RULES FOR COMPUTING THE CAPITAL OF A COMPANY FOR THE PURPOSES OF SURTAX
1. Subject to the other provisions contained in this Schedule, the capital of a company shall be the
aggregate of the amounts, as on the first day of the previous year relevant to the assessment year, of―
(i) its paid-up share capital;
(ii) its reserves, if any created under the proviso (b) to clause (vib) of sub-section (2) of section 10
of the Indian Income-tax Act, 1922 (11 of 1922) or under 4
[sub-section (4) of section 32A, or subsection (3) of section 34], of the Income-tax Act, 1961 (43 of 1961);
(iii) its other reserves as reduced by the amounts credited to such reserves as have been allowed
as a deduction in computing the income of the company for the purposes of the Indian Income-tax
Act, 1922 (11 of 1922) or the Income-tax Act, 1961 (43 of 1961);
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[lA. Where a company has not made any credit in any account in its books as on the first day of the
previous year relevant to the assessment year which is of the nature of item (8) or item (9) under the
heading “CURRENT LIABILITIES AND PROVISIONS” in the column relating to “LIABILITIES” in
the “FORM OF BALANCE-SHEET”, given in part I of Schedule VI to the Companies Act, 1956 (1 of
1956), or where the 2
[Assessing Officer] is of opinion that the amount credited in such account falls short
of the amount which should have reasonably been credited by it, the amount of its capital as computed
under rule 1 shall be reduced by the amount which has not been so credited or, as the case may be, the
amount of such shortfall.
Explanation.― For the purposes of this rule, the amount of credit which should have reasonably been
made by a company in relation to any account of the nature of item (9) aforesaid, means the amount of
dividend declared or paid by the company, on or after the first day of the previous year relevant to the
assessment year, for the previous year immediately preceding the first mentioned previous year.]
2. Where a company owns any assets the income from which in accordance with clause (iii) or clause
(vi) or clause (viii) of rule 1 of the First Schedule is required to be excluded from its total income in
computing its chargeable profits, the amount of its capital as computed under rule 1 of this Schedule shall
be diminished by the cost to it of the said assets as on the first day of the previous year relevant to the
assessment year in so far as such cost exceeds the aggregate of―
1. Subs. by Act 66 of 1976, s. 29, for “(ii) any expenditure” (w.e.f. 1-4-1977).
2. Subs. by Act 4 of 1988, s. 187, for “Income-tax Officer” (w.e.f. 1-4-1988).
3. Subs. by s. 187, ibid., for “Inspecting Assistant Commissioner” (w.e.f. 1-4-1988).
4. Subs. by Act 66 of 1976, s. 29, for “sub-section (3) of section 34” (w.e.f. 1-4-1977).
5. Sub-clauses (iv) and (v) omitted by s. 29, ibid. (w.e.f. 1-4-1977).
6. Ins. by s. 29, ibid. (w.e.f. 1-4-1975).
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(i) any moneys borrowed 1
*** and remaining outstanding as on the first day of the said previous
year; and
(ii) the amount of any fund, any surplus and any such reserve as is not to be taken into account in
computing the capital under rule 1.
Explanation 1.― A paid-up share capital or reserve brought into existence by creating or increasing
(by revaluation or otherwise) any book asset is not capital for computing the capital of a company for the
purposes of this Act.
Explanation 2.―Any premium received in cash by the company on the issue of its shares standing to
the credit of the share premium account shall be regarded as forming part of its paid-up share capital.
Explanation 3.―Where a company has different previous years in respect of its income, profits and
gains, the computation of capital under rules 1, 2 and 3 shall be made with reference to the previous year
which commenced first.
3. Where after the first day of the previous year relevant to the assessment year the capital of a
company as computed in accordance with the foregoing rules of this Schedule is increased by any amount
during that previous year on account of increase of paid-up share capital 2
[or is reduced by any amount on
account of reduction of paid-up share capital,] or repayment of any such moneys, such capital shall be
increased or reduced, as the case may be, by a sum which bears to that amount the same proportion as the
number of days of the previous year during which the increase or the reduction remained effective bears
to the total number of days in that previous year.
4. 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.