Lilavatiben Harjivandas Kotecha Vs. J.V. Shah, Income-tax Officer, Ward-d, Jamnagar and anr. - Court Judgment

Divan, C.J.

1. The petitioner in this Special Civil Application is the assessee and is also the applicant in the income-tax reference. The Special Civil Application is in connection with the assessment year 1961-62 and the reference is in connection with the assessment year 1962-63. The question which arises for consideration is the same in both the matters as will be pointed out later in the course of this judgment and, therefore, we are disposing of both these matters by this common judgment.

2. The petitioner in the special civil application challenges two orders, one passed by the ITO, the first respondent herein, on September 10, 1970, being annex. 'E' to the petition. This order was passed by way of rectification in exercise of the powers of the ITO under s. 35 of the Indian I.T. Act, 1922. The other order which she challenges in these proceedings is the order of the Commissioner, the second respondent herein, passed in revision in exercise of the powers under s. 33A(2) of the Act of 1922. That order was passed on December 19, 1973, and a copy of the order is annex. 'A' to the petition. Thus, in these proceedings, annexs. 'A' and 'E' to the petition are challenged and the challenge is on the ground of the scope of the power of rectification under s. 35 of the Indian I.T. Act of 1922.

3. The petitioner was a partner in three partnership firms, namely, Messrs. Halar Salt and Chemical Works, Messrs. Rasik Solvent Extraction Company and Messrs. Krishna Oil Mills. In Halar Salt Works, two of her minor sons were admitted to the benefits of the partnership, whereas in Rasik Solvent Extraction Company and Krishna Oil Mills, three minor sons of the petitioner, namely, Narendrakumar Harjivandas, Chandulal Harjivandas and Rameshchandra Harjivandas, were admitted to the benefits of the partnership. In Rasik Solvent Extraction Company, the petitioner was entitled to a share of one anna in the rupee and each of the three minor sons were admitted to the benefits of the partnership to the extent of one anna share in the profits of the firm. In Krishna Oil Mills the mother, that is the petitioner, was entitled to 6.25 paise share out of one rupee in the profits of the firm and each of the three minor sons was entitled to a share of 6.25 paise out of one hundred paise in the profits of the firm. In the partnership deeds of Rasik Solvent Extraction Company and Messrs. Krishna Oil Mills, by clause 6, which was in identical terms in both the cases, it was provided as follows :

'The partners shall in like proportion bear all losses including the loss of capital, if any, provided however and it is hereby expressly agreed by and between the parties hereto being all majors that the minors admitted to the benefits of the partnership shall be entitled to the benefits of the partnership and shall not personally be liable for any obligation of the said firm but their respective share only shall be liable for the obligations of the said firm and that pending their respectively attaining the age of majority their respective share in the profits of the business shall be accumulated to their respective credit so as to be available to meet their respective share of losses, if any, incurred by the firm at any time during their respective minority provided always that in the event of the accumulation to the credit of the minor, Rasikchandra Dayalbhai Vadera, being insufficient for his share of losses, if any, such insufficiency or deficit shall be exclusively borne by the second partner and in the event of the accumulations to the credit of the minors, Narendrakumar Harjivandas Kotecha, Chandulal Harjivandas Kotecha and Rameshchandra Harjivandas Kotecha, the eleventh partner, the twelveth partner and the thirteenth partner, respectively, being insufficient for their respective share of losses, if any, such insufficiency or deficit shall be exclusively borne by the third respondent (the petitioner herein).'

