Capital base computation under surtax law rejects proportional reduction for a shorter previous year.

Section 2(8) of the Companies (Profits) Surtax Act, 1964 is discussed in relation to the statutory deduction and the computation of capital base where the previous year is shorter than 12 months. The text explains that the dispute concerned whether capital base should be proportionately reduced for a 9-month period or taken at the full amount for surtax assessment. The court's interpretation rejected proportional adjustment based only on the length of the previous year and treated the proviso to section 2(8) as governing the computation of capital base. The analysis also distinguishes an earlier Madras High Court decision as not controlling on this point.

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Issues: Whether, under section 2(8) of the Companies (Profits) Surtax Act, 1964, the capital base for surtax computation had to be proportionately increased or decreased when the previous year was shorter than twelve months.

Analysis: The proviso to section 2(8) was held to govern only the statutory deduction of ten per cent, which is the amount that must be increased or decreased proportionately where the previous year is longer or shorter than twelve months. On a plain construction of the provision, the capital base itself is to be computed independently of that proviso and is not subject to proportional reduction merely because the previous year is of less than twelve months.

Conclusion: The capital base could not be proportionately reduced for a short previous year, and the assessee's capital base was correctly taken at the full amount.

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