Income Tax Appellate Tribunal - Mumbai
Indian Card Clothing Co. Ltd. vs Income-Tax Officer on 28 February, 1983
Equivalent citations: [1983]5ITD38(MUM)
ORDER
S.N. Rotho, Accountant Member
1. By this miscellaneous application filed on 3-2-1983, the assessee states that a mistake apparent from the records has crept into the order dated 3-7-1982 of the Tribunal in IT Appeal No. 1392 (Bom.) of 1981 and requests for its rectification.
2. The dispute before the Tribunal was as to whether a sum of Rs. 6,000 spent by the assessee as legal expenses in connection with the issue of bonus shares was allowable as revenue expenditure. The amount consisted of a fee paid to the Controller of Capital Issues and the balance paid to the auditors for examining the application to the Controller of Capital Issues. This amount spent in connection with the issue of bonus shares was held by the ITO as capital expenditure. On appeal, the Commissioner (Appeals) had also confirmed the same. On further appeal the Tribunal in their order dated 3-7-1982, confirmed the decision of the revenue authorities, mainly relying on the decision of the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52.
3. Shri N.A. Dalvi, the learned representative for the assessee, took us through the miscellaneous application filed by the assessee. He stated that subsequent to the decision dated 3-7-1982 of the Tribunal, the Bombay High Court by their judgment dated 12-7-1982 in the case of Bombay Burmah Trading Corpn. Ltd. [IT Reference No. 257 of 1973] have held that expenses in connection with the issue of bonus shares represented revenue expenses. Shri N.A. Dalvi urged before us that in view of the aforesaid decision of the Bombay High Court which is binding on us, the decision of the Tribunal in their order dated 3-7-1982 has become patently erroneous and required to be rectified. He filed a copy of the aforesaid judgment of the Bombay High Court and took us through the same. He also placed before us a copy of the order dated 1-6-1981 of the Tribunal in the case of Dr. A.K. Basu, Miscellaneous Appeal No. 123 (Cal.) of 1981, wherein, under similar circumstances, the Tribunal, relying on. a number of authorities cited in their order, rectified their original order. He, therefore, urged that appropriate orders might be passed to rectify the said error apparent from the records under Section 254(2) of the Income-tax Act, 1961 ('the Act') and after doing so, finalise the draft statement of the case in R.A. No. 1343 (Bom.) of 1982, arising out of the same order dated 3-7-1982 with appropriate modifications.
4. Shri M.N. Nambiar, the learned representative for the department, on the other hand, urged before us that there was no mistake apparent from the record in the order dated 3-7-1982 of the Tribunal which could be rectified under Section 254(2). Relying on the decision in the case of CIT v. R. Chelladurai [1979] 118 ITR 108 (Mad.), he urged that the Tribunal cannot review its own order under Section 254(2). His point was that allowing miscellaneous application of the assessee would amount to a review of the earlier order dated 3-7-1982 of the Tribunal. Further, he stated that, in any case, the question as to whether expenses in connection with the issue of bonus shares constituted capital or revenue expenditure is open to debate and such a debatable issue cannot be rectified under Section 254(2). For this proposition, he relied on the decision in the case of Jiyajeerao Cotton Mills Ltd. v. ITO [1981] 130 ITR 710 (Cal.) and T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC). He referred to the decision in the case of Shree Digvijay Cement Co. Ltd. v. CIT [1982] 138 ITR 45 (Guj.) wherein expenditure on the issue of a new shares of a company was held to be a capital expenditure. His point was that the issue under consideration is not free from doubt and is open to debate because of a decision to the contrary by the Gujarat High Court.
5. Shri N.A. Dalvi replied that after the decision of the Bombay High Court dated 12-7-1982, it cannot be said that the issue is open to debate any more so far as we are concerned. He urged that rectifying a mistake apparent from the record would not amount to a review of the order. He relied on the decisions referred to by the learned author, Shri N.A. Palkhivala, in his Commentary on Income-tax, Seventh edition, page 927. He particularly drew our attention to the observations of the learned author therein to the effect that a later decision of the Supreme Court or the appropriate High Court can make an earlier decision of the Tribunal erroneous on the face of the record, within the meaning of Section 254(2). He also referred to the decisions quoted by the learned author in the foot note on the same page. He distinguished the case of R. Chelladurai (supra) on the ground that in that case the Tribunal reconsidered the quantum of penalty and reduced its quantum, which was held to be a case of review. In this connection, he also referred to the decision in the case of Omega Sports & Radio Works v. CIT [1982] 134 ITR 28 (All.), wherein it has been held that if there is a decision on a particular point by the High Court of the State, it is binding on the income-tax authorities in that State and merely because there is some judicial divergence of opinion on that point between some High Courts, it cannot be said that there is a still scope for debate on the point and that, therefore, Section 154 of the Act is not attracted to the case. He also referred to the decision in the case of S.A.L. Narayana Row v. Model Mills Nagpur Ltd. [1967] 64 ITR 67 (SC), in this connection, for the proposition that the authority concerned is bound to rectify a mistake apparent from the record.
