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K. Srinivasan, A.V. Thomas and Co. Ltd., Alleppey Vs. Commissioner of Income-tax, Kerala, Ernakulam - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome Tax Referred Case No. 32 of 1967
Judge
Reported inAIR1969Ker300; [1969]73ITR275(Ker)
ActsFinance Act, 1964 - Sections 2; Finance Act, 1963 - Sections 2(2); Constitution of India - Articles 270 and 271
AppellantK. Srinivasan, A.V. Thomas and Co. Ltd., Alleppey
RespondentCommissioner of Income-tax, Kerala, Ernakulam
Appellant Advocate P.K. Kurien,; V. Desikan,; K.A. Nayar and;
Respondent Advocate C.T. Peter, Adv.
Excerpt:
.....act, 1963 and articles 270 and 271 of constitution of india - assessee is individual - assessee's total income charged to income-tax, super-tax and surcharges at rates provided in act - assessee contended that salary portion of his total income chargeable only income-tax and super-tax - tribunal rejecting contention held assessee liable to pay surcharge - income-tax and super-tax are charged by deduction at source in respect of certain classes of income by virtue of sections 4 (2) and 95 of act - these sections provide for charging of income-tax and super tax by deduction and not surcharge. - - ' this is a novel and interesting question? the finance act, 1964 contains similar provisions in the matter of fixation of the rates of income-tax and super-tax as well as levy and fixation..........has arisen out of an assessment for the year 1964-65. the assessee is an individual; and his total income was assessed at rs. 45,173. this was made up of rs. 42,635 under the head salary and rs. 2,535/- under the head other sources. this total income was charged to income-tax, super-tax and surcharges at the rates provided in the finance act, 1964. sub-section (2) of section 2 of this act provides that when the total income of an assessee not being a company includes any income chargeable under the head salaries, income-tax and super-tax payable by the assessee on the salary portion of the total income shall be the proportionate amount payable according to the rates provided in the finance act 1963. under the finance act 1963, income-tax shall be increased by a surcharge, special.....
Judgment:

Isaac, J.

1. This is a reference made by the Madras Bench of the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961 on the application of the assessee. The question referred is:

'Whether the words 'income-tax' In the Finance Act, 1964 in Sub-section (2) (a) and Sub-section 2 (b) of Section 2 of the Finance Act 1964 would include surcharge and additional surcharge?'

This is a novel and interesting question? and its decision depends merely on the correct interpretation of the relevant statutory provisions.

2. This question has arisen out of an assessment for the year 1964-65. The assessee is an individual; and his total Income was assessed at Rs. 45,173. This was made up of Rs. 42,635 under the head salary and Rs. 2,535/- under the head other sources. This total income was charged to income-tax, super-tax and surcharges at the rates provided in the Finance Act, 1964. Sub-section (2) of Section 2 of this Act provides that when the total income of an assessee not being a company includes any income chargeable under the head salaries, income-tax and super-tax payable by the assessee on the salary portion of the total income shall be the proportionate amount payable according to the rates provided in the Finance Act 1963. Under the Finance Act 1963, income-tax shall be increased by a surcharge, special surcharge and additional surcharge, while super-tax shall be increased by a surcharge and special surcharge in the manner provided in the said Act. But Sub-section (2) of Section 2 of the Finance Act, 1964 did not mention any of these surcharges. Therefore, the assessee contended that the salary portion of his total income was chargeable only toIncome-tax and super-tax, and not to any of the surcharges. The Appellate Tribunal rejected this contention, holding that income-tax and super-tax include the surcharges, and that the assessee was liable also to pay the surcharges as provided in the Finance Act 1963, even though they were not specifically mentioned in Sub-section (2) of Section 2 of the Finance Act, 1964.

