Surtax liability is not deductible as a business expense under the Income-tax Act, with disallowance sustained.

Surtax liability was treated as a non-deductible tax outgo in computing business income under the Income-tax Act, 1961. The assessee had claimed the amount as a business expense under section 37, but the Tribunal held that section 40(a)(ii) barred deduction of this tax liability and followed its earlier view that surtax does not qualify for deduction under section 37. The Supreme Court decision cited by the assessee was distinguished as not governing surtax liability, and the disallowance was sustained.

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Issues: Whether surtax liability was allowable as a deduction in computing the assessee's business income under the Income-tax Act, 1961.

Analysis: The liability was claimed as an admissible business expense under section 37. The disallowance was sustained on the view that section 40(a)(ii) barred deduction of a tax liability of this kind. The Tribunal followed its earlier decisions holding that surtax is not deductible under section 37, and distinguished the cited Supreme Court decision as not governing surtax liability.

Conclusion: Surtax liability was not an allowable deduction; the disallowance was upheld against the assessee.

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