1992 (3) TMI 31 - HC - Income Tax

Summary

Issues:
Interpretation of section 256(1) of the Income-tax Act, 1961 regarding the deductibility of gross dividend or net dividend under clause (viii) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis:
The judgment revolves around the interpretation of the term "income by way of dividend" in the context of computing chargeable profits under the Companies (Profits) Surtax Act, 1964. The main issue is whether the gross dividend of Rs. 2,51,350 or the net dividend after deductions under sections 80L and 80M of the Income-tax Act should be deductible from the total income of the assessee. The assessee claimed the entire gross dividend amount, but the Surtax Officer allowed only a portion based on previous deductions.

The Appellate Assistant Commissioner concluded that the gross dividend should be excluded in computing chargeable profits. The Revenue, however, contended that only the net dividend should be excluded, as it was the amount included in the total income under the Income-tax Act. The Tribunal ruled in favor of the assessee, leading to the reference to the High Court for clarification.

The High Court analyzed rule 1(viii) of the First Schedule to the Surtax Act, which outlines the adjustments to be made to the total income computed under the Income-tax Act. The court referred to the Supreme Court's decisions in Cloth Traders (P) Ltd. v. Addl CIT and Distributors (Baroda) P. Ltd. v. Union of India to determine the treatment of dividend income. The court highlighted that the net dividend, which was included in the total income and on which tax was paid, should be allowed as a deduction.

The court further cited various High Court decisions, including those by the Calcutta High Court and others, supporting the exclusion of net dividend in line with the Supreme Court's ruling. The court emphasized that the amount to be excluded from chargeable profits must align with what was initially included in determining the total income.

Regarding the contention that the Explanation added in 1981 should govern the deduction of net dividend, the court held that the substantive rule 1(viii) was clear and unambiguous even without the Explanation. The court concurred with the view that the net dividend, not the gross dividend, should be excluded while determining chargeable profits. Consequently, the court answered the question of law in the negative, favoring the Revenue, with no order as to costs.