Deb, J. - (1.) This reference under Section 256(1) of the I.T. Act, 1961, read with Section 13 of the Companies (Profits) Surtax Act, 1964, relates to the assessment year 1970-71.
(2.) The assessee is company to which Section 80-I of the 1961 Act applies. The chargeable profits of the assessee were subject to the levy of surtax under the C. (P.) S.T. Act, 1964. In the assessment proceedings, the ITO determined the total income of the assessee for the relevant previous year at Rs. 27,65,443 after allowing a deduction of Rs, 1,59,240 under Section 80-I of the I.T. Act, 1961. The said sum of Rs. 1,59,240 represented 8% of the assessee's profits attributable to its priority industry.
(3.) In the assessment of the assessee for the same assessment year under the C. (P.) S.T. Act, 1964, the ITO computed its capital in accordance with the Second Schedule to the Act for the purpose of determining the statutory deduction to be allowed from the chargeable profits. Rule 4 of the Second Schedule to the said Act requires that where a part of the income, profits and gains of a company is not includible in the total income as computed under the I.T. Act, its capital shall be the sum ascertained in accordance with Rules 1, 2 and 3 of the said Schedule as diminished by an amount which bears to that sum the same proportion as the amount of the aforesaid income, profits and gains bears to the total amount of its income, profits and gains.;