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TMI Blog1982 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ting its capital for the purposes of surtax under the Act, the ITO held that the assessee's capital was liable to be reduced proportionately as per r. 4 of Sch. II to the Act in view of the relief allowed to the assessee under s. 80J of the I.T. Act. Aggrieved, the assessee went up in appeal before the AAC who accepted its contention that r. 4 could be applied only if the company had income which was not includible in its total income and that the deduction allowed to the assessee under s. 80J of the I.T. Act while computing its total income did not fall in the category of income not includible in the total income. He accordingly allowed the appeal filed by the assessee. The Department then took up the matter before the Income-tax Appellate Tribunal. It claimed that the amount allowed as deduction under s. 80J of the I.T. Act, while computing the assessee's total amount was income not includible in the assessee's total income and r. 4 of the Rules (under Sch. II) for computing the capital for the purposes of surtax was clearly applicable and that the AAC had erred in interfering with the order of the ITO. The Income-tax Appellate Tribunal repelled the aforementioned plea of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows that the amount for which deduction under s. 80J is allowable is in fact either the assessee's income or any part thereof which had not been included in its total income. The expression " income " has been defined in s. 2(24) of the I.T. Act as including various items mentioned therein. An amount representing certain percentage of the capital employed in an industrial undertaking as contemplated by s. 80J neither falls in any of the (sic) I.T. Act nor can it be considered to be the income of the assessee in any sense of the word. The expression total income has been defined in s. 2(45) of the I.T. Act as meaning the total amount of income referred to in s. 5 computed in the manner laid down in the Act. According to s. 5 of the I.T. Act, the total income of a person who is a resident includes all income from whatever source derived which is received or deemed to have been received by him or on his behalf in India or which accrues or arises or is deemed to have accrued or arisen to him in India as also the income which accrues or arises to him outside India. Likewise in the case of a non-resident it will mean all income from whatever source which the non-resident receives or is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g total income of an assessee and deduction of certain specified amount from the total income of an assessee for purposes of computing total income which may be subjected to tax. In the latter case, the deduction is made from out of the amount which is actually includible and which forms part of or stands included in the assessee's total income. Viewed in this light, it will not be possible to say that the deductions provided for in Chap. VI-A of the I.T. Act can be described as income, profits and gains which is not includible in the total income computed under the I.T. Act. There is yet another way in which the matter can be looked into. The provisions contained in r. 4 of Sch. II to the Act, for diminishing the amount of capital of an assessee can., in relation to the deductions made under ss. 80C to 80VV of the I.T. Act, become applicable only if it can be said that the deductions contemplated by those provisions are ill the nature of income, profits and gains of the company and that they are as such income, profits and gains being excluded from the total income of the assessee. In case the deductions contemplated by ss. 80C to 80VV of the I.T. Act cannot be treated as or con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income and, therefore, it cannot be treated to be a case of profits and gains of it company being includible in the total income. When a similar question came up for consideration before the Bombay High Court in the case of Commissioner of Surtax v. Ballarpur Industries Ltd. [1979] 116 ITR 528, it observed that the expression " not includible " in r. 4 of Sch. II to the Act means " not capable of being included ". It cannot refer to an amount which already forms part of the gross total income and which would be later on deducted for purposes of determining the tax liability under Chap. VI-A. It pointed out that the expression " shall not be included " which is found in ss. 10 and 11 and which are found in Chap. III is not used in any provision contained in Chap. VI-A. Similarly, the said expression is not used in Chapter IV of the I.T. Act, which provides for the method of computing income under which the assessee is allowed deduction by way of expenses, rebates, allowances, etc. Both in Chap. IV and Chap. VI-A, Parliament has consistently used the words " deduction shall be allowed " and not the expression " shall not be included ". It was, therefore, clear that the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come is that which is referred to in s. 5 and if by the provisions of s. 5 certain categories of income cannot be brought to tax under the I.T. Act, then those categories of income are riot capable of being included in the total income of the assessee concerned. Chapter III of the I.T. Act deals with the income which do Dot form part of the total income. Apart from the provisions of Chap. II, the phrase " income not includible in r. 4 of Sch. II of the Act " would also cover income which is beyond the sweep of the provisions of ss. 4 and 5 of the I.T. Act. So far as r. 4 is concerned, it is only the income of tile assessee falling within s. 10 of the I.T. Act and that part of the income which is outside the sweep of ss. 4 and 5 of that Act, that can be said to be income not includible in the total income as computed under the provisions of the I.T. Act. Deductions allowed to the assessee, under Chap. VI-A of the I.T. Act are not income, profits and gains not includible in the total income as contemplated by r. 4 of Sch. If to the Act. Such deductions are not to be taken for the proportionate diminution of the capital of a company computed under rules I to 3. The view taken by us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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