1984 (2) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to relief/rebate on gross dividends without reducing by proportionate management or other expenses for various assessment years.
2. Entitlement to relief on the entire portion of tax-free dividend from the State Financial Corporation without reducing by proportionate management or other expenses for various assessment years.
3. Set-off of business expenditure against income from interest on foreign securities/investments for assessment years 1964-65 and 1965-66.
4. Set-off of capital loss from the sale of property at Rangoon against capital gain from the sale of property at Karachi for the assessment year 1964-65.

Detailed Analysis:

1. Entitlement to Relief/Rebate on Gross Dividends:

For the assessment years 1963-64, 1964-65, 1965-66, and 1966-67, the primary issue was whether the assessee was entitled to relief/rebate under sections 85, 99(1)(iv), 101(2), and 235 of the Income-tax Act, 1961, on gross dividends without reducing them by proportionate management or other expenses. The court relied on the principles laid down in CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348 and Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, concluding that the assessee is entitled to relief on the gross dividend received. Thus, the questions were answered in the affirmative, in favor of the assessee and against the Department.

2. Entitlement to Relief on Tax-Free Dividend from State Financial Corporation:

Similarly, for the assessment years 1963-64, 1964-65, 1965-66, and 1966-67, the issue was whether the assessee was entitled to relief on the entire portion of tax-free dividend from the State Financial Corporation without reducing it by proportionate management or other expenses. Following the same rationale as the first issue, the court affirmed that the assessee is entitled to such relief on the gross amount. Hence, these questions were also answered in the affirmative, in favor of the assessee and against the Department.

3. Set-Off of Business Expenditure Against Income from Interest on Foreign Securities/Investments:

For the assessment years 1964-65 and 1965-66, the issue involved whether any portion of the business expenditure could be set off against the income of the assessee by way of interest on foreign securities/investments. Given the affirmative answers to the first two questions for these years, the court deemed this question academic and declined to answer it.

4. Set-Off of Capital Loss from Sale of Property at Rangoon Against Capital Gain from Sale of Property at Karachi:

For the assessment year 1964-65, the court examined whether the assessee could set off a capital loss from the sale of property at Rangoon during the assessment year 1960-61 against a capital gain from the sale of property at Karachi during the assessment year 1964-65. The court analyzed the provisions of section 24 of the Indian Income-tax Act, 1922, and section 74 of the Income-tax Act, 1961. It concluded that the right to carry forward a capital loss under the Indian Income-tax Act, 1922, is preserved under section 74(2) of the Income-tax Act, 1961. The court also referenced section 6 of the General Clauses Act, 1897, which ensures that repealed acts do not affect any right acquired under the repealed enactment unless explicitly stated. The court concluded that the assessee's right to carry forward and set off the loss was preserved and could be exercised in the assessment year 1964-65. Thus, question No. 4 was answered in the affirmative, in favor of the assessee and against the Department.

Conclusion:

The