1985 (2) TMI 32 - HC - Income Tax

Summary

Issues:
1. Whether the sum representing the increase in the share capital of the assessee company due to capitalization of reserves should be included in the capital base under the Companies (Profits) Surtax Act.
2. Whether the Income-tax Officer had the jurisdiction to rectify the inclusion of the sum in the original assessment for the assessment year 1967-68.

Analysis:

Issue 1:
The case involved a dispute regarding the inclusion of a sum of Rs. 11,43,333 in the capital base of the assessee company under the Companies (Profits) Surtax Act. The Income Tax Officer (ITO) had initially included this amount in the capital base but later rectified the order, reducing the capital base. The Tribunal upheld the ITO's decision, stating that the ITO was correct in rectifying the order under section 13 of the Companies (Profits) Surtax Act. The High Court referred to a similar case involving Alkali and Chemical Corporation of India Ltd., where it was held that the inclusion of such sums in the capital base was a mistake that could be rectified. The High Court emphasized that the rectification was necessary due to an arithmetical mistake and that the capital computation should consider the decrease in reserves when there is an increase in share capital. The court concluded that the rectification of the capital base was justified under the Surtax Act for the assessment year 1967-68.

Issue 2:
The second issue revolved around the jurisdiction of the ITO to rectify the inclusion of the sum in the original assessment. The assessee argued that the ITO had no authority to rectify a debatable issue, especially when there was a supporting decision from the Himachal Pradesh High Court. However, the Tribunal ruled against the assessee, following the precedent set in the Alkali and Chemical Corporation of India Ltd. case. The High Court reiterated that the rectification was valid, emphasizing that the inclusion of the sum in the capital base was a mistake that needed correction. The court rejected the argument that the Supreme Court granting special leave petition altered the position, stating that the rectification was justified based on a misreading of the provision. Ultimately, the High Court answered both questions in the affirmative and in favor of the Revenue, upholding the rectification of the capital base and dismissing the appeal.

In conclusion, the judgment clarified the application of the Companies (Profits) Surtax Act regarding the inclusion of sums in the capital base and affirmed the authority of the ITO to rectify mistakes in the original assessment to ensure accurate computation of the capital base for taxation purposes.