Rectification of surtax assessment follows revised income-tax liability, with limitation running from the amended order

A surtax assessment computed on the basis of an income-tax assessment may be rectified under section 13 of the Companies (Profits) Surtax Act when the underlying income-tax order is later altered on appeal. The revised income-tax liability becomes part of the record for surtax purposes, and the earlier deduction or adjustment in the surtax computation can be corrected to keep both assessments in conformity. The limitation period is applied to the order actually sought to be amended, not to the original assessment when the rectification targets a later amended order. The challenge to the second rectification therefore failed, and the recomputed surtax liability was sustained.

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Issues: (i) Whether the Income-tax Officer could rectify the surtax assessment under section 13 of the Companies (Profits) Surtax Act after the income-tax assessment, on which the surtax computation was based, had been altered. (ii) Whether the rectification was barred by the four-year limitation under section 13.

Issue (i): Whether the Income-tax Officer could rectify the surtax assessment under section 13 of the Companies (Profits) Surtax Act after the income-tax assessment, on which the surtax computation was based, had been altered.

Analysis: The surtax computation necessarily proceeded on the basis of the income-tax assessment because chargeable profits were defined with reference to total income computed under the Income-tax Act. Once the income-tax appellate order set aside the earlier enhancement and reduced the tax liability, the deduction earlier allowed in the surtax assessment ceased to be justified. The income-tax assessment formed part of the record for surtax purposes, and the subsequent rectification was only to restore the surtax computation to conformity with the revised income-tax liability.

Conclusion: The rectification under section 13 was valid and was not vitiated on the ground that there was no mistake apparent from the record.

Issue (ii): Whether the rectification was barred by the four-year limitation under section 13.

Analysis: The second rectification did not seek to reopen the original 1965 surtax assessment. It corrected the earlier rectified order of September 16, 1968, after the basis for the allowance in that order had disappeared. The relevant action was directed at the amended order and was within the statutory power to correct the resulting error. In view of this conclusion, it was unnecessary to decide the alternative contention based on the amendment of section 14.

Conclusion: The rectification was not barred by limitation.

Final Conclusion: The assessee's challenge to the second rectification failed, and the surtax liability as recomputed by the revenue authorities was sustained.

Ratio Decidendi: Where a surtax assessment is computed on the basis of an income-tax assessment, a later appellate alteration of the income-tax liability permits rectification of the surtax order to keep the two assessments in conformity, and the limitation for rectification applies to the order actually sought to be amended.

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