Case: Smith Kline &amp; French [India] Ltd.Etc Vs. Commissioner Of Income Tax

of the Bengal (Rural) Primary Education Act, 1930, on immovable property on which the road and public works cesses were assessed. The rate at which the education cess was to be levied depended upon the character of the property; in respect of mines and quarries, it was leviable at the rate of three and a half pice on each rupee of annual net profits. It is thus abundantly clear that the levy of the aforesaid cesses was upon the immovable properties and not on profits. It is no doubt true that the tax was measured with reference to the net profits of business but it is well settled by a series of decisions of this Court that the measure by which a tax is computed does not determine the character of the tax vide Union of India v. Bombay Tyre International Ltd. AIR 1984 SCC 420), and Goodricke Group Ltd. v. State of W.B. 1955 (1) Supp(SCC) 707). It is, therefore, idle to contend that the said decision helps the assessees case in any manner. The cesses considered in the said decision were not taxes "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" within the meaning of Section 40(a)(ii) as explained hereinabove. The learned counsel, however, relied upon the following observations in the said decision : (SCC pp. 320-21, paras 5-6) "The words profits and gains of any business, profession or vocation which are employed in Section 10(4) can, in the context, have reference only to profits or gains as determined under Section 10 and cannot cover the net profits or gains arrived at or determined in a manner other than that provided by Section 10. The whole purpose of enacting sub-section (4) of Section 10 appears to be to exclude from the permissible deductions under clauses (ix) and (xv) of sub-section (2) such cess, rate or tax which is levied on the profits or gains of any business, profession or vocation or is assessed at a proportion of or on the basis of such profits or gains. In other words sub-section (4) was meant to exclude a tax or a cess or rate the assessment of which would follow the determination or assessment of profits or gains of any business, profession or vocation in accordance with the provisions of Section 10 of the Act These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under Section 10 of the Act. It is not possible to see, therefore, how Section 10(4) could be applicable at all in the present case." * The learned counsel pointed out that this Court has in the said decision approved the decision of the Privy Council in CIT v. Gurupada Dutta (PC)) and has further observed that Parliament must be deemed to have accepted the view taken by the Privy Council by not changing the language of the relevant provision in the 1961 Act (Section 40(a)(ii)) 7. We are unable to see as to how these observations help the assessees herein. Firstly, it may be mentioned, Section 10(4) of the 1922 Act or Section 40(a)(ii) of the present Act do not contain any words indicating that the profits and gains spoken of by them should be determined in accordance with the provisions of the Income Tax Act. All they say is that it must be a rate or tax levied on the profits and gains of business or profession. The observations relied upon must be read in the said context and not literally or as the provisions in a statute. But so far as the issue herein is concerned, even this literal reading of the said observations does not help the assessee. As we have pointed out hereinabove the surtax is essentially levied on the business profits of the company computed in accordance with the provisions of the Income Tax Act. Merely because certain further deductions (adjustments) are provided by the Surtax Act from the said profits, it cannot be said that the surtax is not levied upon the profits determined or computed in accordance with the provisions of the Income Tax Act. Section 4 of the Surtax Act read with the definition of "chargeable profits" and the First Schedule make the position abundantly clear8. We may mention that all the High Courts in the country except the Gauhati High Court have taken the view which we have taken herein. Only the Gauhati High Court has taken a country view in the decisions in Makum Tea Co. (India) Ltd. v. CIT (Gau)) and Doom Dooma Tea Co. Ltd. v. CIT (Gau)). The decision of the Gauhati High Court in Makum Tea Co. (India) Ltd. (Gau)) is under appeal before us in Civil Appeals Nos. 3976-77 of 1995. Similarly Civil Appeal No. 3246 of 1995 is preferred against the decision of the Gauhati High Court following the decision in Doom Dooma Tea Co. Ltd. (Gau)). (On enquiry, the office has informed that no special leave petition/civil appeal has been filed against the decision in Doom Dooma Tea Co. Ltd. (Gau))). For the aforesaid reasons, we cannot agree with the view taken by the Gauhati High Court in the aforesaid decisions9. We agree with the view taken by the High Courts of Calcutta (Molins of India Ltd. v. CIT (Cal))) and Brooke Bond India Ltd. v. CIT (Cal)), Bombay (Lubrizol India Ltd. v. CIT (Bom)) followed in several other decisions of that Court), Karnataka (CIT v. International Instruments (P) Ltd. (Kant))), Madras (Sundaram Industries Ltd. v. CIT (Mad)), Andhra Pradesh (Vazir Sultan Tobacco Co. Ltd. v. CIT (AP))), Rajasthan (Associated Stone Industries (Kota) Ltd. v. CIT (Raj))), Gujarat (S.L.M. Maneklal Industries Ltd. v. CIT (Guj)) followed in several cases thereafter), Allahabad (Himalaya Drug Co. (P) Ltd. v. CIT (All)) and Punjab and Haryana High Court (Highway Cycle Industries Ltd. v.