Judgment :- THANIKACHALAM J. At the instance of the Department, the Tribunal referred the following question of law for the opinion of this court under section 256(2) of the Income-tax Act, 1961. "Whether, on the facts and in the circumstances of the case and having regard to the provisions of rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the Appellate Tribunal was right in holding that the sum of Rs. 7, 61, 987 being the surcharge ordinarily payable but not paid in view of the deposit made with the Industrial Development Bank of India as per the provisions of the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, should be deducted while arriving at the chargeable profits for the levy of surtax ?" The assessee is assessed to surtax. While computing the chargeable profits for the levy of surtax for the assessment year 1977-78, the Income-tax Officer has not deducted the income-tax surcharge payable of Rs. 7, 61, 987 since the assessee was not liable to pay the same in view of the deposit made with the Industrial Development Bank of India. In so doing he rejected the assessee's contention that the surcharge was otherwise payable and, therefore, it should be allowed as a deduction in terms of rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the Act"). On appeal, the Commissioner of Income-tax confirmed the order of the Income-tax Officer. Aggrieved, the assessee filed an appeal before the Tribunal. The Tribunal, relying upon an earlier decision of its own held that the surcharge payable by the company though not actually paid in lieu of the deposit made with the Industrial Development Bank of India should be deducted while arriving at the chargeable profits under rule 2(1) of the First Schedule to the Act. Learned standing counsel for the Department submitted that unless the surcharge is paid the assessee is not entitled to deduction while arriving at the chargeable profit under rule 2(1) of the First Schedule to the Act. According to learned standing counsel, the fact that the assessee has deposited Rs. 8, 25, 000 with the Industrial Development Bank of India which is more than the surtax payable by the assessee, viz., Rs. 7, 61, 987 would not entitle the assessee to ask for deduction under rule 2(1) of the First Schedule to the Act. According to learned standing counsel, the fact that the assessee has deposited Rs. 8, 25, 000 with the Industrial Development Bank of India which is more than the surtax payable by the assessee, viz., Rs. 7, 61, 987 would not entitle the assessee to ask for deduction under rule 2(1) of the First Schedule to the Act. In order to support his contention reliance was placed upon a decision of the Karnataka High Court in Widia (India) Ltd. v. CIT and another decision of the Gujarat High Court in the case of Ambica Mills Ltd. v. Commr. of Surtax On the other hand, learned counsel for the assessee, while supporting the order passed by the Tribunal submitted that the surtax payable by the assessee was Rs. 7, 61, 987 and the assessee had in fact deposited a sum of Rs. 8, 25, 000 with the Industrial Development Bank of India under the Companies Deposits Scheme. Since a larger amount was deposited than what was payable as surcharge, the assessee is entitled to deduction under rule 2(1) of the First Schedule to the Act. It was, therefore, stated that the Tribunal was correct in holding that the surcharge payable by the company though not actually paid, in view of the deposit made with the Industrial Development Bank of India, should be deducted while arriving at the chargeable profit under rule 2(1) of the First Schedule to the Act. As already seen the surtax payable by the assessee was Rs. 7, 61, 987. In fact, the assessee has deposited a sum of Rs. 8, 25, 000 with the Industrial Development Bank of India under the Companies Deposits Scheme. Therefore, the assessee claimed the deduction under rule 2(1) of the First Schedule to the Act. Section 2(v) of the Companies (Profits) Surtax Act, 1964, defines the terms "chargeable profits". This is to be computed in accordance with the First Schedule to the Act. Under rule 2(1) of the First Schedule, the income-tax payable by the company is deductible. The scheme formulated under the provisions of the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, provides that a company may deposit an amount with the Industrial Development Bank of India in lieu of payment of surcharge on income-tax and this amount could be refunded after a few years. The scheme formulated under the provisions of the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, provides that a company may deposit an amount with the Industrial Development Bank of India in lieu of payment of surcharge on income-tax and this amount could be refunded after a few years. The surcharge payable by the company though not actually paid in view of the deposit made with the Industrial Development Bank of India, the assessee can claim deduction while arriving at the chargeable profit under rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964A similar question, viz., whether, on the facts and in the circumstances of the case, the deposits made with the Industrial Development Bank of India are not tantamount to payment of surcharge on income-tax and, therefore, are not deductible for the purpose of computing the chargeable profits came up for consideration before the Karnataka High Court in the case of Widia (India) Ltd. v. CIT. While answering this question, the Karnataka High Court held as under (at page 79). "The Appellate Tribunal has taken the view that the deposit with the Industrial Development Bank of India is not the same as payment of the tax, which is one aspect. Another facet of interpretation is to understand the word 'payable' in rule 2 in the context of the second proviso to section 2(6) of the Finance Act. The said proviso states that, in lieu of payment of surcharge.... deposit may be made under the scheme. In other words, instead of the tax being paid, the amount could be deposited. The deposit results in removing the liability to make the payment. In other words, on the deposit being made, the tax ceases to be 'payable'. The language of rule 2 of the First Schedule to the Surtax Act also requires that the tax 'payable' by the company is to be reduced from the total income. If the tax is not payable, then the said amount cannot go in reduction of the total income. The payability of the tax is the basis to attract rule 2(1) of the said Schedule. The making of the deposit by the assessee with the Industrial Development Bank of India removes the liability to pay the tax, i.e., the tax ceases to be payable. If so, there is no scope to apply rule 2 of the said Schedule. The payability of the tax is the basis to attract rule 2(1) of the said Schedule. The making of the deposit by the assessee with the Industrial Development Bank of India removes the liability to pay the tax, i.e., the tax ceases to be payable. If so, there is no scope to apply rule 2 of the said Schedule. Therefore, the question referred to us will have to be answered necessarily in the affirmative and against the assessee. Reference is answered accordingly. That is to say, the deposits made with the Industrial Development Bank of India do not amount to payment of income-tax and, therefore, are not deductible for the purpose of computing the chargeable profitsA similar question came up again for consideration before the Gujarat High Court in the case of Ambica Mills Ltd. v. Commr. of Surtax, wherein the question referred for the opinion of the High Court was 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 (IDBI) 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 ? "While answering this question by following the earlier decision of the Karnataka High Court in Widia (India) Ltd. v. CIT, the Gujarat High Court has held as under: That the deposit made with the Industrial Development Bank of India could not be treated as tax paid. The payment of deposit essentially differs from payment of tax and though the liability to pay the surcharge was taken away by making the deposit with the Industrial Development Bank of India, it could not 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. The amount of deposit would be repaid, after the prescribed period was over, to the assessee, which would never have been the case in respect of payment of surcharge on the income-tax. The amount of deposit would be repaid, after the prescribed period was over, to the assessee, which would never have been the case in respect of payment of surcharge on the income-tax. The matter was not capable of debate or two views and the Tribunal rightly held that the rectification order under section 13 by the Surtax Officer was justified. The Tribunal was also 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." On considering the facts arising in the present case in the light of the judicial pronouncements cited supra, we hold that the Tribunal was not correct in coming to the conclusion that the deposit made with the Industrial Development Bank of India by the assessee in lieu of surcharge on income-tax was deductible for computing the chargeable profits under the Surtax Act. Therefore, we hold that the deposit made in lieu of surcharge on income-tax is not deductible for computing the chargeable profit under the Surtax Act. Accordingly, we answer the question referred to us in the negative and in favour of the Department. However, there will be no order as to costs.