Capital employed under surtax rules is not reduced merely because a section 80M deduction was allowed.

Capital employed under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 is not reduced merely because the assessee has obtained a deduction under section 80M of the Income-tax Act, 1961. The stated position follows the Supreme Court view that no portion of capital is required to be deducted on that account, and the Tribunal's approach was consistent with that binding principle. Accordingly, the legal question is answered in favour of the assessee and against the Department.

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Issues: Whether, in computing capital employed under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, any portion of capital is required to be deducted in respect of the deduction allowed under section 80M of the Income-tax Act, 1961.

Analysis: The question was covered by the Supreme Court decision holding that no portion of the capital is to be deducted under rule 4 of the Second Schedule merely because the assessee had obtained a deduction under section 80M. The Tribunal's view was consistent with that binding decision, and the reference had to be answered accordingly.

Conclusion: No portion of the capital is to be deducted under rule 4 of the Second Schedule in respect of the deduction granted under section 80M of the Income-tax Act, 1961. The question was answered in the affirmative and against the Department.

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