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TMI Blog1994 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding that the surcharge though not levied in the assessee's case was deductible while computing the chargeable profits under the Companies (Profits) Surtax Act ?" It is stated at the Bar that the controversy in the first question is covered in favour of the assessee by the decision of the Supreme Court in Second ITO v. Stumpp Schuele and Somappa P. Ltd. [1991] 187 ITR 108 and following the same it should be answered in the negative and in favour of the assessee. In view of this statement, we answer question No. 1 in the negative and in favour of the assessee. So far as question No. 2 is concerned, it is evident that it is a pure question of law and its answer would depend on the interpretation of rule 2 of the First Schedule to the Companies (Profits) Surtax Act, 1964 ("the Surtax Act"). The admitted position is that no surcharge on income-tax was levied on the assessee in view of the fact that the assessee availed of the option given to it under sub-section (8) of section 2 of the Finance Act, 1976, and deposited the amount with the Industrial Development Bank of India ("IDBI") as contemplated therein in lieu of surcharge. The assessee claimed deduction of the amount depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , read as under : " 2. The balance of the total income arrived at after making the exclusions mentioned in rule 1 shall be reduced by-- (i) the amount of income-tax payable by the company in respect of its total income under the provisions of the Income-tax Act after making allowance, for any relief, rebate or deduction in respect a income-tax to which the company may be entitled under the provisions of the said Act or the annual Finance Act, and after excluding from such amount-- (a) the amount of income-tax, if any, payable by the company in respect of any income referred to in clause (i) or clause (ii) or clause (iii) or clause (viii) of rule 1 included in the total income ; (b) the amount of income-tax, if any, payable by the company under the provisions of the annual Finance Act with reference to the relevant amount of distributions of dividends by it. Explanation.--In this sub-clause, the expression 'the relevant amount of distributions of dividends' has the meaning assigned to it in the Finance Act of the relevant year ; (c) the amount of income-tax, if any, payable by the company under section 104 of the Income-tax Act. Explanation.--In relation to the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but additional income-tax payable by the companies in addition to the amount of income-tax computed in accordance with the provisions of paragraph E of Part I of the First Schedule to the Finance Act, 1976. Clause (8) of section 2 of the Finance Act, 1976, however, relieves a company from the levy of surcharge if it makes a deposit with the IDBI, of a sum equal to or exceeding the amount of surcharge payable by it. In a case where the deposit so made falls short of the amount of surcharge payable by it, the surcharge payable by it would be reduced by the amount of the deposit. It reads : " (8) Where an assessee, being a company, makes, during the financial year commencing on the 1st day of April, 1976, any deposit with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), under any such scheme as the Central Government may, by notification in the Official Gazette, frame in this behalf, then, the surcharge on income-tax payable by the company for the assessment year commencing on the 1st day of April, 1977,-- (i) in a case where the amount of deposit so made is equal to or exceeds the amount of surcharge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f surcharge on income-tax payable by it, if shall be reduced by the amount of the deposit. It is obvious from the above discussion that deposit with the IDBI has the effect of relieving the assessee from the levy of surcharge. As a result thereof, the surcharge payable would be nil or the liability to pay surcharge would be reduced by the amount of such deposit. It is one thing to say that on deposit of the amount, the surcharge payable shall be nil and another thing to say that the liability to pay surcharge shall stand discharged. In the former, there would be no levy of surcharge at all, but not so in the latter. In the present case, under section 2(8) of the Finance Act, on the deposit being made, the surcharge payable on income-tax became "nil". Consequently, nothing was payable as surcharge which can be treated as a part of the income-tax. In that view of the matter, we find it extremely difficult to agree with counsel for the assessee that "deposit with the IDBI" should be construed as payment of "surcharge on income-tax". This submission, in our opinion, is based on a total misconception about the true meaning and characteristics of "tax" and the essential difference be ..... 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