Ref undable surcharge-relief deposits are not surcharge paid and cannot be included in surtax computation or rectified as apparent error.

A refundable deposit made under a statutory surcharge-relief scheme was held not to be payment of surcharge itself, because the scheme operated only to exempt or reduce surcharge liability and left the deposit in the character of a refundable deposit. It could therefore not be included in income-tax payable for computing chargeable profits under rule 2 of the First Schedule to the Companies (Profits) Surtax Act, 1964. The attempted withdrawal of the surcharge deduction by rectification under section 13 was also treated as improper, because the issue was debatable and not a mistake apparent from the record. The surcharge deduction was ultimately sustained as withdrawn and the assessee's appeals failed.

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Issues: (i) Whether a deposit made under the surcharge relief scheme could be treated as payment of surcharge and included in the income-tax payable for computing chargeable profits under rule 2 of the First Schedule to the Companies (Profits) Surtax Act, 1964; (ii) Whether the original allowance of deduction towards surcharge could be withdrawn by rectification under section 13 of the Companies (Profits) Surtax Act, 1964 as a mistake apparent from the record.

Issue (i): Whether a deposit made under the surcharge relief scheme could be treated as payment of surcharge and included in the income-tax payable for computing chargeable profits under rule 2 of the First Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The scheme under the Finance Act, 1976 and the Finance (No. 2) Act, 1977 was intended to grant relief from surcharge to companies making the specified deposit with the Industrial Development Bank of India. The statutory language, especially the proviso making the surcharge on income-tax payable by such company nil or reducing it by the amount of deposit, showed that the legal effect of the deposit was to secure exemption from surcharge, not to constitute payment of surcharge itself. The deposit retained the character of a refundable deposit and was not the same as tax or surcharge actually paid.

Conclusion: The deposit could not be treated as surcharge paid and was not deductible as part of income-tax payable for the surtax computation. The finding is against the assessee and in favour of Revenue.

Issue (ii): Whether the original allowance of deduction towards surcharge could be withdrawn by rectification under section 13 of the Companies (Profits) Surtax Act, 1964 as a mistake apparent from the record.

Analysis: The question whether the deposit under the scheme was equivalent to surcharge was treated as highly controversial and debatable, and therefore not capable of being corrected by rectification as a mistake apparent from the record. The appellate authority, however, upheld the enhancement and treated the rectification appeal as infructuous.

Conclusion: Rectification under section 13 was not the proper route for deciding the controversy, but the enhancement made in appeal was sustained. The finding is against the assessee and in favour of Revenue.

Final Conclusion: The Tribunal ultimately sustained the withdrawal of the surcharge deduction and dismissed the assessee's appeals, leaving the surcharge relief deposit outside the computation of income-tax for surtax purposes.

Ratio Decidendi: A refundable deposit made under a statutory surcharge-relief scheme, which operates only to exempt or reduce surcharge liability, is not itself payment of surcharge and cannot be aggregated with income-tax payable for computing statutory deductions.

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