1. These appeals by the assessee are directed against the common order passed by the Commissioner of Income-tax, Madurai, on 17-3-1988 under Section 16(1) of the Companies (Profits) Surtax Act, 1964.
2. The Income-tax assessment of the assessee for the assessment years 1981-82, 1982-83 and 1983-84 was completed respectively on 22-6-1984, 12-4-1985 and 31-12-1984, determining the total income at Rs. 27,37,476, Rs. 58,73,750 and Rs. 84,93,197 respectively. Since the assessee is a banking company, under the Interest-tax Act, 1974, interest-tax was exigible on the chargeable interest of the assessee.
Further, by virtue of the provisions of Section 18 of the Interest-tax Act, 1974, the tax payable under the said Act was deductible in computing the total income of the assessee under the Income-tax Act. It is common ground that while making the assessments under the Income-tax Act, the assessee was allowed the benefit of deduction in respect of the interest-tax payable under the Interest-tax Act, 1974.
3. In the assessee's case, surtax under the Companies (Profits) Surtax Act, 1964, was also exigible. The surtax assessment for the three assessment years under consideration was completed on 28-6-1985, 5-8-1985 and 10-1-1986 respectively. For the purpose of computing the chargeable profits under the Surtax Act, the Assessing Officer adopted as the starting point the total income of the assessee as determined under the Income-tax Act for the said three assessment years. In other words, the Assessing Officer did not consider it necessary to make any adjustment as respects the interest tax allowed as a deduction in computing the assessee's total income under the Income-tax Act.
4. Subsequently, the Commissioner of Income-tax, Madurai, called for and examined the assessment records of the assessee. On such an examination, he found that the Surtax assessment orders in question were erroneous in that they were prejudicial to the interests of the revenue. In this regard, the following considerations weighed with him : (a) The Income-tax Act does not provide for any deduction of the interest-tax paid by the assessee. It is only by virtue of Section 18 of the Interest-tax Act, 1974 that the Interest-tax payable is allowable as a deduction in computing the total income under the Income-tax Act.
(b) Rules 1 to 3 of the First Schedule of the Surtax Act also do not provide for any such deduction.
(c) Under the scheme of the Surtax Act, chargeable profits will have to be computed on the basis of the total income of the assessee as computed under the Income-tax Act. Since the Income-tax Act does not allow a deduction of the interest-tax payable by the assessee, and since the deduction is provided for under Section 18 of the Interest-tax Act, 1974, the deduction allowed by virtue of the said Section must be ignored for purposes of the Surtax Act. In other words, the total income of the assessee as determined under the Income-tax Act should be enhanced pro tanto and surtax levied on that basis.
He, therefore, put the assessee on notice of his intention to pass suitable orders under Section 16(1) of the Surtax Act.
(a) The Surtax Act does not contain any provision enabling the Department to meddle with the total income determined under the Income-tax Act.
(b) Under the specific provisions of Section 18 of the Interest-tax Act, interest-tax payable is deducted while computing the total income under the Income-tax Act.
(c) In any event, interest-tax having been paid for the purposes of the assessee's banking business, the said tax is deductible under Section 37 of the Income-tax Act.
In view of the foregoing, therefore, the surtax assessments in question did not invite any interference.
6. None of the aforesaid arguments found favour with the Commissioner of Income-tax who passed the impugned common order in revision, and directed the Assessing Officer to recompute the surtax payable by the assessee for the said assessment years, leaving out of reckoning the interest-tax payable by the assessee. The process of reasoning adopted by him, to quote his words, is : I have carefully considered the contentions of the assessee's representative, but, I am unable to agree with the same. Section 2(5) of the Surtax Act defines 'chargeable profits' as meaning the total income of an assessee computed under the Income-tax Act, 1961, for a previous year and adjusted in accordance with the provisions of the First Schedule. The First Schedule of the Surtax Act opens with the following words: In computing the chargeable profits of a previous year, the total income computed for that year under the Income-tax Act shall be adjusted as follows From the above, it would be clear that the base for computing the 'chargeable profits' under the Surtax Act is the total income computed following the Rules and regulations under the Income-tax Act. Interest-tax payable by a bank has been allowed as a deduction from the total income, only by virtue of Section 18 of the Interest-tax Act. Thus, the deduction of Interest-tax payable is not a deduction contemplated by the Income-tax Act, but, provided for by the Legislature by overriding Section in the Interest-tax Act. A harmonious construction of these provisions reveals that Interest-tax payable by a bank, even though deducted from the total income by virtue of Section 18 of the Interest-tax Act, cannot be allowed as a deduction from total income for the purpose of computing the 'chargeable profits' under the Surtax Act. In other words, only the total income arrived at under the Income-tax Act before deducting the Interest-tax payable should be taken as the basis for computing the 'chargeable profits' under the Surtax Act.
The assessee's argument that the Interest-tax has been laid out or expended wholly and exclusively for the purpose of banking business and so the Interest-tax has to be treated as an expenditure contemplated by Section 37 of the Income-tax Act is not tenable.
Admittedly, the Interest-tax is charged at the rate of 7 per cent on the total amount of interest received by a Scheduled Bank on loans and advances made in India, which means that the Interest-tax is only a charge on the interest receipts and so does not come within the purview of Section 37(1) of the Income-tax Act.
8. On hearing the rival submissions, we consider that the impugned common order in revision, based as it is on an incorrect appreciation of the legal position, is fit to be cancelled.
9. True, the Income-tax Act does not allow any deduction in respect of the interest-tax payable by an assessce. One of the points urged on behalf of the assessee before the Commissioner of Income-tax was that the interest-tax having been paid for the purposes of the assessee's banking business, it was entitled to have the interest-tax deducted in computing its total income under Section 37 of the Income-tax Act. As we see it, it is unnecessary to go into this issue. Let us assume, against the assessee, that Section 37 of the Income-tax Act cannot avail it.
