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Apara Textile Traders Ltd. Vs. Surtax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1982)2ITD600(Ahd.)
AppellantApara Textile Traders Ltd.
RespondentSurtax Officer
Excerpt:
.....year worked out to rs. 23,729. however, having made a deposit of rs. 22,100 under the companies deposits (surcharge of income-tax) scheme, 1976 ('the scheme'), its liability in this regard was reduced to rs. 1,629. this amount was actually paid.the assessee claimed that the gross amount of surcharge payable, i.e., rs. 23,729, as distinct from the net amount actually paid, i.e., rs. 1,629, should be deducted under section 2(5), read with rule 2(i) of the first schedule, of the companies (profits) surtax act, 1964 ('the act'), for the purpose of computing the chargeable profits. the claim was that the deposit of rs. 22,100 under the aforesaid scheme was nothing but a payment of surcharge as envisaged under section 2(8) of the finance act, 1976. both the sto and the commissioner.....
Judgment:
1. This appeal by the assessee, a company, relating to its surtax assessment for the assessment year 1977-78, involves a short and interesting question. Briefly stated, the relevant facts are that the assessee's liability to surcharge on income-tax for the year worked out to Rs. 23,729. However, having made a deposit of Rs. 22,100 under the Companies Deposits (Surcharge of Income-tax) Scheme, 1976 ('the Scheme'), its liability in this regard was reduced to Rs. 1,629. This amount was actually paid.

The assessee claimed that the gross amount of surcharge payable, i.e., Rs. 23,729, as distinct from the net amount actually paid, i.e., Rs. 1,629, should be deducted under Section 2(5), read with Rule 2(i) of the First Schedule, of the Companies (Profits) Surtax Act, 1964 ('the Act'), for the purpose of computing the chargeable profits. The claim was that the deposit of Rs. 22,100 under the aforesaid scheme was nothing but a payment of surcharge as envisaged under Section 2(8) of the Finance Act, 1976. Both the STO and the Commissioner (Appeals) rejected the claim holding that for the purpose of computing the chargeable profits the income-tax including surcharge to be deducted is the net amount of income-tax determined as payable.

2. The appeal came up before a Division Bench of the Tribunal. The orders passed by different Benches of the Tribunal were produced by the parties to show that different Benches had taken conflicting views on the issue. Reference was made to the President for constituting a Special Bench. The proposal was accepted and hence this appeal before the Special Bench.

3. Arguments were advanced at great length. Reference was made to the relevant provisions of the Finance Acts, 1976 and 1977, Rule 2(i) of the First Schedule to the Act, Notes on Clauses [ [1976] 102 ITR (St.) 162 and [1976] 102 ITR (St.) 181], the decisions of the Supreme Court in the cases of CIT v. S.A.S. Marimuthu Nadar [1962] 44 ITR 1, R.B.Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, CIT v. TV. Sundaram lyengar & Sons (P.) Ltd. [1975] 101 ITR 764 and Smt. Tamlata Shyam v.CIT [1977] 108 ITR 345, the decision of the Gujarat High Court in the case of Addl. CIT v. Rustam Jehangir Vakil Mills Ltd. [1976] 103 ITR 298 and the Budget Speech of the Hon'ble Finance Minister for the financial year 1976-77, relevant extract available at page 1 of the paper book, etc., in support of the rival contentions. The assessee's counsel also brought in, the concept of 'equity' and urged that an interpretation contrary to what he was suggesting would cause hardship and injustice and that assuming two interpretations were reasonably possible, one in favour of the assessee will have to be accepted.

4. We have considered the rival contentions carefully and have gone through all that have been referred to and or relied upon before us during the course of the hearing. There being no direct authority on the proposition either way, we consider it desirable to examine the provisions on first principle, in the first instance. Section 2(5) of the Act defines 'chargeable profits' as under : Chargeable profits' means the total income of an assessee computed under the In come-tax Act, 1961 (43 of 1961), for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule.

Rule 2(i) of the First Schedule provides the manner for computation of chargeable profits. Rule 2(i) of the Schedule with which we are concerned in this appeal provides for- 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 of 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- It being a common ground that income-tax includes surcharge on income-tax, we have no difficulty in holding that the total income requires to be reduced by the amount of income-tax payable by the company and that the amount of income-tax payable would be the amount of income-tax which remains payable after taking into account all allowances, relief, rebate or deduction in respect of income-tax.

