Surtax deduction allowed as business expenditure where the Income-tax Act did not expressly prohibit it.

Surtax paid under the Companies (Profits) Surtax Act, 1964 was held deductible in computing income under the Income-tax Act, 1961 because it was a statutory levy incurred in the course of business and did not fall within the prohibition in section 40(a)(ii). The Court treated the absence of an express deduction bar in the surtax statute as immaterial, since deductibility depended on whether the Income-tax Act expressly disallowed it. The surtax was therefore allowable as business expenditure under section 37, and the assessee's claim succeeded.

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Issues: Whether surtax paid under the Companies (Profits) Surtax Act, 1964, was deductible in computing the assessee's income for income-tax purposes.

Analysis: The reference was decided in the context of the scheme of the Income-tax Act, 1961, particularly the provisions governing business income and deductions, and the statutory prohibition in section 40(a)(ii). The surtax was treated as a levy imposed on chargeable profits of certain companies under a separate enactment, but it was paid under compulsion of statute in the course of carrying on the business. The Court held that the absence of an express recital in the surtax enactment did not by itself bar deduction, and that the surtax did not fall within the prohibition contained in section 40(a)(ii). It was therefore allowable as a deduction under section 37.

Conclusion: The surtax liability was admissible as a deduction in computing the assessee's total income, and the question was answered in favour of the assessee.

Ratio Decidendi: A statutory levy paid in the course of business is deductible as business expenditure unless its deduction is expressly prohibited by the Income-tax Act.

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