JUDGEMENT
S.K. Chander, Accountant Member -
(1.)THIS appeal by the assessee is directed against the order of the Commissioner of Income-tax, Delhi made under Section 16 of the Companies (Profits) Surtax Act, 1964 for the assessment year 1983-84 on 27-3-1987. The contention of the assessee is that issuance of the notice under Section 16 of the Companies (Profits) Surtax Act, 1964 and the subsequent completion of the proceedings terminating in the passing of the impugned order under Section 16 of the Act is without jurisdiction, because the Id. Commissioner was legally wrong in holding that the order passed by the IAC (Assessment), New Delhi under Section 6(2) of the Companies (Profits) Surtax Act, 1964 was erroneous as well as prejudicial to the interest of the revenue. On this issue, we have heard the parties and carefully considered their rival submissions. However, before we come to deal with the rival submissions, we record the factual backdrop of the case on the basis of which the Commissioner made the impugned order.
(2.)The assessee is a private limited company. For the year under appeal and for some of the earlier assessment years, the assessee had been taxed under the Companies (Profits) Surtax Act, 1964. For the assessment year 1983-84 as the previous year of the assessee ended on 30th June, 1982, return under this Act was filed on 28-10-1983 declaring chargeable profits of Rs. 6,23,358. The Surtax Officer, who, in this case, was IAC (Assessment) Range-Ill, New Delhi issued statutory notices to the assessee and after discussion proceeded to determine net chargeable profits. The Surtax Officer has recorded in the impugned order made under Section 6(2) on 2-2-1985 that the finally assessed income after giving appeal effect to the appellate orders for the asst. year 1983-84 for purpose of income-tax came to Rs. 36,05,010. Thereafter, he computed the chargeable profits. Taking into consideration, the total income of Rs. 36,05,010 the Surtax Officer deducted income-tax payable thereon to arrive at the net income of Rs. 13,87,929. From this amount, he reduced the statutory deduction, which he had arrived at Rs. 7,05,205. The balance was Rs. 6,82,724 (Rs. 13,87,929-Rs. 7,05,205). Now, this statutory deduction at Rs. 7,05,205 was arrived at by Surtax Officer at 15 per cent of the capital employed. The capital employed computation was arrived at by taking the paid up capital at Rs. 5 lakhs and reserves at Rs. 42,01,368. The total of the two figures came to Rs. 47,01,368 and 15 per cent thereof, as statutory deduction, came to Rs. 7,05,205. The Surtax Officer worked out surtax payable by the assessee at Rs. 2,37,827. The assessee had paid surtax by way of advance tax amounting to Rs. 2,52,458. Thus, the balance refundable to the assessee was determined by the Surtax Officer at Rs. 14,629 by his order dated 2-2-1985 made under Section 16(2) as described supra.
Section 16 of the Companies (Profits) Surtax Act, 1964 invests the Commissioner of Income-tax with the powers of revision of orders prejudicial to revenue. It provides that the Commissioner may call for and examine the record of any proceeding under this Act and if lie considers, that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry, as he deems necessary, pass such order thereon as the circumstances of the case justify., including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The provisions contained in this section are in pari materia with the provisions of Section 263 of the Income-tax Act, 1961. In view of these powers vested in the Commissioner, he called for the record, in the case of the assessee and on perusal thereof, found thafthe order made by the Surtax Officer, in this case, being the IAC(A), being erroneous as well as prejudicial to the interest of revenue issued notice under Section 16(1) on 17-3-1987. The notice was issued for the following reasoning as recorded in the impugned order :
Surtax assessment for the assessment year 1983-84 was made by the Inspecting Asstt. Commissioner of Income-tax (Asst.), Range-Ill New Delhi on 2-2-1985. The net chargeable profits for levy of Surtax were worked out at Us. 10,28,623 (Rs. 13,87,929-3,59,306). It is noticed that while computing the net chargeable profits, the IAC erroneously worked out statutory deduction by including in the capital employed, the balance lying in the profit and loss account amounting to Rs. 23,05,998. The wrong computation of statutory deduction has resulted in undercharge of Surtax by Rs. 1,55,653. The correct statutory deduction allowable is worked out as under :
JUDGEMENT_2310_TLIT0_19890.htm
From the above facts, it is clear that the order passed by the IAC (Asst.) is erroneous and prejudicial to the interest of revenue.
(3.)THE assessee responded to this notice with a reply that a sum of Rs. 23,05,998 which was appearing on the first date of the accounting year under the caption, "Profit & Loss Appropriation Account" was in fact and in substance part and parcel of the reserves and surpluses. It had, therefore, rightly been considered as reserve for the purpose of working out the capital to determine statutory deduction admissible to the assessee by the Surtax Officer. For this proposition, reliance was placed on the judgment of the Calcutta High Court in the case of Dunlop India Ltd. v. CIT [1983] 141ITR 542. Reliance was also placed upon the judgment of the Supreme Court in the case of Vasir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559.