Kapadia, J.@mdashThe present reference is made u/s 256(1) of the Income Tax Act, 1961. The question that is referred for opinion is as under :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the present case, the question whether
surcharge was leviable or not was open to argument and debate and, therefore, the surcharge could not have been levied by rectifying the
assessment order u/s 154 of the Act ?
2. The assessment year under reference is 1968-69, the previous year being Samvat year 2023. The assessee who is a minor was admitted to the
benefits of a partnership firm in the name and style of Ojas Corporation. Besides the share income from the said firm, the assessee derived income
from interest, dividends and house property. After the assessment for the assessment year 1968-69 was completed, it came to the notice of the
Income Tax Officer that the annuity deposit payment by the assessee has been worked out at the lower figure and additional surcharge had not
been charged. The Income Tax Officer, therefore, issued a notice calling upon the assessee to show cause as to why the aforesaid mistake should
not be rectified u/s 154 of the Income Tax Act, 1961. In response to the notice, the assessee submitted his reply that he had no objection if
rectification regarding annuity deposit was made as proposed, but the assessee objected to the levy of additional surcharge, on the ground that it
could not be the subject-matter of rectification. The Income Tax Officer rejected the objection raised on behalf of the assessee and rectified the
assessment order as proposed by him. By the said order of rectification dated January 7, 1974 the Income Tax Officer directed ""Charge additional
surcharge on unearned income"". Being aggrieved by the said order, the assessee preferred an appeal before the Appellate Assistant
Commissioner. The Appellate Assistant Commissioner also confirmed the order of the Income Tax Officer. Being aggrieved the order passed by
the Appellate Assistant Commissioner, the assessee approached the Tribunal. The Tribunal by its order dated May 31, 1976, set aside the order
of the Income Tax Officer levying surcharge and confirmed the Appellate Assistant Commissioner. Thereafter, the present reference came to be
made wherein the aforesaid question came up for opinion :
3. Shri B. R. Shah, the learned advocate appearing for the Revenue, submits that the order passed by the Income Tax Officer is purely within the
ambit section 154 of the Act, as it is rectifying the mistake apparent on the record.
4. To appreciate the contention, it is necessary to see the definition of ""earned income"" given in the Finance (No. 2) Act, 1967. Section 2(7)(c) of
the said Act defines ""earned income"" as under : -
(c) ''earned income'' means any income of an assessee who is an individual, or a Hindu undivided family, or an unregistered firm (not being an
unregistered firm assessed under clause (b) of section 183 of the Income Tax Act) or an association of persons or body of individuals, whether
incorporated or not, not being -
(A) a company, or
(B) a local authority, or
(C) a registered firm, or
(D) an unregistered firm asseseed under clause (b) of the said section 183 -
(i) which is chargeable under the head ''salaries''; or
(ii) which is chargeable under the head ''Profits and gains of business or profession'' where the business or profession is carried on by the assessee
or in the case of a firm, where the assessee is a partner actively engaged in the conduct of the business or profession; or
(iii) which is chargeable under the head ""Income from other sources"" if it is immediately derived from personal exertion or represents a pension or
superannuation or other allowance given to, the assessee in respect of the past services of any deceased person, or which is chargeable under that
head under clause (ia) of sub-section (2) of section 56 of the Income Tax Act, and
includes any such income which, though it is the income of another person, is included in the assessee''s total income under the provisions of the
Income Tax Act, but does not include any such income on which Income Tax is not payable under clause (iii) or clause (v) of section 86 of that
Act or which is exempted from tax under a notification issued, u/s 60 or section 60A of the Indian Income Tax Act, 1922 (11 of 1922), as
continued in force by clause (l) of sub-section (2) of section 297 of the Income Tax Act.
5. Section 2(7)(f) defines ""unearned income"" to mean income which is not ""earned income"". There is a provision in Schedule I to the said Act for
surcharge on Income Tax. It is not disputed before us that surcharge was leviable on unearned income. Without any strain or long-drawn
argument, only on pure reading of definition of ""earned income"", it is obvious that the assessee who was a minor admitted to the benefits of the
partnership was the recipient of income from the firm without being actively engaged in the conduct of the business of the firm and, therefore, the
income from the firm received by the assessee is ""unearned income"". Similarly, the income from other sources, namely, interest, dividends and
property, is also ""unearned income"" inasmuch as the assessee had derived the same without any personal exertion. We are, therefore, of the
opinion that this was a mistake apparent on the record and the Income Tax Officer was fully justified in passing the order for rectification directing
charging additional surcharge on unearned income of the assessee.
6. It may be stated that the Tribunal has relied on Nandlal Mangaram Pamnani and Others Vs. G. Lakshminarasimhan and Another, wherein it is
observed (at page 6) that ""failure to apply a section of the Income Tax Act, permitting higher taxation, particularly where the application is itself
open to argument and debate, can never be an error apparent on the face of the record - one which can be rectified u/s 35 of the Act"". This
observation cannot be applied to a case where there is a failure to apply a section of the Act permitting higher taxation though there may not be any
argument or debate for its application. Another decision which was relied on by the Tribunal is the case of T.S. Balaram, Income Tax Officer,
Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, wherein it was observed (at page 53) that it was not open to the Income Tax
Officer to go into the true scope of the relevant provisions of the Act in proceedings u/s 154 of the Income Tax Act. The legal proposition
propounded by the Supreme Court cannot be disputed. In the present case, there is no question of interpreting section 154 of Act or any provision
of Finance (No. 2) Act, 1967, for finding out its true scope. Hence, both the aforesaid rulings do not help the assessee in view of the facts and
circumstances of the case. It is purely reading the section and applying the same to the facts of the present case. Even on reading the definitions of
earned income"" and ""unearned income"", it is clear that there was a mistake apparent on the face of the record. In that view of the matter, the
question is answered in the negative, that is, in favour of the Revenue and against the assessee.
7. The reference is accordingly disposed of with no order as to costs.
