable under Section 2(5) of the Finance (No. 2)Act, 1961, the ITO in calculating the value of the turnover of exports for the computation of the qualifying income took into account only the value of the goods exported. The assessee submitted before the ITO that three more Items should be taken into account in calculating the value of the turnover of exports, namely, drawback of customs duty and the value of the import entitlements and refund of excise duty. The ITO refused to take into account these items on the ground that the words 'turnover' as used in Rule 2(3) should be construed in its ordinary commercial usage to mean sale price of goods and, therefore, other benefits arising from exports could not be added to the invoice value of sales for calculating the value of turnover of exports. The AAC as well as the Tribunal affirmed the view taken by the ITO. The Madhya Pradesh High Court held that since the amounts received by the assessee-company as drawback of customs duty and as refund of excise, duty were received only because of the export business carried on by it and they were not referable to any other business carried on by the assessee, a direct relationship between the receipt of these items and the export business was established. There cannot be a neutral source of income or non-descript business. As these items were not relatable to any other source, they were derived from the export business carried on by the assessee and formed a part of the turnover of the export business of the assessee. Therefore, for the purpose of computing the tax deduction under Section 2(5) of the Finance (No. 2) Act, 1962, in accordance with Rule 2(3) of the Income-tax (Determination of Export Profits) Rules, 1962, the indirect incentives and benefits from drawback of customs duty and refund of excise duty to which the assessee-company was entitled on exports, should be added to the invoice price of the exported goods to arrive at the 'export turnover'.
12. It would thus be evident that the question whether the cash subsidy and excise duty drawback would form part of the 'sale proceeds' or 'turnover' of export, business depended on the interpretation of the relevant provisions of the Finance (No. 2) Act, 1967, and the Income-tax (Determination of Export Profits) (No. 2) Rules, 1967. There is, therefore, no patent or apparent or obvious mistake. Under similar circumstances, this court in the case of Jeewanlal (1929). Ltd. v. ITO : [1979]118ITR946(Cal) held that the question whether sale proceeds received by the assessee from the sale of import, entitlements were profits or gains derived from the export of goods or merchandise out of India is not free from doubt. This is a question on which there could conceivably be two points of view. One view is that the goods having been exported out of India, the assessee had earned a a right to import entitlements and the profits of that right were really derived from the export of the goods. The other view may be that there being no export and profits in respect of import entitlements, the assessee was not entitled to deduction of tax as contemplated under Section 2(5)(a)(i) of the Finance Act, 1965. In this case also, two views are conceivable as regards the interpretation of the expression 'sale proceeds' or 'turnover'. One view is that whatever is the actual consideration received by the seller from the buyer, it would be sale proceeds. The other view is that all amounts received by the seller and referable to export sale, whether cash subsidy or excise duty drawback, would form part of the sale proceeds. We are, therefore, of the opinion that the Tribunal was right in holding that there was no mistake apparent from the record within the meaning of Section 154 of the Act.
13. In the result, we answer the question in this reference in the affirmative and in favour of the assessee.
14. Leave is given to file correct order of the AAC which shall be kept on record.
15. There will be no order as to costs.
Dipak Kumar Sen, J.
I agree.