Proposed dividend excluded from reserves: omission in surtax capital computation was a rectifiable mistake apparent from the record.

Omission to deduct proposed dividend from general reserve in capital computation under the Companies (Profits) Surtax Act was treated as a mistake apparent from the record because the statutory scheme excludes proposed dividends from reserves. Rectification under section 13 was therefore valid. An error in the quantum of deduction used in the rectification orders did not defeat the rectification jurisdiction where the original omission was correctly identified, although the figures applied in correction were inaccurate. The reference was answered for the Revenue, with the validity of rectification upheld on the questions raised.

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Issues: (i) Whether the omission to deduct proposed dividend from the general reserve while computing capital under rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 constituted a mistake apparent from the record justifying rectification under section 13. (ii) Whether the rectification orders could be sustained when the figures of proposed dividend deducted in the rectification orders were not the correct figures reflected by the balance-sheets.

Issue (i): Whether the omission to deduct proposed dividend from the general reserve while computing capital under rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 constituted a mistake apparent from the record justifying rectification under section 13.

Analysis: Under rule 1 read with the Explanation, amounts standing to the credit of items in the nature of current liabilities and provisions, including proposed dividends, are not to be treated as reserves for capital computation. The dividend proposed for the earlier accounting year had to be excluded from the general reserve as on the first day of the relevant previous year. The original assessment orders omitted this deduction altogether, which was an obvious mistake of law and not a debatable issue.

Conclusion: The omission was a mistake apparent from the record, and rectification under section 13 was valid.

Issue (ii): Whether the rectification orders could be sustained when the figures of proposed dividend deducted in the rectification orders were not the correct figures reflected by the balance-sheets.

Analysis: The rectification jurisdiction was correctly invoked to remove the omission to deduct proposed dividend from the general reserve. However, the figures applied in the rectification orders were erroneous: a lower amount was deducted for one year and a higher amount for the other than the amounts shown in the balance-sheets. That error went to the quantum of deduction, not to the existence of jurisdiction to rectify the original mistake. The assessee had not challenged those figures before the Tribunal, and the reference was confined to the validity of rectification on the grounds then urged.

Conclusion: The rectification orders remained valid on the issues raised, and the assessee could not succeed on the unraised challenge to the figures used in rectification.

Final Conclusion: The reference was answered in favour of the Revenue: the Tribunal was correct in upholding the power to rectify the assessments, while the mistaken figures used in rectification did not invalidate the orders on the questions referred.

Ratio Decidendi: Where the statutory scheme expressly excludes proposed dividend from reserves for capital computation, omission to make the required deduction is a mistake apparent from the record and is rectifiable, even if the later correction contains an error in the quantum of deduction, provided the jurisdiction to rectify is otherwise properly invoked.

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