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Issues Involved:
The judgment addresses the issue of whether the liability to pay surtax under the Companies (Profits) Surtax Act, 1964, amounts to a sum paid on account of tax levied on the profits and gains of the business of the assessee and whether it is allowable as a deduction under section 37 of the Income-tax Act, 1961, despite the prohibition contained in section 40(a)(ii) of the Act. Judgment Details: Liability to Pay Surtax and Deduction under Section 37: The court was tasked with determining if there is a bar under section 40(a)(ii) of the Income-tax Act, 1961, in allowing deduction of the surtax paid under the Companies (Profits) Surtax Act, 1964. The court focused on the prohibition contained in section 40(a)(ii) which disallows deduction of any sum paid on account of any rate or tax levied on the profits or gains of any business or profession. The court clarified that the surtax in question is not chargeable under the provisions of the Income-tax Act, 1961, but under a separate enactment, the Companies (Profits) Surtax Act, 1964. It was held that the surtax is not a tax levied on the profits and gains of any business or profession, as it is leviable on the total income of an assessee computed under the Income-tax Act, 1961. Interpretation of Section 40(a)(ii) and Precedent Analysis: The court analyzed the definition of "tax" under section 2(43) of the Act and concluded that the surtax in question does not fall under the purview of tax chargeable under the Income-tax Act, 1961. Furthermore, the court examined the scope of section 40(a)(ii) which prohibits deduction of tax levied on the profits and gains of any business or profession. By referencing relevant sections and definitions, it was established that the surtax, being chargeable on the total income of an assessee, does not solely pertain to profits and gains of any business or profession. Drawing from the precedent set in Jaipuria Samla Amalgamated Collieries Ltd. v. CIT [1971] 82 ITR 580 (SC), where a similar issue was addressed under the Indian Income-tax Act, 1922, the court found that the deduction of surtax is not barred by section 40(a)(ii) of the Act. The court emphasized that the surtax under the Surtax Act is leviable on the total income of the assessee, not just on profits and gains of any business or profession. Conclusion: Based on the analysis and precedent, the court concluded that section 40(a)(ii) of the Income-tax Act, 1961, does not prohibit the deduction of surtax payable under the Companies (Profits) Surtax Act, 1964, if the surtax is otherwise allowable as a deduction under section 37 of the Act. The court clarified that the question of whether the surtax is an allowable deduction under section 37 is to be decided by the Tribunal. The reference was answered in favor of allowing the deduction of surtax under the specified conditions.
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