Civil Appeal No 1795 of 1970
From the Judgment and order dated the 15th October 1968 of the Madras High Court in Writ Petition No 2252 of 1965
section T Desai and T A Ramachandran for the appellant
N D Karkhanis and section P Nayar for the respondent
The Judgment of the Court was delivered by CHANDRACHUDJ
The appellant filed a writ petition in the High Court of Madras under Article 226 of the Constitution to challenge an assessment order dated August 22 1963 made by the respondent levying additional surcharge on its residual income
The High Court dismissed the writ petition by its judgment dated October IS 1968 but it has granted to the appellant a certificate to file an appeal to this Court under Articles 133a and c of the Constitution
The appellant is a co operative society engaged in the business of banking
Its total income for the assessment year 1963 64 was computed by the respondent at Rs 1000098
Out of this Rs 948335 was its business income while Rs 51763 was its income from other sources
Since under section 81ia of the Income tax Act 1961 a co operative society engaged in the business of banking is not liable to pay income tax on its business income the tax amounting to Rs 2384547 was charged on Rs 51763 only though for the purposes of rate the income was taken at Rs 948335 in view of section 110 of the Act
Applying the Finance Act XIII of 1963 the respondent computed the residual income of the appellant at Rs 539386 and levied on it an additional surcharge of Rs 5282860
Thus the total tax levied on the appellant came to Rs 2384547 plus Rs 5282860 ie Rs 7667407
The main grievance of the appellant before the High Court was that whereas its taxable income was only Rs 51763 a tax of Rs 7667407 was imposed on it
The relevant provisions of the Finance Act were accordingly said to be invalid as they could not subject to additional surcharge an income which was exempt from tax under the provisions of the Income tax Act
The additional surcharge it was contended was intended as an additional levy on the income 139 tax and had no independent existence apart from it
These contentions were rejected by the High Court and hence this appeal
Section 81 of the Income tax Act 1961 was deleted by the Finance Act XX of 1967 with effect from April 1 1968 but its provisions were incorporated by the same Finance Act in section 80P
Section 81 ia read thus 81
Income of co operative societies
Income tax shall not be payable by a co operative society i in respect of the profits and gains of business carried on by it if it is a a society engaged in carrying on the business of banking or providing credit facilities to its members It is indisputable that by reason of this provision the tanking income of the appellant amounting to Rs 948335 is exempt from income tax
It is equally clear that by reason of section 991v of the Act of 1961 the appellant is not liable to pay supertax on its business income
That section provides that where the assessee is a co operative society super tax shall not be payable by it on any income in respect whereof no income tax is payable by it by virtue of the provisions of section 81
The dispute really centers round the provisions of Finance Act VIII of 1963
The provisions of that Act which are relevant for our purpose are sections 21a 28 3 Paragraph Aii of Part I of the First Schedule and clause c of that portion of Part 1 called  Surcharges on Income Tax Section 21a of the Finance Act 1963 provides that 2
Income tax and super tax 1 Subject to the provisions of sub section 2 3 4 and 5 for the assessment year commencing on the 1st day of April 1963 a income tax shall be charged at the rates specified in Part I of the First Schedule and i in the cases to which paragraphs ACC and E of that Part apply shall be increased by a surcharge for purposes of the Union and except in the cases to which the said paragraph applies a special surcharge calculated in either case in the manner provided therein and ii in the cases to which paragraphs A and of the aforesaid Part apply shall further be increased by an additional surcharge for purposes of the Union hereinafter referred to as additional surcharge calculated in the manner provided in the said Schedule Section 2 8 provides that For the purposes of paragraphs A and of Part I of the First Schedule the expression residual income means the amount of the total income as reduced by 140 a the amount of the capital gains if any included therein and b the amount of tax exclusive of additional surcharge which would have been chargeable on such reduced total income if it had been the total income no part of which had been exempt from tax and on no portion of which deduction of tax had been admissible under any provisions of the Income tax Act or this Act
 Section 3 provides that Notwithstanding anything contained in the provisions of Chapter VII or Chapter VIII A or section 110 of the Income tax Act or sub section 5 of section 2 of this Act in calculating any relief rebate or deduction in respect of income tax payable on the total income of an assessee which includes any income on which no income tax is payable or in respect of which a deduction of income tax is admissible under any of the aforesaid provisions no account shall be taken of the additional surcharge
