{"id":92040,"date":"1996-04-16T00:00:00","date_gmt":"1996-04-15T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/smith-kline-french-india-vs-commissioner-of-income-tax-on-16-april-1996"},"modified":"2015-04-27T05:29:37","modified_gmt":"2015-04-26T23:59:37","slug":"smith-kline-french-india-vs-commissioner-of-income-tax-on-16-april-1996","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/smith-kline-french-india-vs-commissioner-of-income-tax-on-16-april-1996","title":{"rendered":"Smith Kline & French [India] … vs Commissioner Of Income Tax on 16 April, 1996"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Smith Kline & French [India] … vs Commissioner Of Income Tax on 16 April, 1996<\/div>\n
Equivalent citations: JT 1996 (4), 231\t 1996 SCALE (3)562<\/div>\n
Author: B Jeevan Reddy<\/div>\n
Bench: Jeevan Reddy, B.P. (J)<\/div>\n
           PETITIONER:\nSMITH KLINE & FRENCH [INDIA] LTD.ETC.\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER OF INCOME TAX.\n\nDATE OF JUDGMENT:\t16\/04\/1996\n\nBENCH:\nJEEVAN REDDY, B.P. (J)\nBENCH:\nJEEVAN REDDY, B.P. (J)\nTHOMAS K.T. (J)\n\nCITATION:\n JT 1996 (4)   231\t  1996 SCALE  (3)562\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
\t\t\t O R D E R
\n     A common  question arises in this batch of appeals. For
\nthe sake  of convenience,  we may  refer to  the question in
\nCivil Appeal  No.455 of\t 1987 directed\tagainst a Full Bench
\njudgment of  the Kerala\t High  Court  [159  I.T.R.431].\t The
\nfollowing question  was stated\tby the\tIncome-Tax Appellate
\nTribunal under\tSection 256(1) of the Income-tax Act for the
\nconsideration of the Kerala High Court:\n<\/p>\n
     (1) “Whether Rs. 76,777\/- being the
\n     surtax liability  is to  be allowed
\n     as a  deduction  in  computing  the
\n     total income  of the  assessee  for
\n     the assessment year 1976-77?”\n<\/p><\/blockquote>\n
The claim  for the  said deduction  was\t disallowed  by\t the
\nIncome Tax  Officer on\tthe basis  of and  with reference to
\nsub-clause (ii}\t of clause (a) of Section 40 which read thus
\nat the\trelevant time:\n<\/p>\n
     40. Notwithstanding anything to the
\n     contrary in  Section 30  to 39, the
\n     following\tamounts\t  shall\t not  be
\n     deducted in  computing  the  income
\n     chargeable under  the head ‘profits
\n     and   gains    of\t  business    or
\n     profession-\n<\/p><\/blockquote>\n
     (a) in the case of any assessee-\n<\/p><\/blockquote>\n
\t  (i)…………………..\n<\/p><\/blockquote>\n
\t  (ii) any  sum paid  on account
\n\t  of any  rate of  tax levied on
\n\t  the profits  or gains\t of  any
\n\t  business  or\t profession   or
\n\t  assessed at  a proportion  of,
\n\t  or otherwise\ton the\tbasis of
\n\t  any such profits or gains.”<\/p><\/blockquote>\n
     On appeal, the Appellate Assistant Commissioner allowed
\nthe assessee’s\tclaim but on further appeal by the Revenues,
\nthe Tribunal  upheld the Revenues’ contention and disallowed
\nthe claim  for deduction  on the basis of Section 40(a)(ii).
\nThe High  Court has affirmed the view taken by the Tribunal.
\nThe only  question before us is whether the tax levied under
\nthe Companies Profits (Surtax) Act, 1964 is “a tax levied on
\nthe profits  or gains  of  any\tbusiness  or  profession  or
\nassessed at a proportion of or otherwise on the basis of any
\nsuch profits or gains”, as contemplated by the said
\n     Section   40   opens   with   a   non-obstante   clause
\n“notwithstanding anything  to the contrary in Sections 30 to
\n39”, which  means that\teven if\t any amount  is entitled  to
\ndeduction under\t any of the provisions contained in Sections
\n30 to  39, it  will be\tdisallowed if  it  falls  inter-alia
\nwithin sub-clause  (ii) of  clause (a)\tof Section  40.\t The
\nquestion, therefore,  is whether  the tax  levied under\t the
\nCompanies  Profits  (Surtax)  Act,  1964  falls\t within\t the
\nmischief of said sub-clause. We think it does.\n<\/p>\n
     The preamble  to the Surtax Act says that it is “an Act
\nto impose  a surtax  on the  profits of\t certain companies”.
