Surtax computation under the Companies (Profits) Surtax Act must apply Rule 2(ii) first, before treaty relief is considered.

In computing surtax under the Companies (Profits) Surtax Act, 1964, chargeable profits had to be determined first under the Act and its First Schedule, including Rule 2(ii), before any treaty relief was considered. Section 24A and the India-Singapore double taxation agreement operated in distinct fields: Article 2 treated income-tax and surtax as Indian tax, while Article 24(2)(a) allowed credit for Singapore tax against Indian tax. The omission to apply Rule 2(ii) in the chargeable profits computation had to be corrected, after which the surtax liability could be properly ascertained without treating treaty relief as reduced or duplicated.

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Issues: Whether, in computing surtax under the Companies (Profits) Surtax Act, 1964, the assessee was entitled to double taxation relief in respect of surtax as well as income-tax, and whether Rule 2(ii) of the First Schedule had to be applied while determining chargeable profits.

Analysis: Section 24A of the Companies (Profits) Surtax Act, 1964 and the India-Singapore double taxation agreement operate in distinct fields. The surtax liability had first to be computed under the Surtax Act and its First Schedule, and only thereafter could the treaty relief be considered. Article 2 treated both income-tax and surtax as Indian tax, while Article 24(2)(a) provided credit for Singapore tax against Indian tax. The Assessing Officer had allowed treaty relief in the income-tax computation but had omitted to apply Rule 2(ii) of the First Schedule while computing chargeable profits. Once that omission was corrected, the assessee's chargeable profits and surtax liability were ascertainable on the proper statutory basis, and the treaty relief was not to be treated as reduced or duplicated.

Conclusion: The assessee was entitled to the correct computation of chargeable profits and surtax with Rule 2(ii) applied, and the appeal succeeded.

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