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Issues involved: Assessment of super-tax for the years 1968-69 and 1969-70, treatment of "surplus taxation reserve" and "dividend reserve" as "reserves" under the Sur Tax Act, 1964, invocation of section 13 of the Companies (Profits) Surtax Act for rectification.
Assessment of super-tax: The Income-tax Officer initially treated "surplus taxation reserve" and "dividend reserve" as "reserves" for the Sur Tax Act, 1964. Upon realizing the Explanation to rule 1 of the Second Schedule of the Companies (Profits) Surtax Act, he issued a notice under section 13 stating that these items could not be considered as "reserves." The assessee provided an explanation, leading to a reassessment where the mentioned reserves were excluded from the calculation of profits. Appeals and Tribunal decisions: Appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were unsuccessful. The Tribunal considered whether there was a mistake apparent from the record rectifiable under section 13 of the Companies (Profits) Surtax Act, 1964. The assessee contended that the issue was debatable and the Income-tax Officer erred in invoking section 13. However, it was noted that the Officer had overlooked the Explanation initially, and the matter could be rectified under section 13 when a statutory provision is overlooked. The absence of raising the debatable issue before the subordinate tribunals led to the decision being made against the assessee, as it was assumed that the reserves fell within the Explanation's scope. Conclusion: The court upheld the decision against the assessee, emphasizing the importance of raising debatable issues before the appropriate tribunals. The failure to challenge the treatment of reserves under the Explanation earlier resulted in the reference being answered against the assessee, with no order as to costs.
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