Capital computation under the Super Profits Tax Act depends on the nature of the investment, not actual dividend receipt.

Under the Super Profits Tax Act, the cost of shares held as investments had to be excluded from the capital base because the test in the Second Schedule turns on the character of the asset and whether its income is not includible in chargeable profits, not on actual receipt or actual exclusion of dividend in the relevant year. The scheme of the Act treats that exclusion as independent of fortuitous dividend inclusion in the total income computation. The Calcutta HC therefore upheld reduction of capital by the cost of the shares and answered the question in favour of the Revenue.

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Issues: Whether, in computing the capital of a company under the Super Profits Tax Act, the cost of shares held as investments had to be excluded only if dividend income from those shares was actually included in the total income for that year.

Analysis: The First Schedule requires the total income computed under the Income-tax Act to be adjusted by excluding specified items, including dividend income. The Second Schedule, which governs computation of capital, excludes the cost of assets the income from which is not includible in chargeable profits. The expression "is not includible" was held to describe the character of the asset and not to depend on whether dividend was actually received or actually excluded in that year. The scheme of the Act treats the exclusion of such investments from capital base as independent of the fortuitous receipt of dividend in the relevant year.

Conclusion: The reduction of capital by the cost of the shares was in law, and the question was answered in favour of the Revenue.

Ratio Decidendi: Under the Super Profits Tax Act, the exclusion from capital base of the cost of assets whose income is not includible in chargeable profits depends on the nature of the asset and not on the actual receipt or actual exclusion of dividend income in the particular year.

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