TMI Blog1975 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... after due enquiry, on December 31, 1971, on a total income of Rs. 26,16,490. Based on this assessment, surtax was computed on December 13, 1971. The Income-tax Officer modified the income-tax assessment by an order dated September 12, 1972, the total income being computed at Rs. 26,07,560. Consequent on this, the surtax assessment was also modified on September 25, 1972, which resulted in a small refund of Rs. 892 in the surtax that had been paid in the meanwhile. Subsequently, the Commissioner issued a notice dated November 19, 1973, under section 16(1) of the Act. Apparently, as this notice contained some mistakes, he issued a fresh notice in cancellation of the former dated November 27, 1973, which was served on the assessee on November 29, 1973. This notice, marked as exhibit " F " in the writ petition, was impugned in the writ petition. The relevant portion in the said notice, viz., paras. 2 and 3, are as follows : " 2. While completing the surtax assessment, the capital base has been computed at Rs. 76,71,176 and statutory deduction at 10% thereof amounting to Rs. 7,67,118 has been given. It is seen from the income-tax assessment order that under Chapter VI-A of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1.---That the assessee was entitled to relief under sections 80-I and 80J of the Income-tax Act and the quantum of relief allowed is not in dispute. The assessment under the Income-tax Act has become final and, therefore, the total income computed thereunder is not in dispute. The action proposed under section 16(1) of the Act was only on the ground that under rule 4 of Schedule II of the Act, there should have been a proportionate deduction in the computation of the capital base in respect of the relief allowed under sections 80-I and 80-J of the Income-tax Act. Therefore, jurisdiction was invoked only on the interpretation sought to be placed on the said rule. If the interpretation sought to be placed on that rule is not warranted by law, then the authority had no jurisdiction to take action as proposed under section 16(1) of the Act and such action would be without and in excess of jurisdiction. The authority functioning under a statute has to act in accordance with the provisions of the statute and if he exceeds the jurisdiction thereunder his action can be questioned by way of a writ under article 226 of the Constitution and the High Court is entitled to interfere in exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Second Schedule, or an amount of two hundred thousand rupees, whichever is greater. " (Provisos omitted as unnecessary) The basic factor in the computation of the surtax is the income as computed under the Income-tax Act for the previous year. The first step is to make adjustments in the income as computed under the Income-tax Act, in accordance with the provisions of the First Schedule to the Act which mentions specific items which are to be excluded by way of adjustment. The relief granted under sections 80-I and 80J of the Income-tax Act are not among those specified items. The next step is the computation of the capital of the company in accordance with the Second Schedule and thereafter determine the statutory deduction which would be an amount equal to ten percent. of the capital as computed or an amount of two hundred thousand rupees, whichever is greater. The Second Schedule consists of four rules. There is no dispute about the computation of the capital so far as the provisions of rules 1 to 3 are concerned in the instant cases. Rule 4 is as follows : " Where a part of the income, profits and gains of a company is not includible in its total income as computed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be income for that purpose, are not treated as income. Section 2(9) of the Act provides that the words and expressions used in the Act but not defined in it and defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act (Income-tax Act). Therefore, when rule 4 of the Second Schedule refers to part of the income, profits and gains of a company not includible in its total income as computed under the Income-tax Act, the expression 'not includible' should be understood and interpreted in the light of the provisions in the Income-tax Act. Relief granted under sections 80-I and 80J cannot be said to be income, profits or gains not includible in the total income. As noticed earlier the basic material for the computation of surtax is the total income as computed under the Income-tax Act. Adjustments in that total income have to be made as specified in Schedule I. There is no specific provision for making any adjustment in respect of relief under sections 80-I and 80J in Schedule I. The expression " part of income, profits and gains not includible in the total income " in rule 4 of the Second Schedule cannot be construed or understood as referring to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the sections in the Income- tax Act brought about by the introduction of Chapter VI-A does not in any way support the interpretation sought to be put by the department on rule 4 of the Second Schedule. The learned standing counsel submitted that the expression " gross total income " had been defined under section 80B of the Income-tax Act which occurs in Chapter VI-A and rule 4 of the Second Schedule of the Act should be construed in that light. It is difficult to discern any connection between the definition of " gross total income " in section 80B and rule 4 of the Second Schedule to the Act. That definition is only for purposes of Chapter VI-A of the Income-tax Act and has no bearing at all on the interpretation to be placed on rule 4 of the Second Schedule. The learned counsel for the assessee invited our attention to the form prescribed in the Surtax Rules, 1964, in respect of the return of chargeable profits to be filed under section 5 of the Act. Part III of the form bears the heading, " Computation of statutory deduction ". Item No. 13(a) refers to " amount of income, profits and gains, if any, not includible in the total income as computed under the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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