Independent capital base computation for each assessment year upheld in surtax calculation dispute over excess depreciation reserves.

For surtax computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964, excess depreciation credited to reserves and allowed as a deduction in income-tax assessments was properly excluded from the capital base under the applicable rule. The Tribunal followed the binding High Court precedent and rejected the plea that an earlier failure to revise the computation prevented adjustment in the current year. It held that the capital base must be determined independently for each assessment year, so an earlier computational error does not bar correct application of the rule in a later year. The assessee's challenge therefore failed and the surtax computation was sustained.

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Issues: Whether, in computing the capital base under the Second Schedule to the Companies (Profits) Surtax Act, 1964, the reduction for excess depreciation allowed in earlier income-tax assessments was proper, and whether the capital base had to be determined independently for each assessment year.

Analysis: The reduction in capital base was upheld on the footing that the relevant rule requires amounts credited to reserves, to the extent allowed as deductions in computing income-tax, to be excluded from capital. The facts were treated as materially similar to the binding Bombay High Court decision relied upon by the lower authorities. The contention that the omission to revise the capital base in earlier years prevented a reduction in the current year was rejected because each year's capital base has to be worked out independently under the Second Schedule, and an earlier computational error does not bar a correct application of the rule in a later year. The argument seeking reconsideration of the binding precedent was not accepted by the Tribunal.

Conclusion: The reduction in capital base was valid and the assessee's challenge failed.

Final Conclusion: The appellate orders confirming the surtax computation were sustained and the assessee obtained no relief.

Ratio Decidendi: For surtax purposes, the capital base under the Second Schedule must be computed independently for each assessment year, and excess depreciation credited to reserves and allowed in income-tax cannot be excluded from the binding effect of the applicable rule merely because the earlier year's computation was not corrected.

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