1968 (9) TMI 39 - HC - Income Tax

Court clarifies 'income-tax' excludes surcharge & additional surcharge. Surcharges distinct.

The court held that the term 'income-tax' in the Finance Act, 1964, does not encompass surcharge and additional surcharge. The decision favored the ... Levy of surchage on the salary portion of assessee's total income - validity Issues Involved:1. Interpretation of the term 'income-tax' in the Finance Act, 1964.2. Inclusion of surcharge and additional surcharge in 'income-tax' and 'super-tax.'Issue-wise Detailed Analysis:1. Interpretation of the term 'income-tax' in the Finance Act, 1964:The primary issue revolves around whether the term 'income-tax' in sub-sections (2)(a) and (2)(b) of section 2 of the Finance Act, 1964, includes surcharges and additional surcharges. This interpretation is crucial for determining the tax liability of the assessee for the assessment year 1964-65. The assessee's total income was assessed at Rs. 45,173, comprising Rs. 42,635 under 'Salaries' and Rs. 2,535 under 'Other sources.' The assessee contended that the salary portion of his total income should only be charged to income-tax and super-tax, excluding any surcharges, as sub-section (2) of section 2 of the Finance Act, 1964, did not explicitly mention surcharges.2. Inclusion of surcharge and additional surcharge in 'income-tax' and 'super-tax':The Appellate Tribunal rejected the assessee's contention, holding that 'income-tax' and 'super-tax' inherently include surcharges. The Tribunal's decision was based on the interpretation that the Finance Act, 1963, which provided for surcharges, should be read into the Finance Act, 1964, even though the latter did not explicitly mention surcharges.The learned counsel for the assessee argued that, according to the Income-tax Act and relevant Finance Acts, surcharges are separate charges and not included in 'income-tax' and 'super-tax.' The counsel referred to sections 4 and 95 of the Income-tax Act, 1961, which charge income-tax and super-tax, respectively, and highlighted that these sections do not mention surcharges.The court examined the relevant statutory provisions, including the Finance Acts of 1963 and 1964, and the Constitution. It noted that the Finance Act, 1963, explicitly treated surcharges as separate from income-tax and super-tax. The Finance Act, 1964, similarly fixed rates for income-tax and super-tax and levied surcharges separately. The court also referred to articles 270 and 271 of the Constitution, which differentiate between taxes on income and surcharges.The learned counsel for the revenue contended that surcharges are merely increases on income-tax and super-tax and should be included in these terms. He argued that the legislative intent behind sub-section (2) of section 2 of the Finance Act, 1964, was to avoid administrative complexities and ensure that salaried income is not subjected to different tax liabilities. However, the court found two difficulties with this argument. Firstly, sections 4(2) and 95(2) of the Income-tax Act do not authorize the charge of surcharges by deduction at source. Secondly, the legislative intent must be gathered from the statute's provisions, and nothing was presented to show that the legislative object was as the revenue's counsel suggested.The court concluded that income-tax and super-tax do not include surcharges, as they are treated as separate taxes in the relevant statutory provisions and the Constitution. The language of sub-section (2) of section 2 of the Finance Act, 1964, is clear and unambiguous, and a taxing statute must be construed in favor of the subject when ambiguity arises.Conclusion:The court answered the question in the negative and in favor of the assessee, concluding that the words 'income-tax' in the Finance Act, 1964, do not include surcharge and additional surcharge. The parties were directed to bear their own costs, and a copy of the judgment was to be forwarded to the Income-tax Appellate Tribunal as required by section 260 of the Income-tax Act, 1961.