Surtax capital base reduction under Chapter VI-A deductions not permitted, following binding Supreme Court guidance.

In computing surtax liability, rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, could not be used to proportionately reduce the capital base merely because deductions were allowed under Chapter VI-A of the Income-tax Act, 1961. Applying the binding Supreme Court decision on the point, the Bombay HC held that the Assessing Officer was not justified in making such a reduction. The issue was answered in favour of the assessee, and the surtax computation proceeded accordingly.

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Issues: Whether, in computing surtax liability, rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, could be invoked to reduce the capital base proportionately on account of deductions allowed under Chapter VI-A of the Income-tax Act, 1961.

Analysis: The reference was made under section 256(1) of the Income-tax Act, 1961, as applied to surtax by section 18 of the Companies (Profits) Surtax Act, 1964. The question was whether the Assessing Officer could proportionately reduce the capital base under rule 4 of the Second Schedule because the assessee had obtained deductions under Chapter VI-A while computing total income. Following the binding Supreme Court decision on the point, the Court accepted that the issue stood covered in favour of the assessee.

Conclusion: The question was answered in the affirmative, and the assessee succeeded on the issue.

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