TMI Blog1981 (3) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... eing the calendar year 1972, at Rs. 1,33,57,818. In terms of s. 4 read with s. 2(8) of the Surtax Act he gave a statutory deduction of Rs. 13,35,782, being 10% of the capital base, as determined by him out of the chargeable profit of Rs. 18,72,280 and determined the net chargeable profit liable to surtax at Rs. 5,36,498 and the surtax payable by the assessee at Rs. 1,34,125, i.e., 25% of the net chargeable profit. (ii) During the accounting year, the assessee-company had received tax credits under s. 280ZB of the Income-tax Act, 1961 (hereinafter referred to as " the I.T. Act amounting to Rs. 9,35,192. The break-up of this total amount which comprised of the five tax credit certificates issued during the five assessment years were as follows: Assessment year Amount Rs. 1966-67 1,95,263 1967-68 1,96,115 1968-69 1,54,155 1969-70 1,33,704 1970-71 2,55,995 (iii) Section 10(28) of the I.T. Act, which provides that certain types of income shall not be included in computing the total income of an assessee for a previous year under the Act, reads : " 10. In computing the total income of a previous year of any person, any income falling within any of the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, he directed the modification of the assessment under the Surtax Act, taking into account the sum of Rs. 9,35,192, being the realisation from the five tax credit certificates as income for purposes of diminishing the capital base of the assessee as determined under rr. 1 to 3 of the Second Schedule to the Surtax Act in terms of r. 4 thereof. (vii) Aggrieved by that order the assessee appealed to the Tribunal. On the same reasoning as given by the Commissioner, the Tribunal confirmed his order. Thereafter, at the instance of the assessee, the question set out earlier has been referred for our opinion. Sri Sarangan, learned counsel for the assessee, contended that the view taken by the, Addl. Commissioner and the Tribunal that the amount of tax credit certificates received under the scheme of s. 280ZB of the I.T. Act was income was patently erroneous and that just because the said amount was exempted from tax under the I.T. Act by virtue of s. 10(28), which has been done according to him by way of abundant caution, was no basis to hold that it was income, and, consequently, should be taken as such for purposes of r. 4 of the Second Schedule to the Surtax Act. Alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of this rule, though a part of any specified income of profits and gains earned by a company, is not liable to be taxed under the I.T. Act having regard to any provision in that Act, for the purpose of determining the capital base of the company under the Second Schedule of the Surtax Act, such income has to be taken into account in the manner provided in r. 4 thereof, i.e., the capital sum as ascertained in accordance with rr. 1, 2 and 3 should be diminished by an amount which bears to that sum the same proportion as the amount of the aforesaid income, profits and gains (not liable to be taxed under the I.T. Act) bears to the total amount of its income, profits and gains. In this case, there is no dispute that the assessee had received in all sum of Rs. 9,35,192 during the relevant accounting year by presenting the five tax credit certificates granted under s. 280ZB of the I.T. Act. It is also not in dispute that the above amount is exempted from tax under the I.T. Act as such exemption is specifically provided for under s. 10(28) of the Act. The ITO did not take this amount, as an income not chargeable to tax under the I.T. Act, for the purpose of diminishing the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Industries (Development and Regulation) Act, 1951 (65 of 1951), is, in respect of its profits and gains attributable to such manufacture or production, (i) liable to pay any tax for the assessment year commencing on the 1st day of April, 1965, (hereinafter referred to as the base year), and for any one or more of the five assessment years next following that year; or (ii) not liable to pay any tax for the base year but becomes so liable for any succeeding year (hereinafter referred to as the succeeding base year) and also for any one or more of the assessment years following that year, not being an assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year. and the tax for any such succeeding year exceeds (a) in the case referred to in clause (i), the tax payable for the year; (b) in the case referred to in clause (ii), the tax payable for the succeeding base year, then the company shall be granted a tax credit certificate for an amount equal to twenty per cent. of such excess : Provided that the amount of the tax credit certificate shall not for any assessment year exceed ten per, cent. of such tax payable by the company