OIL INDIA LTD. v. COMMISSIONER OF INCOME-TAX — 1989 DIGILAW 285 (CAL)

AJIT K. SENGUPTA, J. ( 1 ) IN this reference under Section 256 (2) of the Income-tax Act, 1961, for the assessment year 1969-70, the following questions of law have been referred to this court:" (i) Whether, on the facts and in the circumstances of this case, disposal of the appeal by the Tribunal was in accordance with law. " (ii) Whether, on the facts and in the circumstances of this case, the order of remand by the Tribunal was legal and valid. " ( 2 ) THE facts shortly stated are that while making the assessment of the assessee for the said year on March 15, 1972, the Income-tax Officer disallowed Rs. 9,48,380 under Section 40 (a) (v) of the Act and on the basis of the claim made by the assessee allowed the deduction. In computing its income from business for that year, the sum of Rs. 1,40,411 being 1/12th of the expenditure on repairs, maintenance, etc. , of bungalows and depreciation on bungalows, furniture, etc. , owned by the assessee-company and used by its employees was allowed as a deduction. Later on, the Income-tax Officer was of the opinion that the deduction of the sum of Rs. 1,40,411 allowed to the assessee represented a mistake apparent on the record, inasmuch as the said deduction was not permissible under the provisions of Section 40 (a) (v) of the Act. He, accordingly, issued a show-cause notice to the assessee as to why the said mistake be not rectified. After cause was shown and the objections raised by the assessee were considered, the Income-tax Officer deleted the deduction of Rs. 1,40,411 allowed to the assessee at the time of the original assessment. ( 3 ) AGGRIEVED by the said order of the Income-tax Officer, the assessee brought the matter by way of appeal before the Appellate Assistant Commissioner of Income-tax (Central-II), Calcutta, who confirmed the said order of the Income-tax Officer under Section 154 of the Act. ( 4 ) THE assessee then brought the matter by way of appeal before the Tribunal. It was contended that once an order was passed by the Appellate Assistant Commissioner, the assessment order of the Income-tax Officer merged with the order of the Appellate Assistant Commissioner. The order of the Income-tax Officer was not subsisting and operative in law. ( 4 ) THE assessee then brought the matter by way of appeal before the Tribunal. It was contended that once an order was passed by the Appellate Assistant Commissioner, the assessment order of the Income-tax Officer merged with the order of the Appellate Assistant Commissioner. The order of the Income-tax Officer was not subsisting and operative in law. Without prejudice to the above, it was submitted that there was no mistake apparent from the record and as such the Income-tax Officer was not justified in invoking the provisions of Section 154 of the Act and thereby withdrawing thus sum of Rs. 1,40,411 allowed at the time of making the assessment. The Appellate Tribunal considered all the facts threadbare and came to the conclusion that, undoubtedly, the company was carrying on business mostly in Assam. It had to provide accommodation to its employees near the site of the business. The assesses had provided bungalows to the employees in Duliajan near Dibrugarh. The assessee had to incur the expenses on repairs for these bungalows. Since they were furnished bungalows, the expenses on repairs for wear and tear were higher. But the assessee claimed that the employees used to go on leave on an average for one month every year. The expenses were claimed as a deduction only for the period of actual occupation or user. The Income-tax Officer, however, held that all these bungalows were in the constructive possession of the employees. The disallowance under Section 40 (a) (v) was, therefore, called for. He, accordingly, after taking all the facts of the case into account, disallowed the amounts mentioned above. The Tribunal, however, found that the facts on record were not sufficient to give a clear cut finding. These arguments were controverted by the Revenue. According to the departmental representatives, the admitted position was that the details regarding the vacancy of the bungalows, etc. , were not filed before the tax authorities. Though details in respect of the bungalows was sought to be produced before the Tribunal by the assessee, that request was opposed by the Revenue. ( 5 ) AFTER hearing the contention of the parties, the Tribunal disposed of this appeal by restoring both these appeals to the Appellate Assistant Commissioner for fresh disposal in the light of the observations made above. ( 5 ) AFTER hearing the contention of the parties, the Tribunal disposed of this appeal by restoring both these appeals to the Appellate Assistant Commissioner for fresh disposal in the light of the observations made above. ( 6 ) THE short