1971 (5) TMI 5 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to demand additional surcharge.
2. Validity and communication of the rectification order under section 154 of the Income-tax Act, 1961.
3. Applicability of exemption under section 81 of the Income-tax Act, 1961, to additional surcharge levied under the Finance Act, 1963.
4. Interpretation of "additional surcharge" as distinct or part of "income-tax".

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Demand Additional Surcharge:
The petitioner, a co-operative society engaged in banking, challenged the jurisdiction of the Income-tax Officer to demand an additional surcharge amounting to Rs. 8,010.09. The court examined section 4 of the Income-tax Act, 1961, which provides for the charge of income-tax in accordance with the provisions of the Act. The court also considered section 2 of the Finance Act, 1963, which specifies that income-tax is to be increased by surcharges. The court concluded that the additional surcharge is part of the total income-tax and hence falls under the exemption provided by section 81 of the Income-tax Act, 1961. Therefore, the Income-tax Officer lacked jurisdiction to demand the additional surcharge from the petitioner.

2. Validity and Communication of the Rectification Order under Section 154:
The petitioner argued that the Income-tax Officer failed to supply a copy of the rectification order dated January 30, 1967, thereby depriving the petitioner of an effective right of appeal. The court acknowledged this irregularity but noted that the order was brought to the petitioner's notice during the revision hearing before the Commissioner of Income-tax. The court found that the Appellate Assistant Commissioner had dismissed the appeal based on an erroneous assumption that no rectification order had been passed. However, since the rectification order was eventually considered during the revision, the court decided not to interfere with the orders of the income-tax authorities unless the jurisdictional contention had merit.

3. Applicability of Exemption under Section 81 to Additional Surcharge:
The court examined section 81 of the Income-tax Act, 1961, which exempts co-operative societies from paying income-tax on profits and gains from banking activities. The court noted that the petitioner's income from non-banking sources did not exceed Rs. 15,000, making it eligible for the exemption. The court held that the additional surcharge, being part of the total income-tax, is also covered by this exemption. The court emphasized that section 110 of the Income-tax Act provides for the computation of income-tax after deducting the exempted amount, and since the petitioner's total income was exempt, no tax, including additional surcharge, was payable.

4. Interpretation of "Additional Surcharge" as Distinct or Part of "Income-Tax":
The court analyzed the relevant constitutional provisions and the Finance Act, 1963. Article 271 of the Constitution allows Parliament to levy a surcharge on taxes for Union purposes, and such surcharge retains the character of the original tax. The court found that section 2 of the Finance Act, 1963, treats the additional surcharge as part of the total income-tax. The court rejected the revenue's argument that additional surcharge is a separate levy, concluding that it is included in the income-tax and thus subject to the exemptions provided in section 81 of the Income-tax Act, 1961.

Conclusion:
The court allowed the petition, quashing the order of the Income-tax Officer dated January 30, 1969, the appellate order of the Assistant Commissioner dated October 9, 1968, and the revisional order of the Commissioner of Income-tax dated August 13, 1970. The court held that the demand for additional surcharge was erroneous and without authority, as the petitioner was exempt from paying income-tax, including the additional surcharge, under section 81 of the Income-tax Act, 1961. The petition was allowed with costs.