Commissioner of Income-tax Vs. C. Subramanyam - Court Judgment

Excerpt:
direct taxation - rectification - sections 64, 64 (1) and 154 of income tax act, 1961 - income tax officer (ito) assessed assessee individually - subsequently ito assessed income of wife of assessee arising from partnership in hands of assessee under section 64 (1) (i) - ito passed order of rectification under section 154 - appeal preferred by assessee - partnership firm includes assessee and wife only - section 64 attracted - there was 'mistake' within terms of section 154 - held, ito had jurisdiction to initiate rectification proceedings. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no other grounds are available to it. the insurer is not allowed to contest the claim of the injured or heirs of the deceased on other grounds, which are available to the insured. if insurer is permitted to contest the claim on other grounds it would mean adding more grounds of contest to the insurer and will be negation of the intention of the legislature and annihilate mandate of the provisions of sections 170 and 149 of the act. the insured can pursue appeal only after giving up the insurer as the appellant and not otherwise. in the instant case, the insurer has not withdrawn from party array but has remained prosecuting the appeal with the insured on the grounds which are available only to the insured. therefore, the joint appeal as filed by the insured and the insurer is not maintainable. section 166: [v. gopala gowda & jawad rahim, jj] claim for compensation accident due to mechanical defect in the vehicle held, it is not in dispute that the claimant suffered injuries in an accident, which occurred during the course of his employment, albeit due to his negligence but law does not render him remediless. statutory right is conferred on him, accruing by virtue of his employment under insured to claim compensation under workmens compensation act. the insurer is statutorily duty bound to discharge the liability of the owner of the vehicle, to pay such compensation to the employee, as mandated under the provisions of section 149 of the act. the right of an injured employee or his dependents as the case may be to be compensated, when injury is suffered or death occurs during his employment, is recognised not only under workmens compensation act, but also under benevolent provisions under section 166 and 167 of the m.v. act. the right of driver to seek compensation is not restricted only to the workmens compensation act, it has been enlarged to enable such person to seek just compensation (sections 166 and 168), conferring upon him the right of election engrafted under section 167 of the act to choose either of the two forum. the only defence which the insurer could take is limit of its liability as enumerated under section 147 of the act, leading to contest, inter alia, only between insured and insurer and does not impact claimants right to recover the compensation determined by the tribunal which crystallizes into enforceable right against both. in the instant case, the claimant/driver has exercised right of election under section 167 of the act to seek compensation under section 166 of the act resulting in award passed by the tribunal. therefore, the insured and the insurer have no escape but to discharge the said award as directed. undisputedly, in this case as deduced for proved facts, the vehicle in question was not properly maintained by the owner and despite faulty brake system, the claimant had undertaken the hazardous journey to his peril at the behest of and at the instruction of the owner. the owner is therefore, tortfeasor. section 168: [v. gopala gowda & jawad rahim, jj] insurers limit of liability - held, it is well settled that the liability of the insurance company for payment of compensation can be statutory or contractual. is for the insurance company to show that the insurance policy was a statutory policy and not a contractual policy to restrict its liability. that issue was neither raised before the tribunal nor is raised in this appeal requiring decision. thus, if at all the insurer has any valid ground to restrict its liability, it can proceed against the insured but firstly it has to discharge the award as required under section 149 (1) of the act. where the owner/insured has failed to maintain the vehicle as per prescribed safety standards and has caused the claimant to drive the vehicle with mechanical defects, the owner would be the tortfeasor and the claimant can maintain a petition seeking compensation under the provisions of the act, instead of seeking compensation under the workmens compensation act. on facts, held, the material evidence on record, particularly, with regard to the income of the claimant, his age, medical evidence and the evidence relating to pecuniary loss has not been considered by the tribunal in the correct perspective, which has resulted in passing of the impugned award, disproportionate to the pecuniary loss and the loss of future income of the victim. the settled principles governing determination of compensation has been given a go-bye. compensation of rs.4,15,150/- awarded by the tribunal was enhanced to rs.8,20,000/-. - the tribunal held that the provisions of section 64(1)(i) are clearly attracted in the present case and recorded its opinion that the income of the wife is liable to be included in the hands of the husband under section 64(1)(i) of the act in the present case. we are in entire agreement with the view expressed by the tribunal that the provisions of section 64(1)(i) of the act are clearly applicable in the present case, as a result of which, the income received by the wife from the partnership firm was liable to be assessed in the hands of the assessee. we are afraid this principle could have no application in a case like the present one. it is obvious that the income-tax officer failed to look into the records of the firm while making assessments of the income in the hands of the husband and his wife. that was clearly an omission on the part of the income-tax officer.anjaneyulu, j. 1. this reference by the income-tax appellate tribunal, under section 256(1) of the income-tax act, 1961 (hereinafter referred to as 'the act'), relates to the income-tax assessment years 1973-74 and 1974-75. 2. the question referred for the consideration of this court is : 'whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal is justified in holding that section 154 cannot be invoked to include the income of the spouse in the hands of the assessee under section 64 of the income-tax act for the assessment years 1973-74 and 1974-75 ?' 3. the assessee and his wife constituted themselves into a partnership firm under a deed of partnership dated october 26, 1965. there is no other person as a partner in the partnership firm. the firm's assessments were completed and the assessments of the individual persons were also completed on the basis of the assessments made in the hands of the partnership firm. after the assessments were made, the income-tax officer seems to have realised that an error was committed, in that, the income of the wife arising from the partnership firm should have been taxed in the hands of the husband under section 64(1)(i) of the act. he accordingly initiated proceedings for rectification of the mistake under section 154 of the act and eventually passed orders of rectification under which he included the income of the wife in the hands of the husband and made the assessments. 