for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 971, or thereafter. (d) Tax credit certificate has to be given for an amount equal to twenty per cent. of the amount by which the tax payable for such succeeding year exceeds the tax payable for the base year or succeeding base year, as the case may be, subject however to a ceiling at 10 per cent. of the tax payable by the assessee for that year. (e) On production of such certificates before the ITO, after adjusting income-tax due, if any, from the concerned assessee, the excess or the whole amount, as the case may be, has to be refunded to the assessee. (f) The proviso to sub-s. (2) incorporates a condition to the effect that adjustment or refund is to be permitted if only the amount had been used for the three purposes specified therein and within such period as specified in the scheme. The Central Govt. has framed the Tax Credit Certificates (Corporation Tax) Scheme, 1966, required for the purpose of giving effect to s. 280ZB. It is not necessary to refer to the provisions of the scheme. Suffice to say that under s. 280ZB read with the scheme referred to above, five TCCs were issued to the company for the assessment years 1966-67 to 1970-71, particulars of which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due, or commuted value of any annuity paid, under the provisions of section 280D; (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever." Being an inclusive definition the meaning of the word " income " is undoubtedly very wide. Still there can be no doubt in order that any receipt to be liable to tax under the I.T. Act, must be " income " except such of the types, though not income in the real sence of the term, are specifically included in the definition. Tax credits are not specifically mentioned in the definition. Therefore, whether tax credit fall within the expression " income " or not calls for determination in this reference. It is difficult, nay impossible, to define or specify exhaustively as to the types of receipts which would be " income " for the purpose of the I.T. Act, Whether a particular type of receipt is income or not, would, therefore, have to be decided having due regard to the nature of the receipt by applying the relevant tests. In the case of Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 p. at 242, the Privy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glish language-or whether it is merely a casual receipt or mere windfall. " Applying the above test, with which we respectfully agree, we shall now proceed to consider as to whether tax credits granted under s. 280ZB of the I.T. Act, and received by the assessee were its income. It was not, and it could not be, disputed by the learned counsel for the revenue that during the base year as well as the succeeding year, the entire taxable income of the assessee had been taxed under the I.T. Act. TCCs, during every assessment year in which it was issued, was in respect of the 20 per cent. of the amount by which the tax payable for the succeeding year exceeded the tax payable for the base year in terms of s. 280ZB of the I.T. Act. Thus, the amounts comprised in each of the five TCCs were in the nature of refund granted to the assessee, of a portion of the tax payable by it on its income assessed to tax, as an incentive for the manufacture or production of articles for the promotion of which s. 280ZB has been inserted in the I.T. Act. In the nature of things, at common parlance, one would not regard such a receipt as income. The conditions imposed in the proviso to sub-s. (2) of s. 280 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It does not become income just because it is exempted from income-tax. (ii) As observed by the Privy Council in CIT v. Shaw Wallace Co. [1932] 2 Comp Cas 276; [1932] ILR 59 Cal 1343; AIR 1932 PC 138, just because an amount was exempted from tax under s. 4(3) of the Indian I.T. Act, 1922, it was not to be treated as income when such amount could not be regarded as income under any scheme of taxation and such exemptions only indicated the over-anxiety of the draftsmen to place the matter beyond any possible controversy. (See also the Full Bench judgment of the Allahabad High Court in Rani Amrit Kunwar v. CIT [1946] 14 ITR 561. (iii) On the above reasoning, with which we respectfully agree, receipt, which is income, does not cease to be income even if exempted from income-tax, and a receipt, which is not income, does not become income just because it is included as one of the items exempted from income-tax. Therefore, in our view, the Commissioner and the Tribunal were not right in holding that the amount received by the assessee by way of refund of portion of the tax payable in terms of s. 280ZB of the I.T. Act in the form of TCCs and subject to the conditions specified in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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