\nIndeed, the statement of objects and reasons appended to the
\nBill makes  the said intention clear. It says “the object of
\nthis Bill  is to  impose a  special tax\t on companies (other
\nthan those  which have\tno share  capital) on  their  excess
\nprofits, namely,  the amount  by which the total income of a
\ncompany as  reduced by\tcertain types  of income and certain
\nsums and  the income-tax and super-tax payable by it exceeds
\na sum  of ten  per cent\t of the capital reserves and certain
\nborrowed moneys\t or  a\tsum  of\t Rs.2  lakhs,  whichever  is
\nhigher…” Section  4  is  the\tcharging  Section.  It\tsays
\n“subject to the provisions contained in this Act, there
\nshall be  charged on every company for every assessment year
\ncommencing on  and from\t the first day of April, 1964, a tax
\n(in this  Act referred\tto as  the surtax)  in respect of so
\nmuch of\t its chargeable\t profits of  the  previous  year  or
\nprevious years,\t as the case may be, as exceed the statutory
\ndeduction, at  the rate\t or rates  specified  in  the  Third
\nSchedule.” The expression “chargeable profits” is defined in
\nclause 5  of Section 2. It reads: “Chargeable profits” means
\nthe total  income of  an assessee computed under the Income-
\ntax Act,  1961 for  any previous  year or years, as the case
\nmay be,\t and adjusted  in accordance  with the provisions of
\nthe First  Schedule.” It is thus clear beyond any doubt that
\nthe surtax  is levied  on the profits of a company, i.e., on
\nthe profits  above the\tprescribed limit. The mere fact that
\nthe tax\t is levied upon ‘chargeable profits (which means the
\ntotal income  of the  assessee computed under the Income-tax
\nAct, 1961  adjusted in accordance with the provisions of the
\nFirst Schedule)\t does not mean that the tax is not levied on
\nthe profits  of business. In other words, the mere fact that
\nthe First  Schedule provides  for certain further deductions
\nout of\tthe total  income computed  in accordance  with\t the
\nprovisions of  the Income-tax  Act, 1961,  it Cannot be said
\nthat amount  on which  the surtax is levied ceases to be the
\nprofits of  the business.  For this reasons, it must be held
\nthat the  surtax levied\t under the Surtax Act squarely falls
\nwithin the  mischief of\t sub-clause (ii)  of clause  (a}  of
\nSection 40  and cannot\tbe  allowed  as\t a  deduction  while
\ncomputing the  business income\tof the\tassessee  under\t the
\nprovisions of the  Income-tax Act.\n<\/p>\n
     The learned  counsel for  the assessee  sought to\trely
\nupon Section  15 of  the Surtax\t Act  in  support  of  their
\ncontention that surtax does not fall within the four corners
\nof Section  40(a)(ii). Section 15 of the Surtax act reads as
\nfollows: “Notwithstanding  anything contained  in clause (i)
\nof Section  109 of  the Income\ttax Act,  in  computing\t the
\ndistributable income  of  a  company  for  the\tpurposes  of
\nChapter XI-D  of that Act, the surtax payable by the company
\nfor any\t assessment year  shall be deductible from the total
\nincome of  the company assessable for that assessment year,”
\nA reading  of the  above provision makes it evident that its
\noperation  is\tconfined   to\tthe   computation   of\t the
\ndistributable income  of  a  company  for  the\tpurposes  of
\nChapter XI-D of the Income-tax Act. It cannot be extended to
\nany other chapter or provision in the Act.\n<\/p>\n
     The learned  counsel for  the appellants  placed strong
\nreliance upon  the decision  of this Court in Jaipuria Samla
\nAmalgamated Collieries Ltd. v.. commissioner of\t Income-Tax.
