TaxTMI 
TaxTMI 
1978 (12) TMI 18
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....ond Schedule to the Companies (Profits) Surtax Act, 1964, and a proportionate reduction was liable to be made from the capital base under the said rule in respect of such portion of the profits and gains of the assessee-company attributable to its priority industry? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the omission to make a proportionate reduction of the capital base under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act was a mistake apparent from the record in the original assessment proceedings and the Income-tax Officer had jurisdiction to make such proportionate reduction of the capital base by his subsequent order under section 13 of the said Companies, (Profits) Surtax Act, 1964? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 41,44,658 representing the increase in the share capital of the assessee-company as a result of capitalisation of part of its reserves was not liable to be included in its capital base under rule 3 of the Second Schedule to the Surtax Act? 4. Whether, on the facts and in the circumstances....
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....the general reserve the capital properly computed under the Rules was not altered in any way. Any increase in the paid up capital was counter-balanced by an equal decrease in the reserve and, therefore, r. 3 of the Second Schedule to the Act did not come into operation. Accordingly, by another order passed under s. 13 of the Surtax Act, the ITO rectified the original assessment and excluded the said sum of Rs. 41,44,658 from the capital base. Aggrieved by the aforesaid orders the assessee preferred appeals therefrom and raised a preliminary objection before the AAC that the said orders passed under s. 13 of the Act were without jurisdiction as there was no mistake apparent from the records in the original assessments. The AAC rejected this preliminary objection and held that the ITO had jurisdiction to initiate proceedings under s. 13. On merits, the AAC held that the income, profits and gains attributable to specified priority industries formed part of the total income of the assessee though such income was to be deducted under s. 80E and in computing chargeable profits under the First Schedule to the Surtax Act there was no provision in the Act that in computing the capital un....
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....s of the assessee. The Tribunal next considered the question whether the ITO was justified in excluding from the assessee-company's capital base the sum represented by the addition to the company's share capital by the issue of bonus shares out of, its general reserve during the relevant accounting year. The Tribunal noted the difference between the Second Schedule to the Surtax Act and the Second Schedule of the earlier Act, namely, the Super Profits Tax Act, 1963. The earlier Act provided for inclusion in the capital base of an amount proportionate to the increase in the paid up share capital while the later Act provided for increase in the capital as a whole. The Tribunal held that where a company issued bonus shares from out of its general reserve though the paid up share capital would increase there would be no increase of the capital as a whole inasmuch as in spite of the increase in the share capital, one of the components of the entire capital base, the other component, namely, the general reserve would suffer a corresponding decrease. In other words, capital as a whole would remain stationary. The Tribunal held that r. 3 of the Second Schedule to the Surtax Act would no....
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....to relief were included in the total income and, therefore, could not be treated as profits or gains not includible in the total income. The High Court noted the heading of Chap. VI-A, namely, " deduction from total income " and observed that the position was not free from doubt, and the ambiguity, if any, had to be resolved in favour of the assessee. Mr. Suhas Sen, learned counsel for the revenue, did not seriously contest the position that two views were possible on the question whether r. 4 of the Second Schedule to the Act would apply where deductions were allowed under Chap. VI-A of the I.T. Act and in particular s. 80E but submitted that we should refrain from deciding the question on merits as it was not necessary for us to do so. On questions Nos. 3 and 4 Mr. Pranab Pal contended that whatever be the interpretation of r. 3 of the Second Schedule to the Act, in the instant case, there was no apparent mistake in the records, so as to attract s. 13. Mistakes to be corrected under the section were those which were patent, appeared ex facie and did not require any detailed consideration. He submitted with emphasis that if in detecting a mistake it became necessary to consi....
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.... He drew our attention to the scheme of the Second Schedule to the Surtax Act, r. 1 whereof provided that the capital of a company would be the aggregate of certain amounts in existence on the first day of the previous year relevant to the assessment year. The said amounts consisted, inter alia, of-- (a) its paid up share capital, (b) its reserve, (c) its debentures issued to public, and (d) any money borrowed from the Government or Government corporation or any other financial institution notified by the Government or any banking institution. The Explanation to r. 2 provided that paid up share capital or reserves brought into existence by creating or by increasing (by revaluation or otherwise) any book asset was not capital for computation under this Act. Rule 3 provided that where after the first day of the previous year relevant to the assessment year, the capital of a company computed in accordance with the foregoing rules, was increased by any amount during that previous year on account of increase of paid up share capital, or is reduced by any amount on account of reduction of paid up share capital such capital should be increased or reduced by a sum which bore....