Chargeable profits under surtax law: notional income-tax on debenture interest is not deductible absent express schedule provision.

In computing chargeable profits under the Companies (Profits) Surtax Act, 1964, the First Schedule must be applied strictly according to rules 1 to 3. Rule 2 allows deduction only of income-tax payable in respect of the company's total income after the prescribed adjustments, and it does not permit a further deduction of notional income-tax relatable to interest on long-term borrowings or debentures. Rule 3, as then in force, required only the addition back of debenture interest and did not create any corresponding tax deduction. The claimed deduction was therefore disallowed.

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Issues: Whether, in computing chargeable profits under the Companies (Profits) Surtax Act, 1964, the income-tax relatable to interest on long-term borrowings or debentures, though the interest itself is added back, is also deductible under rule 2 of the First Schedule.

Analysis: The First Schedule requires chargeable profits to be computed by adjusting total income strictly in accordance with rules 1 to 3. Rule 2 permits deduction of the income-tax payable by the company in respect of its total income, after specified adjustments, but it contains no provision for deducting notional income-tax relatable to interest on long-term borrowings. Rule 3, as it stood before amendment, only required addition back of interest payable on debentures; it did not create any corresponding deduction of tax on that amount. The Court held that the schedule must be applied as written and that nothing can be read into it by implication where the legislature has not provided for it.

Conclusion: The claimed deduction of income-tax relatable to interest on long-term borrowings was not allowable, and the question was answered in the affirmative and against the assessee.

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