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Surtax Officer Vs. Industrial Machinery Mfrs. (P.) - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1984)10ITD768(Ahd.)
AppellantSurtax Officer
Respondentindustrial Machinery Mfrs. (P.)
Excerpt:
.....the accountant member, who is a party to this bench, had some doubts about the correctness of that view. in view of this, the matter was referred to the president for constituting a large bench to resolve the dispute as to the correctness of the view expressed by the delhi bench, whether the deposit made by a company under section 2(8) can be taken as paying surcharge on income-tax payable by a company so that that amount could be aggregated with the income-tax payable and deducted in arriving at the chargeable profits. hence, this special bench.(p. 791) the learned judicial member, who was a party to the order of the tribunal in the case of daulat ram dharambir auto (p.) ltd. (supra), had written a concurring order explaining why she is changing her views. in the case of daulat ram.....
Judgment:
1. In this appeal filed by the revenue, directed against the order of the Commissioner (Appeals), the following grounds are taken : 1. The learned Commissioner (Appeals) erred in law and on facts in holding that the rectification of the mistake under Section 13 of the Companies (Profits) Surtax Act, 1964 ('the Surtax Act'), was not justified.

2. He further erred in cancelling the rectification order under Section 13.

3. It is, therefore, prayed that the order of the Commissioner (Appeals) be set aside and the order of the ITO be restored.

2. At the time of hearing before us, it was submitted that on similar facts an identical issue was decided in favour of the revenue vide ST Appeal No. 12 (Ahd.) of 1983, dated 7-3-1984, in the case of Shri Ambika Mills ltd. v. Surtax Officer [1984] 8 ITD 576 (Ahd.). We have gone through a copy of the said order and we concur with the reasoning and decision reached therein. Following the same respectfully, we decide this appeal in favour of the revenue. We would only like to add that deposit made under the Central Sales Tax Act, 1956 is an asset, not only under the law but also as per the principles of accountancy.

An asset is never a liability as per the concepts either in law or in accountancy. Hence, any attempt in treating an asset as a liability is only a mistake apparent on record. Controversy sought to be treated or even if treated should be disregarded to thwart such attempts galore.

1. I have carefully gone through the order of my learned brother as well as the order of the Tribunal (of which my learned brother was a party), in the case of Shri Ambica Mills Ltd. (supra) and I am not in a position to persuade myself to agree with the view taken by my learned brother. In my opinion, the appeal filed by the revenue deserves to be dismissed for the reasons stated in the subsequent paragraphs.

2. The facts in brief are : in the assessment originally framed under Section 6(2) of the Surtax Act on 26-11-1979, the Surtax Officer, while computing the chargeable profits, allowed deduction of Rs. 24,36,692, being the income-tax payable by the assessee. This amount included Rs. 1,15,000 being the deposit made under the provisions of the Companies Deposit (Surcharge on Income-tax) Scheme, 1976, as per the provisions of the relevant Finance Act. Subsequently, the Surtax Officer was of the view that the deduction of Rs. 1,15,000 allowed to the assessee was a mistake, in view of the explicit provisions of Rule 2(i) of the First Schedule to the Surtax Act. He, therefore, initiated the proceedings under Section 13 with a view to rectify the mistake. The assessee resisted the action of the Surtax Officer on the ground that there was no mistake as the deposit of Rs. 1,15,000 was in the nature of surcharge on the income-tax. The Surtax Officer negatived the asses see's stand and passed an order under Section 13 on 23-12-1981, whereby he enhanced the chargeable profits by Rs. 1,15,000.

3. In appeal before the Commissioner (Appeals), the assessee had challenged the action of the Surtax Officer both on merits as well as on legal issue. As regards the merits of the case is concerned, the Commissioner (Appeals) rejected the assessee's contention. However, as regards the legality of the initiation of the proceedings under Section 13, the Commissioner (Appeals) was of the view that since the Benches of the Tribunal had taken divergent views on the issues involved in the present appeal, no action under Section 13 could be taken. In this view of the matter, she cancelled the order passed by the Surtax Officer under Section 13.

4. In appeal before us, the learned representative for the department relied on the order of the Surtax Officer and urged that the order of the Commissioner (Appeals) should be reversed. The learned counsel for the assessee, on the other hand, supported the action of the Commissioner (Appeals).

5. On due consideration of the rival submissions of the parties, I am of the view that the Commissioner (Appeals) was fully justified in holding that in view of the divergent views taken by the Benches of the Tribunal, the Surtax Officer could not have taken action under Section 13, with a view to enhance the chargeable profits by Rs. 1,15,000. In this connection, it would be useful to note certain observations made by the Special Bench of the Tribunal in two cases and the observation made by the Tribunal (Delhi Bench) in the case of Surtax Officer v.Daulat Ram Dharambir Auto (P.) Ltd. [1982] 1 SOT 565.Apara Textile Traders Ltd. v. Surtax Officer [1983] 2 SOT 603 (Ahd.), the Special Bench of the Tribunal has observed as under : The appeal came up before a Division Bench of the Tribunal. The orders passed by different Benches of the Tribunal were produced by the parties to show that different Benches had taken conflicting views on the issue. Reference was made to the President for constituting a Special Bench. The proposal was accepted and hence this appeal before the Special Bench.(p. 604) 7. In Travancore Chemical & Mfg. Co. Ltd. v. ITO [1983] 6 ITD 788 (Coch.), the Special Bench of the Tribunal has observed as under : 5. Aggrieved by these orders, the assessee appealed to the Tribunal.

