1. Because common questions of law and facts arise in these six petitions they are disposed of by this common order.
2. The petitioner in Writ Petitions Nos. 3447, 3448 and 3578 of 1973 is M/s. Stump Schuele and Somappa Private Ltd. In W. Ps. Nos. 3447 and 3448 of 1973 the petitioner has questioned the notices issued by the Income-tax Officer under section 8 of the Companies (profits) Surtax Act, 1964 (hereinafter referred to as 'the Act'), in respect of assessment years 1969-70 and 1970-71. In W. P. No. 3578 of 1973 the petitioner has questioned the validity of the notice issued under section 16 of the Act by the Commissioner of Income-tax in respect of assessment year 1971-72. Writ Petition No. 1131 of 1974 is filed by Senapathy Whitely (P). Ltd., questioning the validity of the notice issued by the Commissioner of Income-tax under section 16 of the Act in respect of assessment year 1969-70. Writ petitions Nos. 2551 and 2552 of 1974 are filed by International Instruments Private Ltd. questioning the validity of the notices issued by the Income-tax Officer under section 8 of the Act in respect of the assessment years 1970-71 and 1971-72.
3. The petitioners are assessees under the Act. The assessments during the relevant years were completed under the Act by the income-tax authorities and the amounts demanded from them were paid by the petitioners. It would appear that in year 1973, the Income-tax Officer was of the view that there has been under assessment under the Act in the case of the petitioners in Writ petitions Nos. 3447 and 3448 of 1973 and 2551 and 2552 of 1974 and issued notices under section 8 of the Act to the petitioners to show cause as to why action should not be taken to reassess the petitioners. Similarly, the Commissioner of Income-tax was of the view that the order passed by the Income-tax Officer against the petitioners in Writ petitions Nos. 3578 of 1973 and 1173 of 1974 was prejudicial to the interests of the revenue and issued notices under section 16 of the Act asking them to show cause as to why action should not be taken thereunder. Both the Income-tax Officer and the Commissioner were of the opinion that there has been excessive allowance by way of statutory deduction in the case of petitioners and, therefore, there was under-assessment. The ground on which the authorities concerned came to that conclusion was that the amounts which had been allowed to be deducted under section 80-I and 80-J of the Income-tax Act had not been taken into consideration at the time the assessment orders were passed under the Act while determining the extent of statutory deduction the petitioners were entitled, and that rule 4 of the Second Schedule of the Act had not been applied in the case of the petitioners. Aggrieved by the notices issued either under section 8 or section 16 of the Act, the petitioners have filed these writ petitions.
4. At this stage it is necessary to dispose of a preliminary objection raised by Sri S. R. Rajasekhara Murthy, learned counsel for the revenue, regarding the maintainability of these petitions. He contended that it was open to the petitioners to file their objections to the notices issued by the concerned authorities and then to file an appeal against the orders to be passed by the authorities if the petitioners felt aggrieved by the orders. He also contended that the matter could be brought up by way of reference to this court under section 256 of the Income-tax Act. In view of the existence of the said alternative remedy this court should not exercise its jurisdiction under article 226 of the Constitution. On behalf of the petitioners it was urged by Sri G. Sarangan that in similar cases the Commissioner had already taken a view which was adverse to the petitioners and that the Tribunal had reversed the decision of the Commissioner in an appeal filed against that order. In these circumstances it was argued that the existence of the alternative remedy was not an efficacious one. It is well-settled that the existence of an alternative remedy does not in any way affect the jurisdiction of this court under article 226 of the Constitution. It is for the court to consider in each case having regard to the circumstances whether it should exercise its jurisdiction under article 226 of the Constitution or not. Having regard to the fact that the Commissioner has already taken a decision in another case contrary to the view put forward by the petitioners in these cases and that the claim of the department that there has been an under-assessment is patently contrary to the provisions of law, I am of the view that the preliminary objection regarding the maintainability of these writ petitions has to be overruled. It is accordingly overruled.
