INDIAN EXPLOSIVES LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) At the instance of the assessee, the following two questions of law have been referred to this court by the Tribunal for the assessment year 1967-68 under Section 18 of the Companies (Profits) Surtax Act, 1964, read with Section 256(1) of the Income-tax Act, 1961 :

(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the inclusion of the aforementioned sum of Rs. 11,43,333 in the capital base in the original assessment for the assessment year 1967-68 was a mistake apparent from the record and that the Income-tax Officer had jurisdiction to rectify that mistake under Section 13 of the Companies (Profits) Surtax Act, 1964, so as to exclude that sum from the capital base?"

(3.) The reference arising out of the order of the Tribunal in the case of M/s. Alkali and Chemical Corporation of India Ltd. came up for consideration before this court. The decision of this court is in Alkali and Chemical Corporation of India Ltd. v. CIT [1980] 122 ITR 490. In that case, in the original surtax assessment of the assessee-company for the assessment year 1967-68, the ITO had included in the assessee's capital a sum of Rs. 41,44,658 under Rule 3 of Schedule II to the Surtax Act as being addition to the company's share capital during the relevant previous year by the issue of bonus shares from out of the assessee's general reserve and a part of its dividend equalisation reserve, losing sight of the fact that there would be a corresponding reduction in the reserves. The ITO subsequently passed an order of rectification under Section 13 excluding the said sum of Rs. 41,44,658 from the capital base. This court was of the view that (at p. 490): "what had been done originally was to accept the increase in the paid up share capital by taking into account bonus shares issued by capitalising the reserves and losing sight of the fact that by reason of the issue of the said shares the capital had been altered inasmuch as the reserves were reduced by being diverted to the same extent for the issue of bonus shares. This mistake was in the nature of an arithmetical mistake." It was observed (p. 498) :