Law:

Section:

Rule 4 of second schedule of the Companies (Profits) Surtax Act, 1964 - Capital - Computation of - Whether deduction allowed under section 80g of the Income-tax Act is income "not includible in. . .total income as computed under the Income-tax Act" - Held, no whether while computing capital of company, proportionate amount of deduction allowed under section 80g of the Income-tax Act is to be excluded - Held, no Words and phrases - Expression "income, profits and gains of a company is not includible in its total income as computed under the Income-tax Act" occurring in rule 4 of second schedule to the surtax act FACTS The assessee-company was allowed deduction of donations under section 80G of the Income-tax Act for the assessment years 1971-72 and 1973-74 to the extent of Rs. 25,000 and Rs. 41,250, respectively. In the assessment under the Surtax Act, for the assessment year 1971-72, the ITO, in computing the capital in accordance with rule 4 of the Second Schedule, aid not make any adjustment in respect of the donations for which the deduction was allowed and completed the assessment. In exercise of his powers of revision, the Commissioner set aside the assessment and held that the amount of deduction allowed under section 80G of the Income-tax Act constituted part of assessee's income "not includible in its total income as computed under the Income-tax Act" for the purposes of aforesaid rule 4 of the Second Schedule and, therefore, the capital, as computed by the ITO, in accordance with rules 1 to 3 thereof was required to be diminished by the amounts of donation allowed as deduction under section 80G. In appeal, the Appellate Tribunal set aside Commissioner's order relying on the decision of the Karnataka High Court in the case of Stumpp, Schuele & Somappa (P.) Ltd. v. Second ITO [1976] 102 ITR 320 wherein it was held that the expression "income, profits and gains of a company not includible in its total income as computed under the Income-tax Act" occurring in rule 4 of the Second Schedule refers only to those sums which are not includible in total income by virtue of the provisions of Chapter III of the Income-tax Act and does not refer to any of the…

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