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Rule 4 of second schedule to the companies (Profits) surtax Act, 1964-Capital-Computation of-Whether income, profits and gains of a company not includible in its total income referred to in rule 4 of second schedule applied only to those amounts which were not includible in total income by provisions of chapter III of the Income-tax act, 1961 and not to any of deductions claimable under chapter via of that act-Held, yes Words and phrases-Expression "is not includible" in rule 4 of the companies (Profits) surtax act, 1964 Facts For the assessment years 1968-69 to 1970-71, the ITO made the surtax assessments without reducing the capital computed proportionately having regard to the deductions allowed under sections 80-I and 80J of the Income-tax Act. The Commissioner, however, considered the aforesaid orders to be erroneous and prejudicial to the interests of the revenue and set aside the said orders, holding that the capital computed should have been proportionately reduced having regard to the deduction allowed under sections 80-I and 80J, in view of the provisions of rule 4 of the Second Schedule. On appeal, the Tribunal held that rule 4 of the Second Schedule applied only to those amounts which were not includible in the total income under the provisions of Chapter III of the Income-tax Act and not to any of the deductions claimable or allowable under Chapter VIA of the said Act and that the order of the Commissioner on the basis of a contrary view was not correct. On reference: Held The words "is not includible" in rule 4 of the Second Schedule mean "is not capable of being included" and could not mean "has not been included". A combined reading of the provisions of sections 2(5) and 4 and rules 1, 3 and 4 of the Second Schedule, therefore, leads to the conclusion that if a certain income was not capable of being included, it was only the capital in respect of that income which could be diminished under rule 4 of the Second Schedule. Therefore, the question arose as to whether the deductions allowable under sections 80-I and 80J of the Income-tax Act were incomes not capable of being included in the total income of the assessee. Chapter III of the Income-tax…

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