T.L. Viswanatha Iyer, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question of law for the opinion of this court under Section 18 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as 'the Surtax Act'), read with Section 256(1) of the Income-tax Act, 1961 :
'Was the Appellate Tribunal justified in law in holding that the deposit made by the (applicant) company under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, is not payment of surcharge on income-tax payable by the company, so that the said amount of deposit cannot be aggregated with the income-tax payable and deducted in arriving at the chargeable profits ?'
2. The year of assessment is 1977-78, corresponding to the accounting year ending on June 30, 1976.
3. The question involved relates to the quantum of chargeable profits of the petitioner which is a company incorporated under the Companies Act. The charge of surtax under Section 4 of the Surtax Act is on the 'chargeable profits' of the previous year. 'Chargeable profits' is defined in Sub-section (5) of Section 2 as meaning the total income of the assessee computed under the Income-tax Act, 1961, for the previous year and adjusted in accordance with the provisions of the First Schedule to the Surtax Act. The First Schedule provides that, in computing the chargeable profits, the total income computed under the Income-tax Act, shall be adjusted in the manner specified therein. Rule 1 of the First Schedule provides for exclusion of various heads of income, profits and gains from the total income of the assessee. The balance of total income arrived at after making the exclusions in Rule 1 has to be reduced further by the amounts mentioned in Clauses (i) and (ii) of Rule 2, of which we are concerned with Clause (i). We shall extract the said clause for purpose of convenient reference :
'(2) The balance of the total income arrived at after making the exclusions mentioned in Rule 1 shall be reduced by-
(i) the amount of income-tax payable by the company in respect of its total income under the provisions of the Income-tax Act after making allowance for any relief, rebate or deduction in respect of income-tax to which the company may be entitled under the provisions of the said Act or the annual Finance Act, and after excluding from such amount. ...'
4. What is to be reduced is the amount of income-tax payable by the company, adjusted in the manner specified therein. It is not in dispute that the amount of income-tax referred to includes also the surcharge on income-tax payable by the company, having regard to the decision of the Supreme Court in CIT v. K. Srinivasan : [1972]83ITR346(SC) .
5. The Finance Act, 1976 (Act No. 66 of 1976), made some special provisions in relation to payment of surcharge on income-tax for the assessment year 1977-78 with corresponding provisions for payment of advance tax for that year. The second proviso to Sub-section (6) of Section 2 of the Act relating to payment of advance tax provided that an assessee-company may, in lieu of payment of the surcharge on income-tax specified in the Act, make a deposit under the scheme framed under Sub-section (8) before the last instalment of advance tax was due, and when it didso the amount of surcharge on income-tax payable by it shall be nil where the deposit so made was equal to or exceeded the amount of surcharge on income-tax payable by it, and if the amount of the deposit so made fell short of the amount of surcharge payable by it, the amount of surcharge payable shall be reduced by the amount of the deposit. The substantive provision relating to the year 1977-78 was reflected in Sub-section (8) which contained a similar provision, which we shall extract :
'(8) Where an assessee, being a company, makes during the financial year commencing on the first day of April, 1976, any deposit with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), under any such scheme as the Central Government may, by notification in the Official Gazette, frame in this behalf, then, the surcharge on income-tax payable by the company for the assessment year commencing on the first day of April, 1977,--
(i) in a case where the amount of deposit so made is equal to or exceeds the amount of surcharge on income-tax payable by it, shall be nil ; and
(ii) in a case where the amount of the deposit so made falls short of the amount of surcharge on income-tax payable by it, shall be reduced by the amount of the deposit.'
6. The assessee-company made a deposit of Rs. 94,544 on December 14, 1976, with the Industrial Development Bank of India under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, framed under Sub-section (8), before the last date for payment of the advance tax, namely, December 15, 1976. This was in accord with Sub-section (6) of Section 2 referred to earlier.
7. The Finance (No. 2) Act of 1977 (Act 29 of 1977), which governs the assessment for the year 1977-78, in its turn, made a provision similar to Sub-section (8) of Section 2 of the Finance Act of 1976. The proviso to Section 2(1) thereof laid down that, where an assessee, being a company, had made, during the financial year commencing on April 1, 1976, any deposit with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, then, the surcharge on income-tax payable by the company shall be nil in cases where the amount of the deposit so made is equal to or exceeds the amount of surcharge on income-tax payable by it, and it shall be reduced by theamount of the deposit in cases where the amount of the deposit so made falls short of the amount of surcharge on income-tax payable by it.
8. The assessee, in the course of its assessment for the year 1977-78, claimed that the amount deposited by it with the Industrial Development Bank of India on December 14, 1976, namely, Rs. 94,544, should be deducted in the computation of its chargeable profits under Rule 2 of the First Schedule to the Surtax Act. We have already extracted the said rule which provides for reduction of the amount of income-tax payable by the assessee (which it is not disputed includes surcharge as well) from the total income of the assessee for the purpose of computation of the chargeable profits of the year. The contention of the assessee did not find favour with any of the authorities including the Appellate Tribunal, and, therefore, the question mentioned earlier has been referred for the opinion of this court under Section 18 of the Surtax Act at the instance of the assessee.
