WALDIES LTD.versusCOMMISSIONER OF INCOME TAX, WEST BENGAL

                         WALDIES LTD.                                            A
                              v.
           COMMISSIONER OF INCOME TAX, WEST BENGAL

                            NOVEMBER 20, 1996

              [B.P. JEEVAN REDDY AND SUHAS C. SEN, JJ.]                          B

         Companies (Profits) Surtax Act: Sections 4, 13 and 14.

          Mistakes-Apparentfi"om the record-Rectification of-A Y 1964-65-
     'Record '-Scope of-Tax liability under S.147 of Income Tax Act-
    Enhanced-Consequently surtex assessment rectified-On reversal oforder        C
    passed under S.147 surtex assessment again rectified-Held: Income Tax
    assessment order part ofrecords ofsurtax assessment proceedings-Hence,
    for second rectification there was mistake apparentfi"om the record-Income
    Tax Act, 1961, S.147.

.          Rectified Order-Rectification of-To restore original order-After
    expiry of time-limit prescribed under S.13(1)-Validity of-AY 1964-65-
                                                                                 D

    assessment orders under Income Tax and Surtax Acts passed-Subsequently ·
    income tax liability ofassessee--Company enhanced in reassessment under
    S.147 of Income Tax Act-Consequently, within statutory time-limit
    assessment order under Surtax Act rectified and surtax reduced by additional E
     amount of income tax determined under S.147-After expiry of time-
    Limit for rectifying assessment under Surtax Act, order under S.147 set
    aside in appeal-Consequently, rectified assessment order under
    Surtax Act again rectified to restore original order-Held: lnspite of the
    expiry of time-limit under S.13 (I) a/Surtax Act, second rectification F
    justified.


-         Words and Phrases :

          "Record" and "mistake apparentfi"om the record"-Meaning of-In          G
    the context o/S.13 {I) of the Companies (Profits) Surtax Act.

          The assessee-company was assessed to Income Tax for the
    assessment year 1964-65. This was followed by an assessment under
    the Companies (Profits) Surtax Act. Later on, the assessment was
    reopened under Section 147 of the Income Tax Act, 1961 and the               H
                                       879
    880                     SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.


A Income Ta.x liability was enhanced. Consequently, the assessment order
    was rectified under Section 13 of the Surtax Act. The amount by
    which the income tax liability was enhanced under Section 147 was
    allowed as a deduction from the chargeable profits under the Surtax
    Act and consequently the surtax liability of the assessee stood reduced.
    Subsequently, the Income Tax Officer, after three years, again took
B   resort to Section 13 of the Surtax Act, rectified the surtax assessment
    by withdrawing the deduction of the additional amount of tax which
    had been held payable under the order passed under section 147 of
    the Income Tax Act.

          The Appcllante Assistant Commissioner and the Tribunal held
C   that the Income Tax Officer's order was logical and justified in the
    facts and circumstances of this case. Being aggrieved the appellant-
    assessee preferred the present appeal.

         On behalf of the appellant-assessee it was contended that there -
    was no mistake apparent from the record; and that a proceeding


                                                                                 -
D   under Section 13 of the Surtax Act could not be taken because four
    years had already passed from the date of the assessment order.

          Dismissing the appeal, this Court.

          HELD: I. The starting point of the assessment under Section 4
E of the Companies (Profits) Surtax Act has to be the total income
    computed under the Income Tax Act, 1961. That being so, the Income
    Tax assessment order must necessarily form part of the records of the
    Surtax Assessment. Any change or variation of tax liability in the
    Income Tax assessment order will have to be given effect to in the
    Surtax assessment. There is no reason to hold that the Income Tax
F   assessment is not a part of the records of the Surtax assessment
    proceedings. If this contention of the assessee is to be upheld, logically
    it has to be held that even the first order of rectification giving relief
    to the assessee was invalid. Hence, it could not be said for the second
    rectification there was no mistake apparent from the record.
G                                                                  1884 E-H)

          2. The first rectification order under the Surtax Act had given
    relief to the assessee by deducting the additional amount of Income
    Tax levied by the order passed under Section 147 of the Income Tax
    Act. This relief had to be taken out when the order under Section 147
H   was set aside by the Appellant Assistant Commissioner and the Income
                     WALDIES LTD. v. COMNR. OF LT. [SEN, J.]                  881


      Tax liability of the assessee stood reduced. What the Income Tax Officer A
      was trying to do in effect was to nullify the order of rectification.
,..
      When the order under Section 147 of the Income Tax Act was set
      aside in appeal the assessee's income tax liability became smaller and
      consequently the chargeable profits could not be treated as validly
      computed when deduction had been made for Income Tax which was
      not actually payable. Therefore, the Income Tax Officer was justified B
      in invoking the provisions of Section 13 of the Surtax Act and
      correcting the error. The Income Tax Officer by the second order of
      rectification was not trying to rectify the original order of assessment
      but was seeking to restore it by rectifying the error in the amended
      order. (885 A-DJ
                                                                                      c
              CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1790 of
      1979.

