Surtax non-deductibility and approved gratuity fund treatment under income tax law were applied to split the issues.

Surtax paid on a company's profits is not deductible in computing business income under the Income-tax Act, so the assessee's claim for deduction failed for the assessment year 1974-75. On the gratuity fund issue, the earlier view applied to the assessee's prior year reference was followed, and the approved fund claim was allowed subject to compliance with section 40A(7), so the Revenue's objection failed. The reference was thus disposed of by rejecting the surtax deduction claim while upholding the gratuity fund position, with each party bearing its own costs.

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Issues: (i) whether surtax paid by the assessee was deductible in computing total income for the assessment year 1974-75; (ii) whether the gratuity fund was already approved and the assessee was therefore entitled to allowance subject to the conditions of section 40A(7).

Issue (i): Whether surtax paid by the assessee was deductible in computing total income for the assessment year 1974-75.

Analysis: The question was governed by the rule that surtax levied on a company's profits is not an allowable deduction in computing business income under the Income-tax Act, 1961.

Conclusion: The issue was answered against the assessee.

Issue (ii): Whether the gratuity fund was already approved and the assessee was therefore entitled to allowance subject to the conditions of section 40A(7).

Analysis: The question was covered by the earlier decision on the same assessee's reference for the preceding assessment year, and the same view was applied for the assessment year 1974-75.

Conclusion: The issue was answered against the Revenue.

Final Conclusion: The reference was answered by rejecting the assessee's claim on surtax deduction while upholding the assessee's position on the gratuity fund issue, leaving the parties to bear their own costs.

Ratio Decidendi: Surtax paid on a company's profits is not deductible in computing business income, while an approved gratuity fund claim remains allowable only if the statutory conditions are satisfied.

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