Surtax deduction for donations under Rule 1 is computed on the full qualifying amount, not the reduced section 80G allowance.

For computing chargeable profits under the Companies (Profits) Surtax Act, 1964, the exclusion in clause (vii) of Rule 1 of the First Schedule is linked to the sum with reference to which deduction is allowable under section 80G, not to the reduced deduction actually granted after the section 80G ceiling is applied. The phrase "with reference to which" governs the surtax adjustment and shows that the rule does not import the monetary cap in section 80G into the surtax computation. Accordingly, the adjustment is made on the full qualifying donation amount, and the assessee may exclude fifty per cent of that amount for surtax purposes.

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Issues: Whether, for computing chargeable profits under the Companies (Profits) Surtax Act, 1964, the exclusion under clause (vii) of Rule 1 of the First Schedule is to be calculated with reference to the entire amount of donations made by the assessee or only with reference to the amount actually allowed as deduction under Section 80G of the Income-tax Act, 1961.

Analysis: Clause (vii) of Rule 1 uses the expression "an amount equal to fifty per cent of the sum with reference to which deduction is allowable" under Section 80G. The controlling words are "with reference to which", which indicate that the surtax adjustment is tied to the sum on which deduction is allowable under Section 80G and not to the limited amount actually granted after application of the ceiling in that section. The language of the rule does not incorporate the monetary restriction under Section 80G into the surtax computation. The adjustment therefore has to be made on the basis of the full donation amount that answers to Section 80G, subject only to the statutory character of the donation, and not on the reduced deduction allowed for income-tax purposes.

Conclusion: The assessee was entitled to exclude fifty per cent of the entire amount of donations for surtax purposes, and not merely fifty per cent of the amount actually allowed under Section 80G.

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