Full Judgment Text
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PETITIONER:
WALDIES LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, WEST BENGAL
DATE OF JUDGMENT: 20/11/1996
BENCH:
B.P. JEEVAN REDDY, SUHAS C. SEN
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
SEN. J.
The 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.
The assessee-Company in this case was assessed to
Income tax for the assessment year 1964-65 on 29th March,
1965. The tax payable was determined to be Rs.1,68,000.00.
This 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.
Consequently, 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
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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.
The 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 this
case.
On the 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.
Section 13 and 14 of the Companies (Profits) Surtax
Act, at the Material time, were as under:-
"13. Rectification of mistakes. -
(1) 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.
(2) An 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.
(3) Where an amendment is
made under this section, the order
shall be passed in writing by the
authority concerned.
(4) 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.
(5) Where any such amendment
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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.
14. 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.
"Chargeable 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
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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.
The 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 September, 1968.
The assessee 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 September,
1968.
In that 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.
The appeal, therefore, is dismissed. There will be no
order as to costs.