           From the Judgment and Order dated 24.2.78 of the Calcutta High
      Court in I.T.R. No. 268 of 1975.
                                                                                      D
              P.K. Mukherjee and S.K. Bandyopadya for the Appellant.

              P.A. Chaudhary, (B.S. Ahuja), for S.N. Terdol for the Respondents.

              The Judgment of the Court was delivered by                              E

            SEN, J. The Companies (Profits) Surtax Act imposes an additional
      tax, apart from Income Tax, on the income of a company. It is a tax on so
      much of the 'chargeable profits' of a company of the previous year as
      exceeds the statutory deduction at the rate specified in the Act. 'Chargeable   F
      profits' has been defined by sub-section (5) of Section 2 to mean the total
      income ofan assessee computed under the Income Tax Act and adjusted in
      accordance with the provisions of the First Schedule. In other words, the
      Income Tax Act imposes a charge on the total income of an assessee. The
      Companies (Profits) Surtax Act provides for levy of additional tax on the       G
      total income as computed under the Income Tax Act, after certain
      adjustments by excluding certain types of income and some deductions
      from the total income as computed under the Income Tax Act. One of the
      deductions which had to be made for computing chargeable profits for the
      purpose of levy of Surtax is the amount of Income Tax, if any, payable by
      a company under Section 104 of the Income Tax Act.                              H
    882                      SUPREME COURT REPORTS (1996] SUPP. 8 S.C.R.


A         The assessee- company in this case was assessed to Income Tax for
    the assessment year l 964-65 on 29th March, l 965. The tax payable was
    determined to be Rs. l ,68,000,00. This was followed by an assessment
    under the Companies (Profits) Surtax Act on 30th March, 1965. Later on,
    the Income Tax Officer thought that he had wrongly held the assessee-
    company to be a widely held Cnmpany and reopene_d the Income Tax
B   assessment under Section 147. Sometime in September, 1968 an order
    was passed holding the assessee-Company to be a closely held Company
    as\a result of which the burden of Income Tax on the company became
    he~vier.

          Consequently, the Income Tax Officer rectified the assessment order
C passed under the Surtax Act on 16th September, l 968. The additional
    amount of Income Tax detenmined as payable under the order under section
    147 was allowed as deduction from the charg~able profits under the Surtax
    Act. As a result of the order of rectification passed under Section l 3, the
    Surtax liability of the Company stood reduced. Thereafter, the Appellate
    Assistant Commissioner, on appeal by the assessee, cancelled the order
D   under Section l 4 7 in November, l 970. Jn March, l 97 l, the Income Tax
    Officer gave effect to the Appellat~sistant Commissioner's order and
    recomputed the tax liability under the ~me Tax Act. The Income Tax
    Officer once again took resort to Section, l 3 on 1st April, 197 l and rectified
    the surtax assessment by withdrawing the 'deduction of the additional amount
E   of tax which had been held payable under the order passed under Section
    147 of the Income Tax Act. The second order of rectification was passed
    on 21st April, 1971. Both the Appellate Assistant Commissioner and the
    Tribunal held that the Income Tax Officer's order was logical and justified
    in the facts and circumstances of this case.

F         On the assessee's application, the Tribunal referred the following
    question of law to the High Court:-

                  "Whether on the facts and in the circumstances of the case
                  the Trib\mal was justified in holding that the Income Tax
                  Officer's action in rectifying his order passed in September,
G
                   l 968 under Section l 3 of the Surtax Act was in order both in
                  Jaw and in equity?"

          The assessee's contention before the High Court was two-fold. It
    w~ argued in the first place that there was no mistake apparent from the
H record. Secondly, it was argued in any event a proceeding under Section
                    WALDIES LTD. v. COMNR. OF I.T. [SEN, J.]                  883


       13 could not be taken because four years had already passed from the date      A
       of.the assessment order.

             Sections 13 and 14 of the Companies (Profits) Sm1ax Act, at the
       material time, were as under:-

                    "13. Rectification of mistakes.-( 1) with a view to rectifying B
                    any mistake apparent from the record, the Commissioner,
                    the Income Tax Officer, the Commissioner (Appeals) and
                    the Appellate Tribunal may, of his, or its own motion or on
                    an application by the assessee in this behalf, amend any order
                    passed by him or it in any proceeding under this Act within
                    four years of the date on which such order was passed.            c
                    (2) An amendment which has the effect of enhancing the
                    assessment or reducing a refund or otherwise increasing the
                    liability of the assessee shall not be made under this section
                    unless the authority-roncerned has given notice to the assessee
                    of its intention so to do and has allowed the assessee a          D
                    reasonable opportunity of being heard.

                    (3) Where an amendment is made under this section, the
                    order shall be passed in writing by the authority concerned.
                                                                                      E
                    (4) Subject to the other provisions of this Act, where any
                    such amendment has the effect of reducing the assessment,
                    the Income Tax Officer shall make any refund which may be
                    due to such assessee.