6. We have carefully considered the contentions of both the parties as well as the facts on record. The issue raised in the miscellaneous application is not as to whether the expense in connection with the issue of bonus shares is revenue or capital. That issue was there before the Tribunal which decided the same in their order dated 3-7-1982 in a particular manner. The issue before us now is whether, in view of the subsequent decision of the Bombay High Court holding a view contrary to the one given by the Tribunal earlier, there is now any mistake in the original order dated 3-7-1982 of the Tribunal which requires to be rectified under Section 254(2). As has been held in the case of ITO v. S.B. Singar Singh & Sons [1970] 75 ITR 646 (All.), the Tribunal has inherent power to rectify a patent mistake in its order. The question is whether there is any such patent mistake. In our opinion, there is such a patent mistake and it has to be rectified under Section 254(2). The questions before the Bombay High Court were as follows:
Question No. 4: Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 31,899 incurred by the assessee during the year in connection with the issue of bonus shares was an allowable revenue expenditure and not in the nature of capital expenditure?
Question No. 5: Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 10,350 incurred by the assessee for the assessment year 1964-65 as legal expenses in connection with the issue of bonus shares was an allowable revenue expenditure and not in the nature of capital expenditure?
Question No. 6: Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,250 estimated by the Tribunal to be the expenditure incurred by the assessee by way of fees in connection with the issue of bonus shares out of the total fees of Rs. 52,500 was an allowable revenue expenditure and not in the nature of capital expenditure?
The Bombay High Court has held after considering the Supreme Court decision in the case of India Cements (supra) that such expenses are admissible. They categorically answered as follows:
Question Nos. 4, 5 and 6: In the affirmative and in favour of the assessee.
There is no dispute that the decision of the Bombay High Court is binding on us. It is also apparent that the Bombay High Court has considered this very issue and has come to the categorical finding that expenses in connection with the issue of bonus shares are admissible as revenue expenditure. After the said decision of the Bombay High Court, we do not see any room for any debate so far as we are concerned. This is the conclusion arrived at by the Allahabad High Court in the case of Omega Sports (supra) and also the Tribunal in their order dated 1-6-1981 in Miscellaneous Application No. 123 (Cal.) of 1981 referred to earlier. The mere fact that another High Court has taken a different view will not mean that the issue is still debatable so far as we are concerned. We, therefore, come to the conclusion that the decision on the issue under consideration as given by the Tribunal in their order dated 3-7-1982 has become patently erroneous in view of the subsequent decision of the Bombay High Court and the same has to be rectified.
7. We have considered the decisions relied on by the learned representative for the department, but we do not find anything in them to modify the decision already arrived at by us above. In the case of R. Chelladurai (supra), the Tribunal had already held in the original order passed by them that the penalty was 'fully justified'. Later, by an order purported to be under Section 254(2), the Tribunal reduced the quantum of penalty. The reduction of the quantum of penalty after having held the same earlier to be fully justified, was held to be a case of review by the High Court. The facts in that case are evidently quite different from those of the instant case.
8. In the case of Jiyajeerao Cotton Mills (supra), the facts were quite different. There was divergence of opinion on a certain point which was certainly debatable so long as those divergences continued. During the continuation of such divergence of judicial opinion, the ITO passed an order of rectification under Section 154 on that point. The question was whether the order under Section 154 was maintainable specially in view of the fact that the Supreme Court had given a decision subsequent to the date of order under Section 154 upholding the view of the ITO. The High Court pointed out that it is true that the Supreme Court lays down the law of the land, which operates retrospectively. In other words, when the Supreme Court declares as to what the law means, it has to be deemed that the law always meant so. But, that fact could never obliterate the fact that a certain divergence of judicial opinion leading to a debate on that particular point did exist at the time when the ITO passed the order under Section 154. In that case, the Court was considering the action of the ITO at a time when the point was still debatable and had not yet been settled. The Court was not considering the situation where an order of rectification has been passed after the law was settled by the Supreme Court or by the appropriate High Court. It is, therefore, evident that the facts of that case are distinguishable from those of the instant case.
9. For the above reasons we hold that in view of the categorical decision of the Bombay High Court as contained in their judgment dated 12-7-1982 referred to above, there is a mistake apparent from the records in the order dated 3-7-1982 of the Tribunal, which we hereby rectify as follows:
1. Delete paragraphs 6 and 7 of the order dated 3-7-1982 of the Tribunal.
2. In their place, introduce the following paragraph:
6. We have considered the contentions of both the parties as well as the facts on record. We find that this very issue has been decided by the Bombay High Court in favour of the assessee in their judgment dated 12-7-1982 in IT Reference No. 257 of 1973 in the case of Bombay Burmah Trading Corporation Ltd., Bombay. Respectfully following the aforesaid decision, we hold that the sum of Rs. 6,000 spent by the assessee in connection with the issue of the bonus shares is allowable as revenue expenditure. We, therefore, delete the disallowance and allow this ground.
7. In the result, the appeal is partly allowed.
10. In the result, the Miscellaneous Application is allowed.