 The First Schedule of the Finance Act 1963 consists of three parts out of which we are only concerned with Part I Part I which is called Income tax and surcharges on income tax consists of Paragraphs A B C and out of which we are concerned with Paragraph A only
Clause ii of Paragraph A prescribes rate of income tax for incomes accruing inter alia to association of persons
Since a co operative society is an association of persons Paragraph A of Part I would apply to the case of the appellant forthe purposes of section 21aii of the Finance Act oil 1963 though not for the purpose of bringing its exempted business income to income tax
That portion of Part I Paragraph A called Surcharges on Income Tax provides The amount of income tax computed at the rates hereinbefore specified shall be increased by the aggregate of the surcharges calculated as under
Clause a provides for a surcharge for the purposes of the Union at the rates mentioned in sub clauses i ii and iii
Clause b provides for the levy of a special surcharge
Clause c with which we are concerned provides for the levy of an additional surcharge for the purposes of the Union calculated on the amount of the residual income at the rates mentioned therein
The grievance of the appellant which appears to have been pressed before the High Court with some earnestness that the tax levied upon it exceeds its taxable income can afford no true guide to the construction of the relevant provisions of the Income tax Act or the Finance Act
Harshness of a taxing statute apart from a possible challenge to it under Article 13 of the Constitution cannot be an invalidating circumstance
But the grievance on this score is basically misconceived
It assumes what has to be examined that no part of the income exempted from income tax and super tax under the Income tax Act can be brought to tax by a Finance Act
The total income of the appellant was computed 141 at Rs 1000098
By reason of sections 81 i a and 99 1 v of the Income tax Act 1961 the appellant enjoys an exemption from income tax and super tax in respect of its business income which amounts to Rs 948335
The balance viz Rs 51763 which was the appellant s income from other sources was alone taxable under the Act of 1961 and a tax of Rs 2384547 was imposed on that income The Finance Act of 1963 subjects residual income  to certain charges and such in come was computed admittedly correctly at Rs 539386
An additional surcharge of Rs 5282860 was levied on the residual income
Thus on the assumption that the Finance Act validly and on a true interpretation imposes the additional surcharge on residual income the tax imposed on the appellant is Rs 2384547 plus Rs 5282860
The total tax of Rs 7667407 thus imposed is far less than the
appellant s total taxable income arrived at by the addition of its non business income and the residual income
That leads to the inquiry first as regards the scope of a Finance Act and then as regards the interpretation of the Finance Act of 1963
Learned counsel for the appellant during the course of his arguments gave up the challenge to the power of the Parliament to impose a new charge by a Finance Act
This concession was properly made
By Article 2461 of the Constitution Parliament has the exclusive power to make laws with respect to any of the matters in List I of the Seventh Schedule
Entry 82 in List I relates to taxes on income other than agricultural income
The Income tax Act 1961 and the annual Finance Acts are enacted by the Parliament in exercise of the power conferred by Article 2461 read with Entry 82 of List I
Once the Parliament has the legislative competence to enact a law with respect to a certain subject matter the limits of that competence cannot be judged further by the form or manner in which that power is exercised
Accordingly though it would be unconventional for the Parliament to amend a taxing statute by incorporating the amending provision in an Act of a different pith and substance such a course would not be un constitutional
Much more so can the Parliament introduce a charging provision in a Finance Act
True as said in Kesoram Industries and Cotton Mills Ltd vs Commissioner of Wealth Tax Central Calcutta1 that the Income tax Act is a permanent Act vs while the Finance Acts are passed every year and their primary purpose is to prescribe the rates at which the income tax will be charged under the Income tax act
But that does not mean that a new and distinct charge cannot be introduced under the Finance Act
Exigencies of the Financial year determine the scope and nature of its provisions
If the Parliament has the legislative competence to introduce a new charge of tax it may exercise that power either by incorporating that charge in the Income tax Act or by introducing it in the Finance Act or for the matter of that in any other Statute
