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Issues: Whether the words "a part of the income, profits and gains of a company is not includible in its total income as computed under the Income-tax Act" in rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, extend to deductions allowed under section 80J of the Income-tax Act, 1961.
Analysis: The distinction between income that is not includible in total income and deductions allowed in computing total income was treated as decisive. Section 10 of the Income-tax Act, 1961, deals with incomes that do not form part of total income, whereas Chapter VI-A is headed as deductions to be made in computing total income. Section 80J is a deduction provision within Chapter VI-A and does not exclude income from the total income in the same sense as section 10. On that construction, rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, applies only to incomes outside inclusion under section 10 and not to deductions under Chapter VI-A.
Conclusion: The words in rule 4 do not cover relief under section 80J of the Income-tax Act, 1961; the capital base is not to be proportionately reduced on account of such deduction, and the answer is in favour of the assessee.
Ratio Decidendi: A deduction allowed in computing total income is not equivalent to income that is not includible in total income for the purpose of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.
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