Revision of surtax assessment failed where section 80G deduction did not trigger capital reduction under rule 4.

Revision under section 16(1) of the Companies (Profits) Surtax Act, 1964 was not justified because the assessment was neither erroneous nor prejudicial to the interests of revenue. The Karnataka High Court's construction of rule 4 of the Second Schedule meant that deductions such as section 80G relief under Chapter VI-A of the Income-tax Act, 1961 do not require proportionate reduction of capital. As the Surtax Officer had assessed the matter on that basis, the original order could not be revised. The further direction to keep collection in abeyance also failed for want of any specific CBDT instruction. The assessee succeeded and the assessment was restored.

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Issues: Whether the Commissioner was justified in revising the Surtax Officer's assessment under section 16(1) of the Companies (Profits) Surtax Act, 1964 on the footing that rule 4 of the Second Schedule required proportionate reduction of capital by reference to the deduction allowed under section 80G of the Income-tax Act, 1961, and whether the further direction to keep collection in abeyance could be sustained.

Analysis: The appeal turned on the effect of the Karnataka High Court's interpretation of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. On that interpretation, the expression relating to amounts not includible in total income does not extend to deductions such as section 80G relief allowed under Chapter VI-A of the Income-tax Act, 1961. Since the amount in question had been deducted under rule 1(vii) of the First Schedule and the assessment made by the Surtax Officer followed that position, the original order could not be treated as erroneous or prejudicial to the interests of revenue. The record also did not establish any specific CBDT direction warranting the additional direction regarding collection.

Conclusion: The Commissioner's assumption of revisional jurisdiction was invalid, and the direction to modify the assessment could not stand. The ancillary direction regarding non-enforcement of demand was also not sustained.

Final Conclusion: The assessee succeeded and the Surtax Officer's assessment was restored.

Ratio Decidendi: An assessment cannot be revised under section 16(1) of the Companies (Profits) Surtax Act, 1964 unless it is both erroneous and prejudicial to the interests of revenue, and a deduction allowed under section 80G of the Income-tax Act, 1961 does not attract rule 4 of the Second Schedule for proportionate reduction of capital.

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