The alternative in this regard is generally determined by the consideration whether the new charge is intended to be more or less of a permanent nature or whether its introduction is dictated by the financial exigencies of the particular year
Therefore what is not income  under 142 the Income tax Act can be made income  by a Finance Act an exemption granted by the Income tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge
Subject to constitutional limitations additional tax revenue may be collected either by enhance the rate or by the levy of a fresh charge
The Parliament through the medium of a Finance Act may as much do the one as the other
In McGregor and Balfour Ltd Calcutta vs CIT West Bengal1 which was affirmed by this Court in Chakravartti CJ delivering the judgment of a Division Bench observed that the Finance Acts though annual Acts are not necessarily temporary Act for they may and often do contain provisions of a general character which are of a permanent operation
In Hari Krishna Bhargav vs Union of India and Anr2 an assessee challenged the scheme of Annuity Deposits of the ground that the Parliament has no competence to incorporate ill the Income tax Act a provision which was substantially one relating to borrowings by the Central Government from a class of tax payers
That scheme was introduced by Finance Act 5 of 1964 which incorporated Chapter XXII A containing section 28 A to section 28 X in the Income tax Act 1961
The challenge was repelled by this Court on the ground that if the parliament had the legislative competence to pass an Act for collecting Annuity Deposits from tax payers nothing contained in the Constitution disentitled it as a matter of legislative arrangement to incorporate the provisions relating to borrowing from tax payers in the Income tax Act or any other statute
This discussion became necessary in spite of the appellant s concession on the Parliament s legislative competence because for a proper understanding of the provisions of the Finance Act 1963 it is essential to appreciate that a Finance Act may not only prescribe rates but also introduce a new charge
We will now proceed to consider the provisions of the Finance Act 1963 under which the respondent has levied additional surcharge on the appellant s residual income
The question for consideration is whether clause c of the portion Surcharges on Income Tax occurring in Paragraph A of Part I introduces a new charge in the shape of additional surcharge so that the said charge can be levied even on a part of the appellant s income which is exempt from income tax and super tax under sections 81ia and 991v of the Act of 1961
The history of Indian income tax according to appellant s counsel shows that surcharges by way of increase in the amount of income tax are nothing but income tax and therefore the expression income tax occurring in sections 4 and 81 of the Act of 1961 and in section 2 and the First Schedule of the Finance Act 1963 includes surcharges
To put it differently the argument is that the exemption granted by section 81ia extends to surcharges also as a result whereof a co operative society engaged in the business of banking is neither liable to pay income tax nor any of the surcharges on its business income
143 In CIT Kerala vs K Srinivasan1 on which the appellant relies this Court has traced the history of the concept of surcharge  in tax laws of our country
After considering the report of the Committee on Indian Constitutional Reforms the provisions of the Government of India Act 1935 the provisions of Articles 269 270 and 271 of the Constitution and the various Finance Acts this Court held differing from the High Court that the word income tax in section 22 of the Finance Act 1964 includes surcharges and the additional surcharge
This case does not touch the point before us
In that case the assessee s income for the accounting year ending March 30 1964 consisted mainly of his salary
Section 22a of the Finance Act 1964 did not by itself refer to any surcharge but it provided that in making the assessment for the assessment year commencing on April 1 1964 the income tax payable by the assessee on his salary income shall be an amount bearing to the total amount of income tax payable according to the rates applicable under the operation of the Finance Act 1963 on his total income the same proportion as the salary income bears t the total income
The question which arose for consideration was under the total income
The question which arose for consideration was whether the words income tax payable according to the rates applicable under the operation of the Finance Act 1963 included surcharges which were leviable under the Act of 1963
The question was answered by this Court in the affirmative
As the judgment shows the essential point for determination was whether surcharge is an additional mode or rate for charging income tax p 351
The Court held that it was