3. The learned counsel for the assessee contended before us that, according to the scheme of the Income-tax Act and the relevant Finance Acts, income-tax and super-tax do not include the surcharges, and that the surcharge is a separate charge, and it is a tax in addition to the income-tax and super-tax. He first referred to the charging sections in the Income-tax Act. Section 4 charges income-tax and it reads as follows:

' 4. Charge of income-tax -- (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or, rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year or previous years, as the case may be, of every person:

Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.

(2) In respect of income chargeable under Sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.'

Section 95 charges super-tax; and it reads:

'95. Charge of super-tax--(1) In addition to the income-tax charged for any assessment year, and save as otherwise provided in this Act, there shall be charged for that assessment year in respect of the total income of the previous year or previous years, as the case may be, of every person, not being a registered firm, an additional duty of income-tax (in this Act referred to as super-tax) at the rate or rates laid down for that assessment year by any Central Act:

Provided that, where by virtue of any provision of this Act super-tax is to be charged in respect of the income of a period other than the previous year, super-tax shall be charged accordingly.

(2) In respect of income chargeable under Sub-section (1), super-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.

(3) In the case of a registered firm, or an unregistered firm which has beenassessed in the manner applicable to a registered firm under the provisions of Clause (b) of Section 183, super-tax shall be payable by each partner of the firm individually on his share in the income of the firm and not by the firm itself.'

Income-tax and super-tax are both taxes on income; and super-tax is a tax on income in addition to the income-tax. Yet they are called by different nomenclatures and treated as separate taxes under the Income-tax. Act.

4. Reference was then made to some of the relevant provisions of the Finance Act, 1963. Sub-sections (1) and (2) of Section 2 have to be noticed:

'2. Income-tax and super-tax--(1) Subject to the provisions of Sub-sections (2), (3), (4) and (5), for the assessment year commencing on the 1st day of April, 1963,--

(a) income-tax shall be charged at the rates specified in Part I of the First Schedule and,--

(i) in the cases to which Paragraphs A, B, C and E of that Part apply, shall be increased by a surcharge for purposes of the Union and, except in the cases to which the said Paragraph E applies, a special surcharge, calculated in either case in the manner provided therein; and

(ii) in the cases to which Paragraphs A and C of the aforesaid Part apply, shall further be increased by an additional surcharge for purposes of the Union (hereinafter referred to as additional surcharge) calculated in the manner provided in the said Schedule;

(b) super-tax shall, for the purposes of section 95 of the Income-tax Act, 1961 (43 of 1961)) hereinafter referred to as the Income-tax Act), be charged at the rates specified in Part II of the First Schedule, and, in the cases to which Paragraphs A, B and C of that Part apply, shall be increased by a surcharge for purposes of the Union and a special surcharge, calculated in either case in the manner provided therein.

(2) In making any assessment for the assessment year commencing on the 1st day of April, 1963,--

(a) where the total income of an asses-see, not being a company, includes any income chargeable under the head 'Salaries' the income-tax payable by the assessee on that part of his total income which consists of such inclusion shall be an amount bearing to the total amount of income-tax payable according to the rates applicable under the operation of the Finance (No. 2) Act, 1962 (20 of 1962) on his total income the same proportion as the amount of such inclusion bears to his total income;

(b) where the total income of an assessee, not being a company, includesany income chargeable under the head 'Salaries' on which super-tax has been or might have been deducted under the provisions of Sub-section (1) of Section 192 of the Income-tax Act, the super-tax payable by the assessee on that portion of his total income which consists of such inclusion shall be an amount bearing to the total amount of super-tax payable according to the rates applicable under the operation of the Finance (No. 2) Act, 1962 (20 of 1962) on his total income the same proportion as the amount of such inclusion bears to his total income.'

What the above sub-sections provide for are,--

(1) to fix the rates of income-tax chargeable under the Income-tax Act;

(2) to levy surcharges by an increase of the income-tax and to fix the rates of the said surcharges;

(3) to fix the rates of super-tax chargeable under the Income-tax Act;

(4) to levy surcharges by an increase of the super-tax and to fix the rates of the said surcharges.