4. The terms and conditions of the deed of partnership of Halar Salt Works are not material for the purposes of this judgment. For the assessment year 1961-62, for which the relevant previous year was S.Y. 2016, that being the accounting period, the petitioner filed her return showing the total income of Rs. 70,710 comprising of property income of Rs. 417, income from money lending business of Rs. 15,943 and share from money-lending business of Rs. 15,943. She disclosed share of profits from Halar Salt and Chemical Works of Rs. 54,350. By a note made in the return of income, it was mentioned that the income or loss, if any, from Rasik Solvent Extraction Company and Krishna Oil Mills would be shown at the time of assessment. The assessment of the petitioner's income for the assessment year 1961-62 was completed by the ITO, Ward-C, Jamnagar, on August 25, 1961. The income of the petitioner was assessed at Rs. 71,756 and this total income included property income assessed at Rs. 1,084, income from money-lending business assessed at Rs. 16,322 and share of profit from Halar Salt and Chemical Works assessed at Rs. 54,350 subject to the modification under s. 35 of the Act. As regards her share of profits from Rasik Solvent Extraction Company, the petitioner had filed an extract of the profits credited to her account. This was to be taken provisionally subject to the modification under s. 35 of the Act as and when the final assessment of the firm was made by the concerned ITO. It appears that, ultimately, it was ascertained that the petitioner and her three minor sons were each entitled to Rs. 208 as and by way of their share in the profits of Messrs. Rasik Solvent Extraction Company. The share of profits from Krishna Oil Mills was computed at nil subject to the modification under s. 35 of the Act on finalisation of the assessment of the said firm by the ITO in charge of the assessment of the firm. In exercise of the powers, under s. 155 of the I.T. Act, 1961, on July 13, 1966, the ITO assessed the petitioner's income from Halar Salt and Chemical Works at Rs. 66,223 in place of Rs. 54,350 and he also allowed the sum of Rs. 4,648 as remuneration payable to one B. V. Trivedi. As a result of the aforesaid modification, the revised income of the petitioner came to be computed at Rs. 75,650. When the assessment of Krishna Oil Mills was completed by the order dated December 1, 1968, the accounts of the firm showed, after necessary computation, a loss of Rs. 1,50,916. The share of loss of each minor and that of the petitioner was computed at Rs. 9,434 and as a result of the completion of the assessment of Rasik Solvent Extraction Company and Krishna Oil Mills, the petitioner's income was rectified on February 3, 1967, by an order passed by the ITO under s. 155. The loss suffered by the three sons of the petitioner and by the petitioner herself in the assessment year 1961-62 so far as Messrs. Rasik Solvent Extraction Company and Messrs. Krishna Oil Mills were concerned, came to the following computation : The petitioner herself was entitled to a set-off of the loss of Rs. 94,340 against the income of Rs. 75,650 and by virtue of clause 6 of the partnership deed of Krishna Oil Mills, she became entitled to a set-off of Rs. 28,102 against the said income of Rs. 76,650 according to the contentions urged on behalf of the petitioner. Thus, the entire amount of Rs. 37,736 comprising the loss suffered by the petitioner herself and the loss attributable to the shares of the three minor sons of the petitioner came to Rs. 37,736 and in the order which was passed on February 3, 1967, the petitioner was allowed the set-off of this amount of Rs. 37,736 against her total income from all other sources. Thus, the petitioner's income finally was revised at Rs. 41,698, it was further revised at Rs. 43,925 and later on by an order, which was final, revised on January 9, 1970, and the petitioner's income stood assessed at Rs. 43,620.

5. By a notice issued on January 17, 1970, under s. 154/155 of the Act of 1961, the ITO, Ward-D, Jamnagar, informed the petitioner that her assessment under s. 155 for the assessment year 1961-62 was required to be amended as there was a mistake apparent on the fact of the record within the meaning of s. 154/155 of the Act of 1961. That notice mentioned at the foot : 'Nature of mistake proposed to be rectified-Minor's share of loss from M/s. Rasik Solvent and M/s. Krishna Oil Mills which was set off, is to be withdrawn, comes to Rs. 28,302. 'A copy of that notice dated January 17, 1970, is annexure 'C' to the petition. Similar notices were also issued with reference to the assessment years 1962-63, 1963-64 and 1964-65. In response to the said notices, the petitioner, by her letter dated January 21, 1970, submitted her objections to the rectification of the alleged mistake and at the time of hearing of these notices before the ITO concerned, it was urged that in view of the specific provision made in the respective partnership deed as to the extent of the accumulated profits lying to the credit of the minors, and as the amounts lying to the credit of the minor sons were insufficient to meet their respective shars of loss, the insufficiency or deficit was exclusively to be borne by the petitioner and to the extent of the minors' losses, the losses were required to be borne by the petitioner since they were her losses. It was contended on behalf of the petitioner at the time of rectification proceedings that the decision of this High Court in Dayalbhai Madhavji Vadera v. CIT : [1966]60ITR551(Guj) had no application to the facts of this case and it was contended that there was no mistake committed by the ITO while making the original assessment so as to justify rectification under s. 35 of the Act. The ITO hearing the proceedings in rectification came to the conclusion that there was an error apparent on the face of the record and under s. 35(5) of the Act of 1922, he passed an order on September 10, 1970, which is annex, 'E' to the petition and it is one of the orders challenged in the present proceedings.

