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PETITIONER: COMMISSIONER OF INCOME TAX, KERALA

       Vs.

RESPONDENT: K. SRINIVASAN

DATE OF JUDGMENT05/11/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. HEGDE, K.S. KHANNA, HANS RAJ

CITATION:  1972 AIR  491            1972 SCR  (2) 309  CITATOR INFO :  RF         1975 SC2016  (18)  R          1992 SC1264  (12)

ACT: Finance Act, 1964, s. 2--Income-tax if includes ’surcharge’

HEADNOTE: According  to  s. 2(2) of the Finance Act, 1964,  where  the total income of an assessee includes. any income  chargeable under  the head ’salaries’ income-tax and super-tax  payable by  the  assessee  on  the  salary  portion  shall  be   the proportionate amount payable according to the rates provided in  the Finance Act, 1963.  Under s. 2 of the  Finance  Act, 1963, income-tax was to be charged at the rates specified in Part  I  of the First Schedule and super-tax  at  the  rates specified  in Part 11 of that Schedule.  The income-tax  was to be increased, in certain cases mentioned, by a  surcharge and additional surcharge for the purpose of the Union and  a special surcharge. The  assessee’s main source of income was salary.   For  the previous   year  1963-64  the  Income-tax   Officer   levied surcharge  and additional surcharge in accordance  with  the rates  prescribed  by the Finance Act, 1963.   The  assessee contended that under s. 2(2) of the Finance Act, 1964  there was no mention of surcharge and hence only income-tax, which was  to,  be worked out at the rates  applicable  under  the Finance  Act,  1963, was payable.  The  Department  and  the Tribunal  held  that ’income-tax’ included  ,surcharge.   On reference,  the High Court held that the words  ’income-tax’ in  s.  2(2)  of the Finance Act, 1964,  would  not  include ’surcharge" and ’additional surcharge’ and held in favour of the assessee. Allowing the appeal to this Court, HELD  : (1) Surcharge was levied for the first time  by  the Indian  Finance  Act, 1940.  It was omitted  in  some  later Finance Acts but was reintroduced in the Finance Act of 1951 and  continued thereafter.  The phraseology employed in  the various  Finance Acts showed that the word  ,surcharge’  has been  used  to either increase the rates of  income-tax  and super-tax  or  to increase those taxes.  Under s. 2  of  the Finance  Act, 1971, the provisions of s. 2 and of the  First Schedule  to  the  Act, 1970, shall  apply  in  relation  to

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income-tax  for the assessment year commencing on the  first day  of  April 1971.  Section 2 of the  Finance,  Act  1971, speaks  only of income-tax and not of any surcharge and,  it is  only  in the modifications made in the Schedule  to  the Finance Act, 1970, that there is pro-vision for a surcharge. Thus,  the legislative history of the Finance Acts, as  also the  practice,  indicates  that  the  term  ’income-tax’  as employed  in  s.  2  of  the  Finance  Act,  1964,  includes ’surcharge’   as  also  ’the  special  and  the   additional surcharge’ whenever provided. [312G-H; 313A-H; 314 A-B] (2)  One  of  the  meanings of surcharge  is  to  charge  in addition or to subject to an additional or extra charge.  If that meaning is applied to s. 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax  were to  be  charged. in four different ways or  at  4  different rates  which  may be described as, (a) the basic  charge  or rate,   (b)  surcharge,  (c)  special  surcharge,  and   (d) additional  surcharge calculated in the manner  provided  in the  Schedule.   Rest  in that way  the  additional  charges formed a part of the income-tax and super-tax.  According to Art  271  notwithstanding  anything in  Arts.  269  and  270 Parliament  may  at any time increase any of the  duties  or taxes referred to in those 310 Articles by a surcharge for the purpose of the Union and the whole proceeds of any such surcharge shall form part of  the Consolidated Fund of India. The word ’surcharge’ has  been used in this Article only for the purposeof   separating it from the basic charge of tax or duty, for the purpose  of distributing the proceeds of the same between the Union  and the States. [315 A-E] (3)  Obiter.   The legislative power of Parliament  to  levy taxes and duties is contained in Arts. 245 and 246(1),  read with  the  relevant  countries  in List  I  of  the  Seventh Schedule.  Entry 82 in List relates to taxes on income other than  agricultural income.  Income-tax, super-tax  and  sur- charge  would all fall under this entry.  It is in  exercise of  this  legislative  power  that  Parliament  enacts   the provisions relating to them in the Finance Act of each year. Sections 4 and 95 of the Income-tax Act, 1961, only  provide that where any Central Act enacts that income-tax and  super -tax shall be charged for any assessment year at any rate or rates  income-tax  and  super-tax at those  rates  shall  be charged in accordance thereto and subject to the  provisions of the Act.  The therefore, the distinction made by the High Court that surcharges are levied only under the Finance  Act and  income-tax under the Income-tax Act may not hold  good. [314 DH]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos.  1111,  of 1969 and 1415 of 1971. Appeals  by certificate/special leave from the judgment  and order  dated September 19, 1968 of the Kerala High Court  in Income-tax Referred Case No. 32 of 1967. S. Mitra, B. B. Ahuja, R. N. Sachthey and B. D. Sharma,  for the appellant (in both the appeals). S. T. Desai and S. Balakrishna, for the respondent (in  both the appeals). The Judgment of the Court was delivered by Grover,  J.  This  is an appeal by  special  leave  front  a judgment  of  the  Kerala  High  Court  in  an  Income   tax Reference.   Originally  A. 11 1 1/69 had  been  brought  by

