Ltd. Vs. Commissioner of Income Tax, West Bengal  INSC 1460 (20 November 1996)
Jeevan Reddy, Suhas C. Sen Sen. J.
Companies (Profits) Surtax Act impose an additional Tax, apart from Income Tax,
on the income of a company. It is a tax on so much of the 'chargeable profits'
of a company of the previous year as exceeds the statutory deduction at the
rate specified in the Act. 'Chargeable profits' has been defined by sub-section
(5) of Section 2 to mean the total income of an assessee computed under the
Income Tax Act and adjusted in accordance with the provisions of the First
Schedule. In other words, the Income Tax Act Impose a charge on the total
income of a assessee. The Companies (Profits) Surtax Act provides for Levy of
additional tax on the total income as computed under the Income tax Act, after
certain adjustment by excluding certain types of income and some deductions
from the total income as computed under the Income Tax Act. One of the deduction
which has to be made for computing chargeable profits for the purpose of levy
of Surtax is the amount of Income Tax, if any, payable by a company under
Section 104 of the Income Tax Act.
in this case was assessed to Income tax for the assessment year 1964-65 on 29th March, 1965. The tax payable was determined to
was followed by an assessment under the Companies (Profits) Surtax Act on 30th March, 1965. Later on, the Income Tax Officer
though that he had wrongly held the assessee-Company to be a widely held
Company and reopened the Income Tax assessment under Section 147. Sometime in
September, 1968 an order was passed holding the assessee- Company to be a
closely held Company as a result of which the burden of Income Tax on the
Company became heavier.
the Income Tax Officer rectified the assessment order passed under the Surtax
Act on 16Th September,
1968. the additional
amount of Income Tax determined as payable under the order under Section 147
was allowed as deduction from the chargeable profits under the Surtax Act. As a
result of the order of rectification passed under Section 13, the Surtax
liability of the Company stood reduced. Thereafter, the Appellate Assistant
Commissioner, on appeal by the assessee, cancelled the order under Section 147
in November, 1970. In March, 1971, the Income Tax Officer gave effect to the
appellate Assistant Commissioner's order and recomputed the Tax liability under
the Income Tax Act. The Income Tax Officer once again took resort to Section 13
in September, 1968 and rectified the surtax assessment by withdrawing the
deduction f the additional amount of tax which had been held payable under the
order passed under Section 147 of the Income Tax Act.
second order of rectification was passed on 21st April. 1971. Both the
Appellate Assistant Commissioner and the Tribunal held that the Income Tax
Officer's order was logical and Justified in the facts and circumstances of
assessee's application, the Tribunal referred the following question of law to
the High Court:- "Whether on the facts and in the circumstances of the
case the Tribunal was justified in holding that the Income Tax Officer's action
in rectifying his order passed in September, 1968 under Section 13 of the
Surtax Act was in order both in law and in equity?" The assessee's
contention before the High Court was two-fold. It was argued in the first place
that there was no mistake apparent from the record Secondly, It was argued in
any event a proceeding under Section 13 could not be taken because four years
had already passed from the date of the assessment order.
13 and 14 of the Companies (Profits) Surtax Act, at the Material time, were as
under:- "13. Rectification of mistakes. –
With a view to rectifying any mistake apparent from the record, the
Commissioner, the Income Tax Officer, the Commissioner (Appeals) and the
Appellate Tribunal May, of his, or its own motion or on a application by the assessee
in this behalf, amend any order passed by him or it in any proceeding under
this Act within four. Years of the date on which such order was passed.
amendment which has the effect of enhancing the assessment or reducing ar
refund assessee shall not be made under this section unless the authority
concerned has given notice to the assessee of its intention so to do and has
allowed the assessee a reasonable opportunity of being head.
Where an amendment is made under this section, the order shall be passed in
writing by the authority concerned.
Subject to the other provisions of this Act, where, any such amendment has the
effect of reducing the assessment, the Income Tax Officer shall make any refund
which may be due to such assessee.
