Sabyasachi Mukharji, J. - (1.) The question posed for our consideration in this reference under Section 256(1) of the I.T. Act, 1961, are as follows : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income, profits and gains of a company not includible in its total income referred to in Rule 4 of the Second Schedule of the Companies (Profits) Surtax Act, 1964, applied only to those amounts, which are not includible in the total income by the provisions of Chapter III of the Income-tax Act, and not to any of the deductions claimable under Chapter VIA of the Income-tax Act, 1961 ?
(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no error in the order of the Income-tax Officer in not reducing the capital computed proportionately having regard to the deductions allowed under Sections 80-I and 80J of the Income-tax Act, 1961, and in that view cancelling the order of the Commissioner of Income-tax under Section 18 of the Companies (Profits) Surtax Act?" 2. This reference relates to the assessment years 1968-69, 1969-70 and 1970-71. For these assessment years, the surtax assessments made by the ITO were considered by the Commissioner of Income-tax to be erroneous and prejudicial to the interests of the revenue, since the capital computed was not proportionately reduced, having regard to the deductions allowed under Section 80-I and Section 80J of the I.T. Act, 1961, overlooking the provisions of Rule 4 of the Second Schedule to the C. (P.) S.T. Act, 1964. The Commissioner, therefore, after giving to the assessee-company a show-cause notice and considering the submissions made on behalf of the assessee-company in response thereto, had held that the capital computed should have been proportionately reduced, having regard to the deductions allowed under Sections 80-I and 80J, in view of the provisions of Rule 4 of the Second Schedule to the C.(P.) S.T. Act, 1964. The Commissioner, accordingly, set aside the assessments made by the ITO and directed the ITO to compute the capital and make fresh assessments in accordance with law.
(3.) Being aggrieved by the order of the Commissioner, the assessee went up in appeal before the Income-tax Appellate Tribunal, The Appellate Tribunal considered the arguments advanced on behalf of the assessee as well as on behalf of the revenue and held that Rule 4 of the Second Schedule to the C.(P.) S.T. Act, 1964, applied only to those amounts which were not includible in the total income under the provisions of Chap. III of the I.T. Act and not to any of the deductions claimable or allowable under Chap. VI-A of the I.T. Act, 1961, and, therefore, there was no error in the order of the ITO in not reducing the capital computed proportionately, having regard to the deductions allowed under Sections 80-I and 80J and the order of the Commissioner on the basis of a contrary view taken by him was not correct. The appeal of the assessee was, therefore, allowed.;