A. Raghuvir, C.J:— This reference is made under Clause (1) of Section 256 of the Income-tax Act, 1961 at the instance of the assessee, a tea company with the name the Doom Dooma Tea Company Ltd. The reference relates to assessment year of 1975–76. The tea estate paid Rs. 2,26,280/- under the Companies (Profits) Surtax Act VII of 1964 and unsuccessfully claimed deduction before the revenue authorities. The Income Tax Officer rejected the claim as prohibited under Section 40(a)(ii) of the Income Tax Act. The Appellate Assistant Commissioner on appeal entertained a doubt as to the tenability of such a claim therefore confirmed the order under appeal. The Tribunal dismissed the further appeal following a decision of the Bombay Bench of the Appellate Tribunal in I.T.A 3643 (Bom) of 1974–75 dated December 1st, 1977. Finally at the instance of the Tea Estate the following question is referred to this Court : “Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the surtax liability of the applicant was not admissible as a deduction in the computation of its total income for income-tax purpose.”

2. To answer the above question it is necessary to know the origins of the three taxes levied in India. The three taxes are the Income-tax, the Super-tax and the Sur-tax. As on to-day the super-tax is repealed by amendment of Section 4 of Act VII of 1964 by Finance Act XXIII of 1986. The sur-tax is discontinued for and after assessment year 1938–89 under the Finance Act, 1988. The Income-tax was levied at first in 1886. In that Act no distinction was drawn of sources like profession, business or income acquired from a salary or other sources. The Act of 1918 brought forth these distinctions in the Statute book. In the Act of 1922 the income of various heads was elucidated and loss under one head of income was allowed to be set off against the profit of another head. This method is continued to remain in the Income-Tax Act of 1961.

3. As to super-tax it is seen in United Kingdom the House of Lords delineated super-tax as a New tax in the case of Brooks v. Commissoner of Inland Revenue in 7 Tax Case 236 and called it is an additional duty of income-tax. This case was decided in 1914. The Indian (or Imperial) Legislative authority introduced super-tax in 1917 and substituted in 1920 by another Act. When 1922 Income tax Act was promulgated the provisions of 1920 Act were incorporated in Sections 55 to 58 in Chapter IX of that Act. In these Sections super-tax was levied and quantified separately from the Income-tax. This pattern is maintained in Chapter eleven of 1961 Act super-tax is levied and quantified under Sections 104 to 109 of the Act. Chapter Eleven in Sections 95 to 109 certain companies are classified, grouped and defined like Industrial Companies, Consultancy Service Companies and non-distributable profits are defined in this Chapter and super-tax is levied. Income-fax and super-tax thus levied, quantified and collected under one common Act but separate identity of two taxes is maintained in the Statute Book ever since of 1917 the inception of super-tax.

4. In the early sixties the country was facing from the creditors in particular the International Monetary Fund to devalue the rupee. The Wanchoo Committee Report pointed in their Report on Direct Taxes that early Sixties evils of black money sprawled all over the body of the State. The Law Commission in their Fortyseventh Report pointed out that economic offenders were left at large. The academic circle pointed liberal fiscal policy adopted was the root cause of evils that were experienced at that time in the country. It was shown under taking statutes large amounts escaped taxation under the guise of trusts. It is in this adverse climate the Parliament introduced sur-tax. In the objects and reasons of the bill which became later Act VII of 1964 it is recited : “The object of this Bill is to impose a special tax on companies (other than those which have no share capital) on their excess profits, namely, the amount by which the total income of company is reduced by certain types of income and certain sums and the income-tax and supertax payable by it exceeds a sum of ten per cent of its capital reserves and certain borrowed moneys or a sum of Rs. 2 lakhs, whichever is higher.” The undistributable income and on certain incomes sur-tax is levied on chargeable profits from. April 1, 1964. The distributable income after certain adjustments is specified in the first and second Schedules of the Act. The rates of sur-tax are set out in third Schedule of the Act. Thus sur-tax is levied on chargeable profits of certain companies and reduced profits of the affected companies.

