Deposit in lieu of income-tax surcharge was not deductible while computing chargeable profits under the surtax rules.

Amount deposited with the Industrial Development Bank of India in lieu of surcharge on income-tax was not treated as deductible in computing chargeable profits under rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964. The court applied the statutory computation scheme for chargeable profits and accepted that only income-tax payable by the company is deductible under the rule; a deposit made under the scheme was not equivalent to actual payment of surcharge or a deemed payment for deduction purposes. The deposit therefore did not qualify for deduction when determining chargeable profits.

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Issues: Whether the amount deposited with the Industrial Development Bank of India in lieu of surcharge on income-tax was deductible while computing chargeable profits under rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: Section 2(v) of the Companies (Profits) Surtax Act, 1964 defines chargeable profits, and the computation is to be made in accordance with the First Schedule. Rule 2(1) permits deduction of income-tax payable by the company. The deposit scheme allowed payment of an amount with the Industrial Development Bank of India in lieu of surcharge on income-tax, but the judicial view applied by the Court was that such a deposit is not the same as actual payment of surcharge and does not amount to a deemed payment for deduction purposes. The Court preferred the view that the liability to pay surcharge in the statutory sense is removed by the deposit, but the deposit itself is not deductible under rule 2(1) for computing chargeable profits.

Conclusion: The deposit made with the Industrial Development Bank of India in lieu of surcharge on income-tax was not deductible in computing chargeable profits under rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964.

Ratio Decidendi: A deposit made in lieu of surcharge on income-tax under the relevant deposit scheme is not equivalent to payment of income-tax payable and is therefore not deductible under rule 2(1) of the First Schedule to the Companies (Profits) Surtax Act, 1964 for computing chargeable profits.

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