Calcutta H.C : Whether, on the facts and in the circumstances of the case and having regard to Explna. 1 to r. 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, there was a mistake apparent form the record within the meaning of s. 13 of the said Act and whether the ITO was entitled to make an order thereunder ?

Section SURTAX 13, SURTAX SCH. II, SURTAX RULE 2

Asst. Year 1965-66

Counsel Appeared

S. Mukherjee & H.M. Dhar, for the Revenue : P. Paul, for the Assessee

Ajit k. SENGUPTA J.:

At the instance of the CIT, West Bengal-III, the following question of law has been referred to this Court under s. 256(2) of the IT Act, 1961 for the asst. yr. 1965-66 :

“Whether, on the facts and in the circumstances of the case and having regard to Explna. 1 to r. 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, there was a mistake apparent form the record within the meaning of s. 13 of the said Act and whether the ITO was entitled to make an order thereunder ?”

The facts are that in the original surtax assessment order passed on 28th Feb. 1967, the ITO included as sum of Rs. 18 lakhs in the capital computation. Subsequently, action was taken under s. 13 of the Companies (Profits) Surtax Act, 1964, on the ground that the said sum of Rs. 18 lakhs was wrongly included in the capital computation and the mistake was apparent from the record. After a show-cause notice to the assessee, the ITO passed an order under s. 13 rectifying the mistake. The AAC held that the ITO cannot invoke s. 13 simply because he had an opinion different form that of the ITO who passed the original assessment. Following the decision of the Supreme Court in the case of T. S. Balaram, ITO vs Volkart Bros. (1971) 82 ITR 50 (SC), he cancelled the order of the ITO made under s. 13.

In the appeal before the Tribunal, the Departmental Representative submitted that in the original assessment, the sum of Rs. 18 lakhs was wrongly included in the capital base and that that was an obvious mistake of law. The said mistake could be rectified under s. 13. The Tribunal held that the points raised by the assessee are highly debatable points. It is not a patent mistake which can be rectified under s. 13 and, accordingly the Tribunal dismissed the appeal of the Department.

The ITO who rectified the assessment was of the view that the sum of Rs. 18 lakhs being bonus shares issued on capitalisation of reserves credited by writing up of fixed assets has been wrongly included in the capital computation for arriving at the standard deduction allowable from the chargeable profits. According to him, in terms of the Explanation to r. 2 of the Second Schedule to the Companies (Profits) Surtax Act, the said amount should not have been included for the purpose of capital computation.

The contention of the assessee was that the bonus shares amounting to Rs. 18 lakhs were issued by writing up the fixed assets in 1948 and in 1961 those assets were written down from the general reserve and other reserves and the result was that the reserves came down by the said amount of Rs. 18 lakhs. Thus, materially there was no writing up of the fixed assets in the year 1961. It was further submitted by him that on the first day of the accounting period, the capital reserve had increased by revaluation of the assets. According to him, Expln. 1 to r. 2 of the Second Schedule was not attracted in the present case.

6. From the narration of facts, it would be evident that there was no patent mistake which was to be rectified under s. 13. The original ITO considered the issue and included the sum of Rs. 18 lakhs in the capital base. The successor ITO due to change of opinion sought to rectify the order under s. 13. It is now well settled that if the points at issue are debatable or if there be any two conceivable opinions on the question or if the issues relate to the interpretation of the provisions of the Act, the ITO cannot have any jurisdiction to rectify the mistake under s. 13. In that view of the matter, the Tribunal was justified in holding that there was no mistake apparent from the record to be rectified under s. 13.

For the reasons aforesaid, we answer the question in this reference in the negative and in favour of the assessee. There will be no order as to costs.

K.M. YUSUF J.:

I agree.

[Citation : 175 ITR 375]