Capital computation under surtax law is not proportionately reduced merely because Chapter VI-A deductions are claimed.

While computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the capital base is not to be reduced merely because the company has obtained a deduction under Chapter VI-A of the Income-tax Act, 1961, including section 80-I. The Bombay HC followed the binding ruling in CIT v. Century Spg. and Mfg. Co. Ltd. and accepted that a Chapter VI-A deduction does not require a proportionate capital reduction for surtax computation. The issue was answered in favour of the assessee.

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Issues: Whether, while computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the capital of the company was required to be reduced in proportion to the deduction allowed under Chapter VI-A, including section 80-I of the Income-tax Act, 1961.

Analysis: The question was answered by following the earlier binding decision in CIT v. Century Spg. and Mfg. Co. Ltd. The legal position accepted was that the capital computation under rule 4 does not warrant a proportionate reduction merely because a deduction is allowed under Chapter VI-A, including section 80-I.

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

Ratio Decidendi: For computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the capital is not to be reduced proportionately by reason only of a deduction allowed under Chapter VI-A of the Income-tax Act, 1961.

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