1979 (10) TMI 21 - HC - Income Tax

Summary

Issues:
1. Jurisdiction of the Income-tax Officer to rectify assessment under section 13 of the Companies (Profits) Surtax Act, 1964.
2. Treatment of excess depreciation provided in accounts as a reserve for the purposes of the Surtax Act.

Analysis:

Issue 1:
The High Court addressed the jurisdiction of the Income-tax Officer (ITO) to rectify assessments under section 13 of the Companies (Profits) Surtax Act, 1964. The case involved the assessee filing revised returns for assessment years 1964-65, 1965-66, and 1966-67, claiming excess depreciation as a reserve for capital computation. The ITO rectified the assessments after realizing an error and issued notices under section 13(1) of the Act. The assessee objected, but the ITO proceeded with the rectification. The AAC and Tribunal confirmed the rectification, rejecting the contentions that there was no apparent error or error in the completed assessment. The High Court held that the error was apparent from the balance-sheet, justifying the invocation of section 13(1) and ruled in favor of the revenue on this issue.

Issue 2:
Regarding the treatment of excess depreciation as a reserve for Surtax Act purposes, the High Court analyzed the provisions of the Second Schedule to the Act, which govern the computation of a company's capital for surtax. The court emphasized that for an amount to qualify as a reserve, it must be set apart out of ascertained profits. In this case, the difference in depreciation claimed by the assessee was not reflected as a reserve in its balance-sheet. The court referred to precedents like Mysore Electrical Industries Ltd. v. Commr. of Surtax and CIT v. Zenith Steel Pipes Ltd. to support the view that such differences cannot be considered reserves if not specifically created and accounted for as such. The High Court concluded that the excess depreciation claimed by the assessee could not be treated as a reserve for Surtax Act purposes. The second question was answered in the negative and in favor of the revenue.

In summary, the High Court upheld the ITO's jurisdiction to rectify assessments and determined that the excess depreciation claimed by the assessee could not be considered a reserve for Surtax Act purposes due to the lack of specific creation and accounting for such differences in the balance-sheet. The judgments in similar cases were cited to support the court's decision, ultimately ruling in favor of the revenue on both issues.