SUHAS CHANDRA SEN, J.

( 1 ) MOLINS of India Ltd. , Calcutta, is the assessee in this case. The relevant assessment year is 1974-75. The corresponding accounting period ended on 31st December, 1973. The accounts of the assessee-company were maintained on mercantile system.

( 2 ) DURING the relevant previous year, the assessee-company was engaged in the manufacture of cigarette making and packing machineries. Net profit as per profit and loss account was Rs. 58,77,411. Income disclosed by the assessee was Rs. 62,98,280 but the ITO computed the total income at Rs. 66,91,550.

( 3 ) THE assessee preferred an appeal against the assessment order. Before the AAC, the assessee filed an additional ground stating that the ITO should have allowed the surtax liability of the assessee-company as a deduction. In support of its claim, the assessee relied upon a decision of the 'd' Bench of the Appellate Tribunal, Bombay Benches, in I. T. A. Nos. 3068 and 3097 (Bom) of 1972-73, dated 24th February, 1975. Being not satisfied with the delay in raising the additional ground, the AAC refused to admit the same.

( 4 ) THE assessee appealed to the Appellate Tribunal which decided the issue with the following observation :"we have heard both sides. This is purely a legal contention and, in our opinion, the Appellate Assistant Commissioner should have admitted the appeal and disposed of the same. However, with the approval of the parties before us and considering the nature of the issue, instead of asking the Appellate Assistant Commissioner to admit the point and to decide thereon, we prefer to dispose of the appeal on merits ourselves here in this order. Before us, we have a copy of the order dated 1st December, 1977, in I. T. A. No. 3643 (Born) of 1974-75, for the assessment year 1970-71 in the case of M/s. Amar Dye Chem Ltd. v. ITO, passed by the Special Bench of the Appellate Tribunal, Bombay Bench 'b'. A similar point which was raised there, was decided by the Special Bench against the assessee and the same was discussed in paragraphs 101 to 131 of the aforesaid order, The disallowance was obviously made under Section 40 (a) (ii) of the Act. Respectfully following the said decision, we reject the assessee's contention that the surtax liability under the Companies (Profits) Surtax Act, 1964, for the relevant year should be deducted in arriving at the total income under the Income-tax Act, 1961. "

( 5 ) AT the instance of the assessee-company, the Tribunal has referred the following question of law to this court under Section 256 (1) of the I. T. Act, 1961, arising out of the Tribunal's order dated 9th February, 1978,"whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provisions of the Income-tax Act, 1961, the Tribunal was right in holding that the surtax liability under the Companies (Profits) Surtax Act, 1964, for the relevant year should not be deducted in arriving at the total income under the Income-tax Act, 1961 ?"

( 6 ) THE first argument of the assessee before us is that the surtax liability under the C. (P.) S. T. Act, 1964, is a statutory charge on the income of the company, Therefore, the income of the assessee has been statutorily diverted at source. The real income of the assessee, therefore, must be taken to be reduced by the quantum of the surtax liability. It has been argued that the I. T. Act also imposes a liability on the income of the assessee and that liability would have been deductible from the total income of the assessee on the principle of real income. Because of the provisions of Section 40 (a) (ii), income-tax is not allowable as a deduction for the purpose of computation of taxable profits. It has further been argued that there are significant changes in the phraseology of Section 40 (a) (ii) of the 1961 Act from the language used in Section 10 (4) of the 1922 Act. Because of these changes, it cannot be said that the surtax liability comes within the mischief of Secti

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