                    (5) Where any such amendment has the effect of enhancing          F
                    the assessment or reducing the refund already made, the
                    Income Tax Officer shall serve on the assessee a notice of
                    demand in the prescribed form specifying the sum payable.

                    14. Other amendments-Where as a result of any order made          G
....                under Sections 154, 155,250,254,260,262,263 or 264 of the
                    Income Tax Act, it is necessary to recompute the chargeable
                    profits determined in any assessment under this Act, the
                    Income Tax Officer may proceed to recompute the chargeable
                    profits, and determine the surtax payable or refundable on
                    the basis of such recomputation and make the necessary            H
    884                     SUPREMECOURTREPORTS [1996] SUPP. 8 S.C.R.


A                amendment and the provisions of Section 13 shall, so far as
                 may be, apply thereto, the period of four years specified in
                 sub-section(!) of that section being recokoned from the date
                 of the order passed under the aforesaid sections of the Income
                 Tax Act."

B        The first contention of the assessee :s that there was no mistake
  apparent from the record. When the first order of rectification was passed
  under the Surtax Act giving relief to the assessee, it was done on the basis
  of the order passed under Section 147 of the Income Tax Act. The result
  of the order passed under Section 147 was enhancement of the Income
  Tax liability of the assessee. This liability had to be deducted in order to
C arrive at chargeable profits. If the Income Tax Officer could rectify the
  assessment order and give relief to the assessee when the order under
  Section 147 was passed, we fail to see why the Income Tax Officer cannot
  rectify the order of assessment once again when that order under Section
  147 was set aside by the Appellate Assistant Commissioner. Unless the
  Income Tax assessment order formed part of the records of the order of
D assessment passed under the Surtax Act, the first order of rectification
  could not have been passed at all. In fact, no order of assessment can be
  passed under the Companies (Profits) Surtax Act, except on the basis of
  the assessment order passed under the Income. Tax Act. Section 4 of the
  Surtax Act imposes a charge on the 'chargeable profits' of a company for
  every assessment year. 'Chargeable profits' has been defined to mean 'the
E total income of an assessee computed under the Income Tax Act, 1961 for
  any previous year or years, as the case may be, and adjusted in accordance
  with the provisions of the First Schedule'. Therefore, the starting point of
  the assessment under the Surtax Act has to be the total income computed
  under the Income Tax Act. That being so, the Income Tax assessment
  order must necessarily form part of the records of the Surtax assessment.
F Any change or variation of tax liability in the Income Tax assessment
  order will have to be given effect to in the Surtax assessment. There is no
   reason to hold that the Income Tax assessment order which is the very
   basis of the Surtax assessment is not a part of the records of the Surtax
   assessment proceedings. As has been stated earlier, if this contention of the
G assessee is to be upheld, logically it has to be held that even the first order
  of rectification giving relief to the assessee was invalid. Sabyasachi
   Mukherji, J. (as His Lordship then was), rightly pointed out that the
   assessments under the Companies (Profits) Surtax Act and the Income Tax
   Act were closely connected and were integral parts of each other and
   interwoven and that the records under Section 13 of the Companies (Profits)
H Surtax Act would include the record of the Income Tax assessment.
                WALDIES LTD. v. COMNR. OF l.T. [SEN, J.]                  885


       The next point relates to limitation. The jurisdiction of the Income       A
Tax Officer to amend any order passed by him is limited to "four years
from the date on which such order was passed". In the instant case, the
original order of assessment was rectified on 16th September, 1968. This
rectified order gave relief to the assessee by deducting the additional amount
of Income Tax levied by the order passed under Section 147 of the Income
Tax Act. This relief had to be taken out when the order under Section 147         B
was set aside by the Appellate Assistant Commissioner and the Income
Tax liability of the assessee stood reduced. What the Income Tax Officer
was trying to do in effect was to nullify the order of rectification which
was passed on 16th September, 1968. The assessee is right in his contention
that this order was a good order when it was passed. But that was the time
when the order under Section 147 was subsisting and the assessee's income         C
tax liability was larger. But that order under Section 147 was set aside on
appeal. The assessee's income tax liability became smaller and consequently
the chargeable profits could not be treated as validly computed when
deduction had been made for Income Tax which was not actually payable.
Therefore, the Income Tax Officer was justified in invoking the provisions
of Section 13 and correcting the error in the order passed on 16th September,     D
 1968. The Income Tax Officer by the second order of rectification was
not trying to rectify the original order of assessment passed on 30th March,
 1965. but was seeking to restore it by rectifying the error in the amended
order passed on 16th September, 1968.

      In that view of the matter, it is not necessary to go into the contention   E
of the assessee that Section 14 of the Surtax Act was amended only on I st
April, 1971 and the power under the amended Section could not be utilised
for passing a second rectification order on 21st April, 1971.

          The appeal, therefore, is dismissed. There will be no order as to       p
cos.ts.

v.s.s.                                                     Appeal dismissed.