Law:

Section:

Section 154 of the Income-tax Act, 1961 [Corresponding to section 35 of the Indian Income-tax Act, 1922] - Rectification of mistakes - Apparent from record - Assessment year 1957-58 - Whether failure to apply a section of Act, permitting higher taxation, particularly where application itself is open to argument and debate, can never be an error apparent on face of record, which can be rectified under section 35 of 1922 Act - Held, yes - Whether where arguments were possible and position was debatable and not patent and clear, resort to section 35 of 1922 Act was not justified and called for - Held, yes FACTS For the assessment year 1957-58, the partnership firm was assessed, and was duly registered. By reason of such registration, the share of profit of each partner in the firm was duly apportioned to each partner. Thereafter, the petitioner was assessed in respect of his share of profit, as also his other income. Subsequently, the ITO having found that share of tax paid by the firm was unearned income under section 14(2)(aa) in hands of the partners, hence it was liable for special surcharge in the case of the partners, passed an order under section 35, purporting to rectify the mistake in calculating the special surcharge. The petitioner's revision application filed under section 33A(2) was disposed of by the Commissioner. On writ, the petitioners, being the heirs and legal representatives of the original petitioner, raised four grounds on which the aforesaid orders were bad and liable to be set aside : (1) That under section 14(2)(aa) an assessee has to be given a certain rebate in respect of the tax paid by the registered firm on the firm's income, and that rebate in the partner's hands can never be considered as unearned income; (2) that under section 14(2)(aa) tax is not payable on the amount of a partner's share of tax payable and paid by the registered firm, and since no tax is payable on the said amount, no special surcharge could be levied thereon, as surcharge is and can only be an addition to tax; (3) that notice for rectification having been given under section 154/55 of the new Act, rectification proceedings could, if at all, be completed only…

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