1971 (11) TMI 2 - SC - Income Tax

Surcharge and additional surcharge included within meaning of income-tax under Finance Act 1964 sections 2(2)(a) and 2(2)(b)

Commissioner of Income-Tax, Kerala Versus K. Srinivasan

The SC dismissed the appeal and ruled in favor of the revenue, holding that surcharge and additional surcharge are included within the meaning of ... Taxation of income under the head 'Salaries' - Whether the words 'income-tax' in the Finance Act of 1964 in sub-section (2)(a) and sub-section (2)(b) of section 2 would include surcharge and additional surcharge - meaning of the word ' surcharge ' - HELD THAT:- The provisions of article 268 which is the first one under the heading ' Distribution of revenue between the Union and the States ' relate to duties levied by the Union but collected and appropriated by the States. Thus, these articles deal with the levy, collection and distribution of the proceeds of the taxes and duties mentioned therein between the Union and the States. The legislative power of Parliament to levy taxes and duties is contained in articles 245 and 246(1) read with the relevant entries in List I of the Seventh Schedule. Although under the Act section 4 is the charging section yet income-tax can be charged only where the Central Act which, in the present case, will be the Finance Act, enacts that income-tax shall be charged for any assessment year at the rate or rates specified therein. The distinction made by the High Court that the surcharges are levied only under the Finance Act and income-tax under the Act may not hold good if the above view which has been pressed on behalf of the revenue were to be accepted. In our judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income-tax. It would appear that, since the Finance Act, 1943, up to the Finance Act, 1967, a provision was made for taxing the income under the head ' Salaries ' according to the provisions of the Finance Act of the preceding year rather than of the current year if the assessee had any income in addition to his income by way of salary. According to the Tribunal this was done because if the income under the head ' Salaries ' was to be assessed at the rates fixed by the Finance Act enacted for the current year it would entail considerable administrative work in the form of a refund or collection in the final assessment. Since by the Finance Act of 1967, this method or procedure was dropped we do not consider that much significance can be attached to this aspect. In the result we are unable to sustain the view of the High Court. The question that was referred must be answered in the affirmative and in favour of the revenue. In view of the nature of the point involved the parties are left to bear their own costs in this court. The appeal by certificate is dismissed. Issues Involved1. Whether the term 'income-tax' in the Finance Act of 1964 includes surcharge and additional surcharge.2. Legislative history and interpretation of surcharge in Indian taxation laws.3. The constitutional provisions related to surcharge and their implications.4. The administrative rationale behind the taxation of income under the head 'Salaries.'Issue-wise Detailed Analysis1. Whether the term 'income-tax' in the Finance Act of 1964 includes surcharge and additional surcharge:The core issue revolves around whether the term 'income-tax' in sub-section (2)(a) and sub-section (2)(b) of section 2 of the Finance Act, 1964, includes surcharge and additional surcharge. The assessee argued that the Finance Act, 1964, did not explicitly mention surcharge, thus only income-tax was leviable, excluding surcharge. The Appellate Assistant Commissioner, the Appellate Tribunal, and the High Court had conflicting views on this matter. The Supreme Court concluded that the term 'income-tax' in section 2 includes surcharge, special surcharge, and additional surcharge, aligning with the legislative history and practice.2. Legislative history and interpretation of surcharge in Indian taxation laws:The judgment traces the concept of surcharge back to the Government of India Act, 1935, which allowed the federal legislature to increase taxes by a surcharge for federal purposes. The Finance Acts from 1940 onwards have consistently included provisions for surcharges, with varying terminologies and structures. The Finance Act of 1951 reintroduced surcharges, and subsequent Finance Acts continued this practice. The Supreme Court noted that the term 'surcharge' has been used to either increase the rates of income-tax and super-tax or to increase these taxes, indicating that surcharge is an integral part of income-tax.3. The constitutional provisions related to surcharge and their implications:Article 271 of the Constitution empowers Parliament to increase any of the duties or taxes by a surcharge for the purposes of the Union, with the proceeds forming part of the consolidated fund of India. Articles 269 and 270 deal with the distribution of taxes between the Union and the States. The legislative power to levy taxes, including surcharges, is derived from articles 245 and 246(1) read with the relevant entries in List I of the Seventh Schedule. The Supreme Court emphasized that income-tax, super-tax, and surcharge fall under the legislative entry 82 in List I, and the Finance Act each year enacts provisions relating to them.4. The administrative rationale behind the taxation of income under the head 'Salaries':The Finance Acts from 1943 to 1967 had a provision for taxing income under the head 'Salaries' according to the provisions of the preceding year's Finance Act to avoid administrative complications in refunds or collections. The Tribunal noted that this method was discontinued by the Finance Act of 1967, implying that it was an administrative convenience rather than a substantive legal requirement. The Supreme Court did not consider this aspect significant in the context of the current issue.ConclusionThe Supreme Court overturned the High Court's decision, ruling in favor of the revenue. The term 'income-tax' in the Finance Act of 1964 includes surcharge and additional surcharge. The appeal by special leave was allowed, while the appeal by certificate was dismissed. The court acknowledged the assistance of amicus curiae due to the unrepresented respondent. The parties were directed to bear their own costs.