TRAVANCORE CHEMICAL AND MFG CO LTD Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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G. Krishnamurthy, Vice President -
(1.) THE Companies (Profits) Surtax Act, 1964 ('the Act') levies a tax called 'Surtax' on every company for every assessment year commencing from 1-4-1964, in respect of so much*of its chargeable profits of the previous year as exceed the statutory deduction. THE term 'chargeable profits' has been defined by clause (5) of Section 2 of the Act as the total income of an assessee computed under the Income-tax Act, 1961 ('the 1961 Act'), for any previous year and adjusted in accordance with the provisions of the First Schedule. Rule 2 of the First Schedule appended to the Act provided that the total income arrived at after making certains exclusions referred to in Rule 1 shall be further reduced by the amount of income-tax payable by the company in respect of its total income under the provisions of the 1961 Act after making certain allowances and after excluding the income-tax payable in respect of certain items. THE amount of income-tax payable by a company in respect of the total income under the provisions of the 1961 Act includes surcharge payable as stipulated by the annual Finance Acts.
(2.) The Finance Act, 1976 has introduced a scheme by which certain relief was sought to be given in respect of companies which are required to pay surcharge. By clause (8) of Section 2 the Finance Act, 1976 provided that where an assessee, being a company, makes, during the financial year commencing on 1-4-1976, any deposit with the Industrial Development Bank of India under any scheme made by the Central Government in this behalf, then, the surcharge on income-tax payable by the company for the assessment year commencing on 1-4-1977 in a case where the amount of deposit is equal to or exceeds the amount of surcharge on income-tax payable by it, shall be nil, and in a case where the amount of the deposit so made falls short of the amount of surcharge on income-tax payable by it, shall be reduced by the amount of the deposit. That is to say, if a company makes a deposit with the Industrial Development Bank of India, an amount equal to surcharge payable on its income-tax, then that company need not pay the surcharge on income-tax.
The assessee before us is a company which has paid a deposit of Rs. 94,544 on 14-2-1976, with the Industrial Development Bank of India, and it claimed that for the purpose of computing its chargeable profits, the deposit so made should also be construed as surcharge paid and included in the income-tax payable by it so that the aggregate amount of income-tax and its deposit could be deducted under Rule 2 of the First Schedule.
(3.) THE ITO who made the assessment on the assessee accepted the claim and determined the surtax payable. This was done by an order passed on 11-8-1978. Subsequently, the ITO noticed that the deposit made with the Industrial Development Bank of India, is not surcharge as one is not equivalent to the other but one is in substitution of the other. THErefore, he proceeded to amend the order by rectifying it under Section 13 of the Act. THE assessee was, therefore, called upon to explain why the amount of surcharge allowed as a deduction in computing the chargeable profits, should not be withdrawn. THE assessee objected to the rectification by pointing out that what was paid by way of deposit was strictly not a deposit but a tax in lieu of surcharge and that the surcharge should, therefore, be allowed as a deduction, and was rightly allowed in the original proceedings. Rejecting this contention and pointing out that since the deposit made by the assessee would be refunded to the assessee by the bank after a certain period, the ITO held that it could not be regarded as a tax paid. He, therefore, withdrew the deduction originally allowed. As a consequence, a further liability of Rs. 26,636 was imposed on the assessee by the order passed by the ITO under Section 13, on 5-10-1978. Aggrieved by this order, the assessee appealed to the Commissioner (Appeals) contending, inter alia, that in any case the deduction allowed for surcharge originally could not be regarded as a mistake apparent from record, because it is a highly controversial and debatable issue which could not be rectified as a mistake apparent from record. THEre was also an appeal filed by the assessee against the assessment made to surtax. THE Commissioner (Appeals) was hearing both the appeals together. Since he was hearing the appeal against the assessment also, a request was made by the ITO to enhance the assessment by withdrawing the deduction allowed for surcharge. That is to say, what was objected to by the assessee as not rectifiable by treating as a mistake apparent from record, was sought to be overcome by proposing an enhancement in the reassessment. THE Commissioner (Appeals) accepted the plea of the ITO and after recording his reasons as to why he was not able to agree with the assessee's contention that the deposit of tax could not be regarded as equivalent to payment of surcharge, directed the ITO to enhance the assessment by withdrawing the deduction allowed towards surcharge. In this view of the matter, he regarded the appeal filed against the order of rectification as infructuous.;
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