Income Tax Appeal No. 220 of 2009 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 220 of 2009 Date of decision: 18.4.2011 Pawan Kumar (HUF) --- Appellant Versus The Commissioner of Income Tax, Karnal --- Respondent *** CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Brij Mohan Monga, Advocate for the appellant-assessee. Mr. Vivek Sethi, Standing Counsel for the respondent-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the assessee against the order dated 27.11.2008, passed by the Income Tax Appellate Tribunal Delhi Bench ‘F’, New Delhi (in short “the Income Tax Appeal No. 220 of 2009 2 Tribunal”) in ITA No. 503/Del/2008, relating to the assessment year 2001-02. 2. The appeal was admitted by this Court, on 30.4.2010, for determination of the following substantial questions of law: “ (i) Whether in the facts and circumstances of the case, the Hon’ble ITAT has erred in law to hold that intimation under Section 143(1) of the Income Tax Act, 1961 cannot be rectified under Section 154(1) (b) of the Income Tax Act, 1961 by interpreting the provisions of Section 154(1)(b) of the Act differently from its clear and unambiguous meaning? (ii) Whether in the facts and circumstances of the case, the Hon’ble ITAT has erred in law to hold that intimation under Section 143(1) of the Income Tax Act, 1961 cannot be rectified under Section 154(1) (b) of the Income Tax Act, 1961 since under Section 143 (1) of the Income Tax Act, 1961, the Assessing Officer has no jurisdiction to compute the income by allowing or disallowing an expenditure or to vary the claim of the assessee in any way, whereas the application of rectification had been made by the appellant for claiming credit of TDS deducted at the later stage and for getting refund of the doubly charged tax on the same income and not for revision of the returned income?” Income Tax Appeal No. 220 of 2009 3 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the appellant-Pawan Kumar, the assessee, is the Karta of his Hindu Undivided Family (HUF). He is co-owner of a house property at Panipat with the HUFs his two brothers. During the assessment year 2001-02, the assessee along with brothers rented out the said property to the Canara Bank, Panipat. The tenant-bank paid an amount of Rs. 2,53,608/- as rent to the appellant and his two brothers. The bank, however, did not deduct any tax at source under Section 194-I of the Act. The appellant in his return for the assessment year under consideration, declared his share of rental income along with his other income. 4. The return was processed under Section 143(1) of the Act and the assessing officer vide order dated 26.12.2001 allowed credit of pre-paid taxes of Rs. 96,635/- and refunded Rs. 395/- to the appellant. Later on the Income Tax Department observed that since the tenant-Canara Bank had paid rent of more than Rs. 1,20,000/-, Tax at source was deductible under Section 194-I of the Act. The assessing officer, thus, passed an order dated 19.3.2002 under Sections 201(1)/ 201(A) and raised a demand of Rs. 89,730/- which included the amount of Tax deduction at source, interest and penalty against the tenant-bank on account of its failure to deduct the tax at source from the amount of rent of the property. The details of Rs. 89,733/- are as under: Income Tax Appeal No. 220 of 2009 4 A) Demand u/s 201(1) = Rs. 50,720 Surcharge @ 17% = Rs. 8,682 ________ = Rs.59,432 B) Interest u/s 201(1A) = Rs.15,556 c) Penalty u/s 221 = Rs.14,835 --------------------- --- = Rs.89,733 The Canara Bank deposited the amount so demanded and in turn, deducted the said amount from the amount of rent payable to the three co-owners of the house property. 5. The appellant took a plea that he was being subjected to double taxation, inasmuch as he had paid tax on the rental income shown by him in the return and still the tenant bank had been deducting tax on the said rent. According to the appellant, the only remedy available to him was to get refund after getting rectification of the order of demand, by moving an application under Section 154 of the Act. The tenant-bank issued first TDS certificate on 30.11.2003, and the appellant filed application for rectification on 8.6.2004 for claiming refund of the TDS in respect of the TDS certificate dated 30.11.2003, for an amount of Rs. 44,867/-, but the said application was dismissed on 22.6.2004. The appellant filed appeal before the Commissioner of Income-tax (Appeals) {in short “the CIT(A)”} which was Income Tax Appeal No. 220 of 2009 5 dismissed on 17.11.2004. The assessee did not challenge that order before the Tribunal as the tenant-bank by that time had not deposited the entire amount of TDS and issued TDS certificate for the same, to the assessee. Thereafter, second TDS certificate of Rs. 44,866/- dated 27.8.2005 was issued by the tenant-bank whereupon, the assessee filed another application dated 9.9.2005 under Section 154 of the Act for rectification requesting the assessing officer to give credit of his share of TDS deducted by the tenant-bank on the rental income declared by him in his return of income. The assessing officer rejected this application of the assessee, vide order dated 16.9.2005, whereby a request for the credit of TDS of Rs. 19,780/- had been made. 6. The assessee filed appeal before the CIT(A) challenging the order of the assessing officer, but the same was dismissed vide order dated 9.1.2008. The appeal of the assessee before the Tribunal also met with the same fate and came to be dismissed vide the order under appeal. 