Section 80G proportionate deduction cannot reduce capital employed under surtax computation, favouring the assessee.

A proportionate deduction under section 80G of the Income-tax Act, 1961 is not to be taken into account for reducing capital employed under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. The Court accepted the view that such deduction could not be used as a basis to diminish capital employed for surtax computation, and answered the reference in favour of the assessee.

---

---

Issues: Whether the proportionate deduction allowed under section 80G of the Income-tax Act, 1961 was to be taken into account for reduction in the capital employed under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The question turned on the interpretation and scope of section 80G of the Income-tax Act, 1961 for determining whether the deduction granted to the assessee-company for the relevant assessment years could be excluded while computing capital employed under the Surtax Act. The Court adopted the reasoning of the Kerala High Court, which had held that the assessee was entitled to proportionate deductions and that the deduction under section 80G could not be treated as a basis for reducing capital employed under rule 4 of the Second Schedule.

Conclusion: The reference was answered in the affirmative, against the Revenue.

Final Conclusion: The legal position was settled in favour of the assessee on the treatment of section 80G proportionate deduction in the computation of capital employed under the surtax provisions.

Ratio Decidendi: A proportionate deduction under section 80G of the Income-tax Act, 1961 is not to be taken into account for reducing capital employed under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

---