# COMMISSIONER OF INCOME TAX, KERALA v. K. SRINIVASAN

- **Citation:** [1972] 2 S.C.R. 309
- **Court:** Supreme Court of India
- **Decided:** 1971-11-05
- **Case number:** Civil Appeals Nos. 1J 1 L of 1969
- **Bench:** K. S. Hegde, A. N. Grover, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-kerala-v-k-srinivasan-5654
- **Pages:** 7

## Headnote

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 provided 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 surcharge 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 surCharge and hence only income-tax.. v..·hich ·was to·
be worked out at the rates applicable under the Finance Act, 1963, was
payable. The De!"'rtment and the Tribunal held that 'income-tax' included
'surcharge. On reference, the High Court held that the words 'incometax' in s. 2(2) of the Finance Act, 1964, would not include 'surcharge'
and 'additional surcharge' and he1d in favour of the assessee.
Allowing the appeal to this Court,
HELD : (I) Surcharge was levied for the first timo by the
Indian
Finance Act, 1940. It was omitted in some later Finan~e Act'\ but was reintrocluced in the Finance Act of 1951 and continued thereafter.
The
phraseology emQloyed in the various Finance Acts sh0wcd th•t the, word
'surcharge' has been used to either increase the rates vf in..:vme-tax and
super-tax or to increase those taxes. Under s. 2 of t'ie Finance Act, 1971,
the provisions of s. 2 and of the First Schedule to the Act, J 97C. shall
apply in
n~lation to income-tax for
the asS'.!Ssment year
commencing
on the first day of April 1971. Section 2 of the Finance, Act 1971, speaks
only of inCorne-tax and not of any surcharge and, it is only in the modiftcations made in the Schedule to the Finance Act, 1970, that there is
pro\"ision for a surcharge.
Thus, the legislative histor•J of the Finance
Acts, as also the practice, indicate6 that the term 'incon~e-tax' as employed
in s. 2 of the Financo Act, 1964, includes 'surcharge' as also 'the special
and the
•dditional surch3rge' whenever provided. [3120-H; 313A-H;
314 A-BJ
.
(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 ct"iarged in four different ways or at 4 different
rates which mav be described as. (a) the basio charge or rate. (b) surcharge. (c) special surcharge, and (d) aclditional surcharge calculated in
the manner provided in the Schedule.
Rest in that way the additional
charges formed a part of the income,tax ancl super-tax.
According to
Art. 271 notwithstanding anything in Arts.
269 anu 270 Parliament
may at any time increase any of the duties or taxes referred to in those
310
SUPREME COURT REPORTS
(1972] 2 S.C.R.
Artidos 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
purpose of separating it from the basic charge of tax or duty, for the purpose of d·istributing the prooeeds of the same between the Union and the
:States. [,315 A-El
(3) Obiter. The legislative power of Parliament to
levy taxes
and
duties is contained in Arts. 245 and 246(1), read with the relevant entries
in List I of the Srventh Sohedule.
Entry 82 in List I relates to taxes on
income other than agricUltural
in~ome. Income-tax, supe1-tax and surcharge would all fall