5. Thus Income-tax, Super-tax and Sur-tax all the three taxes are collected under Income Tax Act, 1961. The income-tax and super-tax are levied and quantified in one Act but their separate identity is maintained in the Statute Book. The incidents of the three taxes are different.

6. We see in Section 15 of Act VII of 1964 it is recited notwithstanding anything contained in Clause (i) of Section 109 of the Income-Tax Act, sur-tax payable be deducted. No recital is there in the Act as to whether sur-tax be deducted for Income-tax purposes. In the absence of such an indication by the parliament what inference is to be drawn is one of the questions raised in this regard. The Supreme Court in 53 ITR 158 at 164 (State of M.P v. Sirajuddin Khan) held speculation in the absence of a statutory provision is not to be substituted for certainty in interpretation. We respectfully adopt the precept and as to this aspect we will return later.

7. The word income is defined in Clause (24) of Section 2 of the Income Tax Act, 1951 to include profits or gains. Clause (43) of Section 2 defined tax as income-tax chargeable under the provisions of the Income-tax Act. Section 28 of that Act covers profits, gains of business or obtained from profession. Section 29 sets out the method of ascertainment of income with reference to Sections 30 to 40A. Section 37 permits deduction of expenditure with certain exceptions. The scheme of deductions as found in Section 10(2)(xv) after the amendment of 1939 Act in the repealed 1922 Act was adopted in 1961 Act. One of us speaking for the Division Bench (Chief Justice) in Income-tax Reference No. 2 of 1981 (India Carbon Limited v. CIT)* reviewed the cases and held taxes paid perforce of Statutes are to be deducted from the profits and loss accounts of assessees. Broadly expenditure incurred for business was to be deducted and expenditure incurred for profits cannot be-deducted.

8. A like question as in the instant case was considered by seven High Courts in the country. Barring a single Judge in a Full Bench case of Kerala High Court in all cases the claim for deduction was rejected. There is however a lively discussion in the cases therefore we turn to the cases.

9. The Calcutta High Court considered the question in 144 ITR 517 Molins of India Ltd. v. CIT and followed that decision without any discussion in 162 ITR 413 (Birla Jute Manufacturing Co. Ltd. v. CIT). Before the Calcutta High Court in the first case it was argued on behalf of the assessee that sur-tax even before it reached the hands of the assessee stood diverted to revenue in law as a result of the interaction of the provisions in two statutes (the Act 43 of 1961 and Act VII of 1964). This contention was rejected. The computation-of sur-tax was considered in this regard and it was stated after income is distributed under Chapter XI-D under the Income-tax Act sur-tax payable by a company is determined and profits alone are charged under Sur tax Act. Sur-tax paid therefore was not allowed to be deducted. Incidentally it was stated there is no provision in Income-tax Act to deduct Sur-tax therefore the claim was disallowed. The question of diversion of tax amount was faintly suggested in Gujarat High Court to which we will turn to immediately. In no other case the plea of diversion was argued. In the instant reference such a question is not raised by the Tea Estate before this Court.

10. The Karnataka High Court decided similar issue in-144 ITR 936 (CIT v. International Instruments (P) Ltd. and followed in 166 ITR 836 (Mysore Kirloskar Ltd. v. CIT). In the first Karnataka case it was held sur-tax is levied under a special statute. The scheme of taxation held to be different from Income-tax Act. In the former tax is levied on chargeable profits of the previous year that exceed a statutory limit at the rates specified in the Third Schedule. Sur-tax it was said is an additional tax on profits and gains of the business. Finally sur-tax was not deducted. The apex Court granted special-leave against that opinion and is pending consideration before the Supreme Court.

11. The Andhra Pradesh High Court held sur-tax is a tax on income. What is taxed does not cease to be tax on income because additional tax is imposed. Holding so the first Calcutta decision was followed.

12. The Gujarat High Court in 172 ITR 176 (S.L.M Maneklal Industries Ltd. v. CIT) held sur-tax is an additional tax on income after the income reached the hands of the assessee. Unless profits are earned liability to pay sur-tax does not arise. If there is no income and no profit payment of sur-tax in law does not arise. This is how Gujarat High Court reasoned out not to deduct sur-tax under Section 37 of the Income-tax Act, 1961.

