WIDIA INDIA LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) UNDER the provisions of the income-tax Act, 1961, the following question has been referred for our consideration :

(2.) THE assessment year is 1977-78. THE assessee, instead of paying the surcharge on income-tax under the provisions of the Companies (Profit) Surtax Act, 1964 ("the Act" for short), deposited the equivalent amount with prepared under the provision of the Finance Act, 1976. THE assessee required this deposit to be treated as payment of surcharge for the purpose of computing the chargeable profits under the provisions of the Surtax Act. THE Income-tax Officer allowed the claim of the assessee but the Commissioner of Income-tax revised this order the Appellate Tribunal has affirmed the order of the Commissioner. THE Appellate Tribunal followed the decision of its Ahmedabad Bench which is reported in Apara Textile traders Ltd. v. Surtax Officer ([1982] 2 ITD 600 (SB)). Hence, this reference at the instance of the assessee.

(3.) THE dictionary meaning of the term "in lieu of" is "in place of"; "instead". That is to say, in the context of the Finance Act, 1976, the assessee, instead of paying the surtax, may deposit the amount with the Industrial Development Bank of India, and on such deposit being made, the tax ceases to be payable. In this connection, it is necessary to refer to the provisions of the Surtax Act. THE question before us arose in connection with the computation of chargeable profits under the said Act. Section 2(5) of the Surtax Act defines the term "chargeable profits". this is to be computed in accordance with the First Schedule to the said Act. Rule 1 of the Schedule provides for exclusion of certain items from the total income which is the basis for computing the chargeable profits. From this figure, after exclusion, further amounts are to be reduced as per rule 2 thereof. Under rule 2(1), the amount of income-tax payable by the company in respect of its total income is to be deducted from the total income arrived at after applying rule 2 of the Schedule. the contention of the assessee now is that surcharge on income-tax is also income-tax (which is not disputed) and this surcharge is payable by the company and, therefore, it should go as a reduction under rule 2 of the Schedule. THE Appellate Tribunal has taken the view that the deposit with the Industrial Development Bank of India is not the same as payment of the tax, which is one aspect. Another facet of interpretation is to understand the word "payable" in rule 2 in the context of the second proviso to section 2(6) of the Finance Act. THE said proviso states that, in lieu of payment of surcharge... deposit may be made under the scheme. In other words, instead of the tax being paid, the amount could be deposit results in removing the liability to make the payment. In other words, on the deposit being made, the tax ceases to be "payable". THE language of rule 2 of the First Schedule to the Surtax Act also requires that the tax "payable" by the company is to be reduced from the total income. If the tax is not payable, then the said amount cannot go in reduction of the total income. THE payability of the tax is the basis to attract rule 2(1) of the said Schedule. THE making of the deposit by the assessee with the Industrial Development Bank of India removes the liability to pay the tax, i.e., the tax ceases to be payable. If so, there is no scope to apply rule 2 of the said Schedule. THErefore, the question referred to us will have to be answered necessarily in the affirmative and against the assessee. Reference is answered accordingly. That is to say, the deposits made with the Industrial Development Bank of India do not amount to payment of income-tax and, therefore, are not deductible for the purpose of computing the chargeable profits.