Judgement

Y. V. CHANDRACHUD, J.:- 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 15, 1968 but it has granted to the appellant a certificate to file an appeal to this Court under Article 133 (1) (a) and (c) of the Constitution.

2. 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 Rupees 10,00,098. Out of this, Rs. 9.48.335 was its business income while Rupees 51.763 was its income from other sources. Since, under Section 81 (i) (a)of the Income-tax Act, 1961 a cooperative society engaged in the business of banking is not liable to pay lncome-tax on its business income, the tax amounting to Rs. 23,845.47 was charged on Rs.51,763 only though for the purposes of rate the income was taken at Rs. 9,48.335 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. 5,39,386 and levied on it an additional surcharge of Rs 52,828.60. Thus the total tax levied on the appellant came to Rs.23845.47 plus Rs.52,828.60 ie.Rs.76.674.07.

3. The main grievance of the appellant before the High Court was that where its taxable income was only Rs.51,763, a tax of Rs, 76,674.07 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 Incometax Act. The additional surcharge, it was contended, was intended as an additional levy on the income-tax and had no independent existence apart from it. These contentions were rejected by the High Court and hence this appeal.

4. 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 (i) (a) 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 banking income of the appellant amounting to Rupees 9.48,335 is exempt from income-tax. It is equally clear that by reason of Section 99 (1) (v) of the Act of 1961, the appellant is not liable to pay super-tax 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.

5. The dispute really centres round the provisions of Finance Act, XIII of 1963. The provisions of that Act which are relevant for our purpose are Sections 2 (1) (a), 2 (8), 3, Paragraph A (ii) of Part I of the First Schedule, and clause (c) of that portion of Part I, called "Surcharges on Income Tax".

6. Section 2 (1) (a) of the Finance Act, 1963 provides that:

"2.Income-tax and super-tax(1) Subject to the provisions of sub-sections (2), (3), (4) and (5), for the assessment year commencing on the l st 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 A, B, C 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 E applies, a special surcharge, calculated in either case in the manner provided therein; and

(ii) in the cases to which paragraphs A and C of the aforesaid Part apply, shall further be increased by an additional surcharge