N.K. Karhail, JM.
This Miscellaneous Application has been filed under section 254(2) of the Act stating that there are apparent mistakes in the order dated 25-4-2003 passed by the Tribunal in the aforesaid appeals which needs to be rectified.
The Tribunal vide order dated 25-4-2003 dispose of the appeals for the assessment years 1987-88, 1989-90, 1990-91 and 1991-92.
"The facts for assessment year 1987-88 are that.
The assessment under section 143(1) was completed in which the assessed had declared his income as nil. As a result of this, the refund of Rs. 1,01,554 was allowed. After examining the records, the assessing officer issued notice under section 154 on 14-12-1990 in which it was proposed to charge income tax at the rate of 25% on dividends at gross amount of Rs. 5,49,975 as per the provisions of section 115A of the Income Tax Act, 1961. In reply, the assessed contended that he was entitled to deduction under section 80GGA out of dividend income received by it and tax at the rate of 25% was to be charged on the remaining net income. The said contention was not accepted by the assessing officer since the assessed was a foreign company as such governed by provisions of section 115A and also Boards Circular No. 202, dated 5-7-1996. Accordingly, he held that there was an obvious and apparent mistake inasmuch as income-tax at the rate of 25% has not been charged on gross dividends amounting to Rs. 5,49,975 received by the assessed foreign company.
As regards the assessment year 1989-90, the facts are that.--
As against the income declared by the assessed to the extent of Rs. 26,70,343, the assessing officer vide intimation under section 143(1)(a), determined the same at Rs. 28,70,347. In computing the income under section 143(1)(a), the assessed was not allowed deduction under section 80GGA amounting to Rs. 2 lakhs in respect of donations paid to two institutions a proved under section 35(1)(ii) of the Income Tax Act, 1961.
The assessed moved an application under section 154 enclosing the photocopies of donations amounting to Rs. 1 lakh each to Bhartiya Vidya Bhawin, Bombay and Gujarat Vidya Pith, Ahmedabad. Accordingly, a deduction of Rs. 2 lakh was requested. The said request of the assessed was not accepted by the assessing officer in view of the facts that the assessed is foreign company whose income from dividend received has to be taxed at the rate of 25% on gross basis in view of the provisions of section 115A of the Act. He also relied upon Circular No. 202, dated 5-7-1996 of the CBDT. Accordingly, he issued a notice under section 154 to the assessed in which it was proposed to charge income-tax at the rate of 25% on dividends and gross amount of Rs. 32,11,668. The claim of the assessed that the tax is to be charged on net basis and not on gross basis was not accepted by the assessing officer. Accordingly, after relying upon the provisions of the Act as well as Boards Circular., the assessing officer was of the view that there is obvious and apparent mistake inasmuch as income tax at the rate of 25% has not been charged on gross dividends amounting to Rs. 32 lakhs and odd received by the assessed foreign company. Accordingly, the said mistake was rectified under section 154 of the Act.
As regards the facts for assessment year 1990-91, the same are :
That the assessed declared its total taxable income at Rs. 7,83,670. The assessing officer after issuing notice under section 143(2) sought the assessed to substantiate its income. The assessing officer observed that the assesseds only source of income is dividend income and the total gross dividend received in the year under consideration shown by the assessed was at Rs. 14,83,674. He further observed that on account of donations made to Kasturba Health Society to the tune of Rs. 7 lakhs, the assessed claimed deduction under section 35(1)(ii) of the Act. In view of the fact that the assessed is a foreign company and in view of the provisions of section 115A, the assessing officer did not accept the assesseds claim that it is entitled to deduction under section 80GGA out of the dividend income received by it. He further relied upon the Boards Circular No. 202, dated 5-7-1996 and held that the income-tax is to be charged at the rate of 25% on gross dividend income of Rs. 14,83,674 and deduction claimed under section 35(1)(ii) was held to be not allowable.
The facts for assessment year 1991-92 are that :
The return of income was filed declaring a total income of Rs. 29,15,250. The assessing officer after issuing notice under section 143(2) observed that the assessed is a company registered in Sikkim under the Sikkims Company Act and claimed to be a foreign company. Accordingly, the status of the assessed was accepted as a foreign company as in the earlier years. The assessing officer observed that in the year under consideration, the assessed had received income from dividend and interest as well as from capital gains from sale of shares. Taking note of the fact that the assessed had claimed deduction under section 80GGA on bonus paid to approved institutions amounting to Rs. 22,50,000, the assessing officer did not allow the claim of the assessed. He was of the view that the deduction under Chapter VI-A are not permissible to the assessed company in view of the fact that it is a foreign company. As such, he held that the assessed was liable to be taxed at the rate of 25% on gross basis on account of dividends etc. as per section 115A on the total income of the company which was assessed at Rs. 51,65,245."
