Sohani, J.
1. This order shall also govern the disposal of M.P. Nos. 204, 205 and 463, all of 1976.
2. All these petitions under art. 226 of the Constitution are directed against the notices issued to the petitioner under Section 13 of the Companies (Profits) Surtax Act, 1964, hereinafter called the Surtax Act. Though in the petitions the petitioner claimed a number of reliefs, the only relief pressed by learned counsel for the petitioner at the time of hearing was that the notices issued under Section 13 of the Surtax Act be quashed and that a writ of prohibition be issued restraining the respondents from proceeding further in pursuance of those notices.
3. Before we deal with the particular facts of each petition separately, it would be useful to refer to certain common facts and questions of law arising in all these petitions. The petitioner is a public limited company carrying on business as manufacturers of rayon grade pulp, staple fibre, rayon plant and machinery and other chemical plants, man-made fibre fabrics, textiles, etc. The petitioner is assessed in the status of a company under the I.T. Act, 1961, hereinafter called the I.T. Act. For the relevant assessment years, the petitioner was assessed to surtax under the provisions of the Surtax Act by respondent No. 1. After the orders of assessment were passed by respondent No. 1 in respect of the relevant assessment years, respondent No. 1 issued, in exercise of the powers conferred by Section 13 of the Surtax Act, the impugned notices to the petitioner, with a view to rectify mistakes apparent on the face of the record. Section 13 of the Surtax Act reads as under;
'13. Rectification of mistakes.--(1) With a view to rectifying any mistake apparent from the record, the Commissioner, the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal may, of his or its own motion or on an application by the assessee in this behalf, amend any order passed by him or it in any proceeding under this Act, within four years of the date on which such order was passed.
(2) An amendment which has the effect of enhancing the assessment or reducing a refund or otherwise increasing the liability of the assessee shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.
(3) Where an amendment is made under this section the order shall be passed in writing by the authority concerned.
(4) Subject to the other provisions of this Act where any such amendment has the effect of reducing the assessment, the Income-tax Officer shall make any refund which may be due to such assessee.
(5) Where any such amendment has the effect of enhancing the assessment or reducing the refund already made, the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable.'
4. It is not disputed before us on behalf of the department that the jurisdiction of the ITO to make an order of rectification under Section 13 of the Surtax Act depends upon the existence of a mistake apparent on the face of the record. In Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale, AIR I960 SC 137, the Supreme Court observed, while dealing with the scope of the expression 'an error apparent on the face of record' as follows :
' An error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. As the above discussion of the rival contentions show the alleged error in the present case is far from self-evident and if it can be established, it has to be established by lengthy and complicated arguments.'
5. It is true that, in the aforesaid case, the Supreme Court was spelling out the scope of the powers of a High Court under art. 226 of the Constitution. But the aforesaid observations were also held to govern the provisions of Section 154 of the I.T. Act relating to rectification, which are similar to the provisions of Section 13 of the Surtax Act. While dealing with the scope of Section 154 of the I.T. Act, the Supreme Court observed in T.S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) as follows (at p. 53):
' A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale : [1960]1SCR890 , this court while spelling out the scope of the power of a High Court under article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record. See Sidhramappa Andannappa Manvi v. Commissioner of Income-tax : [1952]21ITR333(Bom) . The power of the officers mentioned in Section 154 of the Income-tax Act, 1961, to correct ' any mistake apparent from the record ' is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an ' error apparent on the face of the record '.'
6. It can thus be taken to be a well established principle that a decision on a debatable point of law is not a mistake apparent on the face of the record. It was also not seriously disputed before us on behalf of the department that if in issuing a notice under Section 13 of the Surtax Act, the ITO had exceeded the jurisdiction conferred upon him by the provisions of Section 13 of the Surtax Act, this court can under Article 226 of the Constitution of India quash the notice, as no such relief as could be obtained by the petitioner under Article 226 of the Constitution of India is provided by or under the provisions of any other law for the time being in force.
