The relief granted under sections 80-I and 80J of the Income Tax Act cannot be treated as income not includible in the total income, and therefore, no deduction in this regard can be made in the capital as computed under rules 1 to 3 of the Second Schedule to the Surtax Act.

Srinivasa Iyengar, J.—These appeals are against the common judgment in W. Ps. Nos. 3447, 3448 and 3578 of 1973 and 1121, 2551 and 2552 of 1974, dated 13th September, 1974, by which the notices issued under sections 8/16 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the Act") by the appellants, were quashed. The facts and circumstances in which the notices had been issued being the same in all the cases, it is sufficient to state the facts relating to W. P. No. 3578 of 1973.

2. M/s. Stumpp. Schuele & Somappa Private Ltd. is a company registered under the Companies Act, 1956, and an assessee under the Act. For the assessment year 1971-72 (previous year ending December 31, 1970), assessment was made under the Income Tax Act, 1961, after the enquiry of 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.

3. 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 Income Tax Act, the Income Tax Officer while completing the assessment has allowed the following deductions, in all amounting to 3,45,282 :

Rs.

80-I Deduction in respect of profits of priority industries

2,14,249

80-J Deduction in respect of newly established undertakings

1,31,033

Total

3,45,282

Therefore, under rule 4 of the Second Schedule to the Surtax Act, the Income Tax Officer should have proportionately reduced the capital base which had not been done while completing the assessment. This has resulted in a larger statutory deduction from chargeable profits than admissible under the law.

3. It is, therefore, proposed to pass such order under section 16(1) of the Surtax Act, 1964, as the circumstances of the case warrant, to enable the Income Tax Officer to diminish the capital proportionate to the deduction under Chapter VI-A of the Income Tax Act, 1961, allowed in the Income Tax assessment under rule 4 of the Second Schedule to the Surtax Act and work out your surtax liability for the assessment year 1971-72." Therefore, the Commissioner was the opinion that the assessment under the Act was erroneous in so far as it was prejudicial to the interest of the revenue and proposed to take action accordingly to enable the Income Tax Officer to diminish the capital proportionate to the deduction under Chapter VI-A of the Income Tax Act, 1961, and to work out the surtax liability for the assessment year 1971-72. The assessee was called upon to file his objections, if any on or before December 3, 1973, and the hearing was also fixed for that date.

4. Contending that the proposed action was without jurisdiction and not warranted by the provisions of rule 4 of the Second Schedule to the Act, the writ petition (W. P. No. 3578 of 1973) was filed. The learned judge, upholding the contention of the assessee, quashed the notice.

5. In these appeals it is urged that the assessee had an alternative remedy by way of an appeal, against the order that may be made by the Commissioner, to the Tribunal and had also a remedy by way