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Issues: Surtax assessment for the years 1973-74, 1974-75, and 1975-76; Interpretation of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act in relation to deductions under sections 80J and 80G of the Income-tax Act.
Analysis: The case involved the assessment of surtax for three consecutive years. The assessee, Oswal Woollen Mills Limited, was assessed for surtax, and the computation of profits chargeable to surtax required the calculation of the company's capital as per the Second Schedule to the Companies (Profits) Surtax Act. The Income-tax Officer reduced the capital computed for the assessment years by applying a proportionate deduction under rule 4 due to deductions allowed under sections 80J and 80G of the Income-tax Act. The Officer held that the deductions under Chapter VIA of the Income-tax Act, including sections 80J and 80G, represent a part of income not included in the total income, thus necessitating a reduction in capital for surtax computation. On appeal, the Appellate Assistant Commissioner sided with the assessee, following a judgment from the High Court of Karnataka. The Commissioner directed the Income-tax Officer to recompute the capital by excluding the proportionate deduction related to section 80J relief. The Tribunal upheld this decision, leading to the matter being referred to the High Court for opinion. The High Court, considering the precedent set by the High Court of Karnataka in a similar case, ruled in favor of the assessee and against the Revenue. The Court agreed with the reasoning in the Karnataka judgment and also cited similar decisions from other High Courts. The Court held that the proportionate deduction on account of section 80J relief should be excluded from the computation of capital for surtax assessment, affirming the Tribunal's decision. The Court's ruling aligned with the interpretation of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act in relation to deductions under sections 80J and 80G of the Income-tax Act.
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