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Issues: Interpretation of rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964 regarding the exclusion of dividends from total income for calculating chargeable profits.
In the judgment delivered by B. N. KIRPAL J., the issue revolved around the correct interpretation of rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, specifically concerning the exclusion of dividends from total income for the purpose of calculating chargeable profits. The case involved a dispute where the Income-tax Appellate Tribunal had to determine whether the Income-tax Officer was justified in excluding only the net amount of dividend, Rs. 1,19,492, instead of the gross amount of dividend, Rs. 2,98,729, from the total income. The Tribunal analyzed the scheme of the Income-tax Act and concluded that only the net dividend was entitled to be deducted. This interpretation was challenged by the assessee, leading to the reference of the question of law to the High Court. The central issue at hand was whether the exclusion under rule 1(viii) should be based on the net dividend received after deduction or the gross dividend amount. The High Court referred to a similar case before the Calcutta High Court and the decision of the Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120. The Supreme Court had ruled that deduction should be made from the net dividend and not the gross dividend. The High Court concurred with this interpretation, stating that for computing chargeable profits under the Companies (Profits) Surtax Act, the total income should be adjusted by deducting the net dividend, in line with the decision of the Supreme Court. Consequently, the question of law was answered in the affirmative and in favor of the Department, with no order as to costs.
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