Capital base computation under surtax rules turns on the tax provision existing on the first day of the previous year.

For computing capital base under rule 1A of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the deduction for provision for taxation is determined by the provision existing on the first day of the previous year relevant to the assessment year. The rule focuses on the position on that date and uses the term "provision", not the amount of tax ultimately assessed at the end of the year. A contrary reading would require rewriting the clear language of the rule. The provision as standing on the first day of the previous year therefore governs the capital base computation, with the result in favour of the assessee.

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Issues: Whether, for computing capital base under rule 1A of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the provision for taxation must be taken as existing on the first day of the previous year or as finally determined at the end of the year.

Analysis: Rules 1 and 1A of the Second Schedule emphasise the position obtaining on the first day of the previous year relevant to the assessment year. The language used is "provision" and not the amount of actual tax liability finally assessed, and therefore the computation must proceed on the basis of the provision as it stood on that date. Accepting the Revenue's construction would require rewriting the clear words of the rule, which is impermissible.

Conclusion: The provision for taxation to be deducted in computing capital base is the provision existing on the first day of the previous year, not the finally assessed tax liability, and the answer is in favour of the assessee.

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