Section 80G deductions are not excluded income under surtax rule 4, so no proportional capital reduction applies.

Donations eligible for deduction under section 80G of the Income-tax Act are not income excluded from total income for the purpose of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. Amounts covered by section 80G are allowed only as a deduction in computing total income under Chapter VI-A; they do not fall outside total income in the manner of exclusions under Chapter III. As a result, such donations cannot be treated as income not includible in total income, and no proportionate reduction of a company's capital is required under rule 4.

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Issues: Whether donations eligible for deduction under section 80G of the Income-tax Act, 1961 are to be treated as income not includible in total income for the purpose of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, so as to require a proportionate reduction in the capital of the company.

Analysis: Rule 4 of the Second Schedule applies only where part of a company's income, profits and gains is not includible in total income as computed under the Income-tax Act. The scheme of Chapter III of the Income-tax Act excludes specified categories of income from total income altogether, whereas section 80G in Chapter VI-A grants only a deduction in computing total income. Relief under section 80G does not take the donated amount outside the total income; it merely permits a straight deduction subject to the statutory conditions. The provision is therefore different in character from an exclusion under Chapter III and cannot be brought within the expression used in rule 4.

Conclusion: Donations allowed as deduction under section 80G are not income not includible in total income for rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and no proportionate reduction of capital is required.

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