5. In order to deal with the contentions of the parties it is necessary to give a brief summary of the relevant provisions of the Act. The Act was passed in the year 1964 in order to impose a special tax on companies (other than those which have no share capital) on their excess profits, namely, the amount by which the total income of a company as reduced by certain types of income and certain sums and the income-tax and super-tax payable by it exceeds 10 per cent. of its capital, reserves and certain borrowed money or a sum of Rs. 2 lakhs, whichever is higher. Section 4 of the Act which is the charging section provides that there shall be charged on every company for every assessment year commencing on and from the first day of April, 1964, a tax known as surtax in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule. The expression 'chargeable profits' is defined in section 2(5) as 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 Schedule of the Act. The expression 'statutory deduction' is defined in section 2(8) of the 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. In order to determine the permissible statutory deduction it would be necessary to make a computation of the capital of the company. Rules 1, 2, and 3 of the Second Schedule lay down the manner in which the capital of the company should be determined. Rule 4 of the Second Schedule which is relevant for the purpose of these cases reads as follows :
6. Rule 4 :
'Where a part of the income, profits and gains of a company is not includible in its total income as computed under the Income-tax Act, its capital shall be the sum ascertained in accordance with rules 1, 2 and 3. diminished by an amount which bears to that sum the same proportion as the amount of the aforesaid income, profits and gains bears to the total amount of its income, profits and gains.'
7. What rule 4 states is that if any part of the income, profits and gains of a company cannot be included in the total income as computed under the Income-tax Act, then the capital of the company ascertained in accordance with the rules 1, 2, and 3 should be diminished proportionately by an amount which bears to that sum the same proportion as the income which is not includible in its total income under the Income-tax Act bears to the total amount of income. When the orders of assessment under the Act were passed in all these case the assessing officers were of the opinion that the deduction under section 80-I and 80J of the Income-tax Act could not be considered as referring to any income not includible in the total income of the companies and, therefore, rule 4 was not applicable to the cases. Later on, they appear to have changed their view on the above question. Before issuing notices under section 8 of the Act, the income-tax authorities were of the opinion that the re had been in all these cases an excessive allowance by way of statutory deduction because the capital ascertained in accordance with the rules 1, 2 and 3 had not been diminished by a proportionate amount having regard to the deductions allowed under section 80-I and 80J of the Act. Hence, the Income-tax Officer issued notices under section 8 in some of the above cases and the Commissioner issued notices under section 16 in the other cases.
8. The correctness or otherwise of the view taken by the authorities depends upon the construction to be places on rule 4 of the Second Schedule of the Act and the meaning to be given to the expression 'income, profits, and gains of a company...... not includible in its total income as computed under the Income-tax Act' appearing in rule 4. In order to understand the meaning of the above expression it would be necessary to refer to some of the provisions of the Income-tax Act as it stood when the Act was passed in the year 1964. Chapter III of the Income-tax Act refers to the incomes which do not form a part of total income. Chapter V deals with cases where income of other persons has to be included in the assessee's total income and Chapter VII refers to incomes which form part of the total income on which not income-tax is payable. Under some of the provisions of chapter IV providing for the computation of the total income Parliament directed that certain expenses, rebates, allowances, etc., should be deducted from the gross income before arriving at the gross total income. After the gross total income is arrived at by applying the provisions of Chapters IV and V it is the duty of the assessing authority to determine that part of the income which was included in the total income on which no income-tax was payable under Chapter VII. Chapter VI-A of the Income-tax Act was introduced for the first time in the year 1965 by the Finance Act 10 of 1965. Chapter VI-A was later on substituted by the new Chapter VI-A by the Finance (No. 2) Act of 1967 containing sections 80A to 80T. Section 80U was added by Act 19 of 1968. Sections 80-I and 80J were enacted by the Finance (No. 2) Act of 1967. Section 80A(1) provides that in computing the total income of an assessee there shall be allowed from the gross total income in accordance with and subject to the provisions of that Chapter the deduction specified in sections 80C to 80U. That means, if the assessee claims any deduction under any of the provisions contained in section 80C to 80U and establishes the circumstances warranting such a deduction, it