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Interpretation of Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 regarding the deduction of capital base in proportion to relief allowed in income-tax assessment under specific sections. Analysis: The judgment addressed the question referred by the Tribunal concerning the assessment of a company under the Companies (Profits) Surtax Act for the assessment year 1980-81. The central issue was whether the capital base under the Surtax Act should be deducted in proportion to the relief allowed in the income-tax assessment under sections 32A, 35B, and Chapter VI-A of the Income-tax Act, 1961, invoking rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. Rule 4 of the Second Schedule specifies the calculation for determining the capital base of a company when a part of its income is not includible in its total income. The court referred to a previous case where it was held that rule 4 does not apply to deductions under Chapter VI-A of the Income-tax Act. The Tribunal also ruled that deductions under sections 32A and 35B do not fall under the purview of rule 4. The Revenue argued that the previous decision regarding the inapplicability of rule 4 to deductions under Chapter VI-A should be distinguished. They contended that deductions under sections 32A and 35B are considered before computing the total income, thereby reducing the income not includible for taxation purposes. The court examined the legislative history and noted that rule 4 was enacted before certain sections of the Income-tax Act were introduced. Despite subsequent amendments, the reference in rule 4 remained to the total income and not gross total income. The crucial aspect highlighted was income "not includible in the total income," which refers to income not required to be included for computing total income under the Income-tax Act. The court concluded that only income not brought to tax due to specific provisions like section 10 of the Income-tax Act should be considered as "not includible in the total income" for the purpose of rule 4. Therefore, the question was answered in favor of the assessee, ruling that the capital base should not be deducted in proportion to the relief allowed in the income-tax assessment under the mentioned sections. No costs were awarded in the circumstances of the case. This comprehensive analysis of the judgment delves into the interpretation of Rule 4 and its application to specific deductions under the Income-tax Act, providing a detailed explanation of the court's reasoning and decision in this matter.
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