The question before us is whether even if the surcharger is but an additional mode or rate for charging income tax the Finance Act of 1963 authorises by its terms the levy of additional surcharge on income which is exempt from income tax under the Income tax Act 1961 In K Srinivasans case the Court declined to express any opinion on the distinction made by the High Court that surcharges are levied under the Finance Act while income tax was levied under the Income tax Act p 351
In the instant case it is not disputed by the revenue that a surcharge partakes of the essential characteristics of income tax and is an increase in income tax
What we have to determine is whether the Act of 1963 provides for the levy of additional surcharge
Granting that the word income tax includes surcharges it may be arguable that the exemption from the payment of income tax under section 81 i a of the 1961 Act would extend to surcharges
But the matter does not rest with what section 81 ia says
Even if that section were to grant an express exemption from surcharges on business income the Parliament could take away that exemption or curtail the benefit available under it by making an appropriate provision in the Finance Act
If while legislating on a matter within its competence the Parliament can grant an exemption it is surely competent to it to withdraw that exemption in exercise of the self same power
The Finance Act 1963 like its annual counterparts contains provisions not only prescribing rates of taxation but making extensive and important modifications in the Income tax Act itself
By sections 4 to 144 20 of the Act of 1963 various provisions of the income tax Act have been amended
By these amendments some of which are given retrospective effect old provisions are deleted new ones are added and indeed new concepts of taxation altogether are introduced
Such innovations fall within the legitimate scope of Finance Acts
Section 11 14 of the Indian Finance Act 1946 made in the amount of excess profits tax repaid under section 28 of the UK Finance Act 1941 income for the purpose of the Indian Income tax Act and further provided that income shall be treated for purposes of assessment to income tax and super tax as the income of the previous year
It was held by this Court in McGregor and Balfour Ltd vs CIT West Bengal1 that section 1114 charged the amount with a liability to tax by its own force
It was further held that the particular provision framed as it was applied to subsequent assessment years just as it applied to the assessment year 1946 47
Having seen the nature and scope of Finance Acts the specific question which we have to consider is whether as contended by the appellant section 2 read with Paragraph A Part I of the First schedule of the Finance Act 1963 merely lays down a method of computation in cases where income tax is in fact payable or whether as contended by the revenue the Finance Act provides for the levy of a new and independent charge
According to the appellant these provisions of the Finance Act do not directly or indirectly bring about any amendment to section 81ia of the Income tax Act but merely prescribe that in cases where the income tax is payable The amount of income tax shall be increased by the aggregate of the surcharges
The heading Surcharges on income tax under which provision is made in the Finance Act for the calculation of a surcharge a special surcharge and an additional surcharge is also said to bear out the contention that the levy of additional surcharge on the residual income cannot be disassociated from the main charge of income tax
We are unable to accept this contention Article 2691 of the Constitution provides that the duties and taxes mentioned therein shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause 2
Article 2701 provides that Taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause 2
By Article 271 notwithstanding anything in Articles 269 and 270 Parliament may increase any of the duties or taxes referred to in those Articles by a surcharge for purposes of the Union
Surcharges leviable under section 21 of the Finance Act
1963 are relatable to Article 271 of the Constitution
Section 21aii of that Act provides in so far as relevant that for the assessment year commencing on April 1 1963 income tax shall be charged at the rates specified in Part I of First Schedule and in cases to which Paragraph A of Part I applies the income tax shall further 145 be increased by an additional surcharge for purposes of the Union calculated in the manner provided in the First Schedule
Clause c of Paragraph prescribes the manner in which the additional surcharge is to be calculated
It provides that additional surcharge for purposes of the Union shall be calculated on the amount of the residual income 
at the rates mentioned in that clause
Thus both the purpose and concept of the additional surcharge are different from those of income tax
The additional surcharge is leviable exclusively for purposes of the Union so that the entire proceeds of such surcharge may under Article 271 of the Constitution from part of the Consolidated Fund of India
