Law:

Section:

Schedule II, Rule 4, of the Companies (Profits) Surtax Act, 1964 - Computation of capital - Assessment years 1968-69 to 1970-71 - Whether rule 4 refers only to such income, profits and gains which are not at all includible in total income as computed under Income-tax Act, 1961 and not to items of deductions permitted under Chapter XI-V of 1961 Act - Held, yes FACTS The ITO while computing the chargeable profits for surtax assessment, made adjustments to the company's total income (as determined for purposes of income-tax) in accordance with the provisions contained in the First schedule, and in computing the total income assessed under the Income-tax Act, 1961 the assessee was given the deductions contemplated under Chapter VI-A of the 1961 Act. Subsequently, the Commissioner acting under section 16(1) cancelled the assessments on the ground that the ITO had failed to carry out the adjustment by way of reduction of capital that had to be made under Rule 4. On appeal, the Tribunal cancelled the Commissioner's orders, holding that Rule 4 referred only to such income, profits and gains which were not at all includible in the total income as computed under the 1961 Act and not to items of deductions permitted under Chapter VI-A of the Act. On reference: HELD Rule 4 contemplates a type of income which by its nature does not form part of the total income; the use of the word "includible" also supports the view that importance is to be attached to the general nature of a class of income rather than to the factual inclusion or otherwise of a particular amount or portion of the assessee's income in the total income. The word "total income computed under the 1961 Act" were intended not to lay emphasis on amount of the said total income but rather to indicate that what is material for this rule is the exclusion of an income from the total income as computed for income-tax purposes and not its exclusion from the said total income adjusted for the purposes of the Act in order to arrive at the chargeable profits. The incomes of the categories referred to in Chapter VI-A of the 1961 Act are taken into account as part of the process of computation of total income, for, they do…

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