Law:

Section:

Rule 4 of Second Schedule to the Companies (Profits) Surtax Act, 1964 – Capital – Computation of – Assessment years 1966-67 to 1968-69 – Whetherin making computation for purpose of applying Chapter VIA of Income-tax Act, 1961 amount which is subject of relief is included in total income and, therefore, it cannot be treated to be a case of profits and gains of a company not being includible in total income – Held, yes FACTS The assessee was eligible for the deductions available under sections 80E, 80-I and 80J of the Income-tax Act, 1961 as in force in the relevant assessment years. In making the surtax assessments, the ITO computed the capital base by deducting proportionate part of capital referable to the profits deducted under sections 80E, 80I and 80J of the 1961 Act as the case may be, by application of rule 4 of the Second Schedule. The AAC dismissed the assessee's appeal. However, on further appeal, the Tribunal held that the ITO did not act properly in making the said adjustments. On reference : HELD What is not includible under section 10 of the 1961 Act will be the profits that are contemplated by the provisions of rule 4. As far as the profits which are the subject of relief under Chapter VIA of the 1961 Act are concerned, the position is that there is a deduction available from the gross total income as computed by those provisions. Therefore, up to the stage when one reached by computation for the purpose of Chapter VIA of the 1961 Act the amount which is eligible to be considered under that Chapter forms part of, or is included in, the total income. The deduction is given only because of the inclusion. Therefore, in such a case, the provisions of rule 4 do not have any scope for operation, because it cannot be stated that the said profits were not at all includible in the total income of the company computed under the 1961 Act. In the words, in making computation for the purpose of applying Chapter VIA of the 1961 Act the amount which is the subject of relief is included in the total income and, therefore, it cannot be treated to be a case of profits and gains of a company not being includible in the total income, Note : The decision was in favour…

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