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Issues: (i) Whether, in computing capital for the purposes of surtax under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, an amount proportionate to relief allowed under section 80J of the Income-tax Act, 1961 had to be deducted in the assessment year in question; (ii) whether a deposit made with the Industrial Development Bank of India in lieu of surcharge under section 2(8) of the Finance Act, 1976 could be treated as "surcharge on income-tax" for deduction while computing chargeable profits under rule 2 of the First Schedule to the Companies (Profits) Surtax Act, 1964.
Issue (i): Whether, in computing capital for the purposes of surtax under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, an amount proportionate to relief allowed under section 80J of the Income-tax Act, 1961 had to be deducted in the assessment year in question.
Analysis: The controversy on this point stood covered by the then existing Supreme Court authority. Following that binding position, the reference was answered without independent re-examination of the issue.
Conclusion: The issue was answered in the negative and in favour of the assessee.
Issue (ii): Whether a deposit made with the Industrial Development Bank of India in lieu of surcharge under section 2(8) of the Finance Act, 1976 could be treated as "surcharge on income-tax" for deduction while computing chargeable profits under rule 2 of the First Schedule to the Companies (Profits) Surtax Act, 1964.
Analysis: Surcharge under the Finance Act was held to be an additional component of income-tax, but the statutory deposit scheme did not create payment of surcharge. The deposit merely relieved the company from liability to surcharge, wholly or partly, and did not amount to discharge of tax. The provision was found clear and unambiguous, so there was no scope to invoke legal fiction or beneficial interpretation to convert the deposit into surcharge.
Conclusion: The issue was answered in the negative and in favour of the Revenue.
Final Conclusion: The reference was disposed of by answering the first question for the assessee and the second question for the Revenue, with no order as to costs.
Ratio Decidendi: A statutory deposit made to obtain relief from surcharge is not itself "surcharge on income-tax" unless the enactment expressly treats it as such; a clear tax provision cannot be expanded by invoking beneficial interpretation or legal fiction where none exists.
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