taxes and duties mentioned in Article 2691 though levied and collected by the Government have to be assigned to the States in the manner provided in clause 2 of that Article
Then again the additional surcharge levied for purposes of the Union is to be calculated not on total income like the income tax but it is to be calculated on the residual income
Section 28 of the Act of 1963 defines residual income as total income reduced by a capital gains if any included in that total income and b the amount of tax exclusive of additional surcharge which would have been chargeable on such reduced total income if it had been the total income no part of which had been exempt from tax and on no portion of which deduction of tax had been admissible
In order that the exemption granted to co operative banks by section 81 i a may not lose its meaning and content section 28 of the Finance Act introduces the concept of residual income on which alone the additional surcharge is payable
The residual income is not the same as the business income of a co operative bank which is exempt under section 81ia from income tax
For ascertaining the residual income the total income is reduced by the amount of capital gains and further by the amount of tax other than additional surcharge which would have been charged on such reduced total income on the assumption that the whole of it was liable to be brought to tax
Thus in the instant case the additional surcharge is not levied on the appellant s business income of Rs 948335 which is exempt from income tax and super tax
It is levied on the residual income of Rs 539386 which is arrived at after deducting Gross taxes exclusive of additional surcharge amounting to Rs 460712 from the assessee s gross income of Rs 1000098
By section 3 of the Finance Act of 1963 no account can be taken of the additional surcharge in calculating any relief rebate or deduction in respect of income tax payable on the total income of an assessee which includes any income on which no income tax is payable or in respect of which a deduction of income tax is admissible
Section 3 by its terms has precedence over anything contained in Chapter VII or Chapter VIII A or in section 110 of the Income tax Act or section 25 of the Finance Act itself
Additional surcharge is treated in this way as falling in a separate category
Thus additional surcharge is a district charge
not dependent for its leviability on the assessee s liability to pay income tax or super tax
Such a qualification cannot be read into section 21aii of the Act of 1963 as argued by the appellant
That section uses the language that income tax shall further be increased by an additional sur 146 charge not for making the assessability to surcharge dependent upon Assessability to income tax but for the simple reason that if an assessees total income includes income on which no tax is payable tax has all the same to be computed for purposes of rate Section 110 of the Income tax Act 1961 provides that where there is included in the total income of an assessee any income on which no income tax is payable the assessee shall be entitled to deduction from the amount of income tax with which he is chargeable on his total income of an amount equal to the income tax calculated at the average rate of income tax on the amount on which no income tax is payable
The income tax computed at a certain rate is by section 21aii to be further increased by an additional surcharge for purposes of the Union
This becomes clearer still from the language of Paragraph A under the heading 
Surcharges on Income Tax
It says The amount of income tax computed at the rate hereinbefore specified shall be increased by the aggregate of the surcharges
If the intention was to limit the liability to pay additional surcharge to income which can be brought to income tax appropriate language could have been used to convey that simple sense
The weakness of the appellant s contention becomes manifest when it is realised that were the contention right the appellant would not be liable to pay additional surcharge even on that portion of its non business income which is contained in the residual income
By the definition in section 28 of the Act of 1963 residual income means the total income as reduced and therefore the non business income which is chargeable to income tax must form a component of the residual income
Concededly the appellant is liable to pay additional surcharge on its non business income
This is so not because additional surcharge is payable by law on non business income but because it is payable on residual income and residual income by definition includes non business income as reduced
In fact it consists of the amount of total income as reduced by the amounts mentioned in clauses a and b of section 28
Relying on United Commercial Bank Ltd vs Commissioner of Income tax West Bengal1 East India Housing and Land Development Trust Ltd vs Commissioner of Income tax West Bengal2 and K V Al
M Ramanathan Chettiar vs Commissioner of Income tax Madras3 the appellant s counsel urged that income tax is a single levy that it is one tax and not so many taxes separately levied on several heads of income