On appeal, the CIT (A) upheld the orders passed by the assessing officer under section 154 of the Act in respect of assessment years 1987-88 and 1989-90.
As regards the interpretation of section 115A of the Act, the CIT (A) has opined that section 115A provides different rates of tax on different types of income contemplated therein. The moment such different heads of income get coalesced into aggregate income their identity as dividend/interest/royalty/fees for technical services vanishes and thereafter, they are identifiable only as income simplicitor. He further opined that for application of section 115A, the sanctity of different types of income has to be maintained as sacrosanct. As regards the deduction under section 80GGA he was of the view that the said deduction is available only out of the total income which would be in accordance with the provisions of the Act and as provided in section 80AB. Thus, there was necessarily required grossing up of income as the mandatory first step. The moment there is grossing, the individual heads of income lose their identity which would make the applicability of section 115A impossible. Thus, section 115A was to be interpreted in harmony with other provisions of the Act. Hence he held that the amendment to section 115A by which other sections 3 and 4 were inserted by the Finance Act, 1994 was merely clarificatory in nature. Therefore, the CIT (A) dismissed the appeals of the assessed for the aforesaid years.
On appeal, the Tribunal on perusal of the circular of the Board and amended provision of section 115A, has opined that the amendment of section 115A by Finance Act, 1994 with effect from 1-4-1995 is not declaratory but clarificatory in nature and to give any other meaning to the provision at the relevant point of time, would make the provision unworkable which would never have been the intention of the legislation. Thus the action of the revenue was held fully justified.
The learned counsel for the assessed has submitted that main issue raised before the Tribunal were as follows:
Assessment years 1987-88 & 1989-90 :
(i) Validity of rectification order under section 154 of the Act withdrawing the exemption under section 80GGA of the Act.
(ii) Charge of flat rate of tax at 25% under section 115A of the Act without granting deductions under section 80GGA of the Act though the amendment in section 115A has been brought on the statute books with effect from assessment year 1995-96.
Assessment years 1990-91 & 1991-92 :
(i) Charge of flat rate of tax of 25% under section 115A of the Act without granting deductions under section 80GGA of the Act though the amendment in section 115A has been brought on the statute books with effect from assessment year 1995-96.
(ii) Without prejudice, non-granting of deductions under section 80GGA of the Act on interest income and long term capital gains for assessment year 1991-92.
The learned counsel for the assessed has pointed that the Tribunal vide its order dated 25-4-2003 has held that the amendment of section 115A by Finance Act, 1994 with effect from 1-4-1995 has held it as clarificatory in nature and as such the said amendment would apply to the earlier assessment years. He pointed out that by the clause 32 of the Finance Act, 1994, the following amendments were made in section 115A of the Act with effect from 1-4-1995 :
(a) The rate of tax on dividend received by foreign company was reduced from 25% to 20%.
(b) No deduction was to be allowed to foreign company in respect of its dividend income under any of the provision of Chapter VIA of the Income Tax Act, 1961.
He has thus submitted that if the said amendment is clarificatory, then not only the deduction under Chapter VIA would be denied to foreign company in respect of its dividend income, but the tax rate would also be brought down from 25% to 20%, for all the previous years. As a logical consequence of the Tribunals order, there should be express directions that the tax on the dividend income of the foreign company should be fixed at the rate of 20%. He has therefore submitted that such directions may kindly be given, the absence of which reveals a mistake apparent from records which needs to be rectified.
He has further argued that sovereignty of India was extended to Sikkim from 1975 and the Indian Income Tax Act was extended to Sikkim from 1-4-1990. Reading the definitions of sections 2(22A), 2(23A) and section 2(26) of the Income Tax Act, 1961, assessed-company would automatically become an Indian company from 1-4-1975 or in any event from 1-4-1990 and would therefore, cease to remain a foreign company. He has further argued that the courts had held from time to time that the assessed should be taxed on its correct income and on its correct status irrespective of what the assessed has represented. Reliance in this regard has been made to the decision reported in ITO v. Ch. A tchaiah (1996) 218 ITR 239 SC, CIT v. A.P. Parukutty Mooppilamma (1984) 149 ITR 13 1 (Ker). Thus he has contended that the Tribunal should have assessed the assessed company as an Indian company and by not doing so, an error apparent on the face of record has crept in its order dated 25-4-2003 which needs to be rectified,
He has further pointed out that the assesseds in its appeal for the assessment year 1991-92, raised ground No. 5 which inter alia reads as under :
5. Without prejudice to the above, it is submitted that the learned CIT (A) erred in not granting deduction under section 80GGA of the Act against the income other than dividend income, comprised of interest income of Rs. 39,062 and long term capital gains of Rs. 11,68,136. And made the following alternative prayer :
In view of the above, the appellant prays that the assessing officer alternatively be directed to grant deduction of Rs. 12,07,198 under section 80GGA of the Act."
