Book depreciation difference is not a reserve unless actually created and disclosed; apparent record errors can justify rectification.

Rectification was permissible where the error was apparent from the assessee's own record, because the revised returns proceeded on an admitted omission or wrong statement and the balance-sheet itself showed no reserve corresponding to the depreciation difference. The note also explains that a mere difference between depreciation allowed under income-tax law and depreciation shown in the books does not become a reserve under the Surtax Act unless it is actually created and disclosed in the accounts. As no such reserve existed, the depreciation difference could not be treated as a reserve for surtax purposes, and the Revenue's view was upheld on both issues.

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Issues: (i) Whether the Income-tax Officer had jurisdiction to rectify the assessment under section 13 of the Companies (Profits) Surtax Act, 1964 on the basis of the difference between the depreciation shown in the books and the depreciation allowed under the Income-tax Act, 1961; (ii) Whether the difference between the depreciation allowed in the income-tax assessment and the depreciation provided in the books could be treated as a reserve for the purposes of the Surtax Act.

Issue (i): Whether the Income-tax Officer had jurisdiction to rectify the assessment under section 13 of the Companies (Profits) Surtax Act, 1964 on the basis of the difference between the depreciation shown in the books and the depreciation allowed under the Income-tax Act, 1961.

Analysis: The revised returns themselves proceeded on the footing that there had been an omission or wrong statement in the original computation. The alleged difference was ascertainable from the assessee's own balance-sheet, which disclosed no reserve corresponding to that difference. On those facts, the error was apparent from the record and did not require any elaborate reasoning for discovery.

Conclusion: The rectification was valid and the issue was answered in favour of the Revenue.

Issue (ii): Whether the difference between the depreciation allowed in the income-tax assessment and the depreciation provided in the books could be treated as a reserve for the purposes of the Surtax Act.

Analysis: A reserve under the Second Schedule presupposes an amount set apart in the balance-sheet out of ascertained profits. The assessee's books did not show any such reserve in respect of the difference. Even otherwise, rule 1(iii) requires deduction of depreciation allowed in the income-tax assessment to the extent it is relatable to any such reserve, so the assessee could not claim the benefit of the difference.

Conclusion: The difference could not be treated as a reserve and the issue was answered in favour of the Revenue.

Final Conclusion: Both referred questions were answered against the assessee, and the reference was disposed of without any order as to costs.

Ratio Decidendi: A mere difference between book depreciation and depreciation allowed under income-tax law does not constitute a reserve unless it is actually created and disclosed as such in the accounts, and where the error is evident from the assessee's own record, rectification is permissible.

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