During the course of hearing of these appeals, the assessee contended that the proposed enhancement was not correct, that the payment made was in lieu of surcharge and, therefore, was equivalent to surcharge. The withdrawal of the deduction allowed for surcharge paid is thus, wrong. There is also a decision given by the Tribunal, Delhi Bench, in ST Appeal No. 17 (Delhi) of 1979, dated 12-8-1980 [since reported in Surtax Officer v. Daulat Ram Dharambir Auto (P.) Ltd. [1981] 6 Taxman 11] holding that the assessee-company would be entitled to the deduction of surcharge on income-tax equal to the amount of deposit made, to which decision, the Judicial Member was a party. The Accountant Member, who is a party to this Bench, had some doubts about the correctness of that view. In view of this, the matter was referred to the President for constituting a large Bench to resolve the dispute as to the correctness of the view expressed by the Delhi Bench, whether the deposit made by a company under Section 2(8) can be taken as paying surcharge on income-tax payable by a company so that that amount could be aggregated with the income-tax payable and deducted in arriving at the chargeable profits. Hence, this Special Bench.(p. 791) The learned Judicial Member, who was a party to the order of the Tribunal in the case of Daulat Ram Dharambir Auto (P.) Ltd. (supra), had written a concurring order explaining why she is changing her views. In the case of Daulat Ram Dharambir Auto (P.) Ltd. (supra), the Delhi Bench of the Tribunal has made the following observations : 10. On behalf of the assessee, it has been urged that even if two views are possible on this issue, then the one beneficial to the taxpayer should be adopted in view of the Supreme Court decision in CIT v. Vegetable Products Ltd. (supra). We do not think such a situation exists, but considering from this angle also we are inclined to hold in the assessee's favour. The order of the learned Commissioner is upheld.(p. 569) 8. In view of what is stated above, I am of the opinion that the assessee's case clearly falls within the ratio of the decision of the Hon'ble Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros.

[1971] 82 ITR 50. In that case, the Hon'ble Supreme Court has held that action under Section 154 of the Income-tax Act, 1961 (analogous to Section 13 of the Surtax Act), cannot be taken where the issue involved could not be resolved without long drawn process of arguments/submissions. In the instant case, it could be seen that the point involved assumed such a debate that two Special Benches of the Tribunal were required to be constituted. Under these circumstances, I fully concur with the order of the Commissioner (Appeals) that the Surtax Officer could not have taken action under Section 13, with a view to enhance the chargeable profits of the assessee by Rs. 1,15,000.

I would, therefore, uphold the order of the Commissioner (Appeals).

Order under Section 255(4) of the income-tax act, 1961 - Difference of opinion has arisen amongst the members, who constituted the Bench. The following point of difference is referred to the Hon'ble President of the Tribunal under Section 255(4) of the Act : Whether, on the facts and in the circumstances of the case, the Surtax Officer could have initiated the proceedings under Section 13 of the Companies (Profits) Surtax Act, 1964 1. In the original assessment to surtax made in this case in computing the chargeable profits, the ITO deducted a sum of Rs. 1,15,000, being relief on account of the deposit of a like amount under the Companies Deposit (Surcharge on Income-tax) Scheme. Subsequently, the ITO rectified the assessment under Section 13 by increasing the chargeable profit by Rs. 1,15,000. On appeal, the Commissioner (Appeals) cancelled the ITO's order under Section 13. The dapartment came in appeal before the Tribunal against the same. The Accountant and Judicial Members, hearing the appeal, passed differing orders, as a result of which the following point was referred to me for resolution : Whether, on the facts and in the circumstances of the case, the Surtax Officer could have initiated the proceedings under Section 13 of the Companies (Profits) Surtax Act, 1964 2. The learned counsel for the department has pointed out that the provisions of the law are very clear as regards the computation of chargeable profits. According to Rule 2(0, income-tax payable under several heads are to be deducted from the chargeable profits. Rule 2(0 also provides for taking into account rebates, reliefs and deductions from the computation of income-tax. In the present case, whatever tax was paid by the assessee has been taken into account by the ITO in the surtax order. By mistake he also deducted the sum of Rs. 1,15,000. This amount was actually not income-tax which could be deducted under Rule 2(0 of the First Schedule. It is actually an amount the assessee had deposited with IDBI under the provisions of the Companies Deposit (Surcharge on Income-tax) Scheme. There could, therefore, be no question of reducing the chargeable profits by this amount which was neither surcharge nor any other item of income-tax. Referring to the Finance Minister's speech at [1976] 102 ITR (St.) 93 and the provisions of the Scheme itself obtaining at [1976] 103 ITR (St.) 56, it is pointed out that whatever deduction was there, the benefit of that has already been received by the assessee. The learned counsel has also referred to the point about asset being treated as a liability in the present case referred to in the learned Accountant Member's order.

