1985 (4) TMI 108 - AT - Income Tax

Summary

Issues:
1. Whether a sum transferred to a reserve fund by a banking company can be excluded from the total income of the assessee under the Companies (Profits) Surtax Act, 1964.
2. Interpretation of the provisions of the First Schedule of the Act in relation to the exclusion of sums from total income.
3. Determining the scope of exclusion under rule 1 of the First Schedule regarding items included in the income of the previous year.

Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT Cochin pertained to the assessment year 1976-77, involving the exclusion of a sum transferred to a reserve fund by a banking company from the total income under the Companies (Profits) Surtax Act, 1964. The dispute arose as the department contested the exclusion claimed by the assessee, arguing that the transfer did not originate from the total income of the previous year as assessed for income tax purposes. The Commissioner (Appeals) allowed the exclusion, leading to the department's appeal (para 1-2).

2. The key contention revolved around the interpretation of the First Schedule of the Act, specifically rule 1, which outlines the exclusion of certain items from total income. The department argued that exclusion under rule 1 only applies to income included in the previous year's total income, while the assessee contended that the provision covers 'other sums' not necessarily part of the previous year's income. The Tribunal examined the legislative intent behind the rule and the distinction between exclusions and deductions under the Act (para 6-8).

3. The Tribunal analyzed the language and purpose of rule 1 of the First Schedule in detail. It concluded that the exclusion provision pertains to items included in the total income of the previous year for surtax computation. The term 'other sums' in the rule was interpreted in light of the ejusdem generis principle to encompass amounts akin to 'income, profits, and gains' included in the previous year's income. As the transferred sum did not originate from the previous year's total income, it was held ineligible for exclusion under rule 1. Consequently, the Tribunal allowed the department's appeal, denying the assessee's claim for exclusion of the transferred amount from total income (para 8-9).

This detailed analysis outlines the issues, arguments presented, and the Tribunal's interpretation of the relevant provisions leading to the final decision on the appeal.