7. We have heard learned counsel for the parties and have perused the record. 8. Learned counsel for the assessee submitted that under clause (b) of sub-section (1) of Section 154 of the Act, an intimation or deemed intimation under Section 143(1) of the Act could be rectified by an Income Tax Authority. The tenant-bank had paid total principal amount of Rs. 59,432/- as TDS on the Income Tax Appeal No. 220 of 2009 6 rent in which the assessee had 1/3rd share. Accordingly, assessee was entitled to refund of TDS of Rs. 19,780/-. 9. Elaborating further, it was submitted that the tenant, namely, the Canara bank, Panipat had deducted the tax at source and at the same time, the assessee had already paid tax on the amount of rental income at the time of filing of return. Reliance was also placed on the following submissions made before the CIT(A) as recorded in para 6 of its order dated 9.1.2008, which read thus: “Subsequently, the bank made the balance payment of TDS, interest and penalty of Rs. 44,866/- on 1.3.2005 and thereby the entire demand, penalty and interest of Rs. 89,733/- stands paid by the bank and issued another TDS certificate to the assessee and other co-owners for Rs. 44,866/- dt. 1.12.2005, therefore, the assessee again filed application u/s 154 before the AO for claiming refund of the said TDS claiming that it amounts to double payment because the tax on rental income has already been paid by the assessee and now payment of the TDS by bank, which has been recovered by the bank from the assessee amounts to double payment of tax on the same income. The assessee has submitted that it had claimed only the tax part of the said demand of Rs. 89,733/- and no claim for interest and penalty levied Income Tax Appeal No. 220 of 2009 7 on the bank has been made. The assessee filed its submissions dt. 11.11.2005, the relevant portion of which is reproduced below:- “The appellant as Karta of his HUF derives income from Property, Business, Income and Agricultural income etc. The appellant is owner of 1/3rd share in co-owner property which is rented out to Canara Bank branch of Panipat along with his two brothers, Sh. Anil Garg and Vinod Garg. The rental income derived by the appellant was duly declared in his return of income and tax on the same was paid. The rental income as part of his total rent received and declared at Rs. 5,26,077/-. The appellant filed his return of income declaring income at Rs. 3,54,467/- and agricultural income of Rs. 1,02,500/- on which tax was at Rs. 61,520/- under TDS and Self assessment tax was paid on 28.6.2001 at Rs. 35,115/-. The return of income was processed u/s 143(1) on 26.12.2001. On verification of TDS return of tenant Canara Bank the Income Tax Officer, TDS Circle observed that no TDS has been deducted in respect of co-ownership property and the Bank pointed out that since share rent of each co-owner was less than Rs. 1,20,000/-, as such TDS was not deductible. The Income Tax Income Tax Appeal No. 220 of 2009 8 Officer, TDS Circle, raised demand of Rs. 89,730/- as per details under: A) Demand u/s 201(1) = Rs. 50,720 Surcharge @ 17% = Rs. 8,682 ________ = Rs.59,432 B) Interest u/s 201(1A) = Rs.15,556 c) Penalty u/s 221 = Rs.14,835 --------------------- --- = Rs.89,733 The Deptt. realised demands from the Bank as under:- 7.11.2003, SBI, G.T. Road, Panipat = Rs.44,867 1.3.2005 SBI, G.T. Road, Panipat = Rs. 44,866 The said bank issued Form No. 16A to the assessee owners as under: a) Certificate dated 30.11.2003 = Rs. 44,867 b) Certificate dated 27.8.2005 = Rs. 44,866 The appellant moved rectification application u/s 154 in respect of credit for tax certificate dated 30.11.2003 which was rejected by the department vide orders dated 22.6.2004. Income Tax Appeal No. 220 of 2009 9 The appeal against said orders was also rejected in appeal No. IT/26/PPT/CIT(A)/KNL/2004-05 vide orders dated 17.11.2004. Now after the receipt of second certificate dated 27.8.2005, the appellant-owner moved rectification application on 9.9.2005 requesting for giving credit for 1/3rd share in original demand of Rs. 59,342/- i.e. Rs. 19,780/-. The appellant made only claim in respect of share in original demand and conceded that claims in respect of interest and penalty were not to