4. the assessee questioned the rectification orders on two grounds. firstly, it was urged that the income is not includible on merits and the provisions of section 64 of the act do not authorise the assessments of the wife to be made including her share income in the hands of her husband. it was nest urged that in any event there was no patent mistake apparent from the assessee's record and, consequently, the provisions of section 154 of the act are inapplicable. the income-tax officer rejected both the contentions. the matter was carried in appeal by the assessee. the appellate assistant commissioner rejected the assessee's appeals and confirmed the orders of rectification under section 154. the assessee carried the matter to the tribunal in further appeal. the tribunal held that the provisions of section 64(1)(i) are clearly attracted in the present case and recorded its opinion that the income of the wife is liable to be included in the hands of the husband under section 64(1)(i) of the act in the present case. the tribunal, however, accepted the second contention o0f the assessee, namely, that, in the facts and circumstances, it was not possible to say that there was any error apparent on the record of the assessee. the tribunal also referred to explanation 1 to section 64(1)(i) stating that the individual whose total income is referred to in clause (i) shall be the husband or wife whose total income, excluding the income from the firm, is greater. the tribunal observed that in order to determine whether there was a mistake or not, it was necessary to go into the effect of the explanation and unless, in terms of the explanation, the husband's income is found to be greater, the income of the wife is not liable to be included. in the opinion of the tribunal, this renders the entire exercise debatable and, consequently, the provisions of section 154 will have no application. in that view of the matter, the rectification orders for the assessment years 1973-74 to 1975-76 were cancelled and the appeals by the assessee were allowed. 5. being aggrieved by the tribunal's decision, the revenue sought for and obtained a reference to this court on the question already specified by us in para one (at p. 50). 6. we have heard learned standing counsel for the revenue. none is present on behalf of the respondent-assessee. even so, learned standing counsel has taken us through the relevant provisions in the act and also invited out attention to the decisions bearing on the point. we are in entire agreement with the view expressed by the tribunal that the provisions of section 64(1)(i) of the act are clearly applicable in the present case, as a result of which, the income received by the wife from the partnership firm was liable to be assessed in the hands of the assessee. we are, however, unable to agree with the view expressed by the tribunal on the second part of the issue, namely, that in terms of section 154 of the act, there is no mistake apparent from the record of the assessee. the above view of the tribunal is largely based on the decision of the supreme court in the case of khorshed shapoor v. asst. ced : [1980]122itr21(sc) , wherein the decision of the karnataka high court in ethel rodrigues v. asst. ced : [1963]49itr128(kar) , was referred to and approved. the tribunal thought that the principle enunciated by the karnataka high court and affirmed by the supreme court in the above case applied to the matter under consideration in the present case. in the karnataka case in ethel rodrigues : [1963]49itr128(kar) , on a perusal of the probate proceedings in the civil court, a certain error was discovered in the estate duty assessment made and section 61 of the estate duty act, 1953 (which corresponds to section 154 of the income-tax act), was invoked and the error rectified. the revenue contended that on a perusal of the it was clear that there was an apparent error in the estate duty assessment made and, consequently, the rectification proceedings were correctly taken. the karnataka high court rejected the revenue's contention stating that the record of probate proceedings in a civil court is quite distinct and separate from the records maintained by the assessing authorities in the income-tax department and, consequently, it should be said that the discovery of an error with reference to probate proceedings in a civil court cannot be considered to be an error apparent on the record of the assessee for the purpose of estate duty. it was found that the record in the estate duty proceedings, by itself, did not reveal any error and it was only on a perusal of the record of probate proceedings in the civil court that an error was discovered. it was, in these circumstances, the contention of the revenue was rejected by the karnataka high court and the supreme court affirmed the said principle. we are afraid this principle could have no application in a case like the present one. the tax affairs of wife in a partnership firm are entirely connected with the record of the partnership firm and also the record of the individual husband. the matters are so intermingled that in order to make appropriate assessments in the hands of the individual husband and the wife, a perusal of the entire record relating to the firm, the husband and the wife is necessary. in that sense, it should be held that it is open to the income-tax officer to look into the records of the firm, the husband and the wife and come to a conclusion regarding the existence of any error patent on the record falling within the terms of section 154 of the act. if only the income-tax officer indicated, by a perusal of the partnership deed, that the firm consisted of only two persons, namely, the wife and the husband, and that would automatically bring in section 64 for consideration. it is obvious that the income-tax officer failed to look into the records of the firm while making assessments of the income in the hands of the husband and his wife. that was clearly an omission on the part of the income-tax officer. it was only subsequently that a perusal of the record indicated that indisputably the partnership firm consisted of only the husband and the wife indisputably the partnership firm consisted of only the husband and the wife and, therefore, the provisions of section 64 of the act were liable to be invoked to include the income of the wife in the hands of the husband. thus, there was a mistake within the terms of section 154 of the act and jurisdiction is conferred on the income-tax officer initiated proceedings for rectification of the assessments already made in the hands of the individual husband. once the provisions of section 64(1)(i) are rendered applicable, the extent of application of the explanation to that section is a matter that could be automatically determined. there is no debate involved, inasmuch as the income of the wife is includible in the hands of the husband. we are unable to uphold the order of the tribunal that, in the facts and circumstances of the case, the rectification of the assessments for 1973-74 and 1974-75 is not called for. we accordingly, answer the question referred in the negative that is to say, in favour of the revenue and against the assessee. there shall be no order as to costs.