6. Against the order of rectification an appeal was preferred to the AAC, but the AAC held that the appeal was not maintainable under the provisions of the 1922 Act and he, therefore, dismissed the appeal on that preliminary ground. Thereafter, the petitioner filed an application before the CIT, the first respondent in the special civil application under s. 33A of the Act of 1922, read with s. 264 of the Act of 1961, against the order of rectification passed by the ITO. According to the petitioner, in regard to the orders of rectification passed by the ITO for the assessment years 1962-63 and 1963-64, appeals were filed before the AAC. Those appeals were allowed by the AAC upholding the contention raised by the petitioner regarding the inapplicability of rectification provisions to the original orders of assessment as revised from time to time but as finalised ultimately. Against the decision of the AAC, for the assessment years 1962-63 and 1963-64, the department went in appeal to the Tribunal, and while appeals for those two years were pending before the Tribunal, the revision application under s. 33A of the Act of 1922, read with s. 264 of the Act of 1961, came up for hearing before the CIT. The petitioner was informed about the hearing by notice dated November 28, 1973, and by her letter dated December 5, 1973, the petitioner pointed out that though the Commissioner had fixed the hearing of the revision application on December 10, 1973, in view of the fact that the same question was being agitated before the Tribunal in those two appeals, the hearing of the revision application should be postponed till after the decision given by the Tribunal in those two appeals. Without adjuring the matter and without giving any further opportunity of being heard to the petitioner, according to her, the CIT by his order dated December 19, 1973, annex. 'A' to the petition, dismissed the revision application under s. 33A and these two orderst annexs. 'A' and 'E' to the petition, have been challenged in this special civil application.