However, the Tribunal while passing its order in para 31 only decided that deductions under Chapter VIA are not available against Dividend income. The Tribunal did not decide, nor gave any directions, whether deductions under Chapter VIA, should be given against interest income, and long term capital gains of the assessed, and thus did not deal with the above ground of the assessed.
Thus, while dismissing the appeal of the assessed for the assessment year 1990-91 and 1991-92, the tribunal has completely ignored and overlooked to consider and to deal with the aforesaid ground raised in the appeal for the assessment year 1991-92. The said omission on the part of the Tribunal was mistake apparent from records, which needs to be rectified. Thus he has urged thats in view of the above noted three apparent mistakes, the entire order be recalled and the matter may be adjudicated afresh.
On the other hand, the learned Departmental Representative has vehemently opposed the Miscellaneous Application stating that the Tribunal has examined and also discussed each and every issue raised by the assessed elaborately. He has further submitted that the Miscellaneous Application is misconceived inasmuch as no alleged mistake could be said to be apparent from records. Hence he has urged that the Miscellaneous Application may be dismissed.
We have heard the rival contentions of the parties and have perused the material to which our attention has been drawn during the course of hearing of the Miscellaneous Application. It may be mentioned that in order to attract the power to rectify under section 254(2) of the Income Tax Act,. 1961, it is not sufficient if there is merely mistake in the order sought to be rectified. The mistake to be rectified must be one apparent from the record. For decision on a debatable point of law or disputed question of fact is not a mistake apparent from record. The jurisdictional High Court in the case of J.N. Sahni v. ITAT (2002) 257 ITR 16, has held that the power of the Tribunal to amend an order passed by it under section 254(1) of the Act is very limited. It is confined to rectify the mistake apparent from record.
It may be further mentioned that the Jurisdictional High Court in the case of CIT v. Vichtra Construction (P) Ltd. (2004) 269 ITR 371 (Delhi) has held that the word used in section 254(2) are "shall make such amendment, if the mistake is brought to its notice". Clearly, if there is a mistake, then an amendment is required to be carried out in the original order to correct this particular mistake. The provisions do not indicate that the Tribunal can recall the entire order and pass a fresh decision. This would amount to a review of entire order, which is not permissible under the Income Tax Act, 1961. The power to rectify a mistake under section 254(2) cannot be used to recall the entire order. No power of review has been given to the Tribunal under the Income Tax Act, 1961. Therefore, what cannot be done directly cannot be allowed to do indirectly. Thus, the contention of the assessed that the entire order be recalled and the matter be adjudicated afresh, is not legally tenable.
However, now we proceed to examine the apparent mistake, which has been pointed out by the learned counsel for the assessed. The amendment to section 115A of the Act by Finance Act, 1994 which has been held to be clarificatory in nature, was made as a measure of rationalization, in order to provide that the income of a non-resident, noncorporate assessed or a foreign company by way of (i) dividend, (ii) interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency, or (iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India, shall be taxed at the rate of twenty per cent.
Prior to this amendment, section 115A of the Income Tax Act, 1961 provided for the taxing of the aforesaid item of income, except in respect of units of the Unit Trust of India, at the rate of 25% in the case of foreign company. Thus, since the amendment to section 115A by Finance Act, 1994 has been held to be one clarificatory in nature, the natural consequence would be to tax aforesaid item of income at the rate of 20% and not 25% in the case of foreign company. It is seen that the Tribunal while holding that the amendment to section in 15A by Finance Act, 1994 is a clarificatory in nature, has not passed any order or direction regarding the rate of charging of tax. It is ordered that since the amended provision would apply to the earlier assessment year the rate as prescribed in the amended provision, may be made applicable to the earlier assessment year under consideration.
As regards the 2nd apparent mistake pointed out by the learned counsel for the assessed regarding extension of sovereignty of India to Sikkim, the applicability of Income Tax Act, 1961 from 1-4-1990 and as such the Tribunal should have assessed the assessed company as Indian company is concerned, it may be mentioned that the power of the Tribunal to amend an order is very limited. It is confined to rectification of mistake apparent from record. It is seen that the assessed has been claiming its status as a foreign company and has nowhere raised this issue in the appeal itself. Therefore, the assessed company cannot raise this issue by way of this Miscellaneous Application alleging that there is a mistake apparent from record. Hence the contention is not legally sustainable.
As regards the 3rd apparent mistake as referred to above it may be mentioned that under section 115A, no deduction is allowable in respect of expenditure under assessment year provision of the Act in computing the foresaid incomes of foreign company. Further, where the gross total income of these assesseds consist only of the above named incomes; no deduction shall be allowed to them under Chapter VIA of the Act. Therefore, the Tribunal has impliedly rejected the claim of the assessed while dismissing the appeals of the assessed. In view of the above, the Miscellaneous Application is partly allowed.
In the result, the Miscellaneous Application is partly allowed.