1995 (4) TMI 13 - HC - Income Tax

Summary

Issues:
1. Whether the surcharge payable but not paid should be deducted while arriving at the chargeable profits for the levy of surtax.
2. Interpretation of rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964 regarding deduction of surcharge.
3. Comparison with judicial decisions regarding deposits made with the Industrial Development Bank of India in lieu of surcharge on income-tax.
4. Determination of whether the deposits made with the Industrial Development Bank of India are deductible for computing the chargeable profits under the Surtax Act.

Detailed Analysis:
1. The primary issue in this case revolves around whether the surcharge payable but not paid should be deducted while calculating the chargeable profits for surtax. The Tribunal held that the surcharge payable by the company, though not actually paid due to a deposit made with the Industrial Development Bank of India, should be deducted under rule 2(1) of the First Schedule to the Act. The Department argued that unless the surcharge is paid, the deduction should not be allowed. The key contention was whether the deposit made with the bank in lieu of surcharge can be considered as payment for the purpose of deduction.

2. Rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964 allows for the deduction of income-tax payable by the company. The scheme under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976 permits companies to deposit amounts with the Industrial Development Bank of India instead of paying surcharge on income-tax. The interpretation of whether such deposits can be considered as payment for the purpose of deduction under the Act was crucial in this case.

3. Judicial decisions were cited to support both sides of the argument. The Karnataka High Court in Widia (India) Ltd. v. CIT held that deposits with the Industrial Development Bank of India do not amount to payment of income-tax and, therefore, are not deductible for computing chargeable profits. Similarly, the Gujarat High Court in Ambica Mills Ltd. v. Commr. of Surtax ruled that such deposits are not equivalent to tax paid and, hence, are not deductible for computing chargeable profits. These decisions provided a legal backdrop for the interpretation of the relevant provisions in this case.

4. After considering the arguments and the precedents, the High Court held that the deposit made with the Industrial Development Bank of India in lieu of surcharge on income-tax is not deductible for computing chargeable profits under the Surtax Act. The court disagreed with the Tribunal's decision and ruled in favor of the Department. The judgment emphasized that the deposit does not equate to tax payment and, therefore, should not be considered for deduction purposes.