7. The facts leading to the reference are that, in connection with the assessment year 1962-63, the ITO had taken into consideration the losses allocated to the share of the assessee and her three minor sons when the assessments of the two partnership firms of Rasik Solvent Extraction Company and Krishna Oil Mills were finalised by the ITO in charge of the assessment of those two firms. As shown by the original order of assessment dated January 9, 1967, passed by the ITO, the minors' share of loss aggregation to Rs. 1,28,424 from Rasik Solvent Extraction Company an the minors' share of loss aggregating to Rs. 38,766 from Krishna Oil Mills were deducted from the income of the petitioner, computed from all other sources in her assessment for the assessment year 1962-63, and her total income was computed accordingly. A similar benefit was given to the petitioner in respect of the assessment year 1963-64, regarding the losses from Krishna Oil Mills and Rasik Solvent Extraction Company. After giving appropriate notice as required by law and hearing the petitioner, the ITO, by his order date September 10, 1970, rectified the orders of assessment for the assessment years 1962-63 and 1963-64, and withdrew the benefit given to the petitioner in respect of losses which were reflected in her assessment as regards the attributable share of the minors in respect of losses from Rasik Solvent Extraction Company and Krishna Oil Mills. For the assessment year 1962-63, a sum of Rs. 38,004 in connection with the losses of the firm of Krishna Oil Mills was added back to the income of the assessee and a sum of Rs. 73,545 in respect of shares of losses which fell to the share of minors from the firm of Rasik Solvent Extraction Company was also added back. We are merely concerned in the present case with the assessment year 1962-63, because the reference has been made by the Tribunal only in respect of the assessment year 1962-63. The assessee carried the matter in appeal before the AAC who was of the view that in accordance with the provisions contained in clause 6 of the partnership deed as also s. 3 of the Partnership Act, there was no question of construction of s. 16(3) of the Act of 1922 or s. 64 of the Act of 1961. He further stated that the losses were allocated by the ITO in accordance with the partnership deed and he directed that the withdrawal of losses, to the extent of accumulated profits in the minors' hands, would stand but the main contention of the ITO on which the order under s. 154 was passed was not in order. He, accordingly, directed the ITO to modify his order in the light of the observations made by him. Against the decision of the AAC, the revenue took the matter in appeal before the Tribunal and the Tribunal, after considering the rival submissions, was of the view that as there was a mistake of law apparent from the record the ITO was competent to rectify the said mistake of law under the provisions of s. 154 of the Act. The Tribunal relied upon the decision of this High Court in Surat Textile Mills Ltd. v. CIT : [1971]80ITR1(Guj) , and also relying upon the observations of this High Court in Dayalbhai Madhavji Vadera's case : [1966]60ITR551(Guj) , which the Tribunal took to be binding in the State of Gujarat, it held that the rectification order was proper. However, the Tribunal pointed out in its order that so far as Krishna Oil Mills were concerned, the ITO, who completed the assessment of that particular partnership firm, had determined the losses coming to the petitioner at twenty-five per cent, and not at 6.25 per cent. apparently because in that assessment order, as shown by annex. 'G' in the paper book at page 82, an amount of loss representing 25 per cent was, shown against the name of the assessee. The Tribunal came to the conclusion that it was not open to the ITO, hearing rectification proceedings, to go behind the order passed under s. 156 of the I.T. Act and, hence, so far as Krishna Oil Mills were concerned, the order of rectification was erroneous and contrary to law. However, the Tribunal upheld the order of rectification as regards the deduction in respect of the minors' share of loss aggregating to Rs. 73,545. Thereafter, at the instance of the assessee, the following three questions have been referred to us for our opinion :

'(1) Whether, on the facts and in the circumstances of the case, any mistake was committed by the Income-tax Officer in computing the total income of the assessee at the time of making the original assessment If so, whether the mistake was apparent from the records so as to justify proceedings under section 154 of the Income-tax Act, 1961

(2) Whether, on the proper interpretation of section 64 of the Income-tax Act, 1961, the loss-share of the minor sons of the assessee in the firm in which the assessee is also a partner can be set off against the income of the assessee

(3) Whether, in a proceeding for rectification of assessment, the assessee is precluded from contending that, in fact and in law, the minor sons' share of loss in the firm is the assessee's own loss. If in the assessment of the firm, the loss is apportioned to the minors' share ?'

8. In view of the controversy, which is the real controversy between the parties, the real question which is needed to be decided is :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in the view that it took, namely, that it was open to the Income-tax Officer to rectify the earlier assessment order dated January 19, 1967, on the ground that there was an error of law apparent on the face of the record ?'

9. In our opinion, that is the real question which is needed to be decided in the present proceedings and, incidentally, that is also the question which is urged in the special civil application and hence we are taking up both these matters and disposing of them by this common judgment.

10. In order to appreciate the contentions regarding powers of rectification. It is necessary first to refer to the provisions regarding rectification under s. 35 of the Act of 1922, and also refer to similar provisions in s. 154 of the Act of 1961. Under s. 35 : 'The Commissioner or the Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under section 33A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion, rectify any mistake apparent from record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee......' that was the provision under s. 35 of the 1922 Act. It is clear that what is emphasised in the aforesaid section is that the powers of rectification could be exercised in respect of a mistake apparent from the record. Under s. 154 of the Act of 1961 also, the wording is identical, namely, 'with a view to rectifying any mistake apparent from the record'. In T. S. Balaram v. Volkart Brothers : [1971]82ITR50(SC) , the Supreme Court held that a mistake apparent on the record or from the record must be an obvious an patent mistake and not some-thing which could be established by a long drawn process of reasoning on points on which there might conceivably be two opinions. A decision on a debatable point of law was not a mistake apparent from the record .Hegde J., speaking for the Supreme Court, in Volkart Brothers' case : [1971]82ITR50(SC)

'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 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 through in our opinion the High Court was not justified in going into that question.'

