1980 (7) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Rule 4 of the Second Schedule of the Companies (Profits) Surtax Act, 1964, in relation to Chapter III and Chapter VI-A of the Income-tax Act, 1961.
2. Justification of the Tribunal's decision regarding the non-reduction of capital computed proportionately with respect to deductions allowed u/s 80-I and 80J of the Income-tax Act, 1961.

Summary:

Issue 1: Interpretation of Rule 4 of the Second Schedule of the Companies (Profits) Surtax Act, 1964

The Tribunal held that Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, applies only to those amounts which are not includible in the total income by the provisions of Chapter III of the Income-tax Act, 1961, and not to any of the deductions claimable under Chapter VI-A of the Income-tax Act, 1961. This interpretation was based on the understanding that deductions under Chapter VI-A are subtractions from the total income, not exclusions from it. The court agreed with this interpretation, noting that Chapter III deals with incomes that do not form part of the total income, whereas Chapter VI-A deals with deductions from the total income.

Issue 2: Justification of the Tribunal's Decision on Non-Reduction of Capital

The Tribunal found no error in the Income-tax Officer's (ITO) order, which did not reduce the capital computed proportionately concerning the deductions allowed u/s 80-I and 80J of the Income-tax Act, 1961. The Commissioner of Income-tax had set aside the ITO's assessments, directing a proportionate reduction in capital. However, the Tribunal reversed this, stating that Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, does not mandate such a reduction for deductions under Chapter VI-A. The court upheld the Tribunal's decision, affirming that the deductions u/s 80-I and 80J do not render the income "not includible" in the total income.

Conclusion:

The court answered both questions in the affirmative, supporting the Tribunal's interpretation and decision. The deductions u/s 80-I and 80J are not considered as incomes "not includible" in the total income for the purposes of Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. Each party was directed to bear its own costs.

Note: Sudhindra Mohan Guha J. concurred with the judgment.