would be the duty of the assessing officer to allow the said deduction. If no such deduction is claimed, the assessee will have to pay the tax on the gross total income ascertained in accordance with the other relevant provisions of the Act. It follows that any amount in respect of which the deduction is claimed under any of the provisions in section 80C to 80U is already included in the gross total income of the assessee, and, therefore, it cannot be stated that the amounts which are allowed to be deducted under the provisions of section 80C to 80U are not includible in the income of the assessee. The expression 'not includible' means not capable of being included. It cannot refer to an amount which already forms part of the gross total income and which would be later on deducted for purposes of determining the tax liability under Chapter VI-A. In this context it would be relevant to refer to section 10 and 11 appearing in chapter III of the Income-tax Act. Section 10 which was in existence when the Act was passed by parliament provides that in computing the total income of the previous year of any person any income falling within the clauses mentioned therein shall not be included. Similarly, section 11 provides that the incomes referred to therein shall not be included in the total income of the previous year of the person in receipt of the income for purposes of the levy of income-tax. It is significant that the expression 'shall not be included 'which is found in sections 10 and 11 which are in Chapter III, the title of which is 'incomes which do not form part of total income', is not used in any of the provisions contained in sections 80C to 80U. Similarly, the said expression is not used in Chapter IV of the Income-tax Act providing for the method of computation of the income under which the assessee is allowed deduction by way of expenses, rebates, allowances etc. Both in Chapter IV and Chapter VI-A, Parliament has consistently used the words 'deduction shall be allowed' and not the expression 'shall not be included. I am of the view that when the Act was passed parliament was of the opinion that the expression 'income, profits and gains of a company.......... not includible in its total income as computed under the Income-tax Act' referred only to those items appearing in sections 10 and 11 of the Income-tax Act. It is significant that even in Form No. 1 prescribed by rule 5 of the Rules framed under the Act (which is the form to be used by the assessee to file his return under the Act) it was stated under note 8 as follows :
'Instances of income, profits and gains not includible in the total income as computed under the Income-tax Act, 1961, are agricultural income in India, and in the case of a non-resident company, its income accruing or arising outside India.'
9. Agricultural income is an item referred to in section 10(1) of the Income-tax Act. That the said expression cannot refer to any other deduction which can be claimed under Chapter VI-A of the Income-tax Act, is also clear from the fact that some of the provisions which were originally found in Chapter VII have been shifted from Chapter VII to Chapter VI-A not on the ground that they were not 'includible in the total income', but because Parliament thought of a different method of computation. To illustrate the above statement reference may be made to section 84 of the Income-tax Act as it stood when the Act was passed. It provided for a rebate in the income-tax payable by the assessee in respect of a portion of the income of a newly established industrial undertaking. By the Finance (No. 2) Act of 1967, section 84 was repealed and in its place section 80J was enacted. Having regard to the history of the legislation I am of the view that in substance there is no difference between the character of the deduction which are allowed under Chapter VI-A an the character of rebates that were allowed under the corresponding provisions in Chapter VII as it stood when the Act was passed by Parliament. It is, therefore, clear that the expression 'income, profits and gains of a company not includible in it total income as computed under the Income-tax Act' refers to those sums which are not includible in the total income by the provisions of Chapter III of the Income-tax Act and does not refer to any of the deductions claimable under Chapter VI-A of the Income-tax Act. If the contention of the revenue is accepted in the case of the provisions appearing in Chapter VI-A of the Income-tax Act, then necessarily even the deduction which are permitted under Chapter IV have to be held as coming within the meaning of the expression 'income profits and gains not includible in its total income as computed under the Income-tax Act'. I do not think that Parliament ever intended that such a result should follow. I am, therefore, of the view that the claim of the respondents in these cases that there has been an under-assessment under the Act by reason of not treating the deductions allowed under section 80-I and 80J of the Income-tax Act as amounts not includible in the total income of the petitioners cannot be sustained. The notices issued to the petitioners either under section 8 or under section 16 of the Act are, therefore, patently contrary to law.
10. In the result these petitions succeed. The impugned notices are quashed. There will be no order as to costs.