Ambica Mills Ltd. v. Commissioner of Surtax — 1994 DIGILAW 7 (GUJ)

JUDGMENT : R.K. Abichandani, J. The Income-tax Appellate Tribunal, Ahmedabad Bench, has referred for the opinion of the High Court, the following questions under the provisions of section 18 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the Act"), read with section 256(1) of the Income Tax Act, 1961 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the rectification order under section 13 passed by the Surtax Officer was valid ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deposit made with the Industrial Development Bank of India (I. D. B. I.) for a sum of Rs. 9,23,283 in lieu of surcharge on income-tax was not deductible for computing the chargeable profits under the Surtax Act ?" 2. The assessee-company was assessed under the provisions of the Act for the assessment year 1977-78 and chargeable profits were computed after giving deduction for income-tax without reducing to the extent of deposit in Industrial Development Bank of India payable thereon. The chargeable profits under the Surtax Act ultimately came to be computed at Rs. 27,681 under order dated February 18, 1981, of the Income-tax Officer. Subsequently, the Income-tax Officer passed the rectification order under section 13 of the Act on May 14, 1982, withdrawing the deduction allowed earlier in computing the chargeable profits by a sum of Rs. 9,23,283, which represented the amount deposited in the Industrial Development Bank of India under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976. As per the provisions of section 2(8) of the Finance Act, 1976, the surcharge on income-tax payable by the company in a case where the amount of deposit made with the Industrial Development Bank of India was equal to or exceeded the amount of surcharge on income-tax payable by it was to be "nil". In a case where the amount of deposit so made fell short of the amount of surcharge on income-tax payable on it, the surcharge on income-tax was to be reduced by the amount of deposit. The assessee-company having deposited the amount of Rs. 9,23,283 being equal to the amount of surcharge on income-tax payable by it, did not therefore pay the surcharge. The assessee-company having deposited the amount of Rs. 9,23,283 being equal to the amount of surcharge on income-tax payable by it, did not therefore pay the surcharge. The assessee-company had claimed full deduction for income-tax as well as the gross amount of surcharge payable (as if no deposit was made) thereon for the purpose of computing chargeable profits under the Act. The order of rectification dated May 14, 1982, made under section 13 of the Act withdrawing the said deduction allowed earlier in computing the chargeable profits was challenged before the Commissioner of Income-tax (Appeals), who held that the deposit made under the said scheme to avoid payment of surcharge was not allowable as deduction under rule 2(i) of the First Schedule to the Act. Against the order dismissing the appeal, the assessee approached the Tribunal and the Tribunal rejected the assessee's claim and confirmed the order of the lower authorities on the ground that actual liability for surcharge was reduced on account of deposit with the Industrial Development Bank of India. 3. It was contended on behalf of the assessee by Mr. Shah, that the Finance Act, 1976, provided for an alternative mode for payment of surcharge and, on deposit being made by the assessee in lieu of surcharge, the surcharge should be deemed to have been paid. He drew our attention to the notes on the relevant clauses of Finance Bill, 1976, reproduced in [1976] 102 ITR (St.) 161 onwards and pointed out that the assessee, in lieu of payment of surcharge on income-tax, may make a deposit with the Industrial Development Bank of India before the last instalment of the advance tax is due. He submitted that the deposit should be treated for all purposes as payment of surtax which would merit deduction under rule 2(i) of the First Schedule to the Act. It was further argued that, in any event, there was a debatable issue involved and, therefore, the procedure of rectification could not have been legitimately invoked by the authorities. Learned counsel for the Revenue, on the other hand, argued that the amount of deposit with the Industrial Development Bank of India was not surtax and, in any event, there was no liability to pay surtax by virtue of the relief which resulted from the fact of deposit being made by the assessee. 4. Learned counsel for the Revenue, on the other hand, argued that the amount of deposit with the Industrial Development Bank of India was not surtax and, in any event, there was no liability to pay surtax by virtue of the relief which resulted from the fact of deposit being made by the assessee. 