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1978 (7) TMI 52 - HC - Income Tax

Issues:
1. Interpretation of Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 regarding the deduction of profits attributable to priority industry under section 80-I of the Income-tax Act, 1961.
2. Rectifiability of the mistake in not making proportionate diminution of capital under Rule 4 in the surtax assessment.

Analysis:
The High Court of Calcutta addressed a reference under section 256(1) of the Income Tax Act, 1961, along with section 13 of the Companies (Profits) Surtax Act, 1964, concerning the assessment year 1970-71. The case involved an assessee company eligible for deduction under section 80-I of the Income Tax Act, 1961, and was subject to surtax under the Companies (Profits) Surtax Act, 1964. The issue arose when the Income Tax Officer (ITO) did not make appropriate deductions under Rule 4 of the Second Schedule to the Surtax Act concerning a sum allowed as a deduction in the income tax assessment. The successor-ITO rectified this by making a proportionate reduction, resulting in an increase in the surtax payable by the assessee.

In the subsequent appeal, the Appellate Assistant Commissioner (AAC) set aside the ITO's order, stating that the mistake was not apparent. However, the Tribunal overturned this decision, holding that the mistake was patent and allowed the appeal. The Tribunal also ruled that the profits attributable to the priority industry, deductible under section 80-I of the Income Tax Act, were not includible in the total income, necessitating a reduction in the assessee's capital under Rule 4 of the Second Schedule to the Surtax Act.

The Tribunal referred two questions to the High Court, primarily focusing on the interpretation of Rule 4 and the rectifiability of the capital reduction mistake. The Court, after considering arguments based on conflicting decisions, concluded that the mistake in not making the diminution of capital was not rectifiable under section 13 of the Surtax Act. The Court declined to answer the first question as it became academic in light of the answer to the second question.

The judgment highlighted the importance of correctly applying Rule 4 of the Second Schedule to the Surtax Act in determining the capital of the assessee and the impact of deductions under section 80-I of the Income Tax Act on such calculations. It also emphasized the significance of distinguishing between apparent and non-apparent mistakes in tax assessments, ultimately providing clarity on the rectifiability of such errors under the relevant legal provisions.

 

 

 

 

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