Where any such amendment has the effect of enhancing the assessment or reducing
the refund already made, the Income Tax Officer shall serve on the Assessee as
notice of demand in the prescribed from specifying the sum payable.
Other amendments. - Where as a result of any order made under Sections 154,
155, 250, 254, 260, 262, 263 or 264 of the Income Tax Act, It is necessary to recompute
the chargeable profits determined i any assessment under this Act, The Income
Tax officer may proceed to recompute the chargeable profits, and determine the
surtax payable or refundable on the basis of such recomputation and made the
necessary amendment and the provisions of Section 13 shall, so far as may be,
apply thereto, the period of four years sub-section (1) of the Section being
reckoned from the date of the order passed under the aforesaid sections of the
Income Tax Act." The first contention of the assessee is that there was no
mistake apparent from the record. When the first order of rectification was
passed under the Surtax Act giving relief to the assessee, it was done on the
basis of the order passed under Section 147 of the Income Tax Act. The result
of the order passed under Section 147 was enhancement of the Income Tax
liability of the assessee. This liability had to be deducted in order to arrive
at chargeable profits. It the Income Tax Officer could rectify the assessment
order and give relief to the assessee when the order under Section 147 was
passed, we fail to see why the Income Tax Officer Cannot rectify the order of
assessment once again when that order under Section 147 was set aside by the
Appellate Assistant Commissioner. Unless the Income Tax assessment order formed
part of the record of the order of assessment passed under the Surtax Act, the
first order of rectification could not have been passed at all. In fact, no
order of assessment can be passed under the Companies (Profits) Surtax Act,
except on the basis of the assessment order passed under the Income Tax Act.
Section 4 of the Surtax Act imposes a charge on the 'Chargeable profits' of a
company for every assessment year.
profits' has been defined to mean "the total income of an assessee
computed under the Income Tax Act, 1961 for any previous year or years, as the
case may be, and adjusted in accordance with the provisions of the First
Schedule". Therefore, the starting point of the assessment under the
Surtax Act has to be the total income computed under the Income Tax Act. That
being so, the Income Tax assessment order must necessarily form part of the
records of the Surtax assessment. Any change or variation of tax liability in
the Income Tax assessment order will have to be given effect to in the Surtax
assessment. There is no reason to hold that the Income Tax assessment order
which is the very basis of the Surtax assessment is not a part of the records
of the surtax assessment proceedings. As has been state earlier, if this
contention of the assessee is to be upheld, logically it has to be held that
even the first order of rectification giving relief to the assessee was
invalid. Sabyasachi Mukherji, J. (as His Lordship then was), rightly pointed
out that the assessments under the Companies (Profits) Surtax Act and the
Income Tax Act were closely connected and were integral parts of each other and
interwoven and that the records under section 13 of the Companies (Profits)
surtax Act would include the record of the Income Tax assessment.
next point relates to limitation. The Jurisdiction of the Income Tax Officer to
amend any order passed by him is limited to "four years from the date on
which such order was passed". In the instant case, the original order of
assessment was rectified on 16th September, 1968. This rectified order gave relief to the assessee by deducting the
additional amount of Income Tax levied by the order passed under Section 147 of
the Income tax Act. This relief had to be taken out when the order under
Section 147 was set aside by the Appellate Assistant Commissioner and the
Income Tax liability of the assessee stood reduced. What the Income Tax Officer
was trying to do in effect was to nullify the order of rectification which was
passed on 16th
is right in his contention that this order was a good order when it was passed.
But that was the time when the order under Section 147 was subsisting and the assessee's
income tax liability was larger. But that order under Section 147 was set aside
on appeal. The assessee's income Tax which was not actually payable. Therefore,
the Income Tax Officer was justified in invoking the previsions of Section 13
and correcting the error in the order passed on 16th September, 1968. The Income Tax Officer by the Second order of
rectification was not trying to rectifying the error in the amended order
passed on 16th
view of the matter, it is not necessary to go into the contention of the assessee
that Section 14 of the Surtax Act was amended Section could not be utilised for
passing a second rectification order on 21st April, 1971.
appeal, therefore, is dismissed. There will be no order as to costs.