Penal interest is not deductible in surtax computation, and deductions remain limited to statutory adjustments.

Penal interest charged under sections 215 and 216 of the Income-tax Act was held not to form part of "tax" for computation of chargeable profits under the Companies (Profits) Surtax Act, because that expression covers only income-tax and not interest or penalty. The deduction was therefore unavailable under the surtax computation provisions. The further plea that such interest should be allowed on general commercial principles also failed, since chargeable profits must be computed only in the manner prescribed by the Surtax Act and its First Schedule, without expanding deductions beyond the statutory adjustments.

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Issues: (i) Whether interest charged under sections 215 and 216 of the Income-tax Act, 1961, was deductible while computing chargeable profits under the Companies (Profits) Surtax Act, 1964. (ii) Whether such interest could alternatively be allowed as a deduction on general commercial principles in computing chargeable profits.

Issue (i): Whether interest charged under sections 215 and 216 of the Income-tax Act, 1961, was deductible while computing chargeable profits under the Companies (Profits) Surtax Act, 1964.

Analysis: The expression "tax" under section 2(43) of the Income-tax Act, 1961, means income-tax chargeable under that Act and does not include interest or penalty. The provisions governing penal interest were treated as distinct from the charging provisions, and interest under sections 215 and 216 was held to be in the nature of interest and not tax. The computation of chargeable profits under the Surtax Act does not permit such amount to be deducted as tax.

Conclusion: The claim that interest under sections 215 and 216 was deductible as tax was rejected, in favour of Revenue.

Issue (ii): Whether such interest could alternatively be allowed as a deduction on general commercial principles in computing chargeable profits.

Analysis: Chargeable profits under section 2(5) of the Companies (Profits) Surtax Act, 1964, are computed from total income under the Income-tax Act, 1961, subject only to the adjustments specified in the First Schedule. Those provisions do not contemplate deduction of penal interest or penalty. Where the statute provides a specific method of computation, the allowance cannot be enlarged by resort to general commercial principles.

Conclusion: The alternative plea for deduction on commercial principles was rejected, in favour of Revenue.

Final Conclusion: Penal interest paid under sections 215 and 216 of the Income-tax Act, 1961, could not be deducted in computing chargeable profits under the Companies (Profits) Surtax Act, 1964, and the appeal failed.

Ratio Decidendi: Amounts characterised as interest or penalty under the Income-tax Act are not "tax" for surtax computation, and deductions in computing chargeable profits are confined to the adjustments expressly authorised by the Surtax Act.

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