1976 (4) TMI 14 - HC - Income Tax

Summary

Issues Involved:
1. Levy of additional surcharge on the assessee.
2. Error apparent from the record regarding the levy of additional surcharge under section 154 of the Income-tax Act, 1961.

Detailed Analysis:

1. Levy of Additional Surcharge on the Assessee:
The primary issue was whether the levy of Rs. 12,792.90 as additional surcharge on the assessee was in accordance with the law. The assessee, a co-operative society engaged in marketing agricultural produce, was exempt from income-tax and super-tax on its business profits under sections 81 and 99 of the Income-tax Act, 1961. The original assessment levied tax only on the non-exempt income of Rs. 1,959. However, the succeeding Income-tax Officer recalculated the tax, including an additional surcharge on the "residual income" of Rs. 1,39,029, which included part of the exempted business income.

The Tribunal reviewed the provisions of the Income-tax Act and the Finance Act, 1963, and concluded that the additional surcharge was correctly levied on the residual income. The Tribunal justified the Income-tax Officer's recalculations and affirmed the levy of the additional surcharge.

The Supreme Court's decision in Madurai District Central Co-operative Bank Ltd. v. Third Income-tax Officer, Madurai [1975] 101 ITR 24 (SC) was pivotal. The Supreme Court held that the additional surcharge could be levied on income exempt from income-tax and super-tax under sections 81 and 99 of the Income-tax Act, 1961. This decision supported the Tribunal's conclusion that the additional surcharge was correctly levied on the residual income, including the exempted business income.

2. Error Apparent from the Record:
The second issue was whether there was an error apparent from the record that could be rectified under section 154 of the Income-tax Act, 1961. The assessee contended that no such error existed and that the recalculations by the succeeding Income-tax Officer were not justified. The Supreme Court's decision in T. S. Balaram, Income-tax Officer v. Volkari Brothers [1971] 82 ITR 50 (SC) was crucial in this context. The Supreme Court held that a mistake apparent from the record must be an obvious and patent mistake, not something that requires a long drawn process of reasoning.

The court observed that the construction of the relevant provisions of the Finance Act, 1963, was not free from doubt and that two views were possible. The Allahabad High Court had previously taken a different view on the levy of additional surcharge on exempted income, indicating that the matter was arguable and not clear-cut.

The court concluded that the mistake in the calculation of additional surcharge was not an obvious and patent mistake. Therefore, the Income-tax Officer could not resort to section 154 for rectification. The court answered the second question in the negative, stating that there was no error apparent from the record that could be rectified under section 154.

Conclusion:
The court held that there was no error apparent from the record regarding the levy of additional surcharge, making the proceedings under section 154 incompetent. Consequently, the first question on the correctness of the additional surcharge levy was not considered. The assessee was entitled to costs, and the court awarded counsel's fee of Rs. 250.