1994 (2) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of interest charged under section 217(1A) and section 139(8) of the Income-tax Act, 1961, in computing net chargeable profits under the Companies (Profits) Surtax Act, 1964.

Issue-wise Detailed Analysis:

1. Deduction of Interest under Section 217(1A) and Section 139(8) of the Income-tax Act, 1961
The primary issue was whether the interest charged under section 217(1A) and section 139(8) of the Income-tax Act, 1961, should be considered as part of "income-tax" for the purpose of computing net chargeable profits under the Companies (Profits) Surtax Act, 1964.

The assessee contended that the interest payable under these sections should be included in the amount of income-tax for the purpose of deduction as provided under rule 2 of the First Schedule to the Surtax Act. The argument was that the interest payable is either part of the tax or in the nature of compensation for delay in payment of the tax.

The court referred to rule 2 of the First Schedule to the Surtax Act, which specifies the reduction of the amount of income-tax payable by the company in respect of its total income. The court found the language of rule 2 to be clear and unambiguous, stating that the phrase "the amount of income-tax payable by the company in respect of its total income" does not include interest payable under section 217(1A) or section 139(8).

The court also examined the scheme of the Surtax Act and the rules for computing chargeable profits. It noted that section 4 of the Surtax Act imposes surtax on the chargeable profits of a company, which are defined as the total income computed under the Income-tax Act, adjusted as per the First Schedule. Rule 1 provides for exclusions, rule 2 for reductions, and rule 3 for increases in the total income. The court emphasized that these rules are exhaustive and specifically provide for the amounts to be excluded or included.

The court further analyzed the definitions of "tax" and "interest" under the Income-tax Act. Section 2(43) of the Income-tax Act defines "tax" to mean income-tax chargeable under the provisions of the Act, while section 2(28A) defines "interest" as interest payable in any manner in respect of any moneys borrowed or debt incurred. The court concluded that the concepts of income-tax and interest are distinct and separate, and the amount of income-tax does not include interest payable for delayed payment of tax.

The court also addressed the assessee's reliance on sub-section (8) of section 139, which provides for the payment of interest on delayed filing of returns. The court clarified that this provision indicates a clear distinction between tax and interest, as interest can be waived under certain circumstances, unlike tax.

The court examined various judicial precedents cited by the assessee, including the Supreme Court's decisions in C. A. Abraham v. ITO and Mahalakshmi Sugar Mills Co. v. CIT. The court found these cases to be distinguishable and not directly applicable to the issue at hand.

In conclusion, the court held that the Tribunal was justified in rejecting the assessee's claim for the deduction of interest charged under section 217(1A) and section 139(8) as part of the income-tax in computing net chargeable profits. The question was answered in the affirmative, in favor of the Revenue and against the assessee. The reference was disposed of with no order as to costs.