Computation of capital base for deduction standard deduction - calculation of sur tax - Income Tax - 623/CBDT

INSTRUCTION NO. 623/CBDT Dated : September 28, 1973 Section(s) Referred: Rule 4 II Schedule of IT Statute: Income - Tax Act, 1961 Under the provisions of the Companies (Profits) Surtax Act, 1964, surtax is levied on the excess of the chargeable profits over the standard deduction. The chargeable profits are computed in accordance with the provisions of the First Schedule, while the standard deduction is 10% of the capital of the company as computed in accordance with the provisions of the 2nd Schedule or Rs.2 lakhs, whichever is greater. In computing the capital base for calculating the standard deduction, under rule 4 of the 2nd schedule of the said Act if any part of the income, profits and gains of a company is not includible in its total income as computed under the IT Act, the capital as computed in accordance with rules 1,2 and 3 is required to be diminished by an amount which bears to that sum the same proportion as the amount of the aforesaid income, profits and gains bears to the total amount of its income, profits and gains. In this context, the Board had occasion to consider whether deductions under Chapter VIA of the I.T.Act are covered by rule 4 of the 2nd schedule to the Companies (Profits) Surtax Act which applies to income not includible in the total income. 2. The Board in consultation with the Ministry of Law has decided that total income itself means the total amount of income referred to in section 5 computed in the manner laid down in the I.T.Act. When a sum is deducted from the total income, it does not find a place in the total income when it is computed. In view thereof such income would have to be held to be not includible therein. While computing the capital base, a proportionate amount will therefore, have to be excluded. 3. Necessary instructions may kindly be issued to the ITOs on the lines indicated above. A review of the completed assessments may also be undertaken to the extent feasible. The PAC is likely to meet in the first week of November 1973. The review must, therefore, be undertaken on a top priority basis and results intimated to Board by 15th October, 1973 positively.