Surtax capital computation for non-resident shipping income excludes rule 4 and follows the applicable Second Schedule rules.

Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act does not apply where a non-resident shipping company's income is computed under section 44B of the Income-tax Act on a special statutory basis. In that setting, the company's profits and gains are not to be apportioned by reference to the ratio of Indian income to world income for surtax capital computation. The capital base must instead be computed under the other applicable provisions of the Second Schedule, namely rules 1 to 3 as relevant, rather than under rule 4.

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Issues: Whether, for a non-resident shipping company assessed under section 44B of the Income-tax Act, 1961, the capital base for surtax purposes was to be computed under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 on the basis of the proportion of Indian income to world income, or whether rule 4 was inapplicable and the capital had to be computed under the other applicable rules of the Second Schedule.

Analysis: Rule 4 applies 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. For a non-resident shipping company governed by section 44B, the profits and gains are computed on the special statutory basis introduced by that provision, and the ordinary computation contemplated by rule 4 is not attracted. The capital base therefore had to be worked out under rules 1 to 3, as applicable, rather than by the proportion of Indian income to world income.

Conclusion: Rule 4 was held inapplicable and the computation adopted by the Commissioner (Appeals) was rejected; the capital base was to be recomputed under the appropriate provisions, in favour of Revenue.

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