1994 (11) TMI 41 - HC - Income Tax

Summary

Issues:
1. Whether the capital base should be proportionately reduced in relation to the deduction allowed under Chapter VIA of the Income-tax Act in computing the capital under the Companies (Profits) Surtax Act.
2. Whether the total amount of donation or only the maximum amount allowable under section 80G of the Income-tax Act should be considered for computing profits under the Companies (Profits) Surtax Act.

Analysis:
1. The first issue was addressed by referring to the decision in the case of Second ITO v. Stumpp Schuele and Somappa P. Ltd. The court answered this question in the affirmative and in favor of the assessee. The capital base must be proportionately reduced in relation to the deduction allowed under Chapter VIA of the Income-tax Act when computing the capital under the Companies (Profits) Surtax Act.

2. For the second issue, the court examined clause (vii) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act along with section 80G of the Income-tax Act. It was established that the amount eligible for deduction under clause (vii) of rule 1 should be computed with reference to the sums specified in sub-section (2) of section 80G, subject to the conditions and restrictions in sub-sections (3) and (4). Only donations eligible for deduction under section 80G(1) should be considered for computing profits under the Companies (Profits) Surtax Act.

In conclusion, the court answered the second question in favor of the Revenue, emphasizing that the amount eligible for deduction under the Companies (Profits) Surtax Act should be determined based on the provisions of section 80G of the Income-tax Act. No costs were awarded under the circumstances of the case.