This partly is the same argument in a different disguise that an assessee who is not liable to pay income tax cannot be made liable to pay additional surcharge under the Finance Act 1963
We have rejected that contention
Partly the argument is designed to establish correlation with section 146 of the income tax Act 1961 by which when any tax interest penalty fine or any other sum is payable in consequence of any order passed under the Act the Income tax office has to serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable
This provision presents no 147 difficulty for if an assessee is liable to pay additional surcharge but no income tax or super tax the notice of demand will mention the particular amount payable as tax due
The appellant being liable to pay tax on its non business income and additional surcharge on its residual income the demand notice will call for payment of the total amount due from the appellant by way of tax
The interpretation put by us on the Finance Act 1963 does no violence to section 4 of the Income tax Act 1961 under which income tax at the rates prescribed by the Finance Act is to be charged in accordance with and subject to the provisions of the Income tax Act
The Income tax Act exempts the assessee s business income from income tax and super tax
The Finance Act brings to tax its residual income
The decision of the Allahabad High Court in Allahabad District Co operative Bank Ltd vs Union of India and Ors1 is directly in favour of the appellant and naturally learned counsel for the appellant relies on it very strongly
But that case in our opinion is incorrectly decided
The learned Judges were in error in holding that section 2 of the Finance Act 1963 does not provide for the levy of a tax other than income tax and that therefore additional surcharge is not payable to the extent of the income which is exempt under section 81 of the Income tax Act
One of the difficulties which the learned Judges felt in accepting the revenue s contention was that if the additional surcharge mentioned in the Finance Act of 1963 was not partake of the nature of income tax it will not be possible to demand and realise it under the provisions of the income tax Act and the notice of demand and recovery proceedings would be vitiated on that account
The very assumption of this observation is falacious because additional surcharge indubitably partakes of the nature and essential characteristics of income tax
It is a tax on residual income and by reason of the definition contained in section 28 of the Act of 1963 residual income would include non business income which under the Income tax Act is charge able to income tax
Thus the additional surcharge though levied by the Finance Act 1963 independently of the Income tax Act is but a mode of levying tax on a portion of the assessee s income computed in accordance with the definition in section 28 of the Act of 1963
Therefore the notice of demand under section 156 of the Income tax Act can lawfully call for the payment of amount due from an assessee by way of additional surcharge
For these reasons we confirm the judgment of the High Court but in the circumstances there will be no order as to costs
PHP Appeal dismissed


Summary:
The appellant is a Cooperative Society engaged in the business of banking According to section 8 i a of the Income Tax Act 1961 a Cooperative Society engaged in the business of banking is not liable to pay income tax on its business income
The Finance Act 1963 however by section 2i a 28 3 paragraph Aii of Part I of the First Schedule and clause of that portion of Part I called surcharge on Income Tax provides for levy of additional surcharge for the purposes of the Union calculated on the amount of the residual income at the rates mentioned therein
The total income of the appellant for the assessment year 1963 64 was Rs 1000098
Out of this Rs 948335 was its business income The tax amounting to Rs 23845 was charged on Rs 51763 Applying the Finance Act of 1963 the residual income of the appellant was computed at Rs 539386 and a surcharge thereon was levied of Rs 52828 Thus the total tax imposed on the appellant came to Rs 76674
The assessment order passed by the Income Tax officer levying the tax as aforesaid was challenged by the appellant in the High Court by a Writ Petition
The main grievance of the appellant before the High Court was that whereas its taxable income was only Rs 51763 a tax of Rs 76674 was imposed on it
The relevant provisions of the Finance Act were challenged as invalid on the ground thati they imposed additional surcharge on income which was exempt from tax under the provisions of the Income Tax Act and that ii the additional surcharge was intended as additional levy on the income tax and had no independent existence apart from it The High Court rejected these contentions
On an appeal by certificate dismissing the appeal  HELD  1
It is indisputable that the appellant is not required to pay income tax on the banking income
