TMI Blog1988 (3) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom)/1972-73). The Appellate Assistant Commissioner, however, held that surtax was leviable on chargeable profits after determining the total income and the tax thereon. He, therefore, held that the assessee's claim of deduction of surtax was not admissible. Being aggrieved by the decision of the Appellate Assistant Commissioner, the assessee went in appeal before the Tribunal. The Tribunal, however, following the decision of its Special Bench in Amar Dye Chemicals Ltd. v. Income-tax Officer, Company Circle-II(3), Bombay (ITA No. 3643 (Bom) of 1974-75 decided on December 1, 1977), confirmed the view taken by the Appellate Assistant Commissioner. It is in the background of the above facts that the question set out above has been referred to us for our opinion. Two contentions are raised on behalf of the assessee, namely, (i) that surtax is an expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee and, therefore, its deduction is admissible under section 37 of the Income-tax Act, and (2) that surtax is not a tax levied on the profits or gains of business within the meaning of section 40(a)(ii) of the Income-tax Act and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable profits of the company during the previous year in the prescribed form and verified in the prescribed manner before the 30th day of September of the assessment year. " Assessment year " means the period of 12 months commencing on the 1st day of April, every year. The assessing authority has been conferred with power to extend the date for furnishing the return, provided the assessee-company makes an application in that behalf. The assessing authority after considering the accounts or evidence produced by the assessee and also such other evidence or material as he may gather, shall, by an order in writing, assess the chargeable profits and determine the amount of surtax payable on the basis of such assessment. The chargeable profit is computed in accordance with the provisions contained in the First Schedule appended to the Act. The Act also contains the usual provisions for appeal, revision, rectification, levy of penalty, etc. It would thus be seen that the basis for levy of surtax is chargeable profits computed in accordance with the First Schedule to the Act. Chargeable profits for the purpose of surtax have to be determined primarily with reference to the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee. It, therefore, cannot be argued that part of the income of the assessee to the extent of the liability to pay surtax, was received for and on behalf of the Revenue. Unless and until profits are earned, the liability to pay income-tax or surtax does not arise. It is only because the profits or income has reached the assessee that the tax is being imposed. The Income-tax Act imposes a charge on the total income of an assessee while the Act levies additional tax on the total income of the assessee, after making adjustments as laid down in the Act. It is the income or profit which attracts the levy of tax. If there is no profit or income, the question of imposition of income-tax or surtax would not arise. In other words, charge of surtax presupposes existence of income and it is not diversion of the portion of the income to the Revenue at source. A contention similar to the one raised in the instant case came up for consideration in the case of Ashton Gas Company v. Attorney-General [1906] AC 10 (HL). That was a case in which it was statutorily provided that the profits of Ashton Gas Co. to be divided amongst the shareholders in any year should not exceed the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Income-tax Act, 1922, came up for consideration before the Supreme Court in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140. In that case, the assessee-company was required to pay estate duty payable on the death of certain shareholders. The estate duty paid by it was debited to revenue in its accounts in ascertaining the profits and gains of its business for the year in question. The question which arose for consideration before the Supreme Court was whether the estate duty paid by the assessee-company was an expenditure incurred wholly and exclusively for the purpose of its business. In other words, the question which the Supreme Court was called upon to consider was whether the said expenditure was revenue expenditure deductible in computing the assessee's business income. After considering various decisions, the Supreme Court held as follows (p. 150): " The aforesaid discussion leads to the following result : The expression for the purpose of the business is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide: it may take in not only the day to day running of a business but also the rationalisation of its administration and modern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of payment of surtax would arise. It is an event which takes place after the income is earned and not in the course of or in the process of earning income. It is out of the profits or income earned that surtax is to be paid. In other words, payment of surtax is application of the profits after they are earned. As discussed above, surtax is levied on excess chargeable profits computed in the manner laid down in the Act. It is a levy on the total income computed under the Income-tax Act after it is adjusted in accordance with the First Schedule to the Surtax Act. Computation of income for the purpose of the Income-tax Act has to precede the assessment of surtax under the Act. Unless and until computation of total income under the Income-tax Act is made, the question of chargeable profits and levy of surtax under the Surtax Act does not arise. Admittedly, income-tax is not an admissible deduction for the purpose of computing the profits and gains or the total income under the Income-tax Act. In our opinion, surtax stands on the same footing as income-tax inasmuch as it is also a tax on the total income computed under the Income-tax Act after its adjustment under the Act. Payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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