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certificate but the same has been found to be defective  for want of reasons and has, therefore, to be revoked.   Special leave was sought and has been granted. The  facts  may be succinctly stated.  The  assessee’s  main source of income was salary from a limited company, (A.   V. Thomas  &  Co. Ltd).  In the previous year  ending  on  30th March  1964  his total income from salary  amounted  to  Rs. 42,900/.   In making the assessment the Income  tax  Officer levied surcharge and additional surcharge in accordance with the rates prescribed by the Finance Act 1963.  The  assessee preferred an appeal to the Appellate Assistant Commissioner. It was contended before him. on behalf of the assesses  that ,he  provisions of the Finance Act 1964 did not  permit  the Income   tax  Officer  to  levy  surcharge  and   additional surcharge in accordance with the provisions. of Finance Act 311 of 1963.  In other words it was contended that under  sub-s. (2)  of s. 2 of the Finance Act of 1964 only income tax  was payable  in the proportion in which the salary stood to  the total  income, the income tax being worked out at the  rates applicable  under  The  Finance Act 1963.   There  being  no mention of any surcharge in the sub-section income tax alone was leviable which did not include surcharge.  The Appellate Assistant Commissioner did not accede to these  contentions. He  was of the view that surcharge was only another form  of income tax.  The matter was taken to the Appellate  Tribunal which  upheld the levy of the surcharge and  the  additional surcharge.   On  a reference being  sought  the  follow-in,- question of law was referred to the High Court :-               "Whether the words "income tax" in the Finance               Act  of 1964 in sub-s. (2) (a) and sub-s.  (2)               (b)  of  s.  2  would  include  surcharge  and               additional surcharge". The High Court answered the question in the negative and in, favour of the assessee. Section 2 of the Finance Act 1964 which is headed as "income tax  and super tax" provides in sub-s. (1) that  income  tax and  super  tax shall be charged at the rates  specified  in Parts  I and II of the First Schedule respectively and  that in  cases to which certain paragraphs of those  parts  apply these  taxes  shall  be increased by  a  surcharge  for  the purpose  of  the Union.  According to sub-s. (2)  where  the total income of an assessee not being a company includes any income  chargeable under the head "salaries" income tax  and super  tax payable by the assessee on the salary portion  of the  total income shall be the proportionate amount  payable according  to the rates provided in the Finance,  Act  1963. Under  s.  2 of the Finance Act 1963 income" tax was  to  be charged  at  the  rates specified in Part  1  of  the  First Schedule  and super tax at he rates specified in Part 11  of that Schedule.  The income tax was to be increased in  cases mentioned  by a surcharge and additional surcharge  for  the purpose of the Union and a special surcharge.  The super tax was, however, to be increased by a surcharge for the purpose of  the Union and a special surcharge.  It will  be  noticed that s. 2(2) of the Finance Act 1964 did not contain mention of any of the surcharges.  This led to the controversy which resulted in the reference. Before the High Court the assessee relied on ss. 4 and95 of the Income tax Act 1961, hereinafter called the ’Act’.These sections provide for charge of income tax and super tax.It was  pointed out that surcharge was treated in  the  Finance Actsas  a tax different from the income tax and  super  tax and  that surcharge was levied by the Finance Act while  the income  and super taxes were levied by the  Act.   Reference

