Vildirect: IncomeTax-caselaws-1994-VIL-240-BOM-DT

1994-VIL-240-BOM-DT

Equivalent Citation: [1995] 214 ITR 175, 125 CTR 238, 81 TAXMANN 175

BOMBAY HIGH COURT

Date: 24.11.1994

COMMISSIONER OF INCOME-TAX

BOOTS COMPANY (I.) LIMITED

BENCH

Judge(s) : DR. B. P. SARAF., S. M. JHUNJHUNUWALA

JUDGMENT

The judgment of the court was delivered by

DR. B. P. SARAF J.--By this reference under section 256(1) of the Income-tax Act, 1961, read with section 18 of the Companies (Profits) Surtax Act, 1964, the Income-tax Appellate Tribunal has referred the following two questions of law to this court for opinion :

" 1. Whether, on the facts and in the circumstances of the case, in the computation of the capital for purpose of the Companies (Profits) Surtax Act, 1964, in terms of rule 4 of the Second Schedule, an amount in proportion to the relief allowed to the assessee under section 80J of the Income-tax Act, in the corresponding assessment to income-tax had to be deducted in assessment to surtax for the assessment year 1977-78 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in 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 deposited by it with the Industrial Development Bank of India in lieu of surcharge on the ground that the deposit having been made in lieu of surcharge on income-tax was nothing but "surcharge on income-tax" and hence, eligible for deduction in the computation of chargeable profits under rule 2 of the First Schedule to the Surtax Act.

This contention of the assessee was rejected by the Income-tax Officer as well as the Commissioner of Income-tax (Appeals). It was, however, accepted by the Income-tax Appellate Tribunal ("the Tribunal") on appeal, by the assessee. The Revenue seeks to challenge the decision of the Tribunal treating the deposit made by the assessee with the IDBI under section 2(8) of the Finance Act, 1976, in lieu of surcharge as "surcharge on income-tax" for the purpose of claiming deduction in the computation of chargeable profits for the purpose of the Surtax Act. Hence, reference of question No. 2.

We have carefully considered the contention of the assessee that the deposit made by it with the IDBI in lieu of surcharge should be treated as "surcharge". However, on a perusal of the relevant provisions of section 2(8) of the Finance Act, the Surtax Act and the First Schedule thereto, we find no merit in it. The Companies (Profits) Surtax Act, 1964, provides for imposition of a special tax called "surtax" on the profits of certain companies. It is levied at the rates specified therein on the chargeable profits of such companies which exceed ten per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule to the said Act or rupees two lakhs, whichever is greater. "Chargeable profits" has been defined to mean the total income of the assessee computed under the Income-tax Act, 1961, and adjusted in accordance with the provisions of the First Schedule. The First Schedule to the Surtax Act contains rules for computing the chargeable profits. It provides that in computing the chargeable profits, the total income computed in that year under the Income-tax Act should be adjusted in the manner set out therein. Rule 1 specifies certain incomes which are to be excluded from such total income. Rule 2 provides for reduction of the balance of the total income arrived at after making the exclusions mentioned in rule 1 by the amounts mentioned therein. Rule 2, so far as relevant, as it stood at the material time, 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 ;

Explanation.--In relation to the assessment year commencing on the 1st day of April, 1964, the reference in this sub-clause to 'income-tax' shall be construed as a reference to 'supertax' ;

(ii) in the case of a company which has been charged to tax in a country outside India on any portion of its income, profits and gains included in its total income as computed under the Income-tax Act, the tax actually paid in respect of such income, profits and gains in the said country in accordance with the laws in force in that country after allowance of every relief due under the said laws :

Provided that the aforesaid deduction shall not be allowed unless the assessee produces evidence of the fact of the payment of the aforesaid tax in that country." (emphasis supplied).

Section 4 of the Income-tax Act, which deals with the charge of income-tax, provides that--

" 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."

Section 2 of the Finance Act, 1976, which deals with the charge of income-tax for the financial year 1977-78, provides :

" 2. Income-tax.--(1) Subject to the provisions of sub-sections (2), (3) and (4), for the assessment year commencing on the 1st day of April, 1976, income-tax shall be charged at the rates specified in Part I of the First Schedule and shall be increased,--

(a) in the cases to which paragraphs A, B, C and D of that part apply, by a surcharge for purposes of the Union ; and

(b) in the cases to which paragraphs E and F of that part apply, by a surcharge,

calculated in each case in the manner provided therein."

