TMI Blog1989 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the surtax liability of the applicant was not admissible as a deduction in the computation of its total income for income-tax purpose ?" To answer the above question, it is necessary to know the origins of the three taxes levied in India. The three taxes are the income-tax, super-tax and surtax. As on today, the super-tax is repealed by the amendment of section 4 of Act VII of 1964 by the Finance Act XXIII of 1986. The surtax is discontinued for and after the assessment year 1988-89 under the Finance Act, 1986. The income-tax was levied at first in 1886. In that Act, no distinction was drawn of sources like profession, business or income acquired from salary or other sources. The Act of 1918 brought forth these distinctions in the statute book. In the Act of 1922, the income under various heads was elucidated and loss under one head of income was allowed to be set off against the profit of another head. This method is continued to remain in the Income -tax Act of 1961. As for super-tax, it is seen that in the United Kingdom, the House of Lords delineated super-tax as a new tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustments is specified in the First and Second Schedules of the Act. The rates of surtax are set out in the Third Schedule of the Act. Thus, surtax is levied on the chargeable profits of certain companies and it reduced the profits of the affected companies. Thus, income-tax, super-tax and surtax, all the three taxes are collected under the Income-tax Act, 1961. The income-tax and super-tax are levied and quantified in one Act but their separate identity is maintained in the statute book. The incidence of the three taxes are different. We see that in section 15 of Act VII of 1964, it is recited that notwithstanding anything contained in clause (i) of section 109 of the Income-tax Act, surtax payable be deducted. No recital is there in the Act as to whether surtax can be deducted for income-tax purposes. In the absence of such an indication by Parliament, what inference is to be drawn is one of the questions raised in this regard. The Supreme Court in State of M. P. v. Sirajuddin Khan [1964] 53 ITR 158, 164, held that speculation, in the absence of a statutory provision, is not to be substituted for certainty in interpretation. We respectfully adopt the precept and to this aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at High Court to which we will turn immediately. In no other case, the plea of diversion was argued. In the instant reference, such a question is not raised by the assessee before this court. The Karnataka High Court decided a similar issue in CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 936 and followed it in Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 (Kar). In the first Karnataka case, it was held that surtax is levied under a special statute. The scheme of taxation was held to be different from the Income-tax Act. In the former, tax is levied on chargeable profits of the previous year that exceed a statutory limit at the rates specified in the Third Schedule. Surtax, it was said, was an additional tax on profits and gains of the business. Finally, surtax was not deducted. The apex Court granted special leave against that opinion and it is pending consideration before the Supreme Court. The Andhra Pradesh High Court held that surtax is a tax on income. What is taxed does not cease to be tax on income because additional tax is imposed. Holding so, the first Calcutta decision was followed. The Gujarat High Court in S. L. M. Maneklal Industries Ltd. v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Profits (Surtax) Act, 1964, is not prohibited under section 40 (a) (ii). Thus, the only question to be considered is whether surtax paid can be deducted under section 37 of the Income-tax Act. Learned counsel for the assessee placing reliance on the definition of "tax" in clause (43) of section 2 of the Income-tax Act, 1961, argued that surtax is not a tax under the Income-tax Act and, therefore, deduction under section 37 is not prohibited. The Calcutta High Court, in the first case, grappled with the definition of tax in section 2(43) of the Income-tax Act, 1961, and held that the definition of "tax" in the context is inapplicable. The Andhra Pradesh High Court, in the case cited, held that tax is not confined to income-tax and section 40(a)(ii) covered all taxes and rates. The court did not note the definition in section 2(43). The Madras High Court juxtaposed the definition of tax with the word "any" and concluded that tax means "any" tax and that, therefore, deduction of surtax is prohibited. There is no other case in which the definition of "tax" was considered. We are not persuaded to accept that in the context of Act VII of 1964, the definition of "tax" is inap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive literature as to why income-tax is not allowed to be deducted. Finlay J., in one of the cases in the United Kingdom, Allen v. Farquharson Brothers Co. [1932] 17 TC 59 (KB), observed: "Income-tax is not a deduction before you arrive at the profits ; it is a part of the profits. It is, as has been expressed by some well-known person I cannot remember who, but it does not matter the Crown's share of the profits." The well-known person not recollected by Finlay J. is the Earl of Halsbury who, in Ashton Gas Co.v. Attorney-General [1906] AC 10, 12 (HL), held: "The income-tax is a charge upon the profits ; the thing which is taxed is the profit that is made, and you must ascertain what is the profit that is made before you deduct the tax you have no right to deduct the income-tax before you ascertain what the profit is." In a judgment of the Patna High Court in Maharajadhiraj Sir Kameshwar Singh v. CIT [1961] 42 ITR 774, 777, it was observed : "It is said in an English case that income-tax represents 'the Crown's share of the profits'. It is not an expenditure for the purpose of earning profits". That income-tax is Crown's share is not a viable plea. When the Peshwas ruled Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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