13. The Rajasthan High Court in 770 ITR 953 (Associated Stone Industries (Kota) Ltd. v. CIT) held sur-tax was tax on profiits computed under the Income-tax Act, 1961. The deduction of sur-tax is prohibited under Section 40(a)(ii) therefore was not allowed to be deducted.

14. The Madras High Court in 159 ITR 646 (Sundaram Industries Ltd. v. CIT) stated the first Calcutta decision in 44 ITR 317 is a well reasoned out decision therefore High Courts may follow that case. That Court next held sur-tax charged on profits earned by Companies and is determined with reference to the total income of the Company under the Income Tax Act. The affected Companies are liable to pay additional tax Sur-tax therefore cannot be deducted as expenditure.

15. The Kerala High Court in a Full Bench case considered a similar question in 759 ITR 431 (A.V Thomas & Co. Ltd. v. CIT). The majority of two Judges held sur-tax is levied on profits. It was pointed out after the income is computed and adjusted the balance is subjected to sur-tax. There is no statutory provision to deduct sur-tax therefore cannot be deducted. The dissenting single Judge held sur-tax is tax on chargeable profits computed in terms set out in the First Schedule. Sur-tax is not charged on profits and gains of the business. What is paid as sur-tax can be deducted under section 28 or 37 of the Income Tax Act as a business expenditure-therefore sur-tax is to be deducted. The Single Judge to strengthen his conclusion pointed out sur-tax is levied under Act VII of 1974 not under Act 43 of 1961.

16. In the Income-tax Act, 1961 before any amount deducted under section 37 it is to be seen whether such an amount is prohibited under section 40(a)(ii) of the Act. Therefore the prohibition aspect is to be considered first This court in (1989) 1 GLR 218 (Makum Tea Company (India) Ltd. v. Commissioner of Income Tax, North Eastern Region, Shillong) held deduction of sur-tax levied under the Companies Profits (Surtax) Act, 1954 is not prohibited under section 40(a)(ii). Thus the only question to be considered is whether sur-tax paid can be deducted under section 37 of the Income-tax Act.

17. The learned counsel for the Tea Estate placing reliance on the definition of tax in clause (43) of Section 2 of the Income-tax Act, 1961 argued sur-tax is not tax under Income Tax Act, therefore deduction under Section 37 is not prohibited. The Calcutta High Court in the first case grappled with the definition in Section 2(43) of the Income-tax Act, 1961 and held the definition of tax in the context is inapplicable. The Andbra Pradesh High Court in the case cited held tax is not confined to income-tax and Section 40(a)(ii) covered all taxes and rates. The Court did not note the definition in Section 2(43). The Madras High Court juxtaposed the definition of tax with the word any and concluded tax means any tax therefore sur-tax is prohibited. There is no other case in which the-definition of tax was considered.

18. We are not persuaded to accept that in the context of Act VII of 1964 the definition of tax is inapplicable as held by Calcutta High Court. There is no necessity to anlarge the word tax in Section 40(a)(ii), to mean any tax as held by Madras High Court.

