1991 (4) TMI 61 - HC - Income Tax

Summary

Issues:
Whether deposits made with the Industrial Development Bank of India in lieu of surcharge on income-tax are deductible for computing chargeable profits under the Surtax Act.

Analysis:
The judgment pertains to a reference under the Income-tax Act, 1961, regarding the deductibility of deposits made with the IDBI instead of paying surcharge on income-tax for computing chargeable profits. The assessee, for the assessment year 1977-78, opted to deposit the equivalent surcharge amount with IDBI as per the Finance Act, 1976 scheme, in place of paying the surcharge directly. The dispute arose when the Commissioner of Income-tax and the Appellate Tribunal disallowed the deduction claimed by the assessee, following a decision of the Tribunal's Ahmedabad Bench. The key contention was whether the deposit with IDBI could be considered equivalent to payment of surcharge. The scheme allowed companies to opt for depositing the surcharge amount with IDBI instead of direct payment. The assessee argued that the deposit should be treated as payment of surcharge, while the Revenue contended that the deposit did not equate to tax payment as it was refundable with interest after five years.

The interpretation of the term "in lieu of" was crucial in determining the nature of the deposit. The court analyzed the provisions of the Finance Act, 1976, and the Surtax Act to understand the legal implications of the deposit scheme. The court highlighted that the term "in lieu of" signifies "in place of" or "instead," indicating that the deposit with IDBI could replace the direct payment of surcharge. The court delved into the computation of chargeable profits under the Surtax Act, emphasizing the significance of the term "payable" in rule 2 of the Act. It was argued that the deposit with IDBI effectively removed the liability to pay the surcharge, making it non-payable and thus not deductible under rule 2 of the Schedule. The court concluded that the deposit with IDBI did not amount to payment of income-tax and, therefore, was not deductible for computing chargeable profits under the Surtax Act.

In conclusion, the court answered the reference in the affirmative, ruling against the assessee. The judgment emphasized the legal distinction between tax payment and the deposit scheme, highlighting that the deposit with IDBI, being refundable and carrying interest, did not qualify as payment of income-tax for the purpose of computing chargeable profits under the Surtax Act.