9911796707
|
Home
Issues Involved:
1. Interpretation of Rule 4 of the Second Schedule of the Surtax Act. 2. Validity of the Commissioner's orders under Section 16(1) of the Surtax Act for the assessment years 1968-69, 1969-70, and 1970-71. Issue-wise Detailed Analysis: 1. Interpretation of Rule 4 of the Second Schedule of the Surtax Act: The primary issue in this case revolves around the interpretation of Rule 4 of the Second Schedule of the Surtax Act. The Tribunal had to determine whether Rule 4 applies to income, profits, and gains that are not at all includible in the total income as computed under the Income-tax Act, or if it also applies to items of deductions permitted under Chapter VI-A of the Income-tax Act, 1961. The Commissioner argued that the Income-tax Officer (ITO) had failed to adjust the capital by reducing it proportionately to the deductions allowed under sections 80G, 80-I, 80K, 80L, 80M, and 80Q of the Income-tax Act. The Commissioner believed that these deductions resulted in part of the company's income, profits, and gains becoming not includible in its total income, thereby necessitating a reduction in capital under Rule 4. The Tribunal, however, referred to the Karnataka High Court's decision in Stumpp, Schuele & Somappa Pvt. Ltd. v. Second ITO, which held that Rule 4 does not apply to deductions under Chapter VI-A. The Karnataka High Court's reasoning included several points: - Deductions under sections 80C to 80V are already included in the gross total income, thus cannot be said to be not includible. - The term "not includible" refers to income that is incapable of being included, such as those directed by Chapter III of the Income-tax Act. - The concept of deductions by way of expenses, rebates, and allowances under Chapters IV and VI-A is different from that of non-inclusion. - Form No. 1 under Rule 5 illustrates items under Rule 4, such as agricultural income and foreign income of a non-resident, which fall under Chapter III. - Legislative history showed that items now in Chapter VI-A were previously in Chapter VII and did not affect capital computation for surtax purposes. - The revenue's argument would imply that even deductions under Chapter IV should affect capital, which is not intended. The Tribunal also considered similar decisions by the Madras and Bombay High Courts, which supported the view that Rule 4 does not apply to deductions under Chapter VI-A. The Madras High Court in Addl. CIT v. Bimetal Bearings Ltd. and the Bombay High Court in CIT v. Century Spg. and Mfg. Co. Ltd. and Commr. of Surtax v. Ballarpur Industries Ltd. held that deductions under Chapter VI-A do not result in income being not includible in the total income. The court, after considering these precedents and the arguments presented, concluded that the interpretation of Rule 4 should not include deductions under Chapter VI-A. The court reasoned that the language of Rule 4, when read in the context of the Income-tax Act and the Surtax Act, supports the view that it applies to income that is inherently not includible, rather than to deductions from gross total income. 2. Validity of the Commissioner's Orders under Section 16(1) of the Surtax Act: The second issue was whether the Tribunal was correct in canceling the Commissioner's orders under Section 16(1) of the Surtax Act for the assessment years 1968-69, 1969-70, and 1970-71. The Commissioner had revised the assessments made by the ITO, directing fresh assessments to account for the adjustments under Rule 4. Given the court's interpretation of Rule 4, which excluded the application of this rule to deductions under Chapter VI-A, the Commissioner's orders were found to be based on an incorrect interpretation of the law. Consequently, the Tribunal's decision to cancel the Commissioner's orders was upheld. Conclusion: The court answered the questions referred to it in the affirmative and against the revenue, affirming the Tribunal's decision that Rule 4 of the Second Schedule of the Surtax Act does not apply to deductions under Chapter VI-A of the Income-tax Act. The Commissioner's orders under Section 16(1) of the Surtax Act for the assessment years 1968-69, 1969-70, and 1970-71 were correctly canceled by the Tribunal. The parties were directed to bear their own costs.
|
