1988 (4) TMI 106 - AT - Income Tax

Assessment Order Assessment Year Backward Area Chargeable Profits Computation Of Capital Deductions In Respect Industrial Undertaking Investment Allowance Profits And Gains Statutory Deduction Total Income

Summary

Issues:
1. Computation of total income for surtax purposes.
2. Work out of relief u/s 80HH before deducting investment allowance.
3. Inclusion of Central subsidy in owned capital for relief u/s 80J.
4. Inclusion of Central subsidy reserve in computing capital for surtax purposes.

Analysis:
1. The appeal raised concerns regarding the computation of total income for surtax purposes. The key issues were the deduction of deficiency u/s 80J and the disagreement with the Commissioner of Income-tax (Appeals) on the computed income. The Tribunal emphasized the need to follow the provisions of the Companies (Profits) Surtax Act, 1964, specifically referencing the First Schedule for computing chargeable profits. The Explanation inserted by the Finance Act, 1981, clarified the exclusion of income or profits as per the Income-tax Act, with exceptions for deductions under Chapter VI-A.

2. The second issue revolved around the order to work out relief u/s 80HH before deducting investment allowance. The Tribunal highlighted that deductions under Chapter VI-A, including u/ss. 80J and 80HH, should be allowed after computing total income as per the Income-tax Act. It was deemed lawful to claim these deductions in accordance with the law for working out chargeable profits under the Surtax Act.

3. Regarding the inclusion of Central subsidy in owned capital for relief u/s 80J, the Tribunal ruled that the subsidy, being a capital receipt, should be considered in the capital basis as per the Second Schedule of the Surtax Act. Central subsidy, not being a liability, was to be included in the capital calculation for the company.

4. The final issue addressed the inclusion of Central subsidy reserve in computing capital for surtax purposes. Citing the distinction between "provision" and "reserve," the Tribunal referred to the case law of CIT v. Elgin Mills Ltd. to establish that Central subsidy, as a capital receipt, should be treated as a reserve and included in the capital base for surtax computation.

In conclusion, the Tribunal found no major flaws in the order of the Commissioner of Income-tax (Appeals) except for the need to reevaluate the deduction u/s 80J in compliance with the law. The judgment emphasized adherence to legal provisions and established precedents in determining total income, deductions, and capital computation for surtax purposes.