7. The short question for consideration in each case, therefore, is whether in issuing the impugned notice under Section 13 of the Surtax Act, the ITO has exceeded the jurisdiction conferred upon him by that provision. This will necessitate examination of the mistake sought to be rectified in each case and the consideration of the question as to whether the mistake, so sought to be rectified, can be held to be a mistake apparent on the face of the record so as to confer jurisdiction on the ITO to issue the impugned notice. M.P. No. 203/1976 :
8. The material facts for the purpose of this petition briefly are as follows ; The income-tax assessments of the petitioners were duly completed for the assessment years 1968-69, 1969-70, 1970-71 and 1971-72, and in computing the total income of the petitioner, deductions specified in Section 80I and in Section 80J of the I.T. Act were allowed from the gross total income of the petitioner. As far as the assessments of the petitioner under the provisions of the Surtax Act were concerned, for the assessment years 1968-69 and 1970-71, while computing the capital of the company under the Second Schedule to the Surtax Act, no deductions were made on account of the aforesaid reliefs under Sections 80I and 80J of the I.T. Act. Similarly, for the assessment years 1969-70 and 197-1-72 also, no deduction was made from capital in respect of relief under Section 80I of the I.T. Act. The first respondent, however, issued a notice dated 5th May, 1973, to the petitioner under Section 13 of the Surtax Act with a view to rectify mistakes apparent on the face of the record. In that notice, it was, inter alia, stated as follows:
' Sub:--Surtax assessment year 1970-71.--Surtax assessment was completed on 1st February, 1973, on net chargeable profits at Rs. 98,87,015. The capital was computed at Rs. 22,40,12,672. Under Rule 4 to the Second Schedule of the Companies (Profits) Surtax Act, part of the income, profits and gains which are not includible in its total income as computed under the Income-tax Act, its capital shall be the sum ascertained in accordance with Rules 1, 2 and 3 diminished by an amount which bears to that sum the same proportion as the amount of the aforesaid income, profits and gains bears to the total amount of its income, profits and gains. This year the proportionate capital of deductions u/s. 80J should have been deducted from the computation of capital.'
9. In its reply dated 13th June, 1973, and also in the reply dated 27th July, 1973, sent on behalf of the petitioner, it was pointed out that the said notice issued under Section 13 of the Surtax Act was without jurisdiction, and respondent No. 1 was requested to withdraw that notice. In the said letters, the petitioner contended (i) that there were no mistakes at all in the said assessment orders and, therefore, the question of rectifying those mistakes did not arise, and (ii) that even assuming that there were mistakes, they were not mistakes apparent on the face of the record, as the issues involved were highly debatable ones and, as such, those mistakes could not be held to be mistakes apparent on the face of the record. It was, therefore, contended that the provisions of Section 13, which would be attracted only for the purpose of rectifying mistakes apparent on the face of the record, could not be invoked.
10. Respondent No. 1 did not, however, accept the contentions urged on behalf of the petitioner and sent another notice, which was received by the petitioner on 16th October, 1973. In that notice, it was stated, inter alia, as follows :
' The assessment refund order under Section 6(2) for the assessment years 1964-65 to 1969-70 and 1970-71 on...required to be amended as there is a mistake apparent from the record within the meaning of Sections 154-155 of the Income-tax Act, 1961.......
NATURE OF MISTAKE PROPOSED TO BE RECTIFIED.
Deduction allowed under Chapter VI-A while computing capital base is to be withdrawn. '
11. Objections were again raised on behalf of the petitioner contending that it was not permissible to rectify the alleged mistakes under Section 13 of the Surtax Act. Ultimately, the petitioner approached this court praying that the aforesaid notices be quashed.
12. The question as to what part of the income of a company can be regarded as ' not includible in its total income as computed under the Income-tax Act ', within the meaning of that expression as used in r. 4 of the Second Schedule to the Surtax Act, came up for consideration in Stumpp, Schuek & Somappa Pvt. Ltd. v. ITO : [1976]102ITR320(KAR) , Second ITO v. Stumpp, Schuele & Somappa P. Ltd. : [1977]106ITR399(KAR) , Addl. CIT v. Bimetal Bearings Ltd. : [1977]110ITR131(Mad) , CIT v. Century Spg. & Mfg. Co. Ltd. : [1978]111ITR6(Bom) and in I.T. Reference No. 501 of 1977 (Commr. of Surtax v. Ballarpur Industries Ltd.), an un-reported judgment of the Bombay High Court delivered on June 16, 1978 : [1979]116ITR528(Bom) . It has been held in all these decisions that the expression 'not includible', occurring in r. 4 means not capable of being included and that it cannot refer to an amount which forms part of the gross total income but is later on deducted for the purpose of determining tax liability under the provisions of the I.T. Act, These decisions lay down that the clause ' a part of the income, profits and gains of a company is not includible in its total income as computed under the Income-tax Act refers to those sums which are not includible in the total income by virtue of the provisions of Chapter III of the I.T. Act and do not refer to any of the statutory deductions claimed under other provisions of the I.T. Act.
