1996 (6) TMI 108 - AT - Income Tax

Summary

Issues:
- Deductibility of surtax while computing distributable profits under section 109 of the Income-tax Act.

Analysis:
1. The appeal was against the order of CIT(A) upholding the chargeability of additional tax. The assessee claimed the deductibility of surtax levied on the company. The Assessing Officer and CIT(A) did not allow the deduction of surtax while computing distributable profits under section 109. The CIT(A) relied on various decisions to support this stance.

2. The decisions cited by the CIT(A) dealt with whether surtax payable by a company is a permissible deduction under section 37 for computing the company's income chargeable to income tax. The courts in those decisions held that surtax was not a permissible deduction. The case of Clive Buildings (Calcutta) Ltd. discussed the deductibility of wealth tax for computing distributable surplus under section 23A of the Income-tax Act, 1922. The court held that wealth tax was not deductible as it was not in excess of the amount allowed in the computation of total income.

3. In the case of Molins of India Ltd., the court observed that if surtax payable by the assessee is eligible for deduction under section 37, then section 15 of the Surtax Act becomes meaningless. Section 15 clarifies that surtax payable is not a deductible expenditure for computing total income, but it must be deducted from the total income to compute distributable income. The Full Bench decision of the Kerala High Court also emphasized that surtax is deductible for computing surplus profit under sections 104 to 109 of the Income-tax Act.

4. The Tribunal concluded that the special provision in section 15 of the Companies (Profits) Surtax Act, which allows the deduction of surtax for computing distributable income, should be preferred over the general provisions. Therefore, the Tribunal directed the Assessing Officer to deduct the surtax payable by the assessee and consider the surplus profit accordingly for section 104 of the Income-tax Act. As a result, the assessee's appeal was allowed.