Capital computation under surtax law must exclude the proportionate effect of section 80J relief and be recomputed accordingly.

For computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, the proportionate amount attributable to relief allowed under section 80J of the Income-tax Act had to be excluded. Relief under section 80J, being a deduction in computing total income, could not be treated as part of the surtax capital base to that extent. The capital was therefore required to be reduced correspondingly, and the standard deduction recomputed on that basis. The assessee succeeded, and the computation was directed to reflect the excluded proportionate effect of the section 80J relief.

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Issues: Whether, for the purpose of computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, the proportionate amount relatable to relief allowed under section 80J of the Income-tax Act, 1961 had to be excluded and the standard deduction recomputed accordingly.

Analysis: The dispute turned on the interpretation of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 in the context of deductions allowed under section 80J of the Income-tax Act, 1961. The Court accepted the view that relief under section 80J, being a deduction allowed in computing total income, could not be treated as part of the capital base for surtax computation to the extent proportionately attributable to such deduction. The Court followed and adopted the reasoning that the capital had to be reduced correspondingly when the section 80J relief was allowed in the income-tax assessment.

Conclusion: The issue was answered in the affirmative. The assessee succeeded, and the capital and standard deduction were to be recomputed after excluding the proportionate effect of the section 80J relief.

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