Law: Income Tax Act, 1961

Section: 154

Income-tax---Rectification of mistakes---Business expenditure ---I.T.O, not allowing deduction of surtax in original assessment-Tribunal directing such deduction in rectification proceedings---Tribunal's order was erroneous--­ Order of rectification was not valid---Indian Income Tax Act, 1961, Ss. 37 & 154. For the assessment years 1967-68 to 1973-74, original assessments on the assessee-company were completed in the usual course. After the completion of the assessments, the assessee filed applications under section 154 of the Income Tax Act, 1961, claiming deduction of surtax paid by the assessee on the ground that it should have been allowed against the business income of the assessee for all the years under consideration and relied upon the decision of a Bench of the Tribunal in support of the plea that it was an allowable deduction. The Income-tax Officer, however, rejected the applications filed under section 154. The Tribunal came to the conclusion that the matter could be said to be debatable or in regard to which two views could possibly be taken only if, in fact, a different view on this issue was taken either by any other Bench of the Tribunal or a High Court or the Supreme Court. It noticed that no contrary decision was brought to its notice and, therefore, in the absence thereof, the assessee could base its claim for rectification on an order of the Tribunal and the mistake could be rectified under section 154. On a reference: Held, that the decision of the Tribunal allowing the rectification application was contrary to the ratio of the decision of the Supreme-Court in Volkart Brothers' case (1971) 82 ITR 50. The fact that the question was highly debatable stood further reaffirmed in view of the decision of the Supreme Court in Smith Kline and French (India) Ltd. v. CIT (1996) 219 ITR 581 holding that surtax levied under the Companies (Profits) Surtax Act, 1964, clearly fell within the mischief of sub-clause (ii) of clause (a) of section 40 of the Income Tax Act, 1961, and could not be allowed as a deduction while computing the business income of the assessee under the provisions of the Income-tax Act. A similar view had earlier been taken by…

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