Deductibility of surcharge deposits and surtax under the Companies (Profits) Surtax Act was rejected for chargeable profits.

Rule 2(i) of the First Schedule to the Companies (Profits) Surtax Act, 1964 permits deduction only of income-tax payable by the company. A deposit made with the Industrial Development Bank of India in lieu of surcharge on income-tax was not treated as tax payment and did not qualify as a deductible amount in computing chargeable profits. The same provision also does not authorise deduction of surtax itself. The stated legal position is that, unless the Schedule expressly allows it, neither a deposit made to relieve surcharge liability nor surtax can be reduced from chargeable profits.

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

Issue (i): Whether the amount deposited with the Industrial Development Bank of India in lieu of surcharge on income-tax was deductible from the chargeable profits under the First Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The deposit made with the Industrial Development Bank of India was not treated as payment of tax. It only relieved the liability to pay surcharge to the extent of the deposit and did not amount to a deemed payment of surcharge. Rule 2(i) of the First Schedule did not permit such a deduction in computing chargeable profits.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Issue (ii): Whether surtax payable under the Companies (Profits) Surtax Act, 1964 was deductible while computing chargeable profits under the First Schedule to that Act.

Analysis: Rule 2(i) authorises deduction only of income-tax payable by the company and contains no provision for reducing surtax. The claim for deduction of surtax was therefore rightly rejected.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered wholly in favour of the Revenue, holding that neither the deposit in lieu of surcharge nor the surtax itself was deductible in computing chargeable profits under the First Schedule.

Ratio Decidendi: A deposit made in lieu of surcharge on income-tax is not deductible as tax paid for computing chargeable profits, and surtax is not deductible unless the governing schedule expressly allows it.

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