Surtax capital computation: excess book depreciation is includible, and Chapter VI-A deductions do not trigger rule 4 reduction.

For surtax capital computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964, excess depreciation debited in the books but not allowed in assessment is includible in capital, following the Court's earlier view and resulting in treatment favourable to the assessee. The commentary also states that capital computed under rules 1 to 3 is not to be proportionately reduced under rule 4 merely because deductions were allowed under Chapter VI-A of the Income-tax Act, 1961. On both points, the reference was concluded in favour of the assessee on the merits of the capital computation rules.

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Issues: (i) Whether depreciation debited in the account books in excess of the amount allowed in assessment was includible in the capital computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964; (ii) Whether the capital computed under rules 1 to 3 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 was liable to be proportionately reduced under rule 4 on account of deductions allowed under Chapter VI-A of the Income-tax Act, 1961.

Issue (i): Whether depreciation debited in the account books in excess of the amount allowed in assessment was includible in the capital computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The issue was covered by the existing decision of the Court in the earlier case relied upon for the reference. On that basis, the excess depreciation debited in the books was treated as part of the capital computation for surtax purposes.

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

Issue (ii): Whether the capital computed under rules 1 to 3 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 was liable to be proportionately reduced under rule 4 on account of deductions allowed under Chapter VI-A of the Income-tax Act, 1961.

Analysis: The issue was governed by the earlier decision of the Court on the interaction between the surtax capital computation rules and deductions under Chapter VI-A. Applying that view, no proportionate reduction under rule 4 was warranted merely because such deductions had been allowed in the income-tax assessment.

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

Final Conclusion: Both referred questions were decided for the assessee, and the reference stood concluded accordingly on the merits of surtax capital computation.

Ratio Decidendi: For surtax capital computation, excess depreciation debited in the books is includible, and deductions allowed under Chapter VI-A do not by themselves require a proportionate reduction under rule 4 of the Second Schedule.

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