TMI Blog1996 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... arises in this batch of appeals. For the sake of convenience, we may refer to the question in Civil Appeal No. 455 of 1987 directed against a Full Bench judgment of the Kerala High Court (A. V. Thomas and Co. Ltd. v. CIT [1986] 159 ITR 431). The following question was stated by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961, for the consideration of the Kerala High Court : "(1) Whether Rs. 76,777 being the surtax liability is to be allowed as a deduction in computing the total income of the assessee for the assessment year 1976-77 ? " The claim for the said deduction was disallowed by the Income-tax Officer on the basis of and with reference to sub-clause (ii) of clause (a) of section 40 which read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1964, falls within the mischief of the said sub-clause. We think it does. The preamble to the Surtax Act says that it is "an Act to impose a surtax on the profits of certain companies". Indeed, the Statement of Objects and Reasons appended, to the Bill makes the said intention clear. It says "the object of this Bill is to impose a special tax on companies (other than those which have no share capital) on their excess profits, namely, the amount by which the total income of a company as reduced by certain types of income and certain sums and the income-tax and super tax payable by it exceeds a sum of ten per cent. of the capital reserves and certain borrowed moneys or a sum of Rs. 2 lakhs, whichever is higher ...." Section 4 is the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surtax levied under the Surtax Act squarely falls within the mischief of sub-clause (ii) of clause (a) of section 40 and cannot be allowed as a deduction while computing the business income of the assessee under the provisions of the Income-tax Act. Learned counsel for the assessees sought to rely upon section 15 of the Surtax Act in support of their contention that surtax does not fall within the four corners of section 40(a)(ii). Section 15 of the Surtax Act reads as follows : "Notwithstanding anything contained in clause (i) of section 109 of the Income-tax Act, in computing the distributable income of a company for the purposes of Chapter XI-D of that Act, the surtax payable by the company for any assessment year shall be deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r construction and maintenance of roads and other works of public utility. Under section 5 of the Act (Bengal Cess Act, 1880) all immovable property, with certain exceptions, was subjected to payment of road cess and public works cess. Section 6 provided that the said cesses shall be assessed on the annual value of lands and, until provision to the contrary was made by Parliament, on the annual net profits from mines, quarries, tramways, railways and other immovable property at such rates as were to be determined in the manner prescribed. Similarly, the education cess was also levied under section 29 of the Bengal (Rural) Primary Education Act, 1930, on immovable property on which the road and public works cesses were assessed. The rate at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined in a manner other than that provided by section 10. The whole purpose of enacting sub-section (4) of section 10 appears to be to exclude from the permissible deductions under clauses (ix) and (xv) of sub-section (2) such cess, rate or tax which is levied on the profits or gains of any business, profession or vocation or is assessed at a proportion of or on the basis of such profits or gains. In other words, sub-section (4) was meant to exclude a tax or a cess or rate the assessment of which would follow the determination or assessment of profits or gains of any business, profession or vocation in accordance with the provisions of section 10 of the Act. . . . These profits arrived at according to the provisions of the two Cess Acts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtax Act from the said profits, it cannot be said that the surtax is not levied upon the profits determined or computed in accordance with the provisions of the Income-tax Act. Section 4 of the Surtax Act read with the definition of "chargeable profits" and the First Schedule make the position abundantly clear. We may mention that all the High Courts in the country except the Gauhati High Court have taken the view which we have taken herein, Only the Gauhati High Court has taken a contrary view in the decisions in Makum Tea Co. (India) Ltd. v. CIT [1989] 178 ITR 453 and Doom Dooma Tea Co. Ltd. v. CIT [1989] 180 ITR 126. The decision of the Gauhati High Court in Makum Tea Co. (India) Ltd.'s case [1989] 178 ITR 453 is under appeal before us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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