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Issues: Whether, for computing capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the deduction allowed under section 80-I of the Income-tax Act, 1961 had to be reduced from the company's capital base.
Analysis: Rule 4 applies only where a part of a company's income, profits and gains is not includible in its total income as computed under the Income-tax Act. The expression refers to income excluded from total income under Chapter III, which contains provisions such as sections 10 and 11. It does not extend to deductions allowed in computing total income under Chapter VI-A, including section 80-I. The definition of "gross total income" in section 80B(5) is confined to Chapter VI-A and does not control the meaning of rule 4. The adjustment under rule 4 therefore does not cover reliefs or deductions allowed under Chapter VI-A.
Conclusion: The deduction under section 80-I was not liable to be deducted in determining the capital of the assessee-company under rule 4, and the question was answered in favour of the assessee.
Ratio Decidendi: For purposes of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, only income excluded from total income under Chapter III of the Income-tax Act is to be taken as "not includible", and deductions allowed under Chapter VI-A do not reduce the capital base.
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