\nWest Bengal, (82 I.T.R. 580) to contend that a tax has to be
\ncomputed in accordance with the provisions of Income-tax Act
\nto fall\t within the  mischief of Section 40(a)(ii). Inasmuch
\nas the\tsurtax is  computed on\ta basis\t different from\t the
\nbasis prescribed  in the Income-tax Act, it is contended, it
\ncannot fall within the four corners of Section 40(a)(ii). It
\nis not\tpossible to  agree with\t this contention either. The
\nsaid decision was rendered with reference to sub-section (4)
\nof Section  10 of  the Indian  Income-tax  Act,\t 1922  which
\ncorresponds to\tsub-clause (ii)\t of clause (a) of Section 40
\nof the\tpresent Act.  The question  therein was\t whether the
\namount payable\tas (i)\troad and  public works\tcess  levied
\nunder the  Bengal Cess Act, 1880 and (ii) the education cess
\nlevied under  the Bengal  (Rural) Primary Eduction Act, 1930
\nfall within  the mischief  of Section 10(4). This Court held
\nthat they  do not.  A perusal of the decision shows that the
\nroad and  public works cess was levied on immovable property
\nto provide  for construction  and maintenance  of roads\t and
\nother works  of public\tutility. Under\tSection 5 of the Act
\n(Bengal\t Cess  Act,  1880)  all\t immoveable  property,\twith
\ncertain exceptions,  was subjected  to payment\tof road cess
\nand public  works cess.\t Section 6  provided that  the\tsaid
\ncesses shall  be assessed  on the annual value of lands and,
\nuntil provision\t to the\t contrary was made by Parliament, on
\nthe annual  net\t profits  from\tmines,\tquarries,  tramways,
\nrailways and  other immovable property at such rates as were
\nto be  determined in  the manner  prescribed. Similarly\t the
\neducation cess\twas also  levied under\tSection\t 29  of\t the
\nBengal (Rural)\tPrimary Education  Act, 1930,  on  immovable
\nproperty   on which  the road  and public  works cesses were
\nassessed. The  rate at\twhich the  education cess  was to be
\nlevied depended\t upon the  character  of  the  property;  in
\nrespect of  miner and  quarries, it was leviable at the rate
\nof three  and a\t half pice  on\teach  rupee  of\t annual\t net
\nprofits. It  is thus  abundantly  clear\t that  the  levy  of
\naforesaid cesses  was upon  the immovable properties and not
\non profits.  It is  no doubt  true that the tax was measured
\nwith reference\tto the\tnet profits  of decisions  but it is
\nwell-settled by a series of decisions of this Court that the
\nmeasure by  which a  tax is  computed does not determine the
\ncharacter of  the tax  vide union  of India  vs. Bombay Tyre
\nInternational.(A.I.R 1994 S.C.420) and Goodricke Tea Company
\nv. State  of West  Bengal,(1995 (1)  suppl.S.C.C.707).It is,
\ntherefore idle\tto contend  that the said decision helps the
\nassessees’ case\t in any manner. The cesses considered in the
\nsaid decision were not taxes “levied on the profits or gains
\nof any business or profession or assessed at a proportion of
\nor otherwise  on the  basis of\tany such  profits or  gains”
\nwithin\tthe   meaning  of  Section  40(a)(ii)  as  explained
\nhereinabove. The  learned counsel,  however, relied upon the
\nfollowing observations\tin the\tsaid  decision:\t “the  words
\n“profits and  gains of any businesss profession or vocation”
\nwhich are  employed in\tsection 10(4)  cans, in the context,
\nhave reference\tonly to profits or gains as determined under
\nsection 10 and cannot cover the net profits or gains arrived
\nat or  determined in  a manner\tother than  that provided by
\nsection 10.  The whole\tpurpose of enacting  sub-section (4)
\nof section  10 appears to be to exclude from the permissible
\ndeductions under  clause (ix)  and (xv)\t of sub-section\t (2)
\nsuch cesss,  rate or  tax which\t is levied on the profits or
\ngains of any business, profession or vocation or is assessed
\nat a proportion or on the basis of such profits or gains. In
\nother words,  sub- section (4) was meant to exclude a tax or
\na cess\tor rate\t the assessment\t of which  would follow\t the
\ndetermination or  assessment of\t profits  or  gains  of\t any
\nbusiness, profession  or vocation  in  accordance  with\t the
\nprovisions of  section\t10  of\tthe  Act….  These  profits
\narrived at  according to the provisions of the two Cess Acts
\ncan by\tno stretch  of reasoning  be equated  to the profits
\nwhich are  determined under section 10 of the Act. It is not
\npossible to  see, therefore,  how  section  10(4)  could  be
\napplicable at  all in the present case.” The learned counsel
\npointed out  that  this\t Court\thas  in\t the  said  decision
\napproved the  decision of  the Privy Council in Commissioner
\nof Income-tax  vs. Gurupada  Dutta, (14\t I.T.R.100) and\t has
\nfurther observed  that the Parliament must be deemed to have
\naccepted the view taken by the Privy Council by not changing
\nthe language  of the  relevant provision  in  the  1961\t Act
\n[Section 40(a)(ii)].\n<\/p>\n
     We are  unable to see as to how these observations help
\nthe assessees  herein. Firstly, it may be mentioned, Section
\n10(4) of  the 1922  Act or  Section 40(a)(ii) of the present
\nAct do not contain any words indicating that the profits and
\ngains spoken  of by  them should be determined in accordance
\nwith the  provisions of\t the Income Tax Act. All they say is
\nthat it\t must be  a rate  or tax  levied on  the profits and
\ngains of  business or  profession. The\tobservations  relied
\nupon must  be read  in the said context and not literally or
\nas the\tprovisions in  a statute.  Bat so  for as  the issue
\nherein is  concerned, even  this literal reading of the said
\nobservations does  not help the assessee. As we have pointed
\nout hereinabove\t the surtax  is essentially  levied  on\t the
\nbusiness profits  of the company computed in accordance with
\nthe provisions of the Income-tax Act. Merely because certain
\nfurther deductions  [adjustments] are provided by the Surtax
\nAct from the said profits, it cannot be said that the surtax
\nis not\tlevied upon  the profits  determined or\t computed in
\naccordance  with  the  provisions  of  the  Income-tax\tAct.
