Capital computation under surtax rules: section 80-I relief escapes reduction, but proposed dividends from reserves are deductible.

Relief under section 80-I did not require any reduction of capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, so that allowance was excluded from the capital-reduction exercise. Proposed dividends payable out of general reserve, however, had to be deducted from that reserve for capital computation, which affected the working of surtax capital on that point. The reference was disposed of by applying binding precedent on the first issue and Supreme Court authority on the second, with the first question answered for the assessee and the second for the Revenue.

---

---

Issues: (i) Whether relief granted under section 80-I required reduction of capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964; (ii) Whether proposed dividends payable out of general reserve had to be deducted from the general reserve for capital computation.

Issue (i): Whether relief granted under section 80-I required reduction of capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The question was concluded by binding precedent holding that the allowance under section 80-I did not attract a reduction of capital under rule 4 of the Second Schedule.

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

Issue (ii): Whether proposed dividends payable out of general reserve had to be deducted from the general reserve for capital computation.

Analysis: The question was governed by the Supreme Court's ruling that proposed dividends out of general reserve were deductible for the purpose of capital computation.

Conclusion: The issue was answered in the negative and in favour of the Revenue.

Final Conclusion: The reference was disposed of by answering the first question for the assessee and the second question for the Revenue, with no order as to costs.

Ratio Decidendi: Relief under section 80-I did not require reduction of capital under rule 4 of the Second Schedule, but proposed dividends payable out of general reserve were to be deducted in capital computation.

---