5. The question arises whether the deposit of Rs. 22,100 made by the assessee under the scheme as a result of which the assessee's liability for surcharge of Rs. 23,729 was reduced to Rs. 1,629 is covered by the expressions "relief, 'rebate' or 'deduction' in respect of income-tax contemplated under Rule 2(0 or whether it is a payment of surcharge itself. For this purpose it becomes necessary to refer to the provisions of Section 2(8) of the Finance Act, 1976, which reads as under : (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 on income-tax payable by it, shall be nil; and (ii) in a case where the amount of the deposit so made falls short of the amount of surcharge on income-tax payable by it, shall be reduced by the amount of the deposit.

Corresponding provisions are found in Section 2(1) of the Finance (No.2) Act, 1977. As those are in pari materia with the above provisions, it has not been considered necessary to refer to them separately. It is evident from the above provision that the assessees were given an option to make a deposit in advance with the Industrial Development Bank of India under a scheme to be framed by the Government in this behalf in which case, their surcharge liability was to be reduced by the amount of the deposit and in case the amount of such a deposit exceeded the amount of surcharge payable, the surcharge liability was to be nil. It is pertinent to mention that Section 2(8) of the Finance Act, 1976, does not, in terms, provide that the amount of deposit under the scheme is or is not to be treated as a payment of surcharge. That apart, we do not think it is possible to equate the word 'deposit' with the word 'payment'. While the payment of surcharge is an outright payment, the deposit contemplated under the scheme is for five years and carries interest at the rate of 6 per cent per annum. To our mind, the two concepts are different and naturally the consequences flowing from the two acts are materially different. In the circumstances, it is not possible on the face of it to treat a deposit made under the scheme as a payment of surcharge as such.

6. Sri J.P. Shah, the learned counsel for the assessee, supported his contention by placing reliance on the speech of the Hon'ble Finance Minister while placing the Budget proposals for the year 1976-77 before the House and to Notes on Clauses on the Finance Bill, 1976. The relevant extracts are found at pages 95 (also at page 1 of the paper book), [1976] 102 ITR (St.), 162, 163 and 181. For the sake of facility, these are reproduced here.

As Hon'ble Members are aware, a surcharge of 2 1/2 per cent on income-tax was levied on companies in 1971 at the time of the Bangladesh crisis. In 1972, this surcharge was raised to 5 per cent.

I propose to exempt those companies which will deposit an equivalent amount with the Industrial Development Bank of India for a period of five years, from this surcharge. This measure will ensure that the funds rotate and are available to the corporate sector for investment. I also propose to reduce the rates of capital gains tax in respect of long-term capital gains derived by companies.

In the case of companies, the rates of income-tax as also surcharge thereon have been specified in Paragraph E of Part III of the First Schedule to the Bill. These rates are the same as those specified in Paragraph F of Part I of the First Schedule to the Bill.

It has further been provided that a company may, in lieu of payment of surcharge on income-tax at the specified rate, make, before the last instalment of advance tax is due in its case, a deposit with the Industrial Development Bank of India under a scheme to be framed by the Central Government in this behalf, and if it does so, the amount of surcharge payable by it shall be reduced by the amount of the deposit. Where a company makes a deposit during the financial year 1976-77 under the scheme, the surcharge on income-tax payable by it for the assessment year 1977-78 will also be reduced by the amount of the deposit so made.

MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 1976, PAGE 181 It has, however, been provided that a company may, in lieu of payment of surcharge on income-tax at the specified rates, make, before the last instalment of advance tax is due in its case, a deposit with the Industrial Development Bank of India under a scheme to be framed by the Central Government in this behalf, and if it does so, the amount of surcharge payable by it shall be reduced by the amount of the deposit. It has also been provided that where a company makes a deposit during the financial year 1976-77 under the scheme, the surcharge on income-tax payable by it for the assessment year 1977-78 will also be reduced by the amount of the deposit so made.

Apart from the fact that references to the Finance Minister's speech, Notes on Clauses and/or the Memorandum explaining the provisions of the Bill have to be looked into while considering the provisions of sections of the Act only when the language of the section or sections is ambiguous, we do not find anything in these to support the assessee's point of view. In his speech the Finance Minister states that he wants to exempt those companies from surcharge liability who will deposit, etc., etc. It only means that to the extent of the amount of the deposit, there will be no liability of surcharge. Notes on Clauses and Memorandum explaining the provisions of the Bill explain the purpose of Section 2(8) of the Bill to be to reduce the surcharge liability. There is no whisper in the Bill or anywhere else to suggest that the deposit made under the scheme is payment of surcharge. If that was so, the liability would not be reduced : it would be discharged. In any event, all this is relevant in the context of surcharge liability as envisaged under the Act. It cannot have any bearing whatsoever on the provisions of the Act, without there being anything in the Act.

