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Issues: (i) Whether amounts deducted under sections 80G, 80L and 80M formed part of the total income for surtax assessment and therefore were not to be reduced from capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964; (ii) whether, under the proviso to section 2(8) of the Companies (Profits) Surtax Act, 1964, the statutory deduction had to be reduced on the basis of the actual broken period of the previous year or on a rounded period of nine months.
Issue (i): Whether amounts deducted under sections 80G, 80L and 80M formed part of the total income for surtax assessment and therefore were not to be reduced from capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.
Analysis: The point stood covered by an earlier decision of the same court. The question required no fresh reconsideration on the facts of the case and was answered by following that binding precedent.
Conclusion: The question was answered in the affirmative and against the Revenue.
Issue (ii): Whether, under the proviso to section 2(8) of the Companies (Profits) Surtax Act, 1964, the statutory deduction had to be reduced on the basis of the actual broken period of the previous year or on a rounded period of nine months.
Analysis: The proviso required the ten per cent statutory deduction to be increased or decreased proportionately where the previous year was longer or shorter than twelve months. The provision contained no basis for treating a fraction of a month as a full month. The correct computation was therefore to apply the actual duration of the accounting period, namely eight months and twenty-four days, rather than to round it off to nine months.
Conclusion: The question was answered in favour of the Department and against the assessee.
Final Conclusion: The reference was disposed of by answering the first question against the Revenue and the second question against the assessee, with the court upholding proportionate computation on the actual length of the broken previous year.
Ratio Decidendi: A proviso requiring a statutory deduction to be increased or decreased proportionately according to the length of the previous year must be applied on the actual period and does not permit rounding off fractions of a month into a full month unless the statute expressly so provides.
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