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TMI Blog1987 (1) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... iness expenditure under section 37 of the Income-tax Act, 1961, or alternatively as expenditure incidental to the carrying on of the business deductible under section 28 of the Income-tax Act while computing the income under the head ' Business ' ? " The contention raised by the assessee before the Tribunal was that the surtax payable by the company under the Companies (Profits) Surtax Act, 1964 (Act 7 of 1964) (for short " the C.P.S.T. Act "), should be allowed as deduction from the total income. Following the judgment of the Special Bench of the Tribunal in ITA No. 3643/Bom/1974-75 dated December 1, 1977, in the case of M/s. Amar Dye-Chem Ltd. v. ITO, the Tribunal held that the surtax payable cannot be allowed as deduction from the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies (Profits) Surtax Act, 1964, seeks to impose a special tax on the profits of certain companies. Section 4 of the Companies (Profits) Surtax Act, 1964; which is the changing section says that subject to the provisions of the Act, tax shall be levied on every company in respect of so much of its chargeable profits of the previous year or years which exceed the statutory deduction at the rate or rates specified in the Third Schedule. The expression " chargeable profits " is defined by section 2(5) of the Companies (Profits) Surtax Act, 1964, as meaning the total income of an assessee computed under the Income-tax Act, 1961, for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, the surtax paid. As already noticed, it is only when the computation under the Income-tax Act is done in respect of the total income, that the question of application of the provisions of the Companies (Profits) Surtax Act, 1964, would arise. In the computation of total income under the Income-tax Act, the amounts paid by way of surtax cannot be deducted under section 40(a)(ii) of the Income-tax Act. The argument of Sri Ratnakar is that since section 40(a)(ii) of the Income-tax Act only speaks of " any sum paid on account of any rate or tax levied on the profits or gains of any business or profession......", the same must necessarily be construed as amounts paid towards income-tax and nothing else. We find it difficult to agree with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licability of the doctrine of overriding title of the State is totally unrealistic and factually incorrect. The liability to pay tax under the Companies (Profits) Surtax Act, 1964, would arise only after the computation of the total income was done under the Income-tax Act. The doctrine is applicable to cases where the assessee has alienated or assigned the sources of income, so that it is no longer his (vide Kanga and Palkhivala's " The Law and Practice of Income-tax ", Vol. I, Seventh edn., pp. 99-100). The question whether the surtax is not liable in view of the provisions of section 40(a)(ii) of the Income-tax Act came up for consideration before a Division Bench of the Calcutta High Court in Molins of India Ltd. v. CIT [1983] 144 ITR 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head " Profits and gains of business or profession " (vide section 37 of the Income-tax Act). Although the surtax paid by the assessee is neither capital expenditure nor personal expenses of the assessee, it is not laid out or expended wholly and exclusively for the purpose of the business. The embargo contained in section 40(a)(ii) comes into play. Therefore, the same cannot be deducted as business expenditure. An identical question came up for consideration before the Calcutta High Court in the aforesaid decision in Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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