In view of section 81
It is also not liable to pay surcharge on its business income in view of section 991v
139C 2
The grievance of the appellant that the tax levied upon it exceeds its taxable income can afford no true guide to the construction of the relevant provisions of the Income Tax Act or the Finance Act
Harshness of a taxing statute apart from a possible challenge to it under article 13 of the Constitution cannot be an invalidating circumstance
But the grievance on this score is misconceived
It assumes what has to be examined that no part of the income exempted from Income Tax and Super Tax under the Income Tax Act can be brought to tax by a Finance Act 140G H 3
The concession of the counsel for the appellant giving up challenge to the power
of the Parliament to impose a new charge by Finance Act was Properly made
Under article 24611 of the Constitution Parliament has the exclusive power to make laws with respect  o any of the matters in List of the Seventh Schedule
Entry 82 in List I relates to tax on income other than agricultural income
The Income Tax Act 1961 and the annual Finance Acts are enacted by the Parliament in exercise of the powers conferred by Art 2461 read with entry 82 of List I
Once the Parliament has the legislative competence to enact a law with respect to certain subject matter the limits of 136 that competence cannot be judged further by the form or manner in which that power is exercised
Exigencies of the Financial year determine the scope and nature of the provisions of the Finance Act
The primary purpose of the Finance Act is to describe the rates at with the Income Tax will be charged under the Income Tax Act but that does not mean that new and distinct tax cannot be charged under Finance Act
Therefore what is not income under the Income Tax Act can be made income by the Finance Act
An exemption granted by the Income Tax A t can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge
141D E G H 4
The contention of the appellant that surcharges are nothing but income tax and therefore expression income tax occurring in Sec 4 and 81 of the Act includes surcharges and AS such exempted cannot be accepted
The case of the CIT Kerala vs K Srinivasan distinguished
There the essential point for determination was whether surcharge is additional mode or rate for charging income tax
The Court held there that it was so
The question before us is whether even if the surcharge is an additional mode or rate for charging income to the Finance Act of 1963 authorises by its terms the levy of additional surcharge on income which is exempt from income tax under the Income Tax Act 1961
The residual income as defined by the 1963 Finance Act is not the same as the business income of a Cooperative Bank which is exempted under see
The additional surcharge is a distinct charge not dependent for its leviability on the assessee s liability to pay income tax or Super Tax
The decision of Allahabad High Court in Allahabad District Co operative Bank Ltd vs Union of India over ruled
143D E 5
The additional surcharge though levied by the Finance Act 1963 independently of the Income Tax Act is but a mode of levying tax on a portion of the assessee s income computed in accordance with the definition in section 28 of the Finance Act 1963
147F ARGUMENTS For The Appellant 1
Under section 81 read with section 4 of the Income tax Act 1961 income tax is not payable by the appellant
a Co operative Society in respect of its income from banking business
Similarly super tax is not payable under section 99iv read with section 4 2
The primary purpose of the annual Finance Acts as envisaged by section 4 of the Income tax Act is to prescribe the rates of income tax on the total income of an assessee and this function as contemplated by section 4 is to be subject to the other provisions of this Act namely the Income tax Act 1961 which would include inter alia section 81 3
The history of Indian income tax shows that surcharges by way of increase to the amount of income tax which are added to the basic amount in view of article 271 of the Constitution of India are nothing other than income tax and a part of income tax alone
Therefore the expression income tax  in section 4 and 81 of the Income tax Act 1961 and section and Schedule I Part 1 of the Finance Act 1953 includes surcharges
Section 2 of the Finance Act 1963 and Schedule I Part I Paragraph A all clearly contemplate that the surcharge
special surcharge and additional surcharge are all only by way of increase of the amount of income tax and not only partake of the character of income tax but are actually a part of income tax
They are merely rates of income tax
The main part of section 21 a says that Income tax shall be charged at the rates specified in Part I of the First Schedule and clause ii of that section provides in the ease referred to therein that income tax shall further be increased by an additional surcharge for the purpose of the Union calculated in the manner provided in the First Schedule
