2005 (1) TMI 72 - HC - Income Tax

Computing the capital employed - Whether Tribunal erred in law in affirming the order of the Commissioner of Income-tax (Appeals)/Appellate Assistant Commissioner holding that deductions allowed under section 80G falling under Chapter VI-A could not be considered as sums not includible in the total income for income-tax assessments and, therefore, would not fall for deduction under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 for the purpose of computing the capital employed? - question referred by the Tribunal is answered against the Revenue and in favour of the assessee.

Summary

Issues: Interpretation of deductions under section 80G for income-tax assessments and their consideration under the Companies (Profits) Surtax Act, 1964 for computing capital employed.

Interpretation of Deductions under Section 80G:
The High Court, in response to a question referred by the Income-tax Appellate Tribunal, addressed the issue of whether deductions allowed under section 80G of the Income-tax Act, 1961 could be considered as sums 'not includible' in the total income for income-tax assessments. The Court highlighted a previous judgment by the Supreme Court in Second ITO v. Stumpp Schuele and Somappa (P.) Ltd. [1991] 187 ITR 108, where a similar question was answered against the Revenue. The Court noted that the proposition from the Supreme Court's judgment was directly applicable to the present case. Additionally, the Court referenced judgments from various High Courts, including two from the same Court, to support the interpretation favoring the assessee. Consequently, the Court ruled in favor of the assessee, determining that deductions under section 80G could not be considered for deduction under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 for the purpose of computing the capital employed.

Consideration under Companies (Profits) Surtax Act, 1964:
The Court's analysis included a review of the judgments provided by the Supreme Court and various High Courts, emphasizing the applicability of the legal principles established in those cases to the present matter. By aligning with the precedent set by the Supreme Court and recognizing the consistency in interpretation across different High Court judgments, the Court concluded that the deductions allowed under section 80G could not be categorized as sums 'not includible' in the total income for income-tax assessments. This decision was crucial in determining that such deductions should not be factored in for the purpose of computing the capital employed under the Companies (Profits) Surtax Act, 1964. As a result, the Court answered the question referred by the Tribunal against the Revenue and in favor of the assessee, providing clarity on the treatment of deductions under section 80G in the context of income-tax assessments and surtax computations.

Conclusion:
In a concise disposition, the High Court resolved the reference by aligning with the legal principles established in previous judgments, notably those from the Supreme Court and various High Courts. By emphasizing the consistent interpretation favoring the assessee in similar cases, the Court provided a definitive ruling that deductions under section 80G could not be considered for computing the capital employed under the Companies (Profits) Surtax Act, 1964. This decision underscored the importance of adhering to established legal precedents and ensuring uniformity in the interpretation of tax laws across different jurisdictions.