1992 (9) TMI 176 - AT - Income Tax

Summary

Issues:
1. Computation of capital employed for surtax purposes.
2. Reduction of capital based on depreciation differences.
3. Reduction of capital based on deductions allowed under Chapter VIA of the Income-tax Act.
4. Interpretation and application of Rule 4 of the Second Schedule to the Companies Surtax Act, 1964.

Analysis:

Issue 1: Computation of capital employed for surtax purposes
The appeals before the Appellate Tribunal ITAT Pune involved the computation of capital employed for surtax purposes for the assessment years 1985-86 and 1986-87. The Assessing Officer reduced the capital by the accumulated difference in depreciation actually allowed under Income-tax Rules and the depreciation claimed by the assessee in the books of accounts. Additionally, the capital employed was proportionately reduced based on deductions allowed under Chapter VIA of the Income-tax Act, 1961 in accordance with Rule 4 of the Second Schedule to the Surtax Act.

Issue 2: Reduction of capital based on depreciation differences
The CST(A) ruled that only the actual difference in depreciation for the respective assessment years should be reduced from the capital employed, following the Tribunal's decision in the assessee's case for the assessment year 1982-83. This decision was supported by the judgment of the Bombay High Court in the case of Zenith Steel Pipes Ltd., emphasizing that the difference in depreciation allowed and provided in the books should be deducted from general reserves for capital computation.

Issue 3: Reduction of capital based on deductions under Chapter VIA
The CST(A) held that reducing capital employed for special deductions under Chapter VIA of the Income-tax Act was not correct, citing the judgments of the Bombay High Court in Century Spg. & Mfg. Co. Ltd. and Ballarpur Industries Ltd. The tribunal upheld this decision, stating that the relief granted under sections 80-I and 80J of the Income-tax Act should not diminish the capital base for surtax purposes.

Issue 4: Interpretation and application of Rule 4 of the Second Schedule
The Appellate Tribunal upheld the CST(A)'s order, rejecting the revenue's grounds of appeal. The Tribunal relied on the Supreme Court's judgment in Stumpp Schuele & Somappa (P.) Ltd., which clarified that relief under sections 80-I and 80J of the Income-tax Act should not reduce the capital base for surtax computation. The Tribunal emphasized that Rule 4 of the Second Schedule does not allow deductions for such relief, in line with the judgments of the Karnataka and Bombay High Courts and the Supreme Court.

In conclusion, the Appellate Tribunal dismissed the appeals, affirming the CST(A)'s decision on the reduction of capital based on depreciation differences and deductions under Chapter VIA, and the interpretation of Rule 4 of the Second Schedule to the Companies Surtax Act, 1964.