Similarly in Paragraph A of Part I of the First Schedule the heading to the provisions prescribing rates of surcharge is surcharges on income tax in the plural
The main part in the heading also provides that the amount of 137 income tax shall be increased by the aggregate of the surcharges calculated as under  Clause c thereafter provides for the additional surcharge for the purpose of the Union
Paragraph A also therefore clearly indicates that the three surcharges are only of the same nature and that all the three surcharges are only by way of increase of the amount of income tax in other words part of the income tax
Is either section 2 nor paragraph A of Part I of the First Schedule can even remotely be said to contemplate any separate levy of additional surcharge other than income tax
From the assessment order it is seen that the following have been charged only on the real taxable income of the appellant namely Rs 51763 i income tax ii surcharge on income tax iii special surcharge on income tax iv super tax and v surcharge on super tax
These items have not been charged on the total income of Rs 1000098 because income tax is not payable on the balance of the total income under section 81
The Income tax officer has sought to impose only additional surcharge under clause c in respect to the total income of Rs 1000098
In view of section 81 no additional surcharge is payable on the total income of Rs 1000098
It is payable only on the taxable income of Rs 51763
Section 2 read with Paragraph A Part I of Schedule I to the Finance Act merely purports to lay down the method of computation where income tax is payable
It does not either dire thy or by implication make any amendment or modification in section 81 7
Section 3 of the Finance Act 963 also applies to a stage of computation only and in regard to relief rebate etc
It does not impose any liability or any tax
It operates only where additional surcharge is payable and not other wise and where relief rebate etc
is to be given from the tax payable by the assessee eg deduction of tax based on life insurance premia provident fund contribution
donations to charitable institution etc
Section 81 does not provide for any such relief or rebate
Section 28 of the Finance Act 1963 defining residual income which requires deduction from the total income of income tax surcharge and special surcharge to ascertain residual income also does not have the effect of imposing any liability or any tax but merely provides for computation
In a taxing Act one has to look merely at what is clearly said
There is no room for any intendment
There is no equity about a tax
There is no presumption as to tax
Nothing is to be read in nothing is to be implied In a case of reasonable doubt
the construction most beneficial to the subject is to be adopted
 The court will be very slow in reading an implied amendment in a tax law because there is no intendment
Income tax is one tax not several taxes on several heads or several items of income For the Respondent 1
It is open to the Parliament to pass an Act relating to more than one topic or field of operation covered by the Entries in List 1
It is not as if there must be as many Enactments as the topics which the enactment covers
The legislature has a wide range of selection and freedom in appraisal not only in the subjects of taxation and the manner of taxation but also in the determination of the rate or rates applicable
If production were always to be taken into account there will have to be a settlement for every year and the tax will become a kind of income tax
The burden of proving discrimination is always heavy and heavier still when a taxing statute is under attack
The burden is on the person complaining of discrimination
The burden is proving not possible inequality  but hostile unequal  treatment
This is more so when uniform taxes are levied
The State cannot be asked to demonstrate equality
Income which is exempt from taxation is income which is assessable to tax and therefore liable to tax but tax is not imposed on account of the exemp 138 tion
This exemption can by subsequent legislation be wholly or partially withdrawn both as regards items of income and levies imposed for the purpose of taxation
Thus where the Income tax Act 1961 says that business income of a co operative society will be exempt from income tax it would be open to the Parliament by enactment of the Finance Act of 1963 to say that this exemption shall be partially withdrawn as regards residual income and this partial exemption will operate only for the purpose of income tax but not surcharge on residual income
The net result of the partial withdrawn of the exemption would mean that though the business income of a co operative society will be exempt from tax the residual income which is only a part of the exempted business income could be subjected to surcharge on income tax only 4
Income tax and surcharge on income tax are two different levies though the computation of the latter is based upon a percentage of the former
The to are inclusive for the purpose of imposing tax but they are not one levy only