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TMI Blog1990 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... of the lower authorities that, on the dates of the relevant balance-sheets, the assessee had undisclosed income not brought into account and the same was a mass of unappropriated profits to which the directors had no occasion to apply their mind arid as such the said amount was not a reserve for the purposes of the Surtax Act? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in sustaining the finding of the lower authorities and in rejecting the recast balance-sheets ? 4. Whether the Tribunal was justified in sustaining the decision of the lower authorities and in rejecting the claim made by the assessee that the excess provision for taxation is not a provision but a reserve ? 5. Whether the finding of the Tribunal that the excess of tax provision was left unappropriated and is a provision and not a reserve is perverse?" The assessment years involved are 1969-70 to 1975-76 for which the relevant periods of account are March 31, 1969, to March 31, 1975, respectively. The facts of this case as set out in the statement of case are as follows : " The assessee is the Hooghly Mills Ltd. and the reference relates to the assessment years 1969- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 18 of the order passed by the Settlement Commission is binding. (ii) The recast balance-sheet and net balance-sheet of the assessee-company audited and passed as per the Companies Act, 1956, is to be considered in making the surtax assessment, in view of para 18 of the Settlement Commission's order. The Income-tax Officer did not allow the claim made by the assessee. Being aggrieved by the order of the income-tax Officer, the assessee preferred separate appeals for each of the assessment years concerned which were heard by the Commissioner (Appeals) and were disposed of by a consolidated order. Before the Commissioner (Appeals), the assessee made the following claims : (a) The income which has been disclosed before the Settlement Commission and accepted by the Settlement Commission and spread over the eight assessment years should be treated as a reserve particularly in view of the direction given by the Settlement Commission in paragraph 18 of their order. (b) Excess taxation reserve for the assessment years 1959-60, 1961-62 to 1971-72 should be considered in computing the capital base inasmuch as the said amount has been credited to the profit and loss account. (c) Some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase [1979] 118 ITR 461 (SC) at page 481). Apart from this, the surtax assessments and computation of capital in relation thereto were not matters covered by the appellant's applications to the Commission and were not matters relating to the 'case' (i.e., the income-tax proceedings).The 'terms of settlement' sought for by the appellant in the letter dated August 18, 1976, addressed to the Commission did not (and validly could not) include any reference to surtax assessment. As regards the 'recast balance-sheets ' filed by the appellant along with its surtax returns, the Income-tax Officer was also right in disregarding the same. The Companies (Profits) Surtax Act, 1964, as the name implies, relates to companies only. A company is a creature of statute, namely, the Companies Act (at present the Companies Act, 1956 ). Hence, the balance-sheet referred to in the Surtax Act and its Second Schedule for the computation of capital) is obviously the balance-sheet conforming to the relevant sections of the Companies Act, i.e., it should be audited by the auditor, reported on by the directors and passed in the annual general meeting of the shareholders before being accepted as the balance-sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court decision in the case of CIT v. Century Spg. and Mfg. Co. Ltd. [1953] 24 ITR 499. In this connection, the Calcutta High Court order in the case of A. P. V. Engineering Co. Ltd. v. CIT [1979] 119 ITR 937 may be referred to. " The surtax is imposed under the provisions of the Companies (Profits ) Surtax Act, 1964. Section 4 of this Act provides as follows: " Charge of tax.- Subject to the provisions contained in this Act, there shall be charged on every company for every assessment year commencing on and from the first day of April, 1964, a tax ( in this Act referred to as the surtax ) in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule. " With regard to the power of the Settlement Commission, it is to be borne in mind that the Settlement Commission is a creature of the statute, viz., the Income-tax Act. A " case " before the Settlement Commission is defined in section 245A(a) of the 1961 Act, which means any proceedings under the 1922 Act, or under this Act for and in connection with the assessment or reassessment of any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and liabilities in conformity with generally accepted accounting principles. There is no provision for recasting the balance-sheet once it is prepared, finalised and accepted in the annual general meeting. The Settlement Commission may pass any order for the purpose of giving relief to the petitioner-assessee in so far as penalty or prosecution is concerned under the Act. But it cannot pass any order travelling beyond the provisions of the Act nor can it indirectly pass an order by which the Income-tax Officer is bound to grant relief to the assessee under a different Act, namely, under the provisions of the Surtax Act. The provisions of the Surtax Act are not subject to any of the provisions of the 1961 Act. The charging section under the Surtax Act provides that, subject to the provisions contained in the Act, there shall be charged on every company for every assessment year commencing on and from the first day of April, 1964, a tax called surtax in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule to the Act. Under section 210 of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, the Wealth-tax Act and other Acts including the Surtax Act are independent statutes covering different fields and the orders are to be passed under the aforesaid Acts or within the four corners of those Acts. The contention of the learned advocate for the assessee that the order passed by the Settlement Commission in this regard should be given effect to after the assessments have already been made under the Surtax Act cannot be accepted. The settlement relates to three assessment years, viz., 1974-75, 1975-76 and 1976-77, under section 245C(1). In our view, the Settlement Commission under the Income-tax Act cannot pass any order for waiving or reducing surtax liability payable under the provisions of the Surtax Act. Part I of Schedule VI to the Companies Act refers to the form of the balance-sheet to which every company has to conform. It is in the background of a balance-sheet in this form that the directors of the company have to make a report to the shareholders as to " reserve " of the company under section 217 of the Companies Act. The distinction between " reserve " and a " provision " introduced in the Companies Act is not confined to Part III of Schedule VI. The dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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