Surtax as a tax on profits is not deductible under the Income-tax Act, since section 40(a)(ii) bars such claims.

Surtax paid under the Companies (Profits) Surtax Act, 1964 was held not deductible in computing business income under the Income-tax Act, 1961. The charge was treated as a tax on chargeable profits, and section 40(a)(ii) disallows any sum paid on account of a tax levied on profits or gains or assessed on the basis of such profits or gains. Because surtax was imposed on profits, it fell within that disallowance and could not be claimed as a business deduction. The result was against the assessee and in favour of the Revenue.

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Issues: Whether surtax paid under the Companies (Profits) Surtax Act, 1964 was deductible in computing business income under the Income-tax Act, 1961.

Analysis: The surtax was levied on chargeable profits, which are computed by reference to the assessee's total income under the Income-tax Act, 1961. Section 40(a)(ii) of the Income-tax Act, 1961 disallows any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed on the basis of such profits or gains. Since surtax is a tax imposed on chargeable profits and is therefore a tax on profits within the meaning of the disallowance provision, it cannot be claimed as a deduction. The view was consistent with the cited High Court and Supreme Court authorities.

Conclusion: Surtax paid by the assessee was not allowable as a deduction in computing total income under the Income-tax Act, 1961, and the answer was against the assessee and in favour of the Revenue.

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