Ajit K. Sengupta, J. - (1.) At the instance of the Commissioner of Income-tax, the following question of law has been referred to this court under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1968-69 and 1969-70: "Whether, on the facts and in the circumstances of the case and on a correct interpretation of Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the Tribunal was correct in holding that a diminution of the capital in proportion to the deduction allowed under Section 80J of the Income-tax Act, 1961, in computing the total income of the assessee under the said Act was not permissible."
(2.) The only question which calls for determination in this case is whether Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, was attracted in the facts and circumstances of the case.
(3.) The Second Schedule lays down the rules for computing the capital of a company for the purpose of surtax and Rule 4 thereof reads as follows : "Where a part of the income, profits and gains of a company is not includible in its total income as computed under the Income-tax Act, its capital shall be the sum ascertained in accordance with Rules 1, 2 and 3, 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.";