R. K. Agrawal, J. - (1.) The Income-tax Appellate Tribunal, Delhi, has referred the following question of law under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court : Whether the Tribunal is justified in view of the provisions of Rule 1A of the Second Schedule of the Surtax Act in holding that in order to arrive at the capital base provision of taxation to be taken is not the provision at the end of the year but as it stood at the first day of the commencement of the accounting period ?
(2.) The reference relates to the assessment year 1980-81 regarding the imposition of tax under the provision of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the 1964 Act").
(3.) Briefly stated, the facts giving rise to the present reference are as follows : The respondent-assessee has been assessed to income-tax in the status of a private limited company. The dispute relates to computation of capital base for the purposes of allowing statutory deduction as per Rule 1A of the Second Schedule of the 1964 Act. While making the assessment under Section 6(2) of the Act the Inspecting Assistant Commissioner found that the provision made by the respondent-company for taxation was only Rs. 6,00,000 as against the actual liability of Rs. 6,80,346. He was of the opinion that for arriving at the capital base the excess amount of tax of Rs. 80,346 levied must be deducted from the capital base of Rs. 20,02,299. He, thus deducted a sum of Rs. 80,346 being the excess provision for income-tax from the capital base and the balance of capital base of Rs. 19,21,953 was arrived at and the chargeable profits assessable to surtax were calculated thereon. Feeling aggrieved by the determination of chargeable profits, the respondent preferred an appeal before the Commissioner of Income-tax (Appeals) who found that the calculation of Rs. 80,346 was wrong and that it should be Rs. 2,66,257. On that basis, he further reduced the capital base by Rs. 1,85,911 after serving a notice of enhancement on the respondent-assessee. Feeling aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the respondent preferred further appeal before the Tribunal. The Tribunal has held that for the purposes of arriving at the capital base, the provision, as it stood on the first day of the commencement of the accounting year, should alone be taken into account. In coming to that conclusion, the Tribunal has relied upon the language of Rules 1 and 1A of the Second Schedule of the 1964 Act.;