13. It is not necessary for the purpose of this petition to decide as to whether the aforesaid decision lays down correct law. From a perusal of these decisions, it is quite clear that the question as to whether the expression ' a part of the income, profits and gains of a company is not includible in its total income as computed under the Income-tax Act', appearing in r. 4 of the Second Schedule to the Surtax Act, refers to statutory deductions allowed to a company under Sections 80I and 80J of the I.T. Act is, in any event, a highly debatable issue. The mistake sought to be rectified by respondent No. 1, assuming it to be a mistake, is not one which is patent or self-evident on the face of the record. It must, therefore, be held that respondent No. 1 has no jurisdiction under Section 13 of the Surtax Act to rectify the said mistakes. The notices (annexures B and B3) issued in that behalf deserve to be and are accordingly hereby quashed.
14. For all these reasons, this petition succeeds as aforesaid. Parties shall bear their own costs in the circumstances of this case. The outstanding amount of security deposit shall be refunded to the petitioner. M. P. No. 204/76 :
15. In this petition, the petitioner prays that the notices dated 4th May, 1974 (annexures 3 and 3A), issued by respondent No. 1 under Section 13 of the Surtax Act in respect of the assessment years 1969-70 and 1971-72 be quashed,
16. By the aforesaid notices, the mistake sought to be rectified is to make proportionate deduction from capital under r, 4 of the Second Schedule to the Surtax Act on account of deduction allowed to the petitioner from the gross total income under Section 80I of the I.T. Act in respect of the assessment years in question. For the reasons already given by us in M.P. No. 203 of 1976, the error sought to be rectified by the ITO in the instant case cannot be held to be an error apparent on the face of the record. The notices (annexures 3 and 3A), therefore, deserve to be and are accordingly quashed.
17. The petition accordingly succeeds as aforesaid. In the circumstances of the case, parties shall bear their own costs. The outstanding amount of security deposit shall be refunded to the petitioner. M.P. No. 205/76 :
18. In this petition, the petitioner has prayed that the notice dated 30th August, 1972, and the notices dated 12th June, 1974 (annexures R1, El and E2), issued by the ITO, A-Ward, Indore, under Section 13 of the Surtax Act, be quashed.
19. The relevant assessment years are 1967-68, 1969-70 and 1971-72. The order of assessment for the assessment year 1967-68 was passed by respondent No. 1 on 1st June, 1971. In computing the amount of surtax payable by the petitioner, respondent No. 1 proceeded on the basis that issue of bonus shares by the petitioner amounted to an increase in paid-up share capital of the company. On 30th August, 1972, respondent No. 1 issued a notice to the petitioner under Section 13 of the Surtax Act stating, inter alia, as follows :
' Notice u/s. 13 of the Surtax Act.
Assessment year 1967-68.
During this year you were allowed an increase of capital to the tune of Rs. 1,50,68,493 on issue of bonus shares on 23-8-1966. Under rule 3, this increase should have been allowed if there had been any increase in the capital. But this increase is only a transfer entry from general reserve. As such there was no increase in capital. You have been allowed excessive relief in company's capital to the strength of Rs. 1,50,68,493. This mistake being apparent from record, please let me know whether you have any objection to the proposed rectification. '
20. Similarly, notices in respect of assessment for the assessment years 1969-70 and 1971-72 were also sent to the petitioner.
21. In cases arising out of assessments under the provisions of the Super Profits Tax Act, 1963, it has been held in CIT v. Mohan Meakin Breweries Ltd. and in CIT v. Geoffrey Manners and Co. Ltd. : [1978]112ITR334(Bom) that the issue of bonus shares necessarily leads to addition in the paid up share capital. In CIT v. Century Spg. & Mfg. Co. Ltd. [1978] 1001 ITR 6 it was, however, held that there was material difference between the provisions of Rule 2 of the Second Schedule to the Super Profits Tax Act, 1963, and the provisions of Rule 3 of the Second Schedule to the Surtax Act, and the decision in CIT v. Mohan Meakin Breweries Ltd. was, therefore, held to be inapplicable in assessment proceedings arising out of assessment under the Surtax Act. On behalf of the petitioner, it was contended that there was no material difference between the two provisions as pointed out in CIT v. Century Spg. & Mfg. Co. Ltd. [1978] 1001 ITR 6 and the decision in CIT v. Mohan Meakin Breweries Ltd. would also govern assessment under the Surtax Act. It is not necesssary for us, for the purpose of the present petition, to decide the correctness of the contention raised on behalf of the petitioner, because if the issue raised by the petitioner is a debatable one, and it is so in our opinion, then there is no mistake apparent on the face of the record, as urged on behalf of the department. Respondent No. 1, therefore, had no jurisdiction under Section 13 of the Surtax Act to rectify the mistakes sought to be rectified as referred to in the impugned notices. These notices, therefore, deserve to be and are hereby quashed.
