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TMI Blog1980 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's income mentioned above had been arrived at after such deduction. For the purpose of assessment to surtax under the Companies (Profits) Surtax Act, 1964 (hereinafter called the " Surtax Act "), the ITO took the aforesaid amount of the assessee's income as the basis for arriving at the chargeable profits. Accordingly, in computing the chargeable profits of the assessee-company under the provisions of r. 1(vii) of Sch. 1, he deducted Rs. 25,000, being 50% of the amount of donations on which exemption under s. 80G was allowed. While computing the capital of the company for the purpose of the Surtax Act according to Sch. II, the ITO did not make any adjustment in respect of the donations for which the deduction had been allowed. Thus, the chargeable profits was fixed by the ITO at Rs. 2,04,265 and the assessment to surtax was finalised accordingly. The Commissioner of Income-tax, acting in exercise of the power vested in him under s. 16 of the Surtax Act, took the matter in suo motu revision and after issuing a notice to the assessee and hearing the parties passed an order setting aside the assessment to surtax made by the ITO and directing the ITO to make a fresh assessment af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r s. 80G of the Act. While computing the capital of the company under Sch. II of the Surtax Act for the purpose of making the surtax assessment, the ITO held that the capital of the company had to be diminished by an amount proportionate to Rs. 41,250, being the deduction allowed to the assessee under s. 80G of the I.T. Act, for arriving at the taxable income. The contention put forward by the assessee that the deduction allowed under s. 80G will not fall within the scope of r. 4 of Sch. II to the Surtax Act was overruled by the ITO. The AAC, before whom the assessee took the matter in appeal, confirmed the assessment made by the ITO. The assessee filed a second appeal before the Tribunal and that appeal was allowed by the Tribunal following the decision already rendered by it in favour of the same assessee in the appeal relating to the assessment year 1971-72. On an application made by the Commissioner under s. 256(1) of the Act read with s. 18 of the Surtax Act the Tribunal has referred the following question of law to this court: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the sum of Rs. 41,250, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, profits and gains." The question for consideration in these two references is whether that part of the income of the assessee-company, in respect of which the company has been allowed a deduction under s. 80G of the Act while computing its total income for assessment to income-tax under the Act falls within the scope of the description "not includible in its total income " so as to attract the applicability of r. 4 of Sch. II to the Surtax Act. In order to understand the meaning and content of the expression " not includible in its total income as computed under the Income-tax Act " occurring in r. 4 of Sch II to the Surtax Act it is necessary to refer to some of the provisions of the, I.T. Act as it stood at the time of the enactment of the Surtax Act in 1964. Chapter III of the Act bears the heading " incomes which do not form part of total income ". Sections 10 and I 1, which are contained in this chapter of the Act, lay down that in computing the total income in the previous year of a person any income falling within the scope of any of the descriptions given in the various clauses to these sections shall not be included. Chapter IV of the Act deals with the topic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax was to be arrived at by dividing the amount of income-tax by the total income, thereafter the qualifying amount of donation eligible for relief under s. 88 (s. 15B of the old Act) was to be multiplied by the said average rate and the resultant sum deducted from the income-tax payable by the assessee. Similar provisions for the grant of rebate were contained in the Act in respect of some other types of expenditure also incurred by assessees. It was with a view to replace this complicated procedure of grant of rebates by the simpler method of providing for straight deductions in the computation of the total income that Chap. VI-A was introduced into the Act by the Finance Act, 1965, with effect from April 1, 1965. The chapter, as it was originally introduced then, contained only ss. 80A to 80E and those provisions did not cover the subject-matter of relief in respect of donations made to charitable institutions. By the Finance (No. 2) Act, 1967, Sch. III, Chap. VI-A, as it originally stood, was omitted and a new chapter was substituted containing ss. 80A to 80T. The legislative intention underlying the introduction of the new Chap. VI-A in the Act and the inclusion of s. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contained in Chap. VIII of the Act which contains provisions dealing with the topic " relief in respect of income-tax ". The heading given to Chap. VI-A wherein s. 80G is contained is " Deduction to be made in computing total income ". Section 80G appears in that chapter under the sub-heading " Deductions in respect of certain payments ". As already noticed, under the scheme of s. 15B of the Indian I.T. Act, 1922, as well as of s. 88 of the (1961) Act the amounts, in respect of which rebate of tax was admissible, were to be treated as forming part of the total income of the assessee chargeable to tax. The introduction of Chap. VI-A containing, inter alia, s. 80G only brought about a change in the procedure of granting the said relief by substituting the simpler mode of straight deduction of the expenditure in the place of the original system of grant of rebate of tax. Even under the scheme of Chap. VI-A the amount in respect of which relief is claimed under s. 80G continues to form part of the, total income of the assessee and it is thus " includible in its total income " but, in case the assessee claims the benefit of a deduction and proves to the satisfaction of the ITO that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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