Deposit in lieu of surcharge is not deductible as income-tax for surtax computation

A deposit made with the Industrial Development Bank of India under the Finance Act, 1976 scheme in lieu of surcharge on income-tax is not treated as payment of income-tax for deduction under the Companies (Profits) Surtax Act, 1964. Because the deposit is refundable and interest-bearing, it is not an actual payment to the Revenue, and once made, the surcharge liability ceases to be legally payable. Only income-tax that remains legally payable within the First Schedule can be deducted in computing chargeable profits.

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Issues: Whether deposits made with the Industrial Development Bank of India under the Finance Act, 1976 scheme in lieu of surcharge on income-tax amount to payment of income-tax and are deductible in computing chargeable profits under the Companies (Profits) Surtax Act, 1964.

Analysis: The scheme framed under the Finance Act, 1976 permitted a company to make a deposit with the Industrial Development Bank of India instead of paying surcharge on income-tax. A deposit so made was refundable after the stipulated period and carried interest, showing that it was not the same as an actual payment to the Revenue. Under the First Schedule to the Companies (Profits) Surtax Act, 1964, only income-tax actually payable by the company is deductible in computing chargeable profits. Once the deposit is made, the liability to pay the surcharge ceases and the amount is no longer 'payable' within the meaning of the Surtax Act.

Conclusion: The deposits made with the Industrial Development Bank of India do not amount to payment of income-tax and are not deductible for the purpose of computing chargeable profits. The issue is decided against the assessee.

Ratio Decidendi: Where a statute permits a deposit in lieu of tax, the amount deposited is not deductible as tax payable unless the taxing provision specifically treats it as payment; only tax that remains legally payable falls within the deduction provision.

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