1. This is a reference under Section 66 (1) of the Indian Income-Tax Act, 1922 (hereinafter called the Act) made by the Income-Tax Appellate Tribunal, Delhi Bench 'B' and it arises out of the following circumstances :
2. The assessee in this case has been. assessed as an individual. The assessment year concerned is 1957-58 for which the relevant previous year is the financial year ending on 31st of March, 1957. The assessee had various sources of income out of which one source was the income from dividends. The Income-tax Officer, Special Investigation Circle, Jaipur, while assessing the income of the assessee increased the income-tax on dividend income which was undoubtedly included in the unearned income by 15 per cent to compute the amount of special surcharge as per the Finance Act, 1957. The assessee challenged the assessment order by filing an appeal before the Appellate Assistant Commissioner of Income-Tax, 'A' range, Jaipur, on various grounds, but this question that special surcharge at the rate of 15 per cent could not be imposed on his dividend income was not raised in that appeal by the assessee.
It was for the first time that an objection was taken by the assessee before the Income-Tax Appellate Tribunal, Delhi Bench 'B' that the special surcharge on unearned income at the rate of 15 per cent as provided by the Finance Act of 1957 could not be imposed on the dividend income of the assessee for that year because of the provisions of Section 2 (3) (a) of the Finance Act, 1957, which provides that the income-tax on dividend income could be calculated as per the rates under operation of the Finance Act, 1956. The Tribunal did not see any merit in the contention raised by the assessee and, therefore, it dismissed this ground. On an application filed by the assessee under Section 66 of the Act, the Income-Tax Appellate Tribunal came to the conclusion that a question of law arises from its order in Income-Tax Appeal No. 6347 of 1964-65 filed by the assessee against the assessment for the assessment year 1957-58 and referred the following question to this Court under Section 66 (1) of the Act:
'Whether on the facts and in the circumstances of the case surcharge was a separate item of taxation different from income-tax and therefore the special surcharge imposed as per Finance Act, 1957 was leviable on income from dividends in spite of the provisions contained in Clause (a), Sub-section (3) of Section 2 of this Finance Act to the effect that income-tax on income from dividends would be charged for 1957-58 assessmentyear at the rate prescribed by the Indian Finance Act, 1956?'
3. Dr. Pal appearing on behalf of the assessee urged that under the scheme of the Indian Income-tax Act, 1922, no other tax except the income-tax could be charged from the assessee and the surcharge or special surcharge as provided by the Finance Act of 1957 is included in the term 'income-tax'. He also urged that the mode for computing income-tax on dividend income is given in Section 2 (3) (a) of the Finance Act of 1957, according to which the income-tax on dividend income can be computed by applying the rate or rates applicable under the operation of the Finance Act of 1956, and, therefore, according to him, the assessing authority could not have charged special surcharge at the rate of 15 per cent as provided by the Finance Act No. 2 of 1957 as that rate could not be made applicable for computing income-tax on the dividend income of the assessee. He, therefore, urged that the income-tax authorities under the Act were not empowered to levy a special surcharge for which there was no provision made in the Finance Act of 1956.
4. Mr. Bhandari, appearing on behalf of the Department, on the other hand, argued that income-tax on the income accrued to the assessee in the accounting year 1956-57 could be calculated as per the provisions of the Finance Act of 1957 which provides under Clause (a) of Sub-section (3) of Section 2 that the income-tax on dividend income shall be computed by applying the rate or rates applicable under the operation of the Finance Act of 1956, but his contention is that the term 'income-tax' as used in Clause (a) of Sub-section (3) does not include the amount of surcharge or special surcharge, and it simply requires that the tax on the dividend income shall be calculated at the rate or rates applicable under the operation of Finance Act, 1956 (No. 18 of 1956), and then that amount of tax on income shall be increased for the purposes of levying the special surcharge on unearned income by 15 per cent under the provisions of Section 2 (1) (a) of the Finance Act 1957 (Act No. 2 of 1957).
He urged that simply because the income-tax on the dividend income of the assessee is to be computed with reference to the rate or rates applicable under the operation of the Finance Act of 1956 it does not mean that the dividend income shall escape the levy of a special surcharge which is required to be imposed under Section 2 (1) (a) of the Finance Act, 1957 read with the First Schedule appended to that Act which prescribes the rate for the special surcharge on unearned income.
5. There is no controversy on this point between the parties that the amount of surcharge or special surcharge is the part of income-tax calculated under the provisions of the Finance Act No. 2 of 1957. Special surcharge has been for the first time leviedby the Parliament in 1957 on unearned income at 15 per cent and the income derived from dividend undoubtedly falls within the term 'unearned income'. The controversy that has been raised before us centres round the interpretation of the words 'income-tax' as used in Clause (a) of Sub-section (3) of Section 2. This controversy can be resolved by taking the scheme of the Finance Act into consideration as a whole.
