1979 (5) TMI 80 - AT - Income Tax

Summary

Issues:
Interpretation of provisions of the Companies (Profits) Surtax Act, 1964 regarding the adjustment of donations for computing taxable profits under the Act.

Analysis:
The case involved the assessee-company making donations for three assessment years and claiming adjustments under Rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964. The Income Tax Officer (ITO) allowed a reduction of Rs. 1 lac for each year, which was the same amount granted under Section 80G for income tax purposes. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, leading to the matter being brought before the Appellate Tribunal.

The crux of the issue was the interpretation of clause (Vii) of Rule 1 of the First Schedule, which allowed for an adjustment of fifty percent of the sum donated by the company under Section 80G of the Income Tax Act. The assessee contended that the adjustment should be based on the total amount donated, not limited to the deduction allowed under Section 80G. The Department argued that only fifty percent of the amount allowed as deduction under Section 80G should be reduced from the total income computed.

The Tribunal analyzed the relevant provisions of the Surtax Act and Section 80G of the Income Tax Act to determine the correct interpretation. It highlighted that the adjustment under Rule 1 of the First Schedule should be based on fifty percent of the sum "with reference to which" a deduction is allowable under Section 80G, not limited to the actual deduction granted. This interpretation was supported by the language used in the statutes and aimed at ensuring that the exclusion for surtax purposes was not restricted by the limitations of Section 80G.

Ultimately, the Tribunal held in favor of the assessee, allowing the claims for adjustments as per the interpretation of Rule 1 of the First Schedule. The judgment emphasized that the exclusion should be fifty percent of the entire amount donated, unaffected by the restrictions of Section 80G. The Tribunal concluded that the assessee's claims for adjustments were valid for the respective assessment years, and the appeals were allowed.

The judgment also included concurring remarks from the Judicial Member, who agreed with the interpretation and highlighted the need for simplicity in drafting provisions if the authorities' interpretation was correct. The Judicial Member emphasized the absence of specific limitations in the First Schedule akin to those in Section 80G, supporting the Tribunal's decision in favor of the assessee.