B.L Hansaria, J.:— The following question has been referred to this Court for its decision by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961, for short the Act:
“Whether on the facts and in the circumstances of the case, the liability to pay sur-tax under the Companies (Profits) Surtax Act, 1964, amounts to a sum paid on account of tax levied on the profits and gains of the business of the assessee and hence not allowable as a deduction because of the prohibition contained in section. 40(a)(ii) even if it were allowable as a deduction under section 37 of the Income-tax Act, 1961.”
2. The question as framed requires this Court to decide as to whether there is any bar under section 40(a)(ii) of the Act in allowing deduction of the sur-tax paid under the Companies (Profits) Surtax Act, 1964 (hereinafter the Surtax Act) on the assumption that the surtax paid on the above count is allowable as a deduction under section 37 of the Act. We will, therefore, confine our attention and thought to the bar created by section 40(a)(ii) of the Act. We are not applying our mind, as we are not required to do so on the question as framed, whether the surtax in question can be deducted under section 37 of the Act.
3. To answer the question referred to us it would be apposite to first note the language of section 40(a)(ii) of the Act which reads as below:
“40. Notwithstanding anything to the contrary in section 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”—
(a) in the case of any assessee—
(i) ** **
(ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.
4. According to Shri Saraf the aforesaid provision would not stand as a bar in deduction of surtax in question for two reasons—(1) the surtax is not a “tax” of which mention has been made in section 40(a)(ii) of the Act; and (2) bar created by section 40(a)(ii) contemplates of tax levied on the profits and gains of any business or profession, whereas the surtax is leviable on total income of an assessee computed under the Income-tax Act, 1961. As to the first submission our attention has been invited by Shri Saraf to the definition of the word “tax” as given in section 2(43) of the Act which has defined the word to mean as below:
“(43)” tax “in relation to the assessment year commencing on the Ist day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in “relation to any other assessment year income-tax and super tax chargeable under the provisions of this Act prior to the aforesaid date”.
5. Counsel submits that the tax of which mention has been made in section 40(a)(ii) of the Act would mean, when that provision is read along with the section 2(43) of the Act, tax chargeable under Income-tax Act, 1961, whereas the surtax in question is not chargeable under the provisions of the Act inas much as there is a separate enactment called the Companies (Profits) Surtax Act, 1964 levying surtax. This being the position, we are inclined to accept the first submission of Shri Saraf.
6. Coming to the second submission, a reference to section 40(a)(ii) shows that the tax which is not deductible under this section is the one levied on the profits and gains of any business or profession. A reference to section 14 of the Act shows that profits and gains of business or profession are only a part of total income which includes within its conception other categories of income also, namely, salaries, interest on securities, income from house property, capital gain and income from other sources. Section 28 of the Act further fortifies this submission inasmuch as only certain types of income have been held as chargeable to income under the head “profit and gains of business or profession”. The definition of “income” given in section 2(24) would also indicate the same.
7. Thus though section 40(a)(ii) prohibits deduction of tax levied on the profits and gains of business or profession, a reference to the Surtax Act shows that it is chargeable on the total income of an assessee. It cannot, therefore, be said that for the purpose of calculating surtax attention has to be confined only to that part of total income which is confined to profits and gains of any business or profession.
8. The above being the position, Shri Saraf has submitted on the strength of Jaipuria Samla Amalgamated Collieries Ltd. v. Commissioner of Income-tax, (1971) 82 ITR 580 (SC) that deduction of surtax in question is not barred by section 40(a)(ii) of the Act. Let us see what had happened in Jaipuria's case. That case was under the provisions of the Income-tax Act, 1922 whose section 10(4) was parallel to section 40(a)(ii) of the 1961 Act. A reference to section 10(4) of the old Act shows that this had debarred deduction, inter alia, of any cess levied on the profits and gains of any business, profession or vocation. The point considered in the aforesaid case was whether the road cess and public works cess under the Bengal Cess Act, 1880 and education cess under the Bengal (Rural) Primary Education Act, 1930 were deductible from chargeable income because of the bar created by section 10(4) of the old Act. While discussing this aspect it was pointed out by the apex court that the cesses under the aforesaid two Acts were-leviable on the annual net profits which had to be calculated on the average of the annual net profits for the last threes years which could not be equated with the cess levied on the profits and gains of any business, profession or vocation. It was specifically observed that the profits arrived at according to the provisions of the two cess Acts could not be equated to the profits which were determined under section 10 of the old: Act and therefore it was held that secsion 10(4) was not attracted. To make the position more clear it was held that the words “profits and gains of any business, profession or vocation” in section 10(4) of old Act had reference to profits and gains as determined under section 10 of that Act and could not cover the net profits and gains arrived at or determined in the manner other than that provided by section 10.
9. The ratio of Jaipuria's case is squarely applicable to the facts of the persent case inasmuch as the amount of tax whose deduction is barred by section 40(a)(ii) of the Act is the one levied on profits and gains of any business or profession, whereas the surtax under the Surtax Act is leviable on the total income of the assessee as that income is taken to be “chargeable profits”. It may be pointed out that section 4 of the Surtax Act which is the charging section has made it clear that surtax shall be charged in respect of chargeable profits of the previous year or previous years. For the reasons aforesaid, we would answer the question referred to us by saying that section 40(a)(ii) of the Act would not stand as a bar in deducting the surtax payable under the Companies (Profits) Surtax Act, 1964, if the surtax were otherwise allowable as a deduction under section 37 or the Act. We make it clear that we have not examined the question whether the surtax payable under the aforesaid Act is a allowable deduction under section 37 of the Act and we leave this question to be decided by the Tribunal.
10. In the result the reference is answered accordingly.