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was  made  in this connection to the First Schedule  to  the Finance Act 1963.  Part I 312 of  that  Schedule dealt with "income tax and  surcharge  on income  tax".   Under that heading were given the  rates  of income  tax as also the rates of surcharge.  Similarly  Part 11  of  the Schedule dealt with super tax and  surcharge  on super tax and under that heading the rates of super tax  and the  rates of surcharge on super tax were given.  Among  the surcharges  in  case, of income tax were  mentioned;  (a)  a surcharge  for  the purpose of the Union  ..........  (b)  a special  surcharge  and  (c) an  additional  surcharge.   As regards the surcharge on super tax there was mention of  (a) a  surcharge for the purpose of the Union and (b) a  special surcharge.  The High Court examined the aforesaid provisions of  the Finance Acts of 1963 and 1964 and Arts. 270 and  271 of  the Constitution apart from the legislative entry 82  in List  I of the Seventh Schedule.  It came to the  conclusion that .income tax and super tax did not include surcharge and that these were called by different nomenclature in all  the statutory provisions. In  order  to  determine the point before us,  which  is  of considerable  complexity,  it  is  necessary  to  trace  the concept  of surcharge in taxation laws in our country.   The power  to increase federal tax by surcharge by  the  federal legislature was recommended for the first time in the report of  the committee on Indian Constitutional Reforms, Vol.   I Part  1. From para 141 of the proposals it appears that  the word  "surcharge"  was used compendiously  for  the  special addition to taxes on income imposed in September 1931.   The Government of India Act 1935, Part VII, contained provisions relating   to  finance,  property,  contracts   and   suits. Sections 137 and 138 in Chapter I headed "finance"  provided for levy and collection of certain succession duties,  stamp ,duties,  terminal  tax, taxes on fares  and  freights,  and taxes on income respectively.  In the proviso to S. 137  the federal  legislature was empowered to increase at  any  time any of the duties ,or taxes leviable under that section by a surcharge for federal purposes and the whole proceeds of any such  surcharge  were to form part of the  revenues  of  the federation.   Sub-section  (3) of s. 138  which  dealt  with taxes on income related to imposition of a surcharge.  Under the  Government of India Act 1935 the sur-charge was  levied for the first time by the Indian Finance Act 1940.   Section 3(1) of that Act read               "Subject to the provisions of this section the               rates  of  income tax and rates of  super  tax               imposed  by sub-s. (1) of s. 7 of  the  Indian               Finance Act 1940 shall, in respect of the year               beginning  on the first day of April  1940  be               increased  by a surcharge for the  purpose  of               the Central Government 313 Similar phraseology was employed in respect of surcharge  on super  tax.   The  provisions  relating  to  surcharge  were omitted  in  the  Finance  Acts of 1946  to  1950.   It  was reintroduced  in  the Finance Act of 1951 and the  same  has been  continued  in the Finance Acts  of  subsequent  years. Special  surcharge came to be levied in the Finance Acts  of 1958  to 1964 and 1966 to 1971 and the additional  surcharge was levied only by the Finance Act of 1963. In the Finance Act of 1951, s. 2 relating to income tax  and super  tax provided that these taxes would be levied at  the rates  specified  in Parts I and II of  the  First  Schedule increased in each case by a surcharge for the purpose of the

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Union.  The Finance Act of 1952 was a short document and  s. 2 thereof simply provided :               "the  provisions  of  s. 2 of  and  the  First               Schedule to, the Finance Act 1951, shall apply               in  relation to income tax and super  tax  for               the  financial year 1952-53 as they  apply  in               relation  to income tax and super tax for  the               financial year 1951-52........" There was no specific mention whatsoever of surcharge in  s. 2  nor was there any modification of the First  Schedule  to the  Finance  Act  of 1951 which contained  the  rates  etc. relating to the surcharge. Similar state of affairs  existed with regard to Finance Actsof 1953, 1954, 1957.   Section 2 of the Finance Act 1971 is tothe   effect   that   the provisions of s. 2 and of the First Schedule to the  Finance Act  1970  shall  apply in relation to income  tax  for  the assessment  year  or as the case may be the  financial  year commencing  on the first day of April 1971 as they apply  in relation to income tax for the assessment year commencing on first  day of April 1970 with certain modifications set  out in  the section.  The First Schedule to the Finance  Act  of 1970 was modified and the Schedule so modified contains pro- visions  for a surcharge on income tax.  It  is  significant that  s. 2 of the Finance Act of 1971 speaks only of  income tax   and  not  of  any  surcharge.   It  is  only  in   the modifications  made  in the Schedule to the Finance  Act  of 1970 that there is provision for a surcharge. The  above legislative history of the finance Acts  as  also the practice, would appear to indicate that the term "income tax"  as  employed in s. 2 includes surcharge  as  also  the special and the additional surcharge whenever provided which are  also surcharges within the meaning of Art. 271  of  the Constitution.  The phraseology employed in the Finance  Acts of  1940 and 1941 showed that only the rates of  income  tax and  super tax were to be increased by a surcharge  for  the purpose  of the Central Government.  In the Finance  Act  of 1958  the language used showed that income tax which was  to be charged was to be increased by a surcharge 314 for the purpose of the Union.  The word "surcharge" has thus been  used  to either increase the rates of income  tax  and super  tax  or to increase these taxes.  The scheme  of  the Finance Act of 1971 appears to leave no room for doubt  that the term "income tax" as used in s. 2 includes surcharge. According ’Lo Article 271 notwithstanding anything in  Arts. 269  and 270 Parliament may at any time increase any of  the duties or taxes referred to in those Articles by a surcharge for  the purpose of the Union and the whole proceeds of  any such  surcharge shall form part of the Consolidated Fund  of India.  Article 270 provides for taxes levied and  collected by  the  Union  and distributed between the  Union  and  the States.   Clause  (1)  says that tax 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).   Article 269  deals with taxes levied and collected by the Union  but assigned to the States.  The provisions of Article 268 which is the first one under the heading "distribution of  revenue between the Union and the States" relate to duties levied by the  Union  but collected and appropriated  by  the  States. Thus  these  Articles  deal with the  levy,  collection  and distribution  of  the  proceeds  of  the  taxes  and  duties mentioned  therein  between the Union and the  States.   The legislative power of Parliament to levy taxes and duties  is contained  in  Arts. 245 and 246(1) read with  the  relevant

