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Issues: Construction of Rule 4 in Schedule II to the Central (Provincial) Sales Tax Act, 1964 regarding the inclusion of deductions granted under Section 80J of the Income Tax Act.
Analysis: The case in question pertains to the interpretation of Rule 4 in Schedule II to the Central (Provincial) Sales Tax Act, 1964, specifically concerning the treatment of deductions granted under Section 80J of the Income Tax Act. Rule 4 of the Act outlines the computation of a company's capital when a part of its income is not included in the total income as per the Income Tax Act. The crux of the issue revolves around whether the term "not includible" in Rule 4 encompasses deductions provided under Chapter VI-A of the Income Tax Act, particularly Section 80J, which allows deductions for profits from specific undertakings. The contention arises from the distinction between incomes excluded from total income under Section 10 of the Income Tax Act and deductions under Chapter VI-A. The Central (Provincial) Sales Tax Act, 1964 imposes a special tax on certain companies based on their profits. The definition of "chargeable profits" and "statutory deduction" under this Act provides context to the computation of a company's capital for surtax purposes. Notably, the Act excludes specific types of income taxable under the Income Tax Act from chargeable profits. The Second Schedule of the Act delineates rules for computing a company's capital, with Rule 4 addressing the treatment of income not included in the total income as per the Income Tax Act. The crux of the matter lies in the distinction between incomes excluded under Section 10 and deductions under Chapter VI-A of the Income Tax Act. Section 10 delineates incomes not included in total income, while Chapter VI-A focuses on deductions to be made in computing total income. Section 80J, a provision under Chapter VI-A, allows deductions for profits from certain industrial undertakings. The interpretation of Rule 4 in Schedule II of the Central (Provincial) Sales Tax Act hinges on whether the term "not includible" encompasses deductions granted under Chapter VI-A, particularly Section 80J. The High Court's analysis aligns with the view upheld by several other High Courts in the country, emphasizing that the term "not includible" in Rule 4 pertains solely to incomes excluded under Section 10 of the Income Tax Act, not deductions under Chapter VI-A. The Gujarat High Court's ruling underscores that only income falling within Section 10 and outside the purview of Sections 4 and 5 of the Income Tax Act can be considered "not includible" for the purpose of Rule 4. Therefore, deductions allowed under Chapter VI-A, such as those under Section 80J, are deemed includible for computing the capital base under the Central (Provincial) Sales Tax Act. In conclusion, the High Court concurred with the prevailing interpretation that deductions under Chapter VI-A, including Section 80J, are includible for computing the capital base under the Central (Provincial) Sales Tax Act. The judgment favored the assessee, affirming that no reduction in the capital base should occur concerning deductions granted under Section 80J of the Income Tax Act.
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