SUNDARAM INDUSTRIES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to this court under section 256(1) of the Income-tax Act, 1961, at the instance of the assessee :

(2.) THE assessment year in question is 1971-72 relevant to the accounting year ended on March 31, 1971. For this assessment year, the company claimed a deduction of Rs. 2,69,218 representing the amount of surtax paid by it in the computation of its profits liable for income-tax. THE admissibility of this deduction by an additional ground was raised before the Appellate Assistant Commissioner who negatived the claim on the ground that the surtax paid was not expenditure incidental to the carrying on of the business.

(3.) MR. Subramaniam who appeared in the other tax case has adopted the arguments of MR. Swaminathan on the question whether the surtax liability was deductible under section 37 of the Act but submitted with regard to the construction of section 40(a)(ii) of the Act that the word "tax" is defined in section 2(43) and it must have the same meaning in section 40(a)(ii). According to him, since "tax" as defined in section 2(43) of the Act, in so far as the year of assessment in the instant case is concerned, meant "income-tax chargeable under the provisions of this Act", the scope of section 40(a)(ii) must be restricted only to income-tax and section 40(a)(ii) cannot be invoked by the Revenue to contend that surtax is not deductible in view of the provisions of section 40(a)(ii) of the Act. The learned counsel appearing on behalf of the Revenue has pointed out that the Income-tax Act is an all India statute and since the question of deductibility of surtax under section 37 has already been construed by two High Courts against the assessees, this court should accept the same construction and reference has been made to the decision of the Bombay High Court in CIT v. T. Maneklal Mfg. Co. Ltd. [1978] 115 ITR 725, to which one of us was a party. The Bombay High Court has taken the view that the Income-tax Act being an all India statute, uniformity in the construction of its statutory provisions is eminently desirable and the considered opinion of any other High Court should be followed unless there are overriding reasons for taking a divergent view. Apart from this decision of the Bombay High Court, there are a large number of decisions which take this view to which reference has been made in Kanga and Palkhivala's Law and Practice of Income Tax, seventh edition, volume 1, page 5 in foot-note (iv). The learned counsel for the Revenue has also relied on the two decisions of the Calcutta and Karnataka High Courts referred to above and has contended that these two decisions are well-considered decisions. Even otherwise, according to the learned counsel, when an assessee carries on a business, that business is carried on for the purpose of profit and not for payment of tax and consequently, the tax paid cannot be treated as expenditure incurred wholly and exclusively for the purpose of business and reference was made to the decision in East India Pharmaceutical Works Ltd. v. CIT . In that decision, while dealing with the concept of "business expenditure", it was pointed out that an expenditure cannot be allowed as a business expenditure under section 37(1) of the Income-tax Act, 1961, unless it was incurred or laid out directly or indirectly by the assessee wholly and exclusively for the purpose of his business. The Division Bench observed that a trader carries on the business for the purposes of earning profits and not for the purposes of paying income-tax and though the earning of profits and the payment of taxes are not isolated and independent activities of a business, yet the expenditure incurred or laid out for the purpose of the payment of income-tax would not fall within the scope of the expression for the purpose of the business".