Statutory interest on tax default counts with income-tax liability in computing chargeable profits under surtax law.

Statutory interest payable for default in advance tax or assessed tax was treated as part of the company's tax liability for surtax computation. Applying the exclusion of tax liability under section 4 of the Companies (Profits) Surtax Act, 1964 and rule 2(i) of the First Schedule, the interest under sections 139(8), 215 and 217 of the Income-tax Act, 1961 was held deductible along with income-tax while determining chargeable profits. Authorities dealing with deductions under different Income-tax Act provisions were treated as inapplicable because the issue turned on the special surtax scheme.

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Issues: Whether interest payable under sections 139(8), 215 and 217 of the Income-tax Act, 1961 is part of the income-tax liability and is deductible while computing chargeable profits under the Companies (Profits) Surtax Act, 1964.

Analysis: The reference arose from the computation of chargeable profits under the Companies (Profits) Surtax Act, 1964. The statutory scheme in section 4 of that Act and rule 2(i) of the First Schedule required exclusion of tax liability in determining chargeable profits. The interest payable on default in payment of advance tax or assessed tax was treated as a direct consequence of the statutory tax obligation and, in the facts of the case, formed part of the amount payable by the assessee towards its tax liability. Authorities dealing with deductions under other provisions of the Income-tax Act were held inapplicable because the present question turned on the surtax computation provisions.

Conclusion: Interest under sections 139(8), 215 and 217 of the Income-tax Act, 1961 is deductible along with income-tax liability while computing chargeable profits under the Companies (Profits) Surtax Act, 1964, and the reference was rightly answered in favour of the assessee.

Ratio Decidendi: For surtax computation, statutory interest attached to the tax default forms part of the company's tax liability and is to be excluded along with income-tax in determining chargeable profits.

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