Surtax on business profits is not deductible under section 40(a)(ii) because it remains a tax on chargeable profits.

Surtax payable under the Companies Profits (Surtax) Act, 1964 is treated as a tax on business profits for purposes of section 40(a)(ii) of the Income-tax Act, 1961. Although the levy is computed by a separate statutory mechanism, its essential character remains a tax assessed on chargeable profits, so it falls within the non obstante exclusion from deduction. Section 15 of the Surtax Act is confined to distributable income under Chapter XI-D and does not affect the deduction issue. The surtax is therefore not allowable as a deduction in computing business income.

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Issues: Whether surtax payable under the Companies Profits (Surtax) Act, 1964 is deductible in computing business income under section 40(a)(ii) of the Income-tax Act, 1961.

Analysis: Section 40 begins with a non obstante clause and excludes from deduction any sum paid on account of a tax levied on the profits or gains of any business or profession, or assessed on the basis of such profits or gains. The surtax is imposed on a company's chargeable profits, which are computed from its total income under the Income-tax Act and then adjusted under the Surtax Act. The fact that the levy is measured by a statutory computation different from the Income-tax Act does not alter its essential character as a tax on business profits. Section 15 of the Surtax Act is confined to computing distributable income for Chapter XI-D of the Income-tax Act and does not govern the present deduction question.

Conclusion: Surtax under the Companies Profits (Surtax) Act, 1964 falls within section 40(a)(ii) of the Income-tax Act, 1961 and is not allowable as a deduction in computing business income.

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