Tax deposit scheme did not equal surcharge payment, so gross surcharge was not deductible in surtax computation.

A deposit made under the Companies Deposits (Surcharge of Income-tax) Scheme, 1976 was held not to amount to payment of surcharge on income-tax for deduction in computing chargeable profits under the Companies (Profits) Surtax Act, 1964. The deposit scheme merely reduced surcharge liability to the extent of the deposit; it did not statutorily substitute the deposit for actual payment of surcharge. The deposit, carrying interest for five years, was legally distinct from an outright tax payment, and relief under the Income-tax Act did not alter the surtax computation. The gross surcharge amount was therefore not deductible, and only the net liability remained relevant.

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Issues: Whether the amount deposited by a company under the Companies Deposits (Surcharge of Income-tax) Scheme, 1976 could be treated as payment of surcharge on income-tax for deduction in computing chargeable profits under rule 2(i) of the First Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: Chargeable profits under section 2(5) are computed by reducing the total income by the amount of income-tax payable, after allowances, rebates, reliefs and deductions. The deposit scheme under section 2(8) of the Finance Act, 1976 does not state that the deposit itself is payment of surcharge; it only reduces the surcharge liability to the extent of the deposit. A deposit for five years carrying interest is legally different from an outright payment, and the Finance Minister's speech, Notes on Clauses and Memorandum only explain the reduction of surcharge liability, not substitution of the deposit for payment. Since the Income-tax Act and the Companies (Profits) Surtax Act operate in different fields, relief under one does not automatically alter computation under the other. The language is clear, and there is no basis to treat the gross surcharge liability as a deductible payment when only the net liability remained payable.

Conclusion: The deposit could not be treated as payment of surcharge for computing chargeable profits, and the assessee was not entitled to deduction of the gross surcharge amount.

Ratio Decidendi: Where a fiscal provision expressly grants only reduction of tax liability on making a prescribed deposit, the deposit cannot be equated with payment of tax or surcharge unless the statute so provides in clear terms.

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