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TMI Blog1977 (6) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The provisions of the Act levied what is called "surtax" on the chargeable profits after giving what is called a statutory deduction. The chargeable profit is the total income of the assessee computed under the Income-tax Act, 1961, and adjusted in accordance with the provisions of the First Schedule to the Act. The statutory deduction is given at the rate of 10% of the capital of the company as computed in accordance with the provisions of the Second Schedule or an amount of Rs. 2,00,000 whichever is greater. We are concerned in the present reference with rule 4 of the Second Schedule which runs as follows: "Where a part of the income, profits and gains of a company is not includible in its total income as computed under the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule to the Act for the assessment years 1966-67 and 1967-68. For the assessment year 1968-69, the Income-tax Officer considered the application of rule 4 of the Second Schedule even in the course of the original assessment. In the assessment reopened for 1966-67, the Income-tax Officer recomputed the capital by deducting from the capital as originally computed a proportionate part of the capital referable to the profits deducted under section 80E. Similarly, for the assessment year 1967-68, from the original capital computed, the Income-tax Officer made a deduction for the proportionate part of the capital referable to the profits given as deduction under sections 80-I and 80J. For the assessment year 1968-69, the Income-tax Officer while m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under sections 80E, 80-I and 80J, as the case may be, was not includible in the total income as computed under the Income-tax Act so as to justify the application of rule 4. The Surtax Act came to be passed in 1964 at a time when the corresponding reliefs were available to the assessee in a different manner. Before the amendment of the provisions of the Income-tax Act by the Finance Act, 1965, no tax was payable by the assessee with reference to the profits which came within the scope of Chapter VII. Subsequently, as a result of the amendments made in 1965, the manner of giving relief to the assessee was changed by allowing a straight deduction of the relevant amount from the gross total income as computed under the Act. There can be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that what is not includible under the provisions of section 10 will be the profits that are contemplated by the provisions of rule 4 of the Second Schedule to the Act. As far as the profits which are the subject of relief under Chapter VIA of the Income-tax Act are concerned, the position is that there is a deduction available from the gross total income as computed by those provisions. Therefore, up to the stage when we reach the computation for the purpose of Chapter VIA, the amount which is eligible to be considered under Chapter VIA forms part of, or is included in, the total income. The deduction is given only because of the inclusion. In our opinion, in such a case, the provisions of rule 4 do not have any scope for operation, beca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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