question which falls for determination is whether the order of remand which was made by the Tribunal in a proceeding arising out of the order passed under Section 154 is valid or not. It is now well-settled that if the mistake has to be ascertained on investigation into facts, it will not be a mistake apparent from the records. The Income-tax Officer cannot, in such a case, invoke Section 154 of the Act. The nature of the mistake as considered by the Income-tax Officer in his order is as follows :"on the above explanation and facts on record given by the company at the time of assessment, it is clear that the company was not entitled to any deduction of the expenses and allowances incurred and claimed on account of the bungalows, etc. , provided free for use to the employees. The provisions of Section 40 (a) (v) are very clear in this regard. Then, in computing the expenditure, what is to be included is not the value of the perquisite, benefit or amenity as is assessable in the employees' hands, but the cost incurred in providing such benefit, amenity or perquisite. The fact remains that the expenses and allowances incurred and claimed by the company, relate to the quarters, etc. , which are meant for the use of the employees. It is immaterial so far as the position in law is concerned even if the employees go on leave for a month. Even according to the company's own admission, such quarters during the leave period of one employee is given to another member of the staff. On the facts which are on record, it is clear that, by mistake, the deduction claimed by the company was allowed. The objection of the company is, therefore, not acceptable and the assessment is rectified under Section 154. On the facts which are on record, it is clear that, by mistake, the deduction claimed by the company was allowed. The objection of the company is, therefore, not acceptable and the assessment is rectified under Section 154. " ( 7 ) THE Commissioner of Income-tax (Appeals) held as follows :"under Section 40 (a) (y), as it stood at the material time, no expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite to an employee or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly, to the extent such expenditure or allowance exceeds 1/5th of the amount of salary payable to the employee, or Rs. 1,000 for each month or part thereof comprised in the period of his employment during the previous year, whichever is less, was to be deducted in computing the income of the assessee chargeable under the head "business". It is, therefore, clear that what is disallowable under Section 40 (a) (v) is any expenditure or allowance in respect of assets of the assessee used by the employees. The material and relevant consideration is that the expenditure or allowance is in respect of assets of the assessee used by the employees and not the actual benefit derived by the employees from such expenditure. The measure of disallowance is the excess over the limits prescribed in this section. Even if an employee is on leave for a month during the course of the year, he is still in constructive possession of the bungalow, unless, of course, before proceeding on leave, his employment is terminated. The employees concerned may or may not occupy the bungalows physically during the period of their leave but this would not postulate a cessation of constructive possession of the bungalows by the employees. In the circumstances, as long as an employer incurs an expenditure for the whole year and there is no interruption in the employment during the period of leave of the employees, there can be no question of restricting the disallowance under Section 40 (a) (v) to 11/12th of the total expenditure otherwise disallowable. The objection raised in this ground, therefore, fails. " ( 8 ) THE Tribunal held as follows :"we have given our thoughtful consideration to the contentions of the representatives of the rival parties. The objection raised in this ground, therefore, fails. " ( 8 ) THE Tribunal held as follows :"we have given our thoughtful consideration to the contentions of the representatives of the rival parties. There is no doubt that the assessee-company carries on its business mostly in Assam. It has, therefore, to provide accommodation to the employees near the site of the business. The assessee had, therefore, provided bungalows to the employees in Duliajan near Dibrugarh. The assessee has to incur the expenses on repairs, etc. , for these bungalows. Since they were furnished bungalows, the expenses on repairs for wear and tear were more. But the assessee claimed that the employees used to go on leave on an average for one month every year. The expenses were claimed as deduction only for the period of actual occupation or user. The Income-tax Officer, however, held that all these bungalows were in the constructive possession of the