H.N.Seth, J. - (1.) Income-tax Appellate Tribunal, Allahabad, has, at the instance of the Commissioner of Income-tax, in respect of the assessment of the assessee, M/s. J.K. Synthetics Ltd., Kanpur, under Section 62 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as " the Act "), for the assessment years 1967-68 and 1968-69, referred the following question of law for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amount of relief allowed to the assessee under Section 80J of the Income-tax Act was not income not includible in the total income of the assessee within the meaning of Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964?"
(2.) The assessee is a company. For the assessment years 1967-68 and 1968-69, it was allowed deduction under Section 80J of the I.T. Act, 1961. While computing its capital for the purposes of surtax under the Act, the ITO held that the assessee's capital was liable to be reduced proportionately as per Rule 4 of Schedule II to the Act in view of the relief allowed to the assessee under Section 80J of the I.T. Act. Aggrieved, the assessee went up in appeal before the AAC who accepted its contention that Rule 4 could be applied only if the company had income which was not includible in its total income and that the deduction allowed to the assessee under Section 80J of the I.T. Act while computing its total income did not fall in the category of income not includible in the total income. He accordingly allowed the appeal filed by the assessee.
(3.) The Department then took up the matter before the Income-tax Appellate Tribunal. It claimed that the amount allowed as deduction under Section 80J of the I.T. Act, while computing the assessee's total amount was income not includible in the assessee's total income and Rule 4 of the Rules (under Schedule II) for computing the capital for the purposes of surtax was clearly applicable and that the AAC had erred in interfer-' ing with the order of the ITO. The Income-tax Appellate Tribunal repelled the aforementioned plea of the Department and held that no case for diminishing the capital contemplated by Rule 4 of Schedule II to the Act had, by reason of the fact that while assessing the assessee's income it had been allowed deduction under Section 80J of the I.T. Act, been made out. However, at the instance of the Commissioner, it stated the case and referred the aforesaid question of law for the opinion of this court.;