Unearned income surcharge must track assessed total income, and an interpretative dispute cannot be corrected by rectification.

Special surcharge under the Finance (No. 2) Act, 1967 was confined to the unearned income actually included in assessed total income after admissible deductions and losses, and could not be levied on a gross figure exceeding that total income. The computation adopted by the Revenue depended on interpretation of the phrase relating to unearned income included in total income, so it was not a patent mistake apparent from the record. That interpretative dispute therefore fell outside rectification under section 154 of the Income-tax Act, 1961, with the result that both points were decided in favour of the assessee.

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Issues: (i) Whether special surcharge under the Finance (No. 2) Act, 1967 was to be levied on the gross unearned income or only on the unearned income component actually included in the total income after permissible deductions and losses. (ii) Whether the computation of surcharge in the manner adopted by the Revenue involved a debatable question so as to fall outside rectification under section 154 of the Income-tax Act, 1961.

Issue (i): Whether special surcharge under the Finance (No. 2) Act, 1967 was to be levied on the gross unearned income or only on the unearned income component actually included in the total income after permissible deductions and losses.

Analysis: The surcharge provision operated on the amount of unearned income included in the total income. The total income for levy of income-tax is the income computed under the Act after allowing admissible deductions and losses. The unearned income relevant for surcharge must therefore be only the component comprised in that total income and cannot exceed the total income itself. A levy on an amount larger than the assessed total income would be inconsistent with the statutory scheme.

Conclusion: The surcharge was payable only on the unearned income actually included in the assessed total income, and not on a gross figure exceeding that total income, in favour of the assessee.

Issue (ii): Whether the computation of surcharge in the manner adopted by the Revenue involved a debatable question so as to fall outside rectification under section 154 of the Income-tax Act, 1961.

Analysis: The meaning of the expression concerning unearned income included in total income required interpretation and was not a patent or obvious mistake. Where the issue depends on a process of construction and can reasonably admit of argument, it is not a mistake apparent from the record and cannot be corrected in rectification proceedings.

Conclusion: The alleged error was not a mistake apparent on the face of the record and could not be rectified under section 154, in favour of the assessee.

Final Conclusion: The reference was answered against the Revenue, and the assessee succeeded on both referred questions concerning surcharge computation and the limits of rectification.

Ratio Decidendi: A surcharge provision tied to unearned income included in total income cannot be applied to an amount exceeding the assessed total income, and a disputed interpretative question on that issue is not rectifiable as a mistake apparent from the record.

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