Finance Act surcharge on residual income can operate independently of income-tax exemptions under the principal statute

Parliament's competence under Article 246(1) read with Entry 82 of List I extends to creating a new income-tax charge through a Finance Act where the statutory language so provides; the annual form of the Act does not limit its substantive effect. The Finance Act, 1963 also adopted a separate residual-income scheme for additional surcharge, measuring the levy by reference to residual income rather than ordinary taxable income. On that structure, exemption from income-tax and super-tax under the principal Act did not bar the separate surcharge, which could be validly imposed on the assessee's residual income.

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Issues: (i) Whether Parliament could, through the Finance Act, 1963, introduce an additional surcharge as a distinct charging provision; and (ii) whether the additional surcharge under the Finance Act, 1963, could be levied on the residual income of a co-operative bank notwithstanding the exemption from income-tax and super-tax under the Income-tax Act, 1961.

Issue (i): Whether Parliament could, through the Finance Act, 1963, introduce an additional surcharge as a distinct charging provision.

Analysis: Parliament had legislative competence under Article 246(1) read with Entry 82 of List I to enact charging provisions relating to taxes on income. A Finance Act is not confined to merely prescribing rates; it may also create a new charge when the statutory language so provides. The annual character of a Finance Act does not prevent it from containing provisions of general and continuing operation, and the form in which Parliament exercises its competence does not limit the substance of that competence.

Conclusion: The additional surcharge could validly be introduced by the Finance Act as a separate charge.

Issue (ii): Whether the additional surcharge under the Finance Act, 1963, could be levied on the residual income of a co-operative bank notwithstanding the exemption from income-tax and super-tax under the Income-tax Act, 1961.

Analysis: The Finance Act, 1963 used a distinct scheme for additional surcharge by linking it to the concept of residual income under section 2(8), not to ordinary taxable income. That concept reduced total income by specified amounts and treated the balance as the base for additional surcharge. The surcharge was described as an increase in income-tax, but it operated independently for Union purposes and was not made dependent on the assessee's liability to income-tax or super-tax on the exempt business income. The exemption under section 81(i)(a) did not prevent the Finance Act from imposing a separate levy on residual income, and the demand notice could validly include that amount.

Conclusion: The additional surcharge was lawfully leviable on the assessee's residual income, and the exemption under the Income-tax Act did not bar the levy.

Final Conclusion: The challenge to the levy failed because the Finance Act created a valid independent surcharge mechanism based on residual income, which could operate alongside the income-tax exemptions available under the Income-tax Act.

Ratio Decidendi: A Finance Act may validly create an independent surcharge chargeable on residual income, and an exemption from income-tax under the principal taxing statute does not, by itself, exclude liability to such a separately structured surcharge when the later statute so provides.

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