## Text

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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 provided 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 surcharge 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 surCharge and hence only income-tax.. v..·hich ·was to·
be worked out at the rates applicable under the Finance Act, 1963, was
payable. The De!"'rtment and the Tribunal held that 'income-tax' included
'surcharge. On reference, the High Court held that the words 'incometax' in s. 2(2) of the Finance Act, 1964, would not include 'surcharge'
and 'additional surcharge' and he1d in favour of the assessee.
Allowing the appeal to this Court,
HELD : (I) Surcharge was levied for the first timo by the
Indian
Finance Act, 1940. It was omitted in some later Finan~e Act'\ but was reintrocluced in the Finance Act of 1951 and continued thereafter.
The
phraseology emQloyed in the various Finance Acts sh0wcd th•t the, word
'surcharge' has been used to either increase the rates vf in..:vme-tax and
super-tax or to increase those taxes. Under s. 2 of t'ie Finance Act, 1971,
the provisions of s. 2 and of the First Schedule to the Act, J 97C. shall
apply in
n~lation to income-tax for
the asS'.!Ssment year
commencing
on the first day of April 1971. Section 2 of the Finance, Act 1971, speaks
only of inCorne-tax and not of any surcharge and, it is only in the modiftcations made in the Schedule to the Finance Act, 1970, that there is
pro\"ision for a surcharge.
Thus, the legislative histor•J of the Finance
Acts, as also the practice, indicate6 that the term 'incon~e-tax' as employed
in s. 2 of the Financo Act, 1964, includes 'surcharge' as also 'the special
and the
•dditional surch3rge' whenever provided. [3120-H; 313A-H;
314 A-BJ
.
(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 ct"iarged in four different ways or at 4 different
rates which mav be described as. (a) the basio charge or rate. (b) surcharge. (c) special surcharge, and (d) aclditional surcharge calculated in
the manner provided in the Schedule.
Rest in that way the additional
charges formed a part of the income,tax ancl super-tax.
According to
Art. 271 notwithstanding anything in Arts.
269 anu 270 Parliament
may at any time increase any of the duties or taxes referred to in those
310
SUPREME COURT REPORTS
(1972] 2 S.C.R.
Artidos 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
purpose of separating it from the basic charge of tax or duty, for the purpose of d·istributing the prooeeds of the same between the Union and the
:States. [,315 A-El
(3) Obiter. The legislative power of Parliament to
levy taxes
and
duties is contained in Arts. 245 and 246(1), read with the relevant entries
in List I of the Srventh Sohedule.
Entry 82 in List I relates to taxes on
income other than agricUltural
in~ome. Income-tax, supe1-tax and surcharge would all fall under !his entry. It is in exeroise of this legislative
power that Parliament enact} the provilions
relating
to them
in
th~
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 supartax shall be charged for .any assessment year at any rate or rates incometax and super-tax at those rates shall be charged in accordance
thereto
and subject to the provisions of the Act.
Therefore, the distinction made
by the High. Court that surcharges .are bvied only under
th,.
Finance
Act and income-tax und" the Jncome-1-Jx Act may not hold good. [314DH]
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1J 1 L
of 1969 and 1415 of 1971.
App.~als by cer'tificate/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. Sai:hthey 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
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Grover, J; · This
is an appeal hy special leave from
a
judgment of the Kerala High Court In .an,Income tax Reference.
F
Originally C.A. 1111/69 had .been brought by 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 suc~inc!ly stated. The assessee's main .source
of income was salary from a 1imife'd company, '(A. V. Thomas &
G
Co. Ltd). In the previous year ·~nding 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 prescrib.~d by the
Finance Act I 96J.
Th~ assessee preferred an appeal to the Appellate .Assistant Commissioner.
It was contended before him on
H
behalf of the assessee that 'fhe provisions of the Finance Act 1964
did n'Jt permit the Income tax Officer to levy surchar~.~ and addi'
·1ional surcharge in accordance with the proVisions of Finance Ac·t
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C.I.T. y. K. SRINIVASAN (Grover, J.)
311
of 1963. In other words it was contended that under sub-s. (~)
of s. 2 of the Finance Act of 1964 only income tax was payable
in the proportion in which the salary stood to tile total income, the
income tax being worked out at the raites 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
tho~ A ppe!lateTribunal which upheld the levy of the surcharge and
the additional surcharge. On a reference being sought the follow-·
ing 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 incomi:-
tax and super tax shall be charged- at the rates specified in Parts-
! and. II of the First Schedule respectively and that in cases towhich certain paragraphs of those parts apply these tl\l(es 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 I of the First Schedule·
and super tax at the rates specified in Part II of that Schedule.
The income tax was to be increased in cases mentioned by a suF
charge and additional surcharge for the purpose of the Union and
a special surcharge.
The super tax was, however, to be increas--
ed 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 and 95 of
the Income tax Act 1961, hereinafter called the 'Act'.
These·
sections provide for cbarge of income tax a11d super tax.
It was.
pointed out that surcharge was treated in the Finance Acts as atax 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 was made in this connection to the First Schedule to the Finance Act 1963.
Part l
312
SUPREME COURT REPORTS
(1972] 2 S.C.R.
.of that Schedule dealt with "income tax and surcharge on income
tax".
Under that heading were given the rates of income tax as
.aiso the rates of surcharge.
Similarly Part II 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 surceharge.
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 provi-
,sions.
In order to determine the point before us, which is of consi-
.derable complexity, it is necessary to trace the concept of sur-
.charge 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 I. 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 0n
income respectively.
In the proviso to s. 13 7 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 surcharge 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. ....... "
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C.I.T. v. K. SRINIVASAN (Grover, J.)
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 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 19 51, 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 Acts of 1953, 1954, 1957.
Section 2 of the Finance
Act 1971 is to the 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 provisions 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 legislaiive 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
a~ditional surcharge whenever provided which are also surcharges
w1thm the meanmg 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
SUPREME COURT REPORTS
[1972] 2 S.C.R.
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 tlie Finance Act of
1971 appears to leave no room for doubt that the ierm "income
tax" as used in s. 2 includes surcharge.
According to 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 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 tax 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 to 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 tax can be charged only where the Central Act wlifch, in
the presenccase, 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 ta~
under the Act may not hold good if the above view which has
been pressed on behalf of the Revenue were to be. a~cept:d. . In
our judgment it is unnecessary to express any op1mon
m the
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C,J.T. v. K. SRINIVASAN (Grover, J.)
315
matter because the essential point for detennination is whethe1
s•rcharge 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) surcharge; (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 surcharge is meant for the purpose of the Union.
It would appear that since the Finance. Act 1943 up to 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 Fina.nee Act enacted for the current year it would
entail considerable administrative work in the form of refund or
collection in the final essessment.
Since by the Finance Act of
Hl67 this method or procedure was dropped we do not con,ider
that much significance can be attached to this aspect.
·
In the result we are unable to sustain the view of the High
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 assistance rendered as amicus curiae at our requ·~st by Mr. S. T. Desai,
Sr. Advocate, and Mr. Balakrishnan Advocate as the respondent
was unrepresented.
V.P.S..
7-LSOOSccP.C 1/72
Appeal dismissed