1984 (8) TMI 89 - AT - Income Tax

Issues Involved:
1. Legality of rectification under section 13 of the Companies (Profits) Surtax Act, 1964.
2. Cancellation of the rectification order by the Commissioner (Appeals).
3. Divergent views taken by different Benches of the Tribunal on the issue.
4. Whether the Surtax Officer could have initiated proceedings under section 13.

Detailed Analysis:

1. Legality of Rectification under Section 13 of the Companies (Profits) Surtax Act, 1964:
The primary issue revolves around whether the rectification of the mistake under section 13 was justified. The Surtax Officer initially allowed a deduction of Rs. 1,15,000, which was a deposit under the Companies Deposit (Surcharge on Income-tax) Scheme, 1976. Later, he considered this as a mistake, as per rule 2(i) of the First Schedule to the Surtax Act, and rectified the assessment by increasing the chargeable profits by Rs. 1,15,000. The Commissioner (Appeals) held that due to divergent views by different Benches of the Tribunal, no action under section 13 could be justified, thus cancelling the rectification order.

2. Cancellation of the Rectification Order by the Commissioner (Appeals):
The Commissioner (Appeals) cancelled the rectification order on the grounds that the issue involved was debatable, citing divergent views from various Tribunal Benches. The Commissioner (Appeals) concluded that in such a situation, the Surtax Officer could not have taken action under section 13. This was supported by the observation that the issue required a long drawn process of arguments and submissions, aligning with the Supreme Court decision in T.S. Balaram, ITO v. Volkart Bros., which held that action under section 154 of the Income-tax Act, 1961 (analogous to section 13 of the Surtax Act), cannot be taken if the issue is debatable.

3. Divergent Views Taken by Different Benches of the Tribunal on the Issue:
The case references multiple Tribunal decisions that had conflicting views on the treatment of deposits under the Companies Deposit (Surcharge on Income-tax) Scheme. For instance, the Special Bench in Apara Textile Traders Ltd. and the decision in Travancore Chemical & Mfg. Co. Ltd. both had differing interpretations compared to the decision in Daulat Ram Dharambir Auto (P.) Ltd. This divergence was pivotal in the Commissioner (Appeals)'s decision to cancel the rectification order, as it indicated that the issue was not clear-cut and straightforward.

4. Whether the Surtax Officer Could Have Initiated Proceedings under Section 13:
The core question referred to the Third Member was whether the Surtax Officer could have initiated proceedings under section 13. The learned counsel for the department argued that the provisions of rule 2(i) were clear and that the deduction of Rs. 1,15,000 was a mistake, as it was not income-tax but a deposit. However, the learned counsel for the assessee and the Judicial Member argued that the issue was debatable, and the initiation of proceedings under section 13 was not justified due to the conflicting Tribunal decisions and the complex interpretation required.

Third Member's Order:
The Third Member, Dr. V. Balasubramanian, Vice President, agreed with the Judicial Member that the issue was indeed debatable and not straightforward. He emphasized that the provisions of rule 2(i) were not as clear-cut as the department suggested, and the interpretation required was not simplistic. The Third Member concluded that the Surtax Officer's action under section 13 was not justified due to the debatable nature of the issue, thus upholding the Commissioner (Appeals)'s order and dismissing the appeal.

Conclusion:
The appeal was dismissed, and the order of the Commissioner (Appeals) was upheld, confirming that the Surtax Officer could not have initiated proceedings under section 13 due to the debatable nature of the issue and the divergent views of various Tribunal Benches.

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