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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.