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entries in List I of the Seventh Schedule. As  mentioned  before  the legislative entry 82  in  List  I relates  to taxes on income other than agricultural  income. Income  tax,  super lax and surcharge would all  fall  under this  entry.   It is in exercise of  the  legislative  power conferred by that entry that the Union Parliament enacts the provision  in the Finance Act each year relating  ’Lo  them. It  is that Act which authorises these taxes to  be  charged and  prescribes  the  rates at which they  can  be  charged. Section 4 of the Act simply provides that where any  Central Act  enacts  that  income  tax  shall  be  charged  for  any assessment year at any rate or rates income tax at that rate or  those rates shall be charged in accordance  thereto  and subject to the provisions of the Act.  Section 95 which  was omitted  by  the  Finance  Act  of  1965  contained  similar provision with regard ’to super tax. Although under the  Act s. 4 is the charging section income taxcan be charged  only where the Central Act which, in the presentcase.  will  be the Finance Act enacts that income shall be charged for  any assessment year at the rate or rates specified therein.  The distinction  made by the High Court that the surcharges  are levied  only under the Finance Act and income tax under  the Act  may  not  hold good if the above view  which  has  been pressed  on behalf of the Revenue were to be  accepted.   In our judgment it is unnecessary to express any opinion in the 315 matter  because  the essential point  for  determination  is whether surcharge is an additional mode or rate for charging income tax The  meaning  of  the  word  "surcharge"  as  given  in  the Webster’s New International Dictionary includes among others "to  charge (one) too much or in addition. . . . .  ."  also "additional  tax".   Thus  the meaning of  surcharge  is  to charge  in addition or to subject to an additional or  extra charge.   If that meaning is applied to s. 2 of the  Finance Act  1963  it would lead to the result that income  tax  and super  tax were to be charged in four different ways  or  at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii)  Sur- charge;   (iii)  special  surcharge  and   (iv)   additional surcharge calculated in the manner provided in the Schedule. Read  in this way the additional charges form a part of  the income tax and super tax.  It is possible to argue and  that argument  has been commended on behalf of the  Revenue  that the  word  "surcharge"’ has been used in Art.  271  for  the purpose  of separating it from the basic charge of a tax  or duty  for  the purpose of distributing the proceeds  of  the same between the Union and the States.  The proceeds of  the surcharge  are exclusively assigned to the Union.   Even  in the Finance Act itself it is expressly stated that the  sur- charge is meant for the purpose of the Union. It  would  appear that since the Finance Act 1943  upto  the Finance Act 1967 a provision was made for taxing the  income under  the head "salaries’ ’according to the  provisions  of the  Finance  Act of the preceding year rather than  of  the current  year if the assessee had any income in addition  to his income by way of salary.  According to the Tribunal this was  done because if the income under the "salaries" was  to be  assessed at the rates fixed by the Finance  Act  enacted for   the   current  year  it  would   entail   considerable administrative  work in the form of refund or collection  in the final assessment.  Since by the Finance Act of 1967 this method or procedure was dropped we do not consider that much significance can be attached to this aspect. In the result we are unable to sustain the view of the  High

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Court.   The question that was referred must be answered  in the  affirmative and in favour of the Revenue.  In  view  of the  nature  of the point involved the parties are  left  to bear  their  own  costs  in  this  Court.   The  appeal   by certificate is dismissed. We wish to acknowledge with thankfulness the valuable assis- tance rendered as amicus curiae at our request by Mr. S.  T. Desai,  Sr. Advocate, and Mr. Balakrishnan Advocate  as  the respondent was unrepresented. V.P.S.                           Appeal dismissed 7-L500Sup.Cl/72 316