be allowed. The learned ACIT has rejected the claim of assessee, on the plea that there is no provision by which Manager Canara Bank could have issued TDS Certificate and the provisions are not applicable. The learned ACIT has not appreciated the fact that applicant has been forced to pay tax twice on the same assessed income which is illegal, void and uncalled for.” 10. We find substantial force in the submissions of learned counsel for the assessee. Section 154(1)(b) of the Act reads thus: “154, (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may:- Income Tax Appeal No. 220 of 2009 10 (a)amend any order passed by it under the provisions of this Act; (b)amend any intimation or deemed intimation under sub-section (1) of Section 143.” 11. The Full Bench of this Court in Commissioner of Income Tax vs. Smt. Aruna Luthra, (2001) 252 ITR 76, analysing the intent of the legislation in enacting Section 154 of the Act for rectifying any mistake which is apparent on the face of the record had observed as under: “Only the dead make no mistake. Exemption from error is not the privilege of mortals. It would be a folly not to correct it. Section 154 appears to have been enacted to enable the authority to rectify the mistake. The legislative intent is not to allow it to continue. This purpose has to be promoted. The Legislature’s will has to be carried out. By placing a narrow construction, the subject of the legislation shall be defeated. Such a consequence should not be countenanced. Still further, it deserves mention that Parliament has prescribed a period of four years for correction of the mistake. While an assessment under Section 143 or 144 has to be normally made within a period of one or two years, the mistake can be rectified at any time during the period of four years. The obvious intention Income Tax Appeal No. 220 of 2009 11 of the Legislature is that if the mistake has co0me to the notice of the authority within the prescribed time, it should not be allowe4d to continue. It should be rectified. Regardless of the fact that the limitation for passing an order of assessment of filing an appeal has elapsed. Still further, the provision has inbuilt safeguards. It provides for the issue or notice. It ensures the grant of an opportunity. It limits the jurisdiction of the authority. The action can benefit the assessee as well as the Revenue. In this situation, there appears to be no ground for placing an unduly restricted interpretation on the provision.” 12. Further, the scope of Section 154 was explained in the following words: “On a perusal of section 154, we find that the provision does not provide for rectification only when a mistake in the order is detected. The mistake has to be on the record of the case. The record would include everything on the case file. The return, the evidence and the order are a part of the record. The mistake can be detected from anything on the file. Thus, even in the case of an assessment under Section 143(1), it has not to be assumed that there can be no error apparent from the record. As for the Income Tax Appeal No. 220 of 2009 12 decision in the case of Hero Cycles (1997) 227 ITR 463 (SC), the rule laid down by their Lordship is that the mistake can be of fact and law. However, the rectification can be made only when: “a glaring mistake of fact or law committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable”. We cannot read this decision to mean that only the order has to be seen and not the record.” 13. Adverting to the factual matrix, it is not disputed that the assessee had paid tax amounting to Rs. 19,780/- on the share of its rent received from the tenant, Canara Bank and the same had been duly reflected in the return which was processed under Section 143(1) of the Act on 26.12.2001. It is also an admitted fact that the Canara Bank had issued Tax Deduction at Source certificate amounting to Rs. 89,733/- which included Rs. 59,432/- as principal amount on account of tax. The assessee had 1/3rd share in the rental income and, therefore, the share of the assessee in the TDS was Rs. 19,780/-. The Revenue by declining the rectification application has sought to levy tax again which amounted to double taxation inasmuch as the assessee had already paid tax on the rental income and at the same time, the Canara Bank which was tenant had also deducted tax at source on the same income. This is legally not permissible. Moreover, learned counsel for the Revenue was Income Tax Appeal No. 220 of 2009 13 unable to show any justification as to how the rectification application could be rejected and the assessee required to pay tax twice on the same amount. 14. In view of the above, the substantial questions of law are answered in favour of the assessee and against the Revenue. The appeal is accordingly allowed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) April 18, 2011 JUDGE *rkmalik*