employees. The disallowance under Section 40 (a) (v) was called for. He, accordingly, after taking all the facts of the case into account, disallowed the amounts mentioned above. The Appellate Assistant Commissioner also did not find any substance in the arguments advanced on behalf of the assessee. Before us, the assessee's representative filed the details regarding the vacancies throughout the year as and when the employees were on leave. We have found that, in some of the cases, the bungalows were shown vacant for a few days. The assessee's plea that, during the leave period, all these bungalows were vacated by the employees although the assessee had filed the details but apparently this does not stand to reason that when the employees go on leave, the bungalows are vacated and the household effects are also taken away by them or kept with some other employees occupying the other bungalows. But since the assessee has filed specific details, we admit the same, but it is not possible for us to give a decision thereon unless the facts are verified. Therefore, having regard to all the aspects of the case we deem it necessary to restore these two appeals to the Appellate Assistant Commissioner for fresh disposal. He will examine as to whether the details filed by the assessee are really correct and whether the expenses disallowed by the Income-tax Officer under Section 40 (a) (v) are justified. Therefore, having regard to all the aspects of the case we deem it necessary to restore these two appeals to the Appellate Assistant Commissioner for fresh disposal. He will examine as to whether the details filed by the assessee are really correct and whether the expenses disallowed by the Income-tax Officer under Section 40 (a) (v) are justified. While disposing of the appeals afresh, he will no doubt allow reasonable opportunities both to the assessee as well as to the Income-tax Officer. With these remarks, we restore both these appeals to the Appellate Assistant Commissioner for fresh disposal in the light of the observations made above. " ( 9 ) IF there is no dispute that the deduction claimed by the assessee is not allowable in law, in that event, there will be a mistake apparent from the record and the Income-tax Officer would be justified in rectifying the mistake. Once it is established that there is a mistake apparent from the records, the Income-tax Officer assumes jurisdiction and in rectifying such mistake if the quantum of deduction has to be determined on ascertaining certain facts, the Income-tax Officer will not be precluded from doing so under Section 154. In such a case, it cannot be said that the determination of mistake depends on the investigation of facts. But when the mistake itself has to be determined on investigation of facts, the Income-tax Officer will have no jurisdiction to proceed under Section 154. ( 10 ) THE Tribunal should have decided whether the Income-tax Officer was justified in invoking Section 154 for disallowing deduction under Section 40 (a) (v ). The Tribunal, instead of doing that, has held that it was necessary to restore the appeals to the Appellate Assistant Commissioner for fresh disposal after examining as to whether the details filed by the assessee are correct and whether the expenses disallowed by the Income-tax Officer under Section 40 (a) (v) are justified. This direction may be construed to mean that the Tribunal found that there was a mistake apparent from the records. But the Tribunal did not decide although such an issue was raised whether the proceeding under Section 154 was validly initiated. The Tribunal has, however, gone into the merits. The Tribunal should have first considered whether the Income-tax Officer rightly invoked, Section 154 and whether there was any mistake apparent from the records. But the Tribunal did not decide although such an issue was raised whether the proceeding under Section 154 was validly initiated. The Tribunal has, however, gone into the merits. The Tribunal should have first considered whether the Income-tax Officer rightly invoked, Section 154 and whether there was any mistake apparent from the records. Only thereafter, the determination of quantum of disallowance could have been left to the Income-tax Officer and the Appellate Assistant Commissioner. For the reasons aforesaid, we are of the view that the Tribunal's order in remanding the case to the Appellate. Assistant Commissioner for fresh disposal in the appeal arising out of a proceeding under Section 154 without first deciding whether there was a mistake apparent from the records was not in accordance with law. ( 11 ) WE, therefore, answer both the questions in this reference in the negative and in favour of the assessee. The Tribunal, however, shall dispose of the case in the light of the observations made in the judgment. ( 12 ) THERE will be no order as to costs.