19. The learned Standing Counsel for the Revenue at first argued that in Act VII of 1964 or in the Income-tax Act, 1961 there is no provision to deduct sur tax therefore sur-tax cannot be deducted. This argument in our view is tenous. We cite half a dozen Statutes where without such recitation tax, rate or cess was allowed to be deducted under the Income-tax Act, 1961. Cess paid under the Bengal Village Self-Government Act, 1919 was allowed to be deducted by the Privy Council in 14 JTR 100 (CIT Madras v. Sri Visweswardas Gokuldas). The cess paid in Bengal Cess Act, 1880 and Bengal (Rural) Primary Education Act, 1930 was deducted by Supreme Court in 82 ITR 580 (Jaipuria Samla Amalgamated Collieries Ltd. v. CIT). The cess paid under U.P District Boards Act, 1922 was deducted in 145 ITR 125 (Simbholi Sugar Mills Ltd. v. CIT, U.P & V.P) by the Allahabad High Court and by the Punjab High Court in 6 ITR 414 (CIT Bombay Presidency & Aden v. Khem-chand Ramdas). The decision of the Allahabad and Punjab High Courts were approved by the Supreme Court in Jaipuria Samla Amalgamated Collieries case. The cess and interest paid under the U.P Sugar Cane Cess Act, 1956 was deducted in 123 ITR 429 (Mahalakshmi Sugar Mills Co. v. CIT Delhi). The gratuity deposited in an irrevocable trust was deducted in 145 ITR 489 (Shree Sajjan Mills Ltd. v. CIT). Tax paid under the Wealth Tax Act, 1957 was not deducted after first case in 60 ITR 211 (Travancore Tatanum Products Ltd. v. Commissioner of Income Tax, Kerala). This decision was modified in 84 ITR 732 (Indian Aluminium Co. Ltd. v. CIT) to hold an assessee when is possessed of assets connected with business and unconnected with business, the wealth tax paid for the assets connected with business is permissible to be deducted and wealth tax paid for the assets not connected with business is not permissible to be deducted. Soon after the second or latter case was decided under the Wealth Tax Amendment Act, 1972 with retrospective effect from April 1, 1962 the Parliament declared wealth tax is prohibited from deduction by adding that sentence in Clause (ii-a) of Section 40 of Income-tax Act.

20. There in impressive literature as to why income tax as not allowed to be deducted. Finlay, J. in one of the cases in Unted Kingdom 17 Tax Cases 59 (Allen v. Farquharson Brothers & Co.) observed : “Income tax is not a deduction before you arrive at the profits. It is part of the profits. It is, as has been expressed by some well-known person—I cannot remember who but it does not matter—The Crown's share of the profits”. The well-known person not recollected by Finlay, J. is Earl of Halsbury who in (1906) Appeal Cases 10 (Ashton Gas Company v. Attorney General) who held : “The income tax is a charge upon the profits: the thing which is taxed, is the profiit that is made before you deduct the tax—you have no right to deduct the income tax before you ascertain what profit is”. In a judgement of the Patna High Court in 43 ITR 774 (Kameshwar Singh v. Commissioner of Income-tax) it was observed : “It is said in an English case that income tax represents the Crown's share of the profits. It is not an expenditure for the purpose of earning profit. Income tax is a Crown's share is not available plea. When Peshawas ruled India they levied Chauth as Raja's Bhag. Even today in South India land revenue after survey and settlement is held to be Raja Bhagam. 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. We have earlier referred to the two cases wherein wealth tax paid was allowed and because of the Statute amendment as on to-day is not allowed to be deducted. We may here point out that the Wealth Tax Amendment Act, 1972 does not wipe out the rationese contained in the judgment of the apex court in the case of 64 ITR 755. It was sufficient to have said in Patna case that interest paid by the assessee was not connected with the business of the assessee, therefore, was not expenditure. The two incidents of income-tax—Crown's share and income-tax should not be deducted from the income of the assessee are entrenched as historical tributes rather they are the attributes of a fiscal statute. There is no reason to fasten these incidents or attributes to sur-tax as we have earlier shown sur-tax is different from income-tax in all attributes and perspectives. Surtax was paid by the tea estate in the instant case under the compulsion of the Statute for running business of tea therefore has to be allowed to be deducted under section 37 of the Income-tax Act.

21. In this regard see Section 109(i)(a) for super-tax the income-tax paid was excluded. We have earlier in this regard referred to Section 15 of Sur-tax Act, 1964 in that notwithstanding Section 109 for ascertainment of distributable income, Sur-tax is to be deducted. The Parliament has not directed to deduct sur-tax in express language is not conclusive of issue as we hold such a question has to be answered on consideration of the Act VII af 1964 and on consideration of the relevant provisions of the Act, we hold sur-tax is not prohibited under Section 40(a)(ii) of the Income-tax Act and paid by Companies under a Statue therefore can be deducted under section 37 of the Income tax Act.

22. For all the aforesaid reasons we answer the question in favour of the assessee and against the Revenue and hold Rs. 2,26,280/- be deducted from the profiits and loss accounts of the assessee. No costs.