5. There is no dispute that the charges are also taxes on income. They are levied by an increase of the income-tax and super-tax. But what is significant in the above provision is that surcharge is treated in the Finance Act as a tax different from income-tax and super-tax; and it is levied by the Finance Act, while the income-tax and super-tax are levied by the Income-tax Act. This is also obvious from the First Schedule to the Finance Act 1963. Part I of this schedule deals with 'Income-tax and surcharges on income-tax'. Then under this heading, it gives the rates of income-tax and also the rates of the surcharges in the case of different classes of assessees. Similarly Part II of this schedule deals with 'Super-tax and surcharges on super-tax'. Under this heading are given the rates of super-tax and the rates of the surcharges on super-tax. The Finance Act, 1964 contains similar provisions in the matter of fixation of the rates of income-tax and super-tax as well as levy and fixation of the rates of the surcharges. We shall only read Sub-sections (1) and (2) of Section 2 of this Act.

'2. Income-tax and super-tax -- (1) Subject to the provisions of Sub-sections (2), (3), (4) and (5), for the assessment year commencing on the 1st day of April, 1964,--

(a) income-tax shall be charged at the rates specified in Part I of the First Schedule and, in the cases to which Paragraphs A, B, C and E of that Part apply, shall be increased by a surcharge for purposes of the Union calculated in either case in the manner provided therein;

(b) super-tax, shall, for the purposes of section 95 of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act), be charged at the rates specified in Part II of the First Schedule, and, in the cases to which Paragraphs A, B and C of that Part apply, shall be increased by a surcharge for purposes of the Union calculated in the manner provided therein.

(2) In making any assessment for the assessment year commencing on the 1st day of April. 1964,--

(a) where the total income of an asses-see, not being a company, includes any income chargeable under the head 'Salaries', the income-tax payable by the assessee on 'that part of his total income which consists of such inclusion shall be an amount bearing to the total amount of income-tax payable according to the rates applicable under the operation of the Finance Act, 1963 (13 of 1963), on hip total income the same proportion as the amount of such inclusion bears to his total income;

(b) where the total income of an asses-see, not being a company, includes any income chargeable under the head 'Salaries' on which super-tax has been or might have been deducted under the provisions of Sub-section (1) of Section 192 of the Income-tax Act, the super-tax payable by the assessee on that portion of his total income which consists of such inclusion shall be an amount bearing to the total amount of super-tax payable according to the rates applicable under the operation of the Finance Act, 1963 (13 of 1963), on his total income the same proportion as the amount of such inclusion bears to his total income.'

6. We shall now examine the Constitutional provisions relating to the levy of these taxes. They are dealt with in Articles 270 and 271 of the Constitution. The legislative power is also contained in Entry 82 in List I of the Seventh Schedule, which reads:

'Taxes on Income other than agricultural income'.

Article 270 provides that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided therein. Article 271 deals with surcharge on certain duties and taxes. Though duty is a tax, the Constitution refers to certain impositions as duty, while others are called taxes. This difference in nomenclature is maintained in the Constitution. Surcharge on duties and taxes is levied under Article 271; and it is for purposes of the Union. What is significant in this context is that taxes on income other than agricultural income is dealt with separately from surcharges on duties and taxes. The former is fordistribution between the Union and the States, while the latter is solely for purposes of the Union. Thus an examination of the relevant provisions contained in the Income-tax Act the Finance Acts of 1963 and 1964 and the Constitution leads us to the conclusion that income-tax and super-tax do not include surcharge, that they are called by different nomenclatures in all the concerned statutory provisions, and that they are also dealt with separately from each other.

