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Issues Involved:
1. Whether the surtax paid u/s Companies (Profits) Surtax Act, 1964 is an admissible deduction in computing the assessee's income from business. Summary: Issue: Admissibility of Surtax Deduction The core issue revolves around whether the sum of Rs. 2,69,218 paid as surtax under the Companies (Profits) Surtax Act, 1964, is deductible in computing the assessee's business income for the assessment year 1971-72. The Appellate Assistant Commissioner and the Tribunal had rejected the claim on the grounds that surtax was not incidental to the business. Tribunal's Stand: The Tribunal, referencing a similar case involving Messrs. Industrial Chemicals Ltd., held that surtax is a surcharge on income tax and not deductible from business income. They applied the Supreme Court's decision in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, concluding that tax on total income is not deductible from business income. Assessee's Argument: The assessee argued that surtax should be treated as business expenditure under section 37 of the Income-tax Act, 1961, citing the Supreme Court's decision in Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735, which allowed wealth-tax as a deductible business expense. They also referenced other cases like Jaipuria Samla Amalgamated Collieries Ltd. v. CIT [1971] 82 ITR 580 (SC) and Dehra Dun Tea Co. Ltd. v. CIT [1973] 88 ITR 197 (SC) to support their claim. Revenue's Argument: The Revenue contended that surtax is essentially an additional tax on profits and not deductible under section 37. They referenced decisions from the Calcutta High Court in Molins of India Ltd. v. CIT [1983] 144 ITR 317 and the Karnataka High Court in CIT v. International Instruments P. Ltd. [1983] 144 ITR 936, both of which held surtax as non-deductible and falling under the mischief of section 40(a)(ii) of the Income-tax Act, 1961. Court's Analysis: The court emphasized the importance of uniformity in statutory interpretation across different High Courts. It found the Calcutta High Court's decision in Molins of India Ltd. v. CIT [1983] 144 ITR 317 to be well-reasoned, which held surtax as an additional tax on profits and not deductible. The court also agreed with the Karnataka High Court's view that surtax remains a charge on the profits and gains of the business. Conclusion: The court concluded that surtax is not deductible under section 37 of the Income-tax Act, 1961, and section 40(a)(ii) also prohibits such a deduction. The question was answered in the negative, against the assessee, with costs of Rs. 500 to be paid by the assessee. Related Case: In T.C. No. 287 of 1979, involving a similar question about the deductibility of Rs. 52,765 as provision for surtax, the court also answered in the negative, following the reasoning in T.C. No. 636 of 1978. The assessee was ordered to pay costs of Rs. 500.
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