Sub-section (1) of Section 2 of this Act provides that subject to the provisions of Sub-sections (2), (3), (4) and (5) for the year beginning on the 1st day of April, 1957, income-tax shall be charged at the rates specified in Part I of the First Schedule, and, in the cases to which Paragraphs A, B and G of that Part apply, shall be increased by a surcharge for the purposes of the Union and a special surcharge on unearned income. This language of Sub-section (1) makes it clear that the term 'income-tax' as used in this sub-section does not include the amount of surcharge or special surcharge because the requirement of this Sub-section (1) is that income-tax shall be charged at the rates specified in Part I and then if Paragraphs A, B and C of that Part apply to a case then that amount of income-tax shall be increased by a surcharge for the purposes of the Union and a special surcharge on unearned income.
In our opinion, the term 'income-tax' has been used in Sub-section (3) (a) of the Finance Act, 1957 in that limited sense in which it has been used in Sub-section (1), and while computing the amount of income-tax on dividend income under Clause (a) of subsection (3) of Section 2 of the Finance Act of 1957 by applying the rate or rates applicable under the operation of the Finance Act, 1956 it is the amount of income-tax simpliciter which is determined and which does not include the amount either of surcharge or special surcharge. Under the scheme of Sub-section (1) of Section 2 of the Finance Act, 1957, the income-tax shall be charged on the dividend income in accordance with the provisions of Sub-section (3) of that section because for calculating the income-tax on dividend income the provisions of Sub-section (3) are attracted and it is then that the amount of income-tax so calculated shall be increased by a surcharge for the purposes of the Union and a special surchage on unearned income calculated in either case in the manner provided therein.
This scheme of Sub-section (1) of Section 2 of the Finance Act of 1957 leaves no room for doubt that while applying the provisions of Clause (a) of Sub-section (3) of Section 2 of that Act on dividend income which makes the rate or rates under the operation of the Finance Act, 1956, applicable to calculate the amount of income-tax on dividend income, the amount of income-tax so calculated would not include the amount of surcharge or special surcharge. In order to compute the aggregate income-tax which includes the surcharge or special surcharge, the amount of income-tax as found out under Section 2 (3) (a) on dividend income shall be increased by 5 per cent to determine the amount of surcharge and then by 15 per cent to calculate the special surcharge as per the requirements of Section 2 (1) (a) of 1957 Act.
In this view of the provisions of the Finance Act, 1957, it is difficult to accept this contention of Dr. Pal that the income-tax on the dividend income could be determined only under Clause (a) of Sub-section (3) of Section 2 of the Finance Act of 1957 by applying the rate or rates applicable under the Finance Act, 1956, and special surcharge as prescribed under 1957. Act could not be added to the amount of income-tax as the Finance Act of 1956 does not make any provision for the levy of special surcharge. As we are of opinion that the term 'income-tax' as used in Sub-section (3) (a) of Section 2 of the Finance Act, 1957, does not include the amount of surcharge for the Union and also the amount of special surcharge as prescribed under the head 'surcharges on income-tax' in the First Schedule of the Finance Act of 1957, the argument of learned counsel for the assessee loses all its force. We are definitely of opinion that words 'income-tax' as used in Section 2 (3) (a) of the Finance Act, 1957 simply connote that amount of tax on dividend income which does not include the surcharge or special surcharge.
6. It may also be observed that the levy of a special surcharge was for the first time provided by the Finance Act, 1957 and it is contended by Mr. Bhandari that the provision was made by Parliament to meet the financial exigencies of that particular year and it was laid down that special surcharge should be realised on all kinds of unearned income in that financial year. This argument of Mr. Bhandari cannot be said to be devoid of any force because we find in the scheme of Sub-section (1) of Section 2 of 1957 Act that the Legislature while imposing a special surcharge for the year 1957-58 specifically provided that subject to the provisions of Sub-sections (2), (3), (4) and (5) for the year beginning on the 1st day or April, 1957, income-tax shall be charged at the rates specified in Part I of the First Schedule of that Act and in the cases to which Paragraphs A, B and C of that Schedule apply, shall be increased by a surcharge for purposes of the Union and a special surcharge on unearned income calculated in either case in the manner provided in the Schedule.
It is not disputed that in the case of the assessee Paragraph A of the First Schedule of the Finance Act, 1957 applies. Under this provision of Section 2 (1) (a) of the Finance Act which is made subject to Sub-section (3) of that section, the assessee is entitled to claim that the income-tax on his dividend income should be calculated by applying the rate or rates as prescribed in the Finance Act, 1956. but he cannot claim that the amount of income-tax so determined should not be increased by five per cent to add the surcharge and by fifteen per cent to add special surcharge calculated in the manner provided under the heading 'surcharges on income-tax' in the First Schedule of the Finance Act, 1957. In our opinion, the assessing authority has rightly imposed special surcharge on the dividend income of the assessee in this case.
7. For the reasons given above, the question referred to us is replied in the affirmative.