7. The learned counsel for the Revenue contended that the surcharges are only increases on or additions to, income-tax and super-tax, that income-tax and super-tax include the surcharges, and that at any rate the words 'income-tax' and 'super-tax' appearing in Sub-section (2) of Section 2 of the Finance Acts of 1963 and 1964, when they are examined in the light of the legislative object of enacting the said provisions, would include the surcharges. He referred to Section 192(1) of the Income-tax Act, and pointed out that income-tax and super-tax are payable on salary income by deduction at source on the basis of the rates of tax in force for the financial year in which the salary is paid. We shall read that provision:

'192. Salary -- (1) Any person responsible for paying any income chargeable under the head 'Salaries' shall, at the time of payment, deduct income-tax and super-tax on the amount payable at the average rate of income-tax and average rate of super-tax respectively computed on the basis of rates of tax in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year,'

The learned counsel pointed out that, in cases where income-tax and super-tax ere payable by deduction at source by virtue of Sections 4(2) and 95(2) respectively of the Income-tax Act these taxes are charged at the rates in force for the financial year in which the income accrues or is received. In all other cases, the income is charged to income-tax and super-tax at the rates fixed for the assessment year by the annual Finance Act. He submitted that, after having charged income-tax and super-tax by deduction at source at the rates in force for the financial year, it would entail considerable administrative work in the form of collection of deficient tax or refund of the excess collected, if income-tax and super-tax were to be charged in the case of salary income at the rates in force in the assessment year. The learned counsel submitted that the object of enacting Sub-section (2) of Section 2 of the Finance Act, 1964,and a similar provision in other Finance Acts was to avoid the aforesaid administrative work, and also not to subject the salaried income to a tax liability different from the one to which it has been already subjected in the finance year. This argument is based on the fact that what is charged on salary income by deduction at source in the finance year is not only income-tax and supertax, but also the surcharges payable in respect thereof under the Finance Act in force during the finance year. The learned counsel for the Revenue, therefore, submitted that Sub-section (2) of Section 2 of the Finance Act, 1964 should be construed in the light of the aforesaid legislative object of that provision, and that, if so construed, it was clear that the words 'Income-tax' and 'supertax' used in Sub-section (2) would include the surcharges payable thereon under the Finance Act, 1963.

8. There are two difficulties to accept the above argument. In the first place, income-tax and super-tax are charged by deduction at source in respect of certain classes of income by virtue of Sections 4(2) and 95(2) respectively of the Income-tax Act, as already stated. These sections provide only for charging of 'income-tax' and 'supertax' by deduction; they do not authorise the charge of the surcharges. The learned counsel for the assessee submitted, that, whatever may be the practice of the Department, the aforesaid provisions of the Income-tax Act do not authorise the Department to charge any surcharge on incomes in respect of which these taxes are chargeable under the Act by deduction at source. Suffice to say for our purpose, this is the very controversy in this case; and an argument based on an assumption that 'income-tax' and 'super-tax' include the surcharges is one in a vicious circle. The next difficulty is that the legislative intent has to be gathered from the provisions of the statute, and to some extent the purpose sought to be achieved by enacting the statute or the particular provision in it. Nothing has been placed before us to show what the learned counsel for the Revenue submitted was the legislative object of the provision contained in Sub-section (2) of Section 2 of the Finance Act, 1964. If that were so, we are also at a loss to understand why other classes of income in respect of which income-tax and super-tax are chargeable by deduction at source were not treated like salary income. The question of ascertaining the legislative intent for the purpose of construction arises only when the language employed in the particular provision is ambiguous or lacks in clarity. In our view, the language employed in Sub-section (2) of Section 2 of the FinanceAct, 1964 does not suffer from any such defect. There is also the principle that a taxing statute has to be construed in favour of the subject, when a question of construction arises due to want of clarity or due to ambiguity in the language employed therein. We are, therefore, unable to accede to the contention of the learned counsel for the Revenue.

9. In the result, we answer the question referred to this Court in the negative and in favour of the assessee. The parties will bear their own costs. A copy of this judgment will be forwarded to the Income-tax Appellate Tribunal as required by Section 260 of the Income-tax Act, 1961.


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