7. The learned counsel contended that if the amount of deposit was not treated as a payment of surcharge for the purpose of computing the chargeable profits under the Act, it would mean that the Legislature was taking back the relief by another hand, which was given under Section 2(8) of the Finance Act, 1976. Here again, the argument advanced on behalf of the assessee appears to us to be fallacious. The Income-tax Act and the Companies (Profits) Surtax Act are two different Acts though administered by one and the same ITO and other income-tax authorities and the Tribunal. Therefore, an amendment to one Act without corresponding amendment in the other Act will not entitle a taxpayer or the Government as such to urge that an amendment in one or the other Act must have consequential effect in the other Act. The assessee has got full deduction in respect of the amount of deposit under the scheme vis-a-vis its surcharge liability. There is no taking back of the relief. As regards the assessee's contention that non-treatment of the deposit as payment of surcharge liability will result in the increase of the assessee's chargeable profits, it will no doubt be so. The consequence will be that the amount of the deposit, i.e., Rs. 22,100, will form part of the chargeable profits. Assuming that the assessee is liable to surtax eventually, the rate of surtax will be 25 per cent or 40 per cent as the case may be. This is as against outright loss if the assessee had paid the surcharge and not made the deposit as above. Moreover, the assessee also gets interest on the deposit. It is, therefore, not possible to accept that it is a case of giving relief by one hand and taking it back by the other.

8. The learned counsel also placed reliance on the decision of the Supreme Court in the case of Marimuthu Nadar (supra) in support of the proposition that provisions of this nature should be interpreted to advance the purpose for which these are enacted. We, however, find that the question involved in that case was whether the earned income relief was available to the assessee on the income of his wife and minor child clubbed with his income under Section 16(3) of the 1922 Act. The case is entirely different and has no relevance to the point at issue before us.

The Supreme Court has, in the case of R.B. Jodhamal (supra), observed that even though equitable considerations are irrelevant in interpreting the tax laws, these laws, like all other laws, should be interpreted reasonably and in consonance with justice. The Gujarat High Court has also emphasised the same aspect in its decision in the case of Rustam Jahangir (supra). These are general and well known propositions. The construction given by us to the provisions is reasonable and in consonance with justice. Moreover the scheme framed by the Government under the Companies Deposits (Surcharge of Income-tax) Scheme, 1976, clearly envisages deposits and not payments.

As already pointed out, Section 2(8) of the Finance Act, 1976, does not treat the amount of deposit as a payment towards the surcharge liability. It only provides for reduction of the surcharge liability to the extent of the amount deposited by it under the scheme or to the extent it makes the surcharge liability nil, as the case may be.

9. As regards the last contention that when two interpretations are possible the one in favour of the assessee should be adopted, we have only to say that there cannot, perhaps, be any dispute about this well settled legal proposition. However, the Supreme Court has held in more than one case that if the language of the statute is clear and unambiguous and if two interpretations are not reasonably possible, it would be wrong to discard the plain meaning of the words used in order to meet the possible or imaginary injustice. In our view, we are supported by the decisions of the Supreme Court in the cases of Tarulata (supra) and Sundaram Iyengar (supra).

10. Having regard to the above discussion, we are inclined to hold that Section 2(8) of the Finance Act, 1976, contemplates that the amount deposited by the assessee-company under the scheme framed by the Government will reduce the assessee's surcharge liability to the extent of the amount of the deposit. The speech of the Finance Minister, Notes on Clauses and Memorandum explaining the provisions of the Bill support our reading of the provisions rather than that of the assessee's counsel. It has nowhere been suggested that the amount of the deposit has or can be treated as a payment towards surcharge liability. It is not a case where the option was that either you pay a surcharge or pay the equivalent amount as something else. The option has been that if you deposit under the scheme, the deposit will reduce the surcharge liability to the extent of the deposit. Such a reduction has been contemplated and taken care of under Rule 2(i) of the First Schedule to the Act. Therefore, we do not think that the assessee is entitled to the deduction of the gross amount of its surcharge liability as claimed by it.


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