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Issues: Whether deductions allowed under Chapter VI-A of the Income-tax Act, 1961 amount to income, profits or gains not includible in total income within rule 4 of the Second Schedule of the Companies (Profits) Surtax Act, 1964.
Analysis: Rule 4 operates only where 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. The decisive expression is "not includible", which means income that is not capable of being included in the total income, not income that is first included and then excluded by way of deduction. The statutory scheme distinguishes between incomes outside the sweep of the charging and inclusion provisions and items which are otherwise includible but are later deducted under special provisions. Income falling within Chapter VI-A is of the latter kind, because it is capable of inclusion in total income and is then taken out by deduction. The only categories relevant to rule 4 are income outside sections 4 and 5 of the Income-tax Act, 1961 and incomes excluded under section 10 of that Act.
Conclusion: Deductions under Chapter VI-A are deductions from total income and are not income, profits or gains not includible in total income for rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964; the question was answered in favour of the assessee and against the revenue.
Ratio Decidendi: For rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, only income inherently incapable of inclusion in total income falls within "not includible in total income"; income merely deducted after inclusion under the Income-tax Act, 1961 does not.
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