Law:

Section:

Section 37(1), read with section 40(a)(ii), of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether surtax was not prohibited under section 40(a)(ii) and since it was paid by companies under a statute, it was admissible as deduction under section 37 - Held, yes FACTS For the assessment year 1975-76, the assessee, a tea estate, claimed deduction of the amount of surtax paid, but the ITO rejected the claim as prohibited under section 40(a)( ii). On appeal, both the AAC and the Tribunal upheld the disallowance. On reference: HELD Any tax paid is Crown's share as they are paid perforce of statutes. All taxes are sovereign's share and fall under article 265 of the Constitution. The two incidents of income-tax - Crown's share and income-tax - should not be deduc-ted from the income of the assessee are entrenched as historical attributes; rather they are the attributes of a fiscal statute. There is no reason to fasten these incidents or attributes to surtax as surtax is different from income-tax in all attributes and perspectives. Surtax was paid by the assessee in the instant case under the compulsion of the statute for running business of tea. Therefore, it had to be allowed to be deducted under section 37. That the Parliament has not directed to deduct surtax in express language was not conclusive of the issue; as such a question had to be answered on consideration of the Companies (Profits) Surtax Act, 1964, and on consideration of the relevant provisions of the Act, surtax was not prohibited under section 40(a)(ii ), and was paid by the companies under a statute and, therefore, could be deducted under section 37. CASE REFERRED TO Brooks v. IRC 2 TC 236, State of MP v. Sirajuddin Khan [1964] 53 ITR 158 (SC), India Carbon Ltd. v. CIT [IT Reference No. 2 of 1981], Molins of India Ltd. v. CIT [1983] 144 ITR 317 (Cal.), Birla Jute Mfg. Co. Ltd. v. CIT [1986] 162 ITR 413/ 28 Taxman 519(Cal.), CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 936 (Kar.) , Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836/ 30 Taxman 467 (Kar.), S.L.M. Maneklal Industries Ltd. v. CIT [1988] 172 ITR 176/ 39 Taxman 42 ( Guy), Associated Stone Industries (Kota)…

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