1975 (7) TMI 34 - HC - Income Tax

Capital Of Company Chargeable Profits Deduction In Respect Income Tax Act Total Income Writ Petition

Summary

Issues Involved:

1. Jurisdiction of the Commissioner under Section 16(1) of the Companies (Profits) Surtax Act, 1964.
2. Interpretation of Rule 4 of the Second Schedule to the Surtax Act.
3. Availability of alternative remedies and the applicability of Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 16(1) of the Companies (Profits) Surtax Act, 1964:

The appeals challenged the notices issued under Sections 8/16 of the Companies (Profits) Surtax Act, 1964. The Commissioner issued a notice under Section 16(1) on the grounds that 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. The court observed that if the interpretation sought to be placed on Rule 4 of the Second Schedule is not warranted by law, then the authority had no jurisdiction to take action under Section 16(1). The court held that an authority functioning under a statute must act in accordance with its provisions, and exceeding jurisdiction can be questioned by a writ under Article 226 of the Constitution.

2. Interpretation of Rule 4 of the Second Schedule to the Surtax Act:

The core issue was whether the relief allowed under Sections 80-I and 80-J of the Income-tax Act should be treated as income, profits, or gains not includible in the total income, thus requiring a proportionate reduction in the capital base under Rule 4. The court analyzed the definitions of "chargeable profits" and "statutory deduction" under the Act. It concluded that the deductions allowed under Sections 80-I and 80-J cannot be considered as amounts not includible in the total income. The term "income, profits, and gains not includible in the total income" refers to specific exclusions like agricultural income or income of a non-resident company, not to deductions or reliefs under Sections 80-I and 80-J. The court emphasized that the basic factor for computing surtax is the total income as computed under the Income-tax Act, and adjustments are specified in Schedule I, which do not include these reliefs.

3. Availability of Alternative Remedies and Applicability of Article 226 of the Constitution:

The appellants argued that the assessee had alternative remedies, such as an appeal to the Tribunal or a reference to the High Court, and thus, the writ petition under Article 226 should not have been entertained. The court held that the existence of an alternative remedy is not an absolute bar to invoking Article 226, especially when the issue involves jurisdictional questions. The court cited the Supreme Court's observation in Champalal Binani v. Commissioner of Income-tax, stating that a writ of certiorari may lie where the order is erroneous on its face or involves questions of jurisdiction or fundamental rights. Given that the issue was one of jurisdiction based on statutory interpretation, the court found it appropriate to exercise its powers under Article 226.

Conclusion:

The court concluded that the notices issued under Sections 8/16 of the Surtax Act were without jurisdiction. The interpretation of Rule 4 of the Second Schedule did not support the Commissioner's action of diminishing the capital base in respect of reliefs under Sections 80-I and 80-J of the Income-tax Act. Consequently, the appeals were dismissed, and the notices were quashed. The court awarded costs to the assessee, with an advocate's fee of Rs. 250.