\nSection 4  of the  Surtax Act  read with  the definition  of
\n“chargeable  profits”\tand  the  First\t Schedule  make\t the
\nposition abundantly clear.\n<\/p>\n
     We may  mention that all the High Courts in the country
\nexcept the  Gauhati High  Court have taken the view which we
\nhave taken  herein. Only  the Gauhati High Court has taken a
\ncontrary view  in the decisions in Makum Tea company [India]
\nLimited\t & Anr.V. Commissioner of Income Tax [178 I.T.R.453]
\nand Doom Dooma Tea Company Limited V. Commissioner of Income
\nTax [180  I.T.R.126]. tax.  The decision of the Gauhati High
\nCourt in  Mukum Tea  Company [India] Limited is under appeal
\nbefore us  in Civil  Appeal Nos.  3976-77 of 1995. Similarly
\nCivil Appeal  No.3246  of  1995\t is  preferred\tagainst\t the
\ndecision of the Gauhati High Court following the decision in
\nDoom Dooma  Tea Company\t Limited. (On enuiry, the office has
\ninformed that  no Special  Leave petition\/Civil\t Appeal\t has
\nbeen filed  against the\t decision in  Doom Dooma Tea Company
\nLimited.) For  the aforesaid  reasons, we can not agree with
\nthe view  taken by  the Gauhati\t High Court in the aforesaid
\ndecisions.\n<\/p>\n
     We agree with view taken by the High Courts of Calcutta
\n(Molins [India]\t Limited V. Commissioner of Income Tax, West
\nBengal-III [144\t I.T.R.317]) and Brooke Bond [India] Limited
\nV.  Commissioner  of  Income  Tax  [193\t I.T.R.390),  Bombay
\n(Lubrizol [India] Limited V. Commissioner of Income Tax [187
\nI.T.R. 25]  followed in\t several  other\t decisions  of\tthat
\nCourt), Karnataka  (Commissioner of Income Tax, Karnataka V.
\nInternational Instruments  Private Limited<\/a>  [144 I.T.R.936),
\nMadras\t(Sundaram  Industries  Limited\tV.  Commissioner  of
\nIncome Tax<\/a>  [159 I.T.R.646]),  Andhra Pradesh  (Vazir Sultan
\nTobacco Company\t Limited V.  Commissioner of Income Tax<\/a> [169
\nI.T.R.35]), Rajasthan  (Associated Stone  Industries Company
\nLimited V.  Commissioner of  Income  Tax<\/a>  [170\tI.T.R.653]),
\nGujarat (S.L.M.Maniklal\t Industries Limited  V. Commissioner
\nof Income  Tax [172  I.T.R.176] followed  in  several  cases
\nthereafter),  Allahabad\t  (Himalyan  Drug   Company  Private
\nLimited V.  Commissioner of Income  Tax [218 I.T.R.346]) and
\nPunjab Haryana\tHigh Court (Hiqhway Cycle Industries Limited
\nV. Commissioner of Income Tax [178 I.T.R.601])
\n     Accordingly, the appeals preferred by the assessees are
\ndismissed with costs assessed at Rupees two thousand in each
\nappeal, while  the two\tappeals preferred by the Revenue are
\nallowed with costs of Rupees two thousand in each appeal.\n<\/p>\n
     Before parting with this case, it may be mentioned that
\nwhen this batch of appeals was posted before us, it included
\nan appeal preferred against a judgment of the Andhra Pradesh
\nHigh  Court  rendered  by  a  Bench  comprising\t one  of  us
\n(B.P.Jeevan Reddy,J.).\tThe said decision merely followed an
\nearly decision\tof that\t Court. Accordingly with the consent
\nof the\tcounsel for the parties, the said appeal was deleted
\nfrom the  batch and the remaining appeals in the batch taken
\nup for hearing.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Smith Kline & French [India] … vs Commissioner Of Income Tax on 16 April, 1996 Equivalent citations: JT 1996 (4), 231 1996 SCALE (3)562 Author: B Jeevan Reddy Bench: Jeevan Reddy, B.P. (J) PETITIONER: SMITH KLINE & FRENCH [INDIA] LTD.ETC. Vs. RESPONDENT: COMMISSIONER OF INCOME TAX. DATE OF JUDGMENT: 16\/04\/1996 BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-92040","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nSmith Kline & French [India] ... vs Commissioner Of Income Tax on 16 April, 1996 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/smith-kline-french-india-vs-commissioner-of-income-tax-on-16-april-1996\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Smith Kline & French [India] ... vs Commissioner Of Income Tax on 16 April, 1996 - 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