Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1972-73 - Whether surtax levied under Companies (Profits) Surtax Act, 1964 was allowable as deduction in computing total income - Held, no FACTS For the assessment year 1972-73, the assessee claimed the surtax paid as deduction on the ground that if the surtax had not been paid the assessee would have been subjected to penalties, etc., and it had no option but to make the payments and as such the payment was incurred for the benefit of the assessee's business. The contention did not find favour with the lower authorities. On reference: HELD It is clear from the reading of section 4 along with section 2(5) and the First Schedule of the Companies (Profits) Surtax Act, 1964 that the surtax is sought to be computed primarily on the profits and gains from business of an assessee. The tax is in respect of the assessment year and the chargeable profits are the total income computed under the 1961 Act, but adjusted in accordance with the provisions of the First Schedule. There can be a number of cases where the types of income and gains referred to in the First Schedule to the said Act may not have accrued or arisen to an assessee and it may still be liable to pay surtax because of its total income computed under 1961 Act, which is regarded as chargeable profits. There is no manner of doubt that the tax which is imposed by the charging section under the Surtax Act is on the total income computed under the 1961 Act, subject to such adjustments as may be necessary under the First Schedule to the Act. The surtax is paid if the assessee has earned income. The payment of surtax is nothing more than an apportionment of the profits after they have arisen. This payment is not a charge on the profits of the company but is an allocation or an apportionment which is made thereafter. The fact that this payment is not relatable to the carrying on of the business of the assessee is evident from the fact that if the assessee suffers a loss or does not have any chargeable profits, then no surtax is payable but the assessee can carry on its business activity. The payment is to be made…

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