Law:

Section:

Rule 4 of the second schedule to the companies (profits) Surtax Act, 1964-Capital Computation of-During accounting year relevant for assessment year 1973-74, assessee-company received Rs. 9,35,192 on account of tax credit certificates granted under section 280ZB for assessment years 1966-67 to 1970-71-Whether tribunal correct in holding that said amount of tax credit certificates should have been taken into account for purposes of diminishing capital base under rule 4 of second schedule-Held, no Facts The assessee-company, following the mercantile system of accounting, had been granted under section 280ZB of the Income-tax Act five tax credit certificates for the assessment years 1966-67 to 1970-71 in all amounting to Rs. 9,35,192. During the accounting year relevant to the assessment year 1973-74, the assessee presented these certificates to the ITO for payment and received the aforesaid amount. The ITO did not take into account the aforesaid amount for the purpose of diminishing the capital base of the assessee in terms of rule 4 of the Second Schedule. Subsequently, the Additional Commissioner set aside the surtax assessment in revision by holding (i) that in terms of section 10(28) of the Income-tax Act, itself, the tax credit certificates amount was income and as that was an item of income exempted from tax under the Income-tax Act, it should have been taken into account for the purposes of diminishing the capital base of the assessee in the manner provided in rule 4 of the Second Schedule; and (ii) that the accounting year during which the amount of the tax credit certificates was actually adjusted or paid was relevant for the assessment year and not the years during which certificates were issued. The Additional Commissioner, accordingly, directed the ITO to modify the assessment by taking into account the sum of Rs. 9,35,192 as income for purposes of diminishing the capital base of the assessee-company as determined under rules 1 to 3 of the Second Schedule in terms of rule 4 thereof. On appeal, the Tribunal confirmed the Additional Commissioner's order. On reference, the assessee contended that the view taken by the Tribunal that the amount of tax…

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