Section 80G deductions cannot be excluded from surtax capital computation where proportionate deduction is the correct legal effect.

Amounts deductible as donations under section 80G of the Income-tax Act, 1961 were held not to be treated as sums wholly not includible in income for computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. The analysis applied the earlier interpretation that section 80G gives rise to proportionate deduction and that such deductible amounts cannot be excluded from capital computation on the Revenue's proposed basis. The question was therefore answered in favour of the assessee, confirming that the surtax capital calculation must reflect the deduction treatment contemplated by section 80G.

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Issues: Whether amounts deductible as donations under section 80G of the Income-tax Act, 1961 could be treated as sums not includible in income for income-tax assessments and therefore excluded from deduction under rule 4 for computing capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The issue turned on the scope of section 80G of the Income-tax Act, 1961 and whether deductions admissible thereunder were to be regarded as amounts not includible in income for surtax computation. The question had already been considered in earlier decisions which held that the assessee was entitled to proportionate deductions. Following that interpretation, the amounts deductible as donations under section 80G could not be excluded from the capital computation in the manner suggested by the Revenue.

Conclusion: The question was answered in the affirmative, against the Revenue and in favour of the assessee.

Ratio Decidendi: Deductions allowable under section 80G of the Income-tax Act, 1961 are to be given the treatment contemplated by the provision and, for surtax computation, cannot be denied by treating them as wholly not includible in income where proportionate deduction is the correct legal effect.

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