In the case of companies, paragraph E is applicable. It contains the rates of income-tax chargeable on the income of companies which also provides for levy of a surcharge on income-tax in the case of companies. The relevant provision of paragraph E dealing with surcharge reads :

Surcharge on income-tax

" The amount of income-tax computed in accordance with the preceding provisions of this paragraph shall be increased by a surcharge calculated at the rate of five per cent. of such income-tax."

It is clear from the above provisions that surcharge is nothing 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 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."

On a reading of all these provisions, viz., section 3 of the Income-tax Act, sub-section (8) of section 2 of the Finance Act, 1976, paragraph E of Part I of the First Schedule thereto and clause (8) of section 2, it becomes abundantly clear that surcharge under the above Act is merely additional income-tax. The only object of this levy is to increase the amount of income-tax by the amount of surcharge. There can, therefore, be no dispute about the fact that surcharge on income-tax leviable under the Finance Act, 1976, is nothing but income-tax and forms part of the income-tax payable by a company in respect of its total income. Hence, in computing chargeable profits for levy of surtax under the Surtax Act, the chargeable profits computed in the manner laid down in rule 1 of the First Schedule to the Act has to be reduced by "the amount of income-tax including surcharge thereon".

The only controversy that falls for consideration is whether the deposits made by a company with the IDBI in terms of the provisions of section 2(8) of the Finance Act, 1976, can be treated as payment of "surcharge on income-tax". According to counsel for the assessee, the amount deposited by it with the IDBI being in lieu of surcharge has to be treated as surcharge itself. We have considered this submission. However, on a perusal of the relevant provisions of the Income-tax Act, the Finance Act and the Surtax Act and for the reasons set out below, we do not find any merit in the above submission. A deposit of any sum with the IDBI in terms of section 2(8) of the Finance Act is not one of the modes of payment of surcharge. On the contrary, such a deposit has the effect of relieving the assessee from the levy of surcharge itself, wholly or in part depending upon the amount deposited by it. This is evident from a reading of section 2(8) of the Finance Act itself which says that any such deposit being made,

(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, the surcharge on income-tax payable, shall be nil ; and

(ii) in a case where the amount of deposit so made falls short of the amount of 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 between "tax" and a "deposit with the Government in any fund" which is repayable after the expiry of a specified period. Tax is an enforced contribution extracted pursuant to legislative authority. The objective of levy of tax is to generate revenue to be used for the needs of the people. In its essential character, it is not a "debt". "Deposits" made with the Government, even in pursuance of a statutory provision, cannot partake of the character of "tax". We, therefore, do not find any merit whatsoever in the above contention of the assessee.

However, before parting with the case, we feel it necessary to deal with the other submissions of learned counsel for the assessee based on the principles of reasonable and beneficial interpretation. It was urged before us that :

(i) Section 2(8) of the Finance Act, 1976, creates a legal fiction which should be carried to its logical conclusion ;

(ii) the interpretation placed by the assessee is reasonable and in consonance with justice and an interpretation contrary thereto would cause hardship and inconvenience ; and

(iii) in any event, even assuming that the other interpretation is also possible, the interpretation sought to be placed by him, being favourable to the assessee, should be accepted.

So far as submission in regard to construction of legal fiction is concerned, it appears to be totally misconceived and misplaced because section 2(8) creates no legal fiction. It merely gives an option to the assessee to get himself relieved of the liability to pay surcharge by acting in the manner set out therein. Hence, the submissions based on the scope of a legal fiction deserve no consideration in this case.

Equally misplaced and misconceived is the submission based on the principle of beneficial interpretation. It should not be forgotten that rules of interpretation are not rules of law. They have been devised to assist the courts in the interpretation of statutes where the words or the language used there are ambiguous and there is a doubt about the meaning thereof. For this purpose, the doubt as to the true meaning should be "real", and not merely conjectural or fanciful. If the court does not think that the words or expressions are open to diverse interpretations, it is not entitled to say that there is ambiguity merely for the reason that some ingenious assessee or his counsel could suggest another meaning. Because, as remarked by Lord Cave L. C., "no form of words has yet been framed with regard to which some ingenious counsel could not suggest a difficulty". It is not for the courts to invent fancied ambiguities and stretch or pervert the language of the enactment in favour of the taxpayer. In the instant case, we find that the language of section 2(8) of the Finance Act is quite clear and unambiguous and not open to diverse meanings. No resort to the principles of interpretation is necessary in such a case. The principle of beneficial interpretation, therefore, has no application to the facts of the present case.

In the premises, we answer question No. 2 in the negative and in favour of the Revenue.

Under the facts and circumstances of the case, there shall be no order as to costs.

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