Sticky loan interest excluded from surtax chargeable profits because non-taxable income cannot be added to the statutory base.

Interest on sticky loans was treated as outside the income base for surtax purposes because chargeable profits under the Companies (Profits) Surtax Act, 1964 are computed from income assessed under the Income-tax Act, 1961, subject to the First Schedule adjustments. Applying the view that such interest is not exigible to tax as income, it could not be added while computing chargeable profits. The computation was therefore sustained in favour of the assessee, and the Revenue's challenge to exclusion of the interest failed.

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Issues: Whether interest on sticky loans/advances was includible in computing chargeable profits for surtax purposes.

Analysis: The chargeable profits under the Companies (Profits) Surtax Act, 1964 are computed with reference to income assessed under the Income-tax Act, 1961 and adjusted as provided in the First Schedule. Following the binding view that interest on sticky loans does not represent income exigible for inclusion in the computation, such interest could not form part of the income base for surtax.

Conclusion: The issue was decided against the Revenue and in favour of the assessee; interest on sticky loans was held not includible for surtax computation.

Final Conclusion: The appeal challenging exclusion of interest on sticky loans from chargeable profits failed, and the assessee's computation was sustained.

Ratio Decidendi: Interest on sticky loans that is not includible in taxable income cannot be added while computing chargeable profits for surtax under the statutory scheme of the Companies (Profits) Surtax Act, 1964.

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