22. For all these reasons, this petition succeeds as aforesaid. In the circumstances of the case, parties shall bear their own costs of this petition. The outstanding amount of security deposit shall be refunded to the petitioner. M.P. No. 463/76
23. In this petition, the petitioner prays that the notice dated 27th December, 1975 (annexure B to the petition), sent by respondent No. 1 to the petitioner under Section 13 of the Surtax Act, be quashed.
24. The facts relevant for the purposes of this petition are that by a resolution dated 4th August, 1967, passed by the board of directors of the petitioner-company, a sum of Rs. 15 lakhs was set aside as capital redemption reserve and a sum of Rs. 2,19,43,148 was set aside as general reserve. These sums were treated as 'reserves' in the original order of assessment passed by respondent No. 1 in respect of the assessment year 1968-69. Subsequently, respondent No. 1 issued the impugned notice to the petitioner under Section 13 of the Surtax Act with a view to rectify mistakes apparent on the face of the record. The nature of the mistake proposed to be rectified by respondent No. 1 was stated by him in the annexure to the said notice as follows :
' The reserve created to meet redemption of preference share capital being for the specific and ascertained object, it should not have been taken into account in computing the capital employed of the company already, vide r. 1 to the Second Schedule of the Surtax Act, 1964. Preference share capital is firstly included in the paid up share capital and thus the company was already given its advantage, reserve created to meet the redemption liabilities of preference share capital, being for the specific object, its reconsideration in the capital computation would result in double benefit.
I, therefore, propose to modify capital computation by withdrawing the double benefit already allowed.
The reserves which are not designed to meet any liability, contingency, commitment or dimunition in value of assets known to exist as at the date of balance-sheet cannot be considered as reserve. The reserve may be a general reserve or special reserve but there must be a clear indication whether reserve was either a general reserve or a special reserve. This view has been pronounced by the Supreme Court of India in the case of CIT v. Century Spinning & Mfg. Co. : [1953]24ITR499(Bom) . The contingency reserve appearing in your balance-sheet gives no such indication, the indication in particular of the manner of its disposal and its destination. In view of the legal position explained by the Supreme Court in 1953 and there being no indication in any direction, amount of reserve for contingency should also not have been considered in the computation of the capital employed.'
25. It was contended on behalf of the petitioner that the aforesaid reserves were ' reserves ' for the purpose of computing capital in accordance with r. 1 of the Second Schedule to the Surtax Act. It was urged that only such amounts, as were specified in the Explanation to the aforesaid r. 1, could not be regarded as reserves. On behalf of the department it was contended by Shri. Mathur that the amount of Rs. 15 lakhs set aside as capital redemption reserve was not really in the nature of reserve but was a provision made by the petitioner and, as such, it could not be treated as reserves. Reliance was placed on CIT v. Century Spg. & Mfg. Co. Ltd. : [1953]24ITR499(Bom) . The question as to whether the amounts in question constituted ' reserves ' within the meaning of r. 1 of the Second Schedule to the Surtax Act is a vexed question, in the circumstances of the case, and the decision on that issue will necessitate examination of various questions of fact and law. It is, therefore, quite clear that the error sought to be corrected by respondent No. 1 under Section 13 of the Surtax Act cannot be held to be an error apparent on the face of the record. In issuing the impugned notice under Section 13 of the Surtax Act, the ITO must be held to have exceeded the jurisdiction conferred upon him by that provision and the impugned notice, therefore, deserves to be and is accordingly quashed.
26. The petition, therefore, succeeds as aforesaid. In the circumstances of the case, parties shall bear their own costs of this petition. The outstanding amount of security deposit shall be refunded to the petitioner.