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Interpretation of the Companies (Profits) Surtax Act, 1964 regarding the treatment of deposits made under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976 in the computation of chargeable profits. Detailed Analysis: The High Court of Kerala addressed a question referred by the Income-tax Appellate Tribunal regarding the treatment of a deposit made by a company under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, in the calculation of chargeable profits. The court examined the provisions of the Companies (Profits) Surtax Act, 1964, specifically focusing on the definition of "chargeable profits" and the adjustments required as per the First Schedule to the Surtax Act. The court emphasized that the key issue revolved around whether the deposit made by the company with the Industrial Development Bank of India under the scheme should be considered as payment of surcharge on income-tax, thereby impacting the computation of chargeable profits. The court analyzed the relevant provisions of the Finance Acts of 1976 and 1977, which provided for special provisions regarding the payment of surcharge on income-tax and the treatment of deposits made by companies in lieu of such payments. The court highlighted the contention of the assessee that even though the Finance Acts granted relief or deduction for deposits made under the scheme, the surcharge on income-tax remained payable, forming part of the income-tax referred to in the Surtax Act. However, the court concluded that even if the surcharge was payable, the specific provisions of the Surtax Act dictated that only the amount of income-tax actually paid by the company could be deducted in the computation of chargeable profits. Furthermore, the court discussed the provisions of rule 2 of the First Schedule to the Surtax Act, emphasizing that any relief, rebate, or deduction to which the company was entitled under the Income-tax Act or Finance Act should be considered before reducing the income-tax from the total income for the purpose of calculating chargeable profits. The court clarified that the amount of surcharge for which relief or rebate was granted under the Finance Acts had to be excluded before reducing it from the total income. In conclusion, the court reframed the question to address the core issue of whether the surcharge on income-tax payable by the assessee-company, which had made a deposit under the scheme, was liable to be deducted in the computation of chargeable profits. The court ruled in favor of the Revenue, holding that the amount of surcharge was not deductible in the computation of chargeable profits for the relevant year. The judgment provided a detailed analysis of the legal provisions and the specific circumstances surrounding the treatment of deposits made under the Companies Deposits (Surcharge on Income-tax) Scheme, highlighting the intricacies of tax law and the interpretation of relevant statutes in determining chargeable profits for companies under the Surtax Act.
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