AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1975 (7) TMI 4
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....rom other sources. Since under section 81(i)(a) of the Income-tax Act, 1961, a cooperative society engaged in the business of banking is not liable to pay income-tax on its business income, the tax amounting to Rs. 23,845.47 was charged on Rs. 51,763 only though for the purposes of rate the income was taken at Rs. 9,48,335 in view of section 110 of the Act. Applying the Finance Act, 1963 (XIII of 1963), the respondent computed the residual income of the appellant at Rs. 5,39,386 and levied on it an additional surcharge of Rs. 52,828.60. Thus, the total tax levied on the appellant came to Rs. 23,845.47 plus Rs. 52,828.60, i.e., Rs. 76,674.07. The main grievance of the appellant before the High Court was that whereas its taxable income was only Rs. 51,763, a tax of Rs. 76,674.07 was imposed on it. The relevant provisions of the Finance Act were accordingly said to be invalid as they could not subject to additional surcharge an income which was exempt from tax under the provisions of the Income-tax Act. The additional surcharge, it was contended, was intended as an additional levy on the income-tax and had no independent existence apart from it. These contentions were rejected by t....
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....ans the amount of the total income as reduced by--- (a) the amount of the capital gains, if any, included therein ; and (b) the amount of tax (exclusive of additional surcharge) which would have been chargeable on such reduced total income if it had been the total income no part of which had been exempt from tax and on no portion of which deduction of tax had been admissible under any provisions of the Income-tax Act or this Act." Section 3 provides that : " Notwithstanding anything contained in the provisions of Chapter VII or Chapter VIII-A or section 110 of the Income-tax Act or sub-section (5) of section 2 of this Act, in calculating any relief, rebate or deduction in respect of income-tax payable on the total income of an assessee which includes any income on which no income-tax is payable or in respect of which a deduction of income-tax is admissible under any of the aforesaid provisions, no account shall be taken of the additional surcharge." The First Schedule of the Finance Act, 1963, consists of three parts out of which we are only concerned with Part I. Part I which is called " income-tax and surcharges on income-tax " consists of Paragraphs A, B, C, D and....
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....hus, on the assumption that the Finance Act, validly and on a true interpretation, imposes the additional surcharge on residual income, the tax imposed on the appellant is Rs. 23,845.47 Plus Rs. 52,828.60. The total tax of Rs. 76,674.07 thus imposed is far less than the appellant's total taxable income arrived at by the addition of its non-business income and the residual income. That leads to the inquiry first as regards the scope of a Finance Act and then as regards the interpretation of the Finance Act of 1963. Learned counsel for the appellant, during the course of his arguments, gave up the challenge to the power of Parliament to impose a new charge by a Finance Act. This concession was properly made. By article 246(1) of the Constitution, Parliament has the exclusive power to make laws with respect to any of the matters in List I of the Seventh Schedule. Entry 82 in List I relates to " taxes on income other than agricultural income ". The Income-tax Act, 1961, and the annual Finance Acts are enacted by Parliament in exercise of the power conferred by article 246(1) read with entry 82 of List I. Once Parliament has the legislative competence to enact a law with respect to a....
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....osits on the ground that Parliament had no competence to incorporate in the Income-tax Act a provision which was substantially one relating to borrowings by the Central Goverment from a class of taxpayers. That scheme was introduced by Finance Act 5 of 1964, which incorporated Chapter XXII-A containing sections 280A to section 280X in the Income-tax Act, 1961. The challenge was repelled by this court on the ground that if Parliament had the legislative competence to pass an Act for collecting annuity deposits from taxpayers, nothing contained in the Constitution disentitled it " as a matter of legislative arrangement to incorporate the provisions relating to borrowing from taxpayers in the Income-tax Act or any other statute." This discussion became necessary in spite of the appellant's concession on Parliament's legislative competence because for a proper understanding of the provisions of the Finance Act, 1963, it is essential to appreciate that a Finance Act may not only prescribe rates but also introduce a new charge. We will now proceed to consider the provisions of the Finance Act, 1963, under which the respondent has levied additional surcharge on the appellant's resid....
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....Act, 1963," included surcharges which were leviable under the Act of 1963. The question was answered by this court in the affirmative. As the judgment shows, " the essential point for determination " was " whether surcharge is an additional mode or rate for charging income-tax " (page 351). The court held that it was. The question before us is whether, even if the surcharge is but an additional mode or rate for charging income-tax, the Finance Act of 1963 authorises by its terms the levy of additional surcharge on income which is exempt from income-tax under the Income-tax Act, 1961. In K. Srinivasan's case the court declined to express any opinion on the distinction made by the High Court that surcharges are levied under the Finance Act while income-tax was levied under the Income-tax Act (page 351). In the instant case it is not disputed by the revenue that a surcharge partakes of the essential characteristics of income-tax and is an increase in income-tax. What we have to determine is whether the Act of 1963 provides for the levy of additional surcharge. Granting that the word " income-tax " includes surcharges, it may be arguable that the exemption from the payment of income....
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....ere the income-tax is payable, " the amount of income-tax ...... shall be increased by the aggregate of the surcharges ". The heading " Surcharges on income-tax " under which provision is made in the Finance Act for the calculation of a surcharge, a special surcharge and an additional surcharge is also said to bear out the contention that the levy of additional surcharge on the residual income cannot be dissociated from the main charge of income-tax. We are unable to accept this contention. Article 269(1) of the Constitution provides that the duties and taxes mentioned therein shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2). Article 270(1) provides that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2). By article 271, notwithstanding anything in articles 269 and 270, Parliament may increase any of the duties or taxes referred to in those articles by a surcharge for purposes of the Union. Surcharges leviable under section 2(1) of the Finance Act, 1963, are rela....
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.... income on the assumption that the whole of it was liable to be brought to tax. Thus, in the instant case, the additional surcharge is not levied on the appellant's business income of Rs. 9,48,335 which is exempt from income-tax and super-tax. It is levied on the residual income of Rs. 5,39,386 which is arrived at after deducting gross taxes (exclusive of additional surcharge) amounting to Rs. 4,60,712 from the assessee's gross income of Rs. 10,00,098. By section 3 of the Finance Act of 1963, no account can be taken of the additional surcharge in calculating any relief, rebate or deduction in respect of income-tax payable on the total income of an assessee which includes any income on which no income-tax is payable or in respect of which a deduction of income-tax is admissible. Section 3, by its terms, has precedence over anything contained in Chapter VII or Chapter VIII-A or in section 110 of the Income-tax Act or section 2(5) of the Finance Act itself. Additional surcharge is treated in this way as falling in a separate category. Thus, additional surcharge is a distinct charge, not dependent for its leviability on the assessee's liability to pay income-tax or super-tax. Suc....
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.... on United Commercial Bank Ltd. v. Commissioner of Income-tax East India Housing and Land Development Trust Ltd. v. Commissioner of Income-tax and K. V. Al.M. Ramanathan Chettiar v. Commissioner of Income- tax, the appellant's counsel urged that income-tax is a single levy, that it is one tax and not so many taxes separately levied on several heads of income. This partly is the same argument in a different disguise that an assessee who is not liable to pay income-tax cannot be made liable to pay additional surcharge under the Finance Act, 1963. We have rejected that contention. Partly, the argument is designed to establish co-relation with section 146 of the Income-tax Act, 1961, by which, when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Income-tax Officer has to serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. This provision presents no difficulty for, if an assessee is liable to pay additional surcharge but no income-tax or super-tax, the notice of demand will mention the particular amount payable as tax due. The appellant being liable to pay tax on its non-busin....