1975 (7) TMI 4 - SC - Income Tax

Additional surcharge though levied by the Finance Act 1963 independently of the Income-tax Act is but a mode of levying tax on a portion of the assessee s income computed in accordance with the definition in section 2(8) of the Act of 1963 - Therefore the notice of demand u/s 156 of the Income-tax Act can lawfully call for the payment of amount due from an assessee by way of additional surcharge

Issues Involved:

1. Validity of additional surcharge levied on residual income.
2. Interpretation of relevant provisions of the Finance Act, 1963.
3. Legislative competence of Parliament to impose a new charge through the Finance Act.
4. Relationship between sections 81(i)(a) and 99(1)(v) of the Income-tax Act, 1961, and the Finance Act, 1963.
5. Scope and nature of surcharges under the Finance Act, 1963.

Issue-wise Detailed Analysis:

1. Validity of Additional Surcharge Levied on Residual Income:

The appellant contested the imposition of an additional surcharge on its residual income, arguing that its taxable income was only Rs. 51,763, yet a tax of Rs. 76,674.07 was imposed. The appellant claimed that the relevant provisions of the Finance Act were invalid as they subjected exempt income to additional surcharge, which was intended as an additional levy on income-tax and had no independent existence apart from it. The court, however, upheld the High Court's decision, affirming that the additional surcharge was validly imposed on the residual income as defined under the Finance Act, 1963.

2. Interpretation of Relevant Provisions of the Finance Act, 1963:

The court analyzed sections 2(1)(a), 2(8), and 3 of the Finance Act, 1963, along with Paragraph A(ii) of Part I of the First Schedule, and clause (c) of the portion called "Surcharges on income-tax." It was determined that the additional surcharge is a distinct charge, not dependent on the assessee's liability to pay income-tax or super-tax. The additional surcharge is calculated on the residual income, which is the total income reduced by capital gains and the amount of tax that would have been chargeable if no part of the income had been exempt from tax.

3. Legislative Competence of Parliament to Impose a New Charge through the Finance Act:

The court affirmed Parliament's competence to introduce a new charge through a Finance Act, as per Article 246(1) of the Constitution, which grants Parliament exclusive power to make laws on matters in List I of the Seventh Schedule, including "taxes on income other than agricultural income." The court noted that the legislative competence of Parliament is not limited by the form or manner in which the power is exercised, allowing for the introduction of new charges either in the Income-tax Act or the Finance Act.

4. Relationship between Sections 81(i)(a) and 99(1)(v) of the Income-tax Act, 1961, and the Finance Act, 1963:

Sections 81(i)(a) and 99(1)(v) of the Income-tax Act, 1961, provide exemptions from income-tax and super-tax for co-operative societies engaged in banking. However, the Finance Act, 1963, introduces a new charge, the additional surcharge, which is calculated on the residual income. The court clarified that the additional surcharge is not levied on the exempt business income but on the residual income, which includes non-business income and is computed after certain reductions.

5. Scope and Nature of Surcharges under the Finance Act, 1963:

The court discussed the nature of surcharges, referring to the case of Commissioner of Income-tax v. K. Srinivasan, which established that "income-tax" includes surcharges. The court concluded that the additional surcharge under the Finance Act, 1963, is a distinct charge levied for the purposes of the Union, as per Article 271 of the Constitution, and is calculated on the residual income. The court rejected the appellant's argument that the levy of additional surcharge is dependent on the liability to pay income-tax, emphasizing that the additional surcharge is an independent charge.

Conclusion:

The court upheld the High Court's judgment, confirming the validity of the additional surcharge levied on the appellant's residual income. The court concluded that the Finance Act, 1963, validly introduced a new charge, the additional surcharge, which is distinct from income-tax and is calculated on the residual income, thereby affirming Parliament's legislative competence to impose such a charge.

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