Surtax computation and section 80G donations: only qualifying donations count, while capital base reduction follows precedent.

For surtax computation under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the capital base was to be proportionately reduced by deductions allowed under Chapter VI-A, following binding precedent, and the issue was answered in favour of the assessee. For rule 1(vii) of the First Schedule, only donations actually qualifying for deduction under section 80G of the Income-tax Act, 1961 could be taken into account; the gross total of donations was not the relevant figure because the exclusion depends on the statutory limits and conditions attached to section 80G, and this issue was answered in favour of the Revenue.

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Issues: (i) Whether the capital base was required to be proportionately reduced by reference to deductions allowed under Chapter VI-A while computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964; (ii) Whether, for computation under rule 1(vii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the relevant amount was the total donations or only the amount qualifying for deduction under section 80G of the Income-tax Act, 1961.

Issue (i): Whether the capital base was required to be proportionately reduced by reference to deductions allowed under Chapter VI-A while computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The issue was covered by binding precedent, and the same approach was followed without further independent reconsideration.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Issue (ii): Whether, for computation under rule 1(vii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the relevant amount was the total donations or only the amount qualifying for deduction under section 80G of the Income-tax Act, 1961.

Analysis: On a conjoint reading of rule 1(vii) of the First Schedule and section 80G, the amount to be excluded is the amount equal to fifty per cent of the sum with reference to which deduction is allowable under section 80G. That deduction depends on the sums specified in section 80G(2) and remains subject to the restrictions and conditions in sections 80G(3) and 80G(4). Only donations eligible for deduction under section 80G(1) can therefore form the basis, and not the entire amount of donations irrespective of eligibility.

Conclusion: The question was answered in favour of the Revenue.

Final Conclusion: The reference was answered by holding that the capital-base question favoured the assessee, while the donation-computation question favoured the Revenue.

Ratio Decidendi: Where a surtax computation provision refers to the amount with reference to which deduction is allowable under section 80G, the relevant figure is only the donation amount actually qualifying for deduction under section 80G, subject to the statutory limits and conditions, and not the gross total of all donations.

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