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]It is thus clear beyond any doubt that the surtax is levied on the profits of a company, i.e., on the profits above the prescribed limit. The mere fact that the tax is levied upon "chargeable profits" (which means the total income of the assessee computed under the Income Tax Act, 1961 adjusted in accordance with the provisions of the First Schedule) does not mean that the tax is not levied on the profits of business. In other words, the mere fact that the First Schedule provides for certain further deductions out of the total income computed in accordance with the provisions of the Income Tax Act, 1961, it cannot be said that the amount on which the surtax is levied cases to be the profits of the business. For this reason, it must be held that the surtax levied under the Surtax Act squarely falls within the mischief of sub-clause (ii) of clause (a) of Section 40 and cannot be allowed as a deduction while computing the business income of the assessee under the provisions of the Income Taxreading of the above provision makes it evident that its operation is confined to the computation of the distributable income of a company for the purposes of Chapter XI-D of the Income Tax Act. It cannot be extended to any other chapter or provision in theis not possible to agree with this contention either. The said decision was rendered with reference to sub-section (4) of Section 10 of the Income Tax Act, 1922 which corresponds to sub-clause (ii) of clause (a) of Section 40 of the presentis thus abundantly clear that the levy of the aforesaid cesses was upon the immovable properties and not on profits. It is no doubt true that the tax was measured with reference to the net profits of business but it is well settled by a series of decisions of this Court that the measure by which a tax is computed does not determine the character of the tax vide Union of India v. Bombay Tyre International Ltd. AIR 1984 SCC 420), and Goodricke Group Ltd. v. State of W.B. 1955 (1) Supp(SCC) 707). It is, therefore, idle to contend that the said decision helps the assessees case in any manner. The cesses considered in the said decision were not taxes "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" within the meaning of Section 40(a)(ii) as explained hereinabove.We are unable to see as to how these observations help the assessees herein. Firstly, it may be mentioned, Section 10(4) of the 1922 Act or Section 40(a)(ii) of the present Act do not contain any words indicating that the profits and gains spoken of by them should be determined in accordance with the provisions of the Income Tax Act. All they say is that it must be a rate or tax levied on the profits and gains of business or profession. The observations relied upon must be read in the said context and not literally or as the provisions in a statute. But so far as the issue herein is concerned, even this literal reading of the said observations does not help the assessee. As we have pointed out hereinabove the surtax is essentially levied on the business profits of the company computed in accordance with the provisions of the Income Tax Act. Merely because certain further deductions (adjustments) are provided by the Surtax Act from the said profits, it cannot be said that the surtax is not levied upon the profits determined or computed in accordance with the provisions of the Income Tax Act. Section 4 of the Surtax Act read with the definition of "chargeable profits" and the First Schedule make the position abundantly clear8. We may mention that all the High Courts in the country except the Gauhati High Court have taken the view which we have taken herein. Only the Gauhati High Court has taken a country view in the decisions in Makum Tea Co. (India) Ltd. v. CIT (Gau)) and Doom Dooma Tea Co. Ltd. v. CIT (Gau)). The decision of the Gauhati High Court in Makum Tea Co. (India) Ltd. (Gau)) is under appeal before us in Civil Appeals Nos. 3976-77 of 1995. Similarly Civil Appeal No. 3246 of 1995 is preferred against the decision of the Gauhati High Court following the decision in Doom Dooma Tea Co. Ltd. (Gau)). (On enquiry, the office has informed that no special leave petition/civil appeal has been filed against the decision in Doom Dooma Tea Co. Ltd. (Gau))). For the aforesaid reasons, we cannot agree with the view taken by the Gauhati High Court in the aforesaid decisions