Law:

Section:

Rule 4 of second schedule to the Companies (Profits) Surtax Act, 1964 - Capital-Computation of-Whether deductions allowed to assessee-company under chapter VIA of the Income-tax act amount to "income, profits or gains not includible in. . .total income" as contemplated in rule 4-Held, no words and phrases-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 second schedule to the Companies (Profits) Surtax Act Facts For the assessment years 1969-70 and 1970-71, the assessee-company's gross total income worked out to Rs. 93,11,291 and Rs. 1,18,83,470, respectively, after allowing it relief under Chapter VIA of the Income-tax Act to the extent of Rs. 4,22,391 and Rs. 3,50,319, respectively, for the said assessment years. Subsequently, the ITO determined the capital of the company, for the purpose of standard deduction under the Surtax Act, as per the Second Schedule at Rs. 3,77,97,807 for the assessment year 1969-70 and at Rs. 4,44,55,333 for the assessment year 1970-71. However, the Commissioner, acting under section 16 of the Surtax Act, held that the deductions allowed under Chapter VIA of the Income-tax Act were "income, profits and gains not includible in the total income as computed under the Income-tax Act" within the meaning of rule 4 of the Second Schedule and, accordingly, he held that the capital computed should be diminished to the proportionate extent as prescribed in rule 4. He, accordingly, reduced the capital for the said two assessment years as computed by the ITO. The Tribunal set aside the Commissioner's order. On reference : Held The provisions of the Surtax Act are in pari materia with the provisions of the Income-tax Act and, therefore, when rule 4 speaks of income which is not includible, the words "not includible" must be read in the light of the provisions of the Income-tax Act. The dictionary meaning of the aforesaid expression is, "not capable of being included". Consequently, under the Income-tax Act, the concept of "income not includible" is a provision where, by the very nature of the income, profits and gains concerned, the income cannot be…

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