According to the learned counsel, there was no divergence of views in the interpretation of this section. The reference to the several orders of the Tribunal, according to the learned counsel, is misconceived. In fact in Daulat Ram Dharambir Auto (P.) Ltd.'s case (supra), an order was passed on 12-8-1980 in favour of the assessee. Subsequently, in Travancore Chemical & Mfg. Co. Ltd.'s case (supra), a Special Bench of the Tribunal at Cochin, which included one of the members who decided Daulat Ram Dharambir Auto (P.) Ltd.'s case (supra), went into the question and decided the matter in favour of the department. In fact the learned member, who was common to the Delhi and the Cochin decisions, has explained in detail the reasons for the change in view in the later case. Travancore Chemical & Mfg. Co. Ltd.'s case (supra) was decided on 16-8-1982. Subsequently, there is a Special Bench decision of the Ahmedabad Bench in Apara Textile Traders Ltd.'s case (supra), which is also in favour of the department. Reference is made to the specific observations in this decision at paragraphs 9 and 10, which would justify the ITO's order in the present case. According to the learned counsel, there was no dispute about the interpretation of provisions which could render an order under Section 13 illegal.

3. After hearing the learned counsel for the assessee, who has stressed the point made in the learned Judicial Member's order and also pointed out that there was clearly a debatable question which required the constitution of no less than two Special Benches of the Tribunal, it would be, therefore, unrealistic to regard the position of law as settled, as claimed by the learned counsel for the department.

4. On a consideration of the facts, even without any reliance on orders and the course of the Tribunal's orders referred to before us, it is possible to see a divergence in the interpretation of the provisions.

Making the reading of the provisions almost simplistic, the learned counsel for the department has pointed out stressing particularly the provisions of Rule 2(i) that what is to be deducted is the income-tax and such other deductions, rebates, etc., which would operate on the income of the assessee and might consequently reduce the income-tax. In our view, the provisions do not seem to be so simple. Even though the Special Bench in Apara Textile Traders Ltd.'s case (supra) has pointed out there that surcharge is not mentioned in the provisions and a deposit with the IDBI cannot be regarded as surcharge, in my view what is relevant is not any insistence on surcharge but a clear interpretation of the provisions of Rule 2(i) of the First Schedule. If the interpretation canvassed by the department were to be accepted, there was no necessity at all to go through the elaborate provisions of Rule 2(7) starting with 'payable by the company' to the 'company may be entitled'. The Legislature could have straightaway stated 'all in-come-tax paid' or 'all income-tax charged'. This is so because, according to the department, the allowance must be given only on the income-tax charged. The Legislature cannot be expected to be verbose or raise unnecessary words or sentences without a purpose. The learned counsel for the department has also pointed out that at the time when the Surtax Act was enacted, there were such concepts like 'relief, rebate, deduction', etc. Be that as it may, the Act postulates and has also postulated over the years deduction from the income, deduction from the tax or as in the case of a registered firm, deduction of tax from the income. Other combination of reliefs also could be thought of.

Merely because the benefit of the Companies Deposit (Surcharge on Income-tax) Scheme cannot be brought within the straitjacket of 'relief, rebate or deduction', it does not mean that it is to be ignored. Such a simplistic interpretation of the section or rule cannot be straightaway accepted.

5. On the contrary the reference to the Finance Minister's speech-in my view it is not necessary to go into it at all-speaks of money rolling in the hands or positive monetary benefits to the assessee. If the assessee were asked to put a part of the tax, being surcharge or anything else, in a particular institution with conditions attached that if subsequently the relief given in tax is again brought to tax, it is simple arithmetic to show that money is not rolled in the hands of the assessee as the Finance Minister's speech was explained as indicating. What the ITO does in the present case is to take back by one hand what he has given by the other not by an expressed provision but by reference to analogy or interpretation. What I want to point out is that the provisions are not as unambiguous and clear as made out by the department. The Special Bench of the Tribunal does not seem to have, having referred to the Finance Minister's speech, considered the implications thereof. If the question were to come on merits for consideration before another Bench, 1 am not sure that the same interpretation, as advanced by the learned counsel for the department, will be accepted. Also reference to assets and liabilities position to my mind also does not seem to be of any relevance insofar as what we are concerned with is the 'benefit' the assessee was given under Rule 1 of the First Schedule. Even the reference to surtax presence (sic) or absence of that word in Rule 1 is of no consequence.

6. I, therefore, agree with the learned Judicial Member and hold that the appeal should be dismissed and the Commissioner (Appeals)'s order should be confirmed.


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