1988 (7) TMI 23 - HC - Income Tax

Rectification of Mistake in Capital Computation Denied under Companies Surtax Act

Commissioner Of Income-Tax Versus Budge Budge Amalgamated Mills Limited

The High Court held that the rectification of a mistake in the capital computation for the assessment year 1965-66 under the Companies (Profits) Surtax ... Surtax Issues:Question of law referred under section 256 (2) of the Income-tax Act, 1961 for the assessment year 1965-66 regarding the rectification of a mistake in the capital computation under the Companies (Profits) Surtax Act, 1964.Analysis:The case involved a question of law referred to the High Court under section 256 (2) of the Income-tax Act, 1961, regarding the rectification of a mistake in the capital computation for the assessment year 1965-66 under the Companies (Profits) Surtax Act, 1964. The Income-tax Officer initially included a sum of Rs. 18 lakhs in the capital computation, but later rectified the assessment under section 13 of the Surtax Act, claiming that the inclusion of the said sum was a mistake apparent from the record. The Appellate Assistant Commissioner and the Tribunal held that the rectification under section 13 was not justified merely based on a change of opinion by the Income-tax Officer. The Tribunal specifically noted that the points raised were debatable and not a patent mistake that could be rectified under section 13.The Income-tax Officer's basis for rectification was that the sum of Rs. 18 lakhs, representing bonus shares issued on capitalization of reserves, should not have been included in the capital computation as per the Explanation to rule 2 of the Second Schedule to the Companies (Profits) Surtax Act. However, the assessee argued that there was no mistake apparent from the record as the bonus shares were issued by writing up fixed assets in 1948, and the reserves were written down in 1961, resulting in no net increase in reserves. The assessee contended that the provisions of Explanation 1 to rule 2 of the Second Schedule were not applicable in this case.The High Court, considering the facts and arguments presented, concluded that there was no patent mistake warranting rectification under section 13. It was established that the inclusion of the sum in the capital base was a matter of interpretation and not a clear-cut error. The Court reiterated that in cases where the issues are debatable or involve differing opinions, the Income-tax Officer lacks jurisdiction to rectify under section 13. Therefore, the Tribunal's decision to dismiss the appeal of the Department was upheld, and the question in the reference was answered in the negative and in favor of the assessee.The judgment was a unanimous decision by the judges, with no order as to costs.