1994 (2) TMI 21 - HC - Income Tax

Capital Employed, Chargeable Profits, Companies Profits Surtax, Company Surtax, Computation Of Capital, Income Tax Act

Summary

Issues:
1. Whether capital employed could be diminished proportionately with reference to income exempted under sections 80M and 80J of the Income-tax Act, 1961?
2. Whether gross dividend income is deductible in computing the chargeable profits?
3. Whether the entire amount of debentures issued to the public is required to be treated as capital under the Second Schedule to the Surtax Act, 1964?

Analysis:

Issue 1:
The court referred to a previous Supreme Court decision and held that income exempted under Chapter VI-A of the Income-tax Act should be included in total income but excluded for the purpose of computing capital under the Surtax Act. The court emphasized that deductions under Chapter VI-A are not to be considered for the diminution of capital. Therefore, the court answered this question in favor of the assessee.

Issue 2:
The court relied on a previous decision and concluded that in computing chargeable profits, net income by way of dividend should be excluded, not the gross income by way of dividend. The court disagreed with the Tribunal's decision and answered this question in favor of the Revenue and against the assessee.

Issue 3:
The court examined the provisions of the Second Schedule to the Surtax Act related to the computation of a company's capital. It noted that the relevant factor is whether debentures have been issued to the public. The court highlighted that the capital reduction only applies when debentures are redeemed, not when purchased by the company. In this case, where the debentures were sold at a profit, the court held that they should be considered as issued to the public for capital computation purposes. Therefore, the court answered this question in favor of the assessee and against the Revenue.

In conclusion, the court provided detailed reasoning for each issue and delivered judgments in favor of the assessee for issues 1 and 3, and in favor of the Revenue for issue 2. The reference was disposed of accordingly.