9. The appeal by the assessee was heard by a Special Bench of the Appellate Tribunal and two separate but concurring orders were written. The order of the majority held that the making of the deposit with the Industrial Development Bank of India was not tantamount to payment of surcharge and, therefore, the assessee was not entitled to treat the said amount as part of the income-tax referred to in Rule 2 of the First Schedule to the Surtax Act. The other member concurred with the decision on a different approach. She held that, as per Section 2 of the Finance (No. 2) Act of 1977, no surcharge was payable by the assessee in this case, as the surcharge payable was nil in cases where the amount deposited with the Industrial Development Bank of India was equal to or in excess of the amount of surcharge payable by it. The effect of both the orders was that the assessee did not get the benefit of reduction of the amount of deposit made with the Industrial Development Bank of India in the computation of its chargeable profits of the year.
10. The matter was debated before us at considerable length by counsel on both sides, with reference to the points urged and considered by the concurring orders of the Tribunal. Reliance was also placed by counsel for the Department on a decision of the High Court of Karnataka in Widia (India) Ltd. v. CIT : [1992]194ITR77(KAR) , which upheld the departmental point of view. But, we feel that, on the terms of Rule 2 of the First Schedule to the Surtax Act, as it stands, none of these aspects arise for consideration and, therefore, it is unnecessary for us to consider the matter in the way in which it has been dealt with by the various members of the Tribunal.
11. We shall presently state the reasons why.
12. What the assessee contends is that, even as per the Finance Acts 1976 and 1977, the exigibility of surcharge on income-tax exists, though an assessee who satisfies the condition of deposit in the Industrial Development Bank of India is given a rebate or deduction. The relief granted to companies who have made the deposit under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, cannot be equated with total non-liability from payment of surcharge. The contention is that surcharge is actually payable under these Finance Acts, and it forms part of the income-tax referred to in Rule 2 of the First Schedule to the Surtax Act, liable to be deducted in the computation of the chargeable profits. This is the maximum that the assessee can put forward in support of its case.
13. But, even the acceptance of this contention in its entirety is of no avail to the assessee to earn the benefit of deduction of the amount of surcharge in the computation of the chargeable profits under Rule 2fi) of the First Schedule to the Surtax Act. We have extracted the said provision and it provides, inter alia, that the balance total income arrived at after the exclusions mentioned in Rule 1 shall be reduced by the amount of income-tax payable by the company in respect of its total income under the provisions of the Income-tax Act, 1961, after making allowance for any relief, rebate or deduction in respect of the income-tax to which the company may be entitled under the provisions of the said Act or the annual Finance Act. The effect of the latter part of this rule is that the amount of income-tax which is to be reduced from the balance of total income is only that amount which is actually paid by the assessee by way of income-tax subject to the further adjustments contemplated by Sub-clauses (a) to (c) thereof. The specific provision for making allowance for any relief, rebate or deduction to which the assessee is entitled either under the Income-tax Act or the Finance Act leads to this result. Therefore, even accepting the contention of the assessee at its face value, the position will still be that the amount of surcharge in respect of which it gets relief or rebate under the provisions of the Finance Acts of 1976 and 1977 will have to be excluded from the amount of income-tax payable by the company, before reducing it from the total income arrived at under Rule 1. This being the position, the various questions debated before the statutory authorities regarding the effect of the provisions of the Finance Acts of 1976 and 1977, as mentioned by us earlier become irrelevant. Even going by the case of the assessee, they will not be entitled to deduction of the amount of surcharge in the computation of the chargeable profits.
14. The above conclusion of ours finds support from the provisions of Clause (ii) of Rule 2 under which a company which has been charged to tax outside India is entitled to deduct only the tax actually paid outside India under Rule 2, after allowance of every relief under the laws of that country.
15. We find that the question in this form, based on the terms of Clause (i) of Rule 2 has not been adverted to or considered either by the Tribunal or by the other authorities. But we are of the opinion that the matter is concluded by the provisions of the clause and that it is unnecessary to consider the matter from the angle in which it has been presented before the Tribunal.
16. The question referred by the Tribunal does not, however, truly reflect the real nature of the dispute between the parties. The question is really whether the assessee is entitled to deduct the amount of surcharge payable under the provisions of the Finance (No. 2) Act of 1977 from the total income for the purpose of computation of the chargeable profits. Since the question referred does not reflect the real issue between the parties, we reframe the question as follows :
'Whether the Appellate Tribunal was justified in holding that the amount of surcharge on income-tax payable by the assessee-company, which had made deposit under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, was not liable to be deducted in the computation of the chargeable profits of the assessee-company during the year in question?'
17. We hold that the said amount was not deductible in the computation of the chargeable profits of the assessee for the year in question, namely, 1977-78. We answer the question, as reframed by us, in the affirmative, that is, against the assessee, and in favour of the Revenue, though on different grounds. No costs.
18. Communicate a copy of this judgment under the signature of the Registrar and the seal of this court to the Assistant Registrar of the Income-tax Appellate Tribunal, Cochin Bench.