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TMI Blog2002 (8) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 6-8-2002 - Judge(s) : S. B. SINHA., A. K. SIKRI. JUDGMENT The judgment of the court was delivered by S.B. SINHA C.J.-This reference under section 18 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the said Act"), read with section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the "I.T. Act"), has been made by the Income-tax Appellate Tribunal, Delhi Bench "B", New Delhi (hereinafter referred to as "the Tribunal"), to this court for its opinion on the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Rs. 4,55,000 being the cost of shares from which the assessee did not derive any income during the relevant account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State and a democratic Government, elected by the people. Our laws are, therefore, laws made by the people from themselves through their elected representatives and the object of all fiscal laws is to advance the object of social and economic justice as enshrined in the Constitution. The Companies (Profits) Surtax Act, 1964, was enacted with the object to impose special tax on companies on their excess profits. Assessment the amount, by which the profits exceed 10 per cent, of the capital of a company. Schedules I and II to the Act contain rules for determining the chargeable profits and capital respectively of a company. Under rule 1 of Schedule I certain incomes are required to be excluded from the total income of the company. The total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds for the functioning of a welfare State but also to act as an instrument of social engineering by restricting competition and further equitable distribution of wealth. Rule 1 of the First Schedule excludes certain incomes from the computation of chargeable profits and rule 2 of the Second Schedule excludes from capital the cost of corresponding assets. Where, therefore, a certain asset does not earn any income to be included in chargeable profit, the value of the same is rightly excluded in terms of rule 2 of the Second Schedule. The view taken by the Madras High Court would lead to incongruous results, if accrual of some positive income is a precondition for the application of rule 2 of the Second Schedule. By that interpretation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on" has been defined in section 2(8) of the said Act as an amount equal to ten per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of two hundred thousand rupees, whichever is greater. Section 4 of the said Act provides that subject to the provisions contained therein, there shall be charged on every company for every assessment year on and from the April 1, 1964, surtax in respect of its chargeable profits of any previous year or previous years, as the case may be, exceeding the statutory deduction, at the rate or rates specified in the Third Schedule. Rule 1 of the First Schedule to the said Act reads thus: "Rule 1: In computing the chargeable profits of a previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In terms of the aforesaid rule 2 of the Second Schedule appended to the said Act where a company owns any assets whose income is required to be excluded from its total income in computing its chargeable profits, the amount of its capital as computed under rule 1 of the First Schedule shall be diminished by the cost to it of the said assets. As noticed by the learned Tribunal, a similar question came up for consideration before the Karnataka High Court in CIT v. United Breweries Ltd. [1978] 114 ITR 901, wherein Venkataramaiah J. (as his Lordship then was) held: "The word 'income' in the words 'any assets the income from which' in rule 2 should be read as meaning 'income, if any', in the context in which it appears. If there is an asset, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ataka High Court in CIT v. United Breweries Ltd. [1978] 114 ITR 901, was not brought to the notice of the Madras High Court. We, with respect, cannot subscribe to the said view and would prefer to follow the decision of the Karnataka High Court. A Division Bench of the Bombay High Court, we may notice in CIT v. Hindustan Construction Co. Ltd. [1995] 211 ITR 535 also dissented from the decision of the Madras High Court in Madras Motor and General Insurance Co. Ltd.'s case [1979] 117 ITR 354, and followed the decision of the Karnataka High Court in CIT v. United Breweries Ltd. [1978] 114 ITR 901, as also the decision of the Calcutta High Court in Nav Bharat Vanijya Ltd. v. CIT [1980] 123 ITR 865. Having considered the aforementioned dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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