10. The question that then arises for consideration is whether for purposes of surtax, the interest-tax deducted for the purpose of computing the assessee's total income under the Income-tax Act needs to be withdrawn, as has been held by the Commissioner of Income-tax. As we see it, there is no warrant in law for the conclusion reached by the Commissioner of Income-tax.
11. The Income-tax Act levies tax on Individuals, Hindu undivided families, companies, firms, Association of persons and Body of Individuals on the income earned by them under the six heads enumerated under Section 14 of the Income-tax Act. Interest-tax Act on the other hand, deals with taxation of chargeable interest of scheduled banks only. Thus, the latter Act is a special Act which will prevail over the former Act, which is a general Act. If any authority for this proposition is needed, it is to be found in the case of Union of India v. India Fisheries (P.) Ltd. [1965] 35 Comp. Cas. 669 (SC). In that case, the Supreme Court was concerned with the question whether the provisions of Section 49E of the Indian Income-tax Act, 1922 prevailed over the provisions of Sections 228 and 229 of the Companies Act, 1956.
The Supreme Court held, first, that if there is an apparent conflict between two different statutes, the special statute mustprevail, Secondly, Section 49Eof the Indian Income-tax Act, 1922 was a general provision applicable to all assessee's and in all circumstances, whereas Sections 228 and 229 of the Companies Act, 1956 deal with the proof of debts and their payment in liquidation. It was, therefore, that the Supreme Court held that the special provisions of the Companies Act would prevail over the general provisions contained in Section 49E of the Indian Income-tax Act, 1922.
12. There is yet another aspect of the matter that is noteworthy.
Section 18 of the Interest-tax Act, under the provisions of which interest-tax is deductible in computing the total income under the Income-tax Act, reads as follows :- 18. Interest-tax deductible in computing total income under Income-tax Act -Notwithstanding anything contained in the Income-tax Act, in computing the income of a scheduled bank chargeable to income-tax under the head "Profits and gains of business or profession", the interest-tax payable by the scheduled bank for any assessment year shall be deductible from the profits and gains of the bank assessable for that assessment year.
It is ex facie clear from the said Section, first, that it starts with a non obstante clause, and secondly that it specifically provides that in computing the business income of a scheduled bank under the Income-tax Act, the interest-tax payable by the bank is deductible.
13. Now, non obstante clause is a legislative device designed to achieve such diverse purposes as resolving conflicts between two Acts; to confer a benefit which, but for the non obstante clause, would not have been available; or even to deny a benefit, which, but for the non obstante clause, would have been available. A non obstante clause occurring in one Section of an Act may govern, modify, or override the provisions of another Section of the same Act. A non obstante clause of a Section of an Act may also govern, modify, or override the provisions of a Section of another Act.
14. Here, Section 18 of the Interest-tax Act, starting as it does with a non obstante clause, overrides the provisions of the Income-tax Act.
As already pointed out, the Income-tax Act does not contemplate any revenue deduction in respect of the interest-tax payable by a banking company. Section 18 of the Interest-tax Act, on the contrary, confers the said benefit on the said class of assessees through the device of a non obstante clause. In the process, Parliament, as we see it, has constructively amended the Income-tax Act.Union of India v. G.M. Kokil AIR 1984 SC 1022, the Supreme Court It is well known that a non-obstante clause is a legislative device which is usually employed to give a overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions.
That the Income-tax Act, which docs not contemplate a deduction in respect of the Interest-tax payable, is contrary to the legislative intent behind Section 18 of the Interest-tax Act, will be clear from the Statement of Objects and Reasons appended to the Interest-tax Bill, 1974. The relevant portion of the Statement of Objects and Reasons [96 ITR (Statutes) 31] reads as follows: The object of this Bill is to impose a special tax on the total amount of interest received by scheduled banks on loans and advances made in India. However, interest on Government securities as also debentures and other securities issued by local authorities, companies and statutory corporations will not be included in the tax base. Interest received on loans and advances made to other scheduled banks will likewise be exempted from the proposed levy.
The tax will be levied at the rate of seven per cent on the chargeable amount of interest. Interest accruing or arising before 1 -8-1974, will not be liable to tax. The lax will be allowed as deduction in computing the taxable income, under the Income-tax Act, 1961.
We also have the Notes on clauses relating to the said Bill. The notes relating to clause 18 of the Bill reads as follows: Clause 18 seeks to provide that in computing the income of a scheduled bank chargeable to income-tax under the head "Profits and gains of business or profession" for any assessment year, the interest-tax payable by it for that assessment year shall be deducted. [96 ITR (Statutes) 34].
16. Again, as has been pointed out by the Supreme Court in the case of Sarwan Singh v. Kasturi Lal AIR 1977 SC 265, the later enactment shall prevail over the earlier one. The Interest-tax Act is clearly the later enactment and consequently it shall prevail over the Income-tax Act.
17. The foregoing analysis will indicate that the total income of an assessee computed under the Income-tax Act will not cease to be the total income computed under the said Act, merely because a deduction which is not available under the Income-tax Act has been given to the assessee by virtue of the overriding provisions of a special Act, namely, Section 18 of the Interest-tax Act 1974. It should, therefore, follow that for the purpose of the Surtax Act, the deduction allowed in respect of the interest-tax payable cannot lawfully be left out of reckoning.
18. In view of the foregoing, therefore, we hold that the Commissioner of Income-tax was not justified in passing the impugned common order in revision. We, therefore, cancel it.