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TMI Blog1988 (6) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1976-77 only)? " So far as question No. 2 is concerned, it is concluded by the decision of this court in CIT v. Indian Detonators Ltd. [1983] 143 ITR 547, in favour of the assessee. Accordingly, the said question has to be answered saying that no deduction could be made from the capital base of proportionate capital ascertainable with reference to the exempted portion of dividends. The first question is whether the amounts standing under " capital redemption reserve " are includible in computing the capital base. According to the assessee, capital redemption reserve falls under "other reserves " mentioned in clause (iii) of rule I of the Second Schedule to the Companies (Profits) Surtax Act, 1964. The said reserve was created with a view to enable the assessee to redeem the redeemable cumulative preference shares which were issued in 1956 and which were to be redeemed on or after April 1, 1968. The company had passed a resolution on November 30, 1972, resolving to redeem them at the close of business on March 31, 1973. The Income-tax Officer refused to treat this as one of the reserves to be taken into account for the purpose of computing the capital base. The Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., in favour of the assessee and against the Revenue. Now, we come to the third question upon which there was a good amount of debate at the Bar. The question is : what is the amount to be excluded under clause (vii) of rule I of the First Schedule to the Companies (Profits) Surtax Act ? We shall first state the relevant facts. During the previous year relating to the assessment year 1976-77, the assessee made donations in a sum of Rs. 5,38,675 for purposes mentioned in sub-section (2) of section 80G. Of course, those were not the purposes falling under sub-clauses (i) to (iii-a) of clause (a) in sub-section (2) of section 80G. In the income-tax assessment proceedings, the authorities allowed a deduction of only Rs. 1,00,000. They appear to have proceeded in the following manner : They took the maximum permissible deduction at Rs. 2,00,000 only, having regard to sub-section (4) of section 80G. ( 10 per cent. of the total gross income of the assessee, it is not disputed, far exceeds Rs. 2 lakhs). Then, they granted deduction only of 50 per cent. of the said sum, purporting to act under sub-section (1). Be that as it may, a question now arises under the Companies (Profits) Surtax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The words " the sum with reference to which a deduction is allowable...... under the provisions of section 80G ........ mean the amount which is deductible under section 80G and under this clause half of such amount should be excluded from the total income while determining the chargeable profits. Applying the said theory to the facts of this case, learned counsel says, only a sum of Rs. 50,000 should be deducted under this clause, which is 50% of Rs. 1,00,000, which was held deductible under section 80G in the proceedings under the Income-tax Act. On the other hand, Sri Y. Ratnakar, learned counsel for the assessee, says that the amount to be excluded under rule 1(vii) is 50% of the sum with reference to which a deduction is allowable under section 80G. According to him, the sum with reference to which deduction is allowable is the total amount donated for the purposes recognised by section 80G(2) and half of that amount should be allowed. 'According to this contention, a sum of Rs. 2,69,338 has to be excluded from the total income for arriving at the chargeable profits. For properly appreciating and answering the question, it is necessary to examine section 80G of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv), (v) and (vii) of clause (a) and in clause (b) of sub-section (2)as exceeds ten per cent. of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to deduction under any other provision of this Chapter), or two hundred thousand rupees, whichever is less : Provided that where such aggregate includes any donations referred to in clause (b) of sub-section (2) and such aggregate exceeds the limit of two hundred thousand rupees specified in this sub-section, then such limit shall be raised to cover that portion of the donations aforesaid which is equal to the difference between such aggregate and the said limit, so, however, that the limit so raised shall not exceed ten per cent. of the assessee's gross total income as reduced as aforesaid, or five hundred thousand rupees, whichever is less. " The proper method to be followed in applying this section is this The Income-tax Officer must first ascertain the aggregate amount donated for the purposes mentioned in sub-section (2). He must then grant deduction for an amount equal to 50% of the said agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are unable to agree with Mr. M. Suryanarayana Murthy, learned standing counsel, that rule 1(vii) provides for exclusion of 50% of the amount actually allowed as deduction. If that were the intention of the rule, it would have run in this fashion: " an amount equal to 50% of the sum allowed as deduction to the company under the provisions of section 80G of the Income-tax Act ". But that is not the language actually used. The words to be borne in mind are " fifty per cent. of the sum with reference to which a deduction is allowable ". Now, the question is, what is the sum with reference to which deduction is allowable under section 80G ? We are of the opinion that it is not possible to say that the sum of Rs. 2,00,000 is the amount with reference to which deduction is allowable, that is, the amount actually granted as deduction under section 80G. (As we have already mentioned hereinabove, though, as matter of fact, only a sum of Rs. 1,00,000 was allowed as deduction under section 80G in the income-tax assessment proceedings, the correct amount to be deducted thereunder is Rs. 2,00,000 and, for the present purpose, we shall proceed on the assumption that that is the amount which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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