4. Under section 4 of the Act, it is, inter alia, provided that there shall be charged on every company a tax referred to as the surtax in respect of so much of its chargeable profits of the previous year or years, as the case may be, as exceeded the statutory deduction at the rate or rates specified in the Third Schedule. The chargeable profits are defined in section 2(5) of the Act, to mean 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. Statutory deduction as defined in section 2(8) means an amount equal to 15 per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of rupees 2,00,000, whichever is greater. 5. Section 2(8) of the Finance Act, 1976, which is relevant in the present context reads as follows : "2. (8) Where an assessee, being a company, makes, during the financial year commencing on the first 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 first 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." 6. From the above provisions relating to deposits with the Industrial Development Bank of India, it will be noticed that an assessee can deposit even an amount in excess of the surcharge payable by him on the income- tax. It is obvious that, if making of deposit was to be treated as payment of surcharge on income-tax, there could never have been any provision for making a deposit in excess of the amount of surcharge on income- tax payable by the assessee. The deposit to be made in view of payment of surcharge on income-tax by an assessee would not be the same thing as the payment of surcharge itself. On the deposit being made of an amount equal to the surcharge, the assessee no more remains liable to pay surcharge in view of the provisions made in section 2(8) of the Finance Act, 1976, whereunder surcharge payable in such an event would be "nil". Consequently, no question of deduction of the amount of surcharge which is not payable would ever arise under rule 2(1) of the First Schedule. We are of the view that the deposit made with the Industrial Development Bank of India cannot be treated as tax paid. The payment of deposit essentially differs from payment of tax and though the liability to pay the surcharge is taken away by making the deposit with the Industrial Development Bank of India, it cannot be treated as any deemed payment of surcharge. If it was intended to be treated as deemed payment of surcharge, there would have been no need to provide in section 2(8) of the Finance Act, 1976, that surcharge payable would be "nil" in such cases of deposit of the entire amount with the Industrial Development Bank of India. 7. It is evident that the amount of deposit would be repaid after the prescribed period is over, to the assessee, which would never have been the case in respect of payment of surcharge on the income-tax. The option is given to the assessee that, instead of paying the surcharge, he may deposit the amount with the Industrial Development Bank of India. Such deposit results in removing the liability of making the payment of surcharge and, as observed above, the tax ceases to be payable to the extent of deposit. No question of reduction under rule 2(i) can therefore arise. 8. Such deposit results in removing the liability of making the payment of surcharge and, as observed above, the tax ceases to be payable to the extent of deposit. No question of reduction under rule 2(i) can therefore arise. 8. As observed above, the Finance Act, 1976, provided for relief of surcharge. The amount of income-tax is required to be computed for the purpose of reduction under rule 2(i) only after making allowance of such relief. Therefore, the amount of surcharge for which relief was given cannot be treated as the income-tax payable by the company. 9. The Karnataka High Court in Widia (India) Ltd. v. CIT [1992] 194 ITR 77, while dealing with a similar situation, have taken the view that the deposit with the Industrial Development Bank of India under the scheme results in removing the liability to make the payment of surcharge on income-tax and such deposits do not amount to payment of income-tax and are, therefore, not deductible for the purpose of computing the chargeable profits. We are in respectful agreement with the said decision. 10. In our opinion, the matter is not capable of any debate or two views and the view indicated hereinabove is the only logical and plausible view. We are, therefore, of the view that the Tribunal rightly concluded that rectification order under section 13 of the Act by the Surtax Officer was justified. We also hold that the Tribunal was right in holding that the deposit made with the Industrial Development Bank of India by the assessee for a sum of Rs. 9,23,283 in lieu of surcharge on income-tax was not deductible for computing the chargeable profits under the Surtax Act. Both the questions referred to us are, therefore, answered in the affirmative, in favour of the Revenue and against the assessee. The reference stands disposed of accordingly with no order as to costs.