COMMISSIONER OF INCOME TAX, KERALA vs. K. SRINIVASAN

CIVIL APPEAL No. 1111/1969Supreme Court[1972] 2 S.C.R. 30905 November 1971Bench: 3 JudgesAuthor: K.S. HEGDE, A.N. GROVER, HANS RAJ KHANNA B7 pages
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What did the Supreme Court hold?

The Supreme Court allowed the appeal, overturning the High Court's decision. The Court held that the term 'income-tax' as employed in Section 2 of the Finance Act, 1964, includes 'surcharge' as well as 'special' and 'additional surcharge' when provided. The reasoning was based on the legislative history of Finance Acts, which consistently used the term 'surcharge' to increase income-tax and super-tax rates or the taxes themselves. The Court noted that the meaning of 'surcharge' is to charge in addition or to subject to an additional charge. Applying this to Section 2 of the Finance Act, 1963, it meant income-tax and super-tax were to be charged in four ways: basic charge, surcharge, special surcharge, and additional surcharge, all forming part of the overall tax liability. The Court also referred to Article 271 of the Constitution, which allows for increasing taxes by a surcharge for the Union. The Court found it unnecessary to definitively rule on the distinction made by the High Court regarding the charging sections, as the primary issue was the inclusion of surcharge within 'income-tax'. The question referred to the High Court was answered in the affirmative, in favour of the Revenue. The appeals were dismissed, with parties to bear their own costs.

What were the facts?

The assessee, K. Srinivasan, whose primary income was salary, was assessed for the previous year 1963-64. The Income-tax Officer levied surcharge and additional surcharge based on the Finance Act, 1963. The assessee contended that Section 2(2) of the Finance Act, 1964, which dealt with income from salaries, did not mention surcharge, and therefore, only income-tax, calculated at the rates under the Finance Act, 1963, was payable. The Appellate Assistant Commissioner and the Appellate Tribunal ruled in favour of the Revenue, holding that 'income-tax' included 'surcharge'. The High Court, however, on reference, held that 'income-tax' in Section 2(2) of the Finance Act, 1964, did not include 'surcharge' or 'additional surcharge', favouring the assessee. The Revenue appealed this decision to the Supreme Court.

What were the issues?

1. Whether the words 'income-tax' in Section 2(2) of the Finance Act, 1964, include 'surcharge' and 'additional surcharge'? (Question of law) Assessee's contentions: - Section 2(2) of the Finance Act, 1964, specifically provides for the calculation of income-tax and super-tax on the salary portion of total income based on the rates in the Finance Act, 1963. - This sub-section does not mention any surcharge or additional surcharge. - Therefore, only income-tax, as defined without surcharge, was leviable on the salary income. - Relied on Sections 4 and 95 of the Income-tax Act, 1961. Revenue's contentions: - The term 'income-tax' as used in the Finance Act implicitly includes 'surcharge' and 'additional surcharge'. - The legislative history and the nature of surcharge indicate it is an additional charge to the basic income-tax. - Article 271 of the Constitution permits Parliament to increase duties or taxes by a surcharge for the Union's purposes. - The High Court's distinction between income-tax levied under the Income-tax Act and surcharges levied under the Finance Act is not tenable.

Which sections of the Income-tax Act were involved?

Section 2,Section 4,Section 95

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A B c D £ G II COMMISSIONER OF INCOME TAX, KERALA v. K. SRINIVASAN November 5, 1971 3 09· [K. S. HEGDE, A. N. GROVER AND H. R. KHANNA, JJ.] Finance Act, 1964, s, 2-lncome-tax if includes 'surchar11e'

According to s. 2(2) of the Finance Act, 1964, whero the total income of an assessee includes anv 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 pro- vided in the Finance Act, 1963. Under s. 2 of the Finance Act, 1963, incometax was to be char.ged at the rates specified in Part I of the First Schedule and super-tax at the rates specified in Part II of that Sc.hedule.

The income-tax was to be increased, in certain cases mentioned, bv a. surcharge and a~ditional surcharge for the purpose of the Union and a special surchargi:, The assessee.:S main source of income was salary.

For the previous year 1963-64 the Income-tax Officer levied surcharge anC. additional sur- charge in accordance with the rates prescribed by ti " Finance Act, 1963. The assessee contended that under s. 2(2) of the Finance Act. 1964 there was no mention of su

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