11. It is the light of this interpretation of what is meant by 'a mistake apparent from the record' by the Supreme Court in Volkart Brothers' case : [1971]82ITR50(SC) that we will have to consider whether the rectification orders passed by the ITO concerned against the assessee, who is also the petitioner in the special civil application before us, were within the scope of the powers contemplated by s. 154 and earlier by s. 35 of the Act of 1922.

12. As regards the assessment year 1961-62, in the order dated September 10, 1970, a copy of which is annex, 'E' to the petition, the ITO stated, after setting out the facts and after referring to clause 6 of the partnership deed :

'The set-off of loss is, therefore, irregular because the total loss of the minors for all these years amounting of Rs. 1,96,428 is less than their capital invested in these firms. Hence entire loss for all those years requires to be allocated among the minors. As per the Gujarat High Court decision in the case of Dayalbhai Madhavji Vadera v. CIT : [1966]60ITR551(Guj) . The loss so allocated cannot be clubbed in the hands of the mother and hence cannot be allowed to be set off against her other income.'

13. For the assessment year 1962-63, in the order of rectification under s. 154, being the order dated September 10, 1970, which is annex. 'B' on the record of the paper book in the Income-tax reference, identical words were used by the ITO. After setting out the effect of clause 6 of the partnership deed, he observed :

'The set-off of the loss is, therefore, irregular because the total loss of the minors for all these year amounting of Rs. 1,96,428 is less than their capital invested in these firms. Hence entire loss for all these years requires to be allocated among the minors. As per the Gujarat High Court decision in the case of Dayalbhai Madhavji Vadera v. CIT : [1966]60ITR551(Guj) , the loss so allocated cannot to clubbed in the hands of the mother and hence cannot be allowed to be set off against her other incomes.'

14. As pointed out earlier, the order of rectification for the two years, namely, assessment year 1961-62, which is challenged in the special civil application, and the assessment year 1962-63, which is challenged in the income-tax reference, were both passed on the very same day, namely, September 10, 1970, and as we have pointed out above, they were passed in identical words and for identical reasons.

15. The learned Advocate-General, appearing in the special civil application for the petitioner, who is also assessee in the I.T. Reference, has urged that there was no error apparent from the record in the sense pointed out by the Supreme Court in Volkart Brothers' case : [1971]82ITR50(SC) because of three grounds. His first ground is that the decision of the Gujarat High Court in Dayalbhai Vadera's case : [1966]60ITR551(Guj) has not been followed by the Mysore High Court in two of its decisions and thus there was a question open to debate whether the decision in Daylabhai's case could be invoked for the purpose of rectification. He, secondly, pointed out that as regards clause 6 of the partnership deed, which is in identical terms in the case of Rasik Solvent Extraction Company and Krishna Oil Mills, there were two interpretations possible and there was scope for debate and argument as regards the exact meaning of clause 6, namely, whether resort could be had to the capital contribution brought in on behalf of the minor in each of these two firms for meeting the losses attributable to their respective shares in these two firms. His third contention was that in 1944, the CBR had issued a circular, a copy of which has been set out as annex 'B-1' in the special civil application, and that in the light of this circular which was a beneficent circular meant for the benefit of the assessee and in view of the further fact that this circular was in force till 1972 when it was ultimately with-drawn by the CBDT, it was not open to the ITO to hold in rectification proceedings that there was an error apparent on the face of the record or that there was any error at all in the earlier original assessment orders for these two respective years, if we turn to annex. 'B-1', the circular is in these terms :

'C.B.R. Circular No. 20 of 1944 - C. No.4(13)-I.T. /44, dated the July 15, 1944.

