Additional surcharge on exempt banking income was upheld as a separate levy independent of income-tax liability.

Additional surcharge under the Finance Act, 1963 was held leviable on banking income even though the income was exempt from income-tax under section 81 of the Income-tax Act, 1961. The surcharge was treated as a distinct charge computed on residual income under the First Schedule, and section 3 of the Finance Act directed that it be ignored only for computing relief, rebate or deduction in respect of income-tax. Following the Supreme Court ruling, the Court held that liability to additional surcharge did not depend on liability to income-tax or super-tax. The reference was answered against the assessee.

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Issues: Whether additional surcharge under the Finance Act, 1963 was leviable on the assessee's banking income notwithstanding exemption from income-tax under section 81 of the Income-tax Act, 1961.

Analysis: The relevant provisions of the Finance Act, 1963 imposed additional surcharge for the assessment year 1963-64 and section 3 of that Act directed that no account was to be taken of the additional surcharge while computing relief, rebate or deduction in respect of income-tax. The surcharge was calculated on residual income under the First Schedule and was treated as a distinct charge. The Court followed the Supreme Court ruling that the levy of additional surcharge was not dependent on liability to income-tax or super-tax and could be imposed even where the relevant income was otherwise exempt.

Conclusion: Additional surcharge was leviable on the assessee, and the reference was answered against the assessee.

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