Subject : Section 16(3)(a) - Loss incurred by wife or minor child-Right of set-off under section 24(1) and (2).

Attention is invited to the Board's Circular No. 35 of 1941, on the above subject. It was laid down therein that where the wife or minor child of an individual incurs a loss which if it were income would be includible in the income of that individual under section 16(3), such loss should be set off only against the income, if any, of the wife or minor child and if not wholly set off should be carried forward. Subject to the provisions of section 24(2). The Board has reconsidered the question and has decided that, although this view may be tenable in law, the other and more equitable view is at least equally tenable that such loss should be treated as if it were a loss sustained by that individual. Thus, if the wife or minor child has a personal income of Rs. 5,000 which is not includible in the individual's income and sustains a loss of Rs. 10,000 from a source the income of which would be includible in the income of the individual under section 24(1), and if not wholly set off should be carried forward under section 24(2). The wife or the minor child would, therefore, be assessable on the personal income of Rs. 5,000. If in any case the wife or minor child claims a set-off of the loss against the personal income, it should be brought to the notice of the Board. Board's Circular No. 35 of 1941 is hereby cancelled.'

16. It may be pointed out that the report of the decision of this court in Dayalbhai Vadera v. CIT : [1966]60ITR551(Guj) , does not indicate on the face of the report whether this circular of the Board of July 15, 1944, was brought to the notice of the learned judges who decided Dayalbhai's case : [1966]60ITR551(Guj) . In that case, on an interpretation of s. 16(3) of the Indian I.T. Act, 1922, the Division Bench consisting of J. M. Shelat C.J. and Bhagwati J., as he then was, held :

'Where the share of the wife or minor child in a firm in which the assessee is a partner is a loss, such loss cannot be included in the total income of the assessee.' It was held : 'The turn 'income' has not been defined in section 16(3). Though 'income' may in certain cases include negative income, namely, loss, such a construction is not favoured by section 16(3). The section creates an artificial liability. The expression 'includes' in clause (a) of sub-section (3), prima facie, carries the concept of adding rather than subtracting, deducting or setting-off.'

17. It was held on a construction of s. 16(3) that that section provided only for inclusions in the total income of an individual and did not create a legal fiction whereby the income of another was deemed to be the income of the individual. Therefore, loss arising under any one of the subclauses of s. 16(3)(a) could not be set off against income arising from the other or the rest of the sub-clauses. If such a set-off were to be made, it would result in a benefit to the father or the husband of the individual. Such a construction would be contrary to the provisions of s. 24 under which it would be the person to whose share the loss fell, who alone was entitled to s set-off. At page 552 of the report, clause 4 of the partnership deed which was under consideration before the learned judges in Dayalbhai Vadera's case : [1966]60ITR551(Guj) is set out and the relevant portion of clause 4 was in these terms : 'The minor party's share of losses shall not exceed the capital subscribed by him.' An elaborate clause like clause 6 which we have got before us in the case of Rasik Solvent Extraction Company and Krishna Oil Mills was not before the Gujarat High Court in that particular case. As we have pointed out earlier, the circular of July 15, 1944, does not appear to have been pointed out to the Gujarat High Court. Before the decision, it was held in Navnit Lal C. Javeri v. K. K. Sen : [1965]56ITR198(SC) that circulars issued by the CBR, of the kind of the circular before the Supreme Court, Would be binding on all officers and persons employed in the execution of the I.T. Act under s. 5(8) of the Act of 1922. In view of this decision of the Supreme Court in Navnit Lal C. Javeri's case : [1965]56ITR198(SC) , it is arguable, to say the least, whether the Gujarat High Court would have taken the view that it did in Dayalbhai Vadera's case : [1966]60ITR551(Guj) if the circular of July 15, 1944, was brought to its notice, particularly in the context of Navnit Lal C. Javeri's case : [1965]56ITR198(SC) .

18. It is further to be noted that the decision in Dayalbhai Vadera's case : [1966]60ITR551(Guj) was in the context of a clause of a partnership deed which was altogether different from the clause before us. That is another point of argument and debate which is required to be considered in the context of the observations of the Supreme Court in Volkart Brother's case : [1971]82ITR50(SC) .

19. In Dr. T. P. Kapadia v. CIT : [1973]87ITR511(KAR) , a Division Bench of the Mysore High Court consisting of G. K. Govinda Bhat and B. Venkataswami JJ. held :

'Where the wife or minor son of an individual is a partner of a firm in which the individual is also a partner, the income of the wife or minor son has to be included in the total income of the individual under the provisions of section 16(3) of the Act of 1922 and section 64 of the Act of 1961. Where losses are incurred by the firm and the question arises as to how the share of loss of the wife or minor child is to be dealt with, there ar two views possible. One is that the loss should be set off only against the income of the wife or minor child and if the loss is not wholly set off it should be carried forward and set off. The other and more equitable view is that such loss should be treated as if it were loss sustained by the individual. It is a general rule of interpretation that where two views are possible, the one which is just should be accepted. The CBR Circular No. 20 of 1944 takes the latter and more equitable view. Under section 5(8) of the 1922 Act and section 119 of the 1961 Act a circular issued by the Central Board of Revenue would be binding on all officers and persons employed in the execution of the 1922 Act and the 1961 Act.'

20. The decision of the Gujarat High Court in Dayalbhai Madhavji Vadera's case : [1966]60ITR551(Guj) was cited before the Mysore High Court but was not followed and the Mysore High Court relied upon the Circular of the CBR of 1944 and the decision of the Supreme Court in Navnit Lal C. Javeri's case : [1965]56ITR198(SC) for the purpose of holding that the circular was binding on all ITOs.

21. In J. H. Gotla v. CIT : [1973]91ITR531(KAR) , the same view was taken by the Mysore High Court and the decision in Dr. T. P. Kapadia's case : [1973]87ITR511(KAR) was followed by another Bench of the Mysore High Court. It is thus clear that as regards the question whether the decision in Dayalbhai's case : [1966]60ITR551(Guj) lays down the correct position in law, there is a controversy going on between different High Courts in the country. The question is a question of doubt and debate and it cannot be said that that position of law as set out in Dayalbhai Vadera's case : [1966]60ITR551(Guj) is the final statement of law so far as the country is concerned.

22. Again, as regards the question of interpretation of clause 6 of the partnership deeds, it may be pointed out that the view that capital contribution of the respective minors should be resorted to before going to the share of the assessee, is a debatable question. The position in law regarding the losses suffered by a minor who has been admitted to the benefits of the partnership is thus set out on the basis of several decisions cited in the foot note in Kanga & Palkhivala's book on the Law and Practice of Income Tax, Seventh edn., Vol. I, at page 52 :

'A minor who is admitted to the benefits of a partnership may be liable to share the firm's losses to the extent of his share in the partnership, i.e., his capital and his share in the profits and property of the firs : all that the law of partnership requires is that he should not be made personally liable for such losses.'

23. The question regarding clause 6 will assume importance in the light of this passage which summarises the effect of several decisions cited in the foot note at page 52 of Kanga and Palkhivala's book. However, in the instant case, what is material to be noticed is that even regarding the interpretation of clause 6, there is a scope for argument and debate. In the earlier portain the clause states :

'..... the minors admitted to the benefits of the partnership shall be entitled to the benefits of partnership and shall not personally be liable for any obligation of the said firm but their respective share only shall be liable for the obligations of the said firm...'

24. It this were the only provision in clause 6, in the light of what has been summarised in the passage extracted from page 52 of Kanga and Palkhivala's book, it would be clear that the minor's capital contribution would be liable to be utilised for the purpose of meeting the losses of the firm. However, in clause 6 after providing as above, it is further stated :

'...... pending their respectively attaining the age of majority their respective shares in the profits of the business shall be accumulated to their respective credits so as to be able to meet their respective share of losses, if any, incurred by the firm at any time during their respective minority provided always that in the event of the accumulation to the credit of the minor, Rasikchandra Dayalbhai Vadera, being insufficient for his share of losses, if any, such insufficiency or deficit shall be exclusively borne by the second partner and in the event of the accumulations to the credit of the minors, Narendrakumar Harjivandas Kotecha, Chandualal Harjivandas Kotecha and Rameshchandra Harjivandas Kotecha, the eleventh partner, the twelevth partner and the thirteenth partner, respectively, being insufficient for their respective share of losses, if any, such insufficiency or deficit shall be exclusively borne by the third partner (petitioner herein).'

25. It is thus clear that even as regards the interpretation of clause 6 in view of the last part of clause 6 which we have just now quoted, it is possible to argue, and argue seriously, that in view of the direction regarding accumulation of profits coming to the share of minors to be accumulated till each of the minors respectively attains majority and thus only these accumulated profits being utilised to meed the losses of the firm in question, and in the event of the accumulated profits being insufficient, the petitioner being made liable for the losses attributable to the share of the minors should never be resorted to. In any event, it is a matter of debate and discussion and argument and it cannot be said that even as regards the interpretation of clause 6, there is a clear-cut provision which any one who wants to can read so to say. Therefore, in the light of the debate and discussion regarding clause 6, there cannot be said to be any error of law apparent from the record so far as the availability of the contribution of the capital of the minors for meeting the losses of the firm is concerned.

26. Thus, regarding each of three points, namely, regarding the decision in Dayalbhai Vadera's case : [1966]60ITR551(Guj) , regarding the circular of the CBR issued as far back as 1944 and regarding the interpretation of clause 6, there is scope for discussion, debate and elborate argument. We are not indicating in this case, for is it necessary for us for the purpose of deciding this case, to indicate which view should be taken on each of these three points of contention. We are merely indicating that there is a great deal of scope for debate and discussion on each of these three points and, hence, in view of the decision of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) , there cannot be said to be a mistake apparent from the record since a decision on a debatable point of law is not a mistake apparent from the record.

27. Under these circumstances, the ITO had no jurisdiction when he passed the order, annex. 'E', to Special Civil Application No. 380 of 1974 and correspondingly, the CIT was bound to decide in favour of the assessee and set aside the order of the first respondent, but in spite of that, by his order, annex. 'A' to the petition, the Commissioner has confirmed the order to the ITO when the Commissioner was exercising his revisional aAIDI power. The order the of the Commissioner also, therefore, is contrary to law and must be quashed and set aside. The income-tax Therefore, in Special Civial Application No. 380 of 1974, we pass the following order : There ordersm annexs. 'E' and 'A' to the petitionm are quashed and set aside as being beyond the scope of powers of recitification under s. 154 of the 1961 Act. Correspondingly, the notice annex. 'G', issued by the ITO must also be quashed and set aside. The income-tax authorities, the respondents herein, are directed not to act upon the said notice, annex, 'G' to the petition. Rule is made absolute accordingly. The respondents will pay the costs of the special civil application to the petitioner.

28. In the light of the above discussion, it follows that, for the assessment year 1962-63, there was no scope for exercising the powers of rectification under s. 154 of the I.T. Act, 1961, and hence the question that we have reframed as above must be answered in the negative. That is, in favour of the assessee and against the revenue. As we have indicated above, the question that we have reframed is the real question of law that is needed to be decided in this case. From that has been observed by the Supreme Court in Volkart Brothers' case : [1971]82ITR50(SC) , it is not open to us to go into the merits of the different points about which it has been contended that there was a mistake apparent from the face of the record. Hence, we decline to answer the questions which are referred to us but we answer the question which has been reframed by us in order to bring out real controversy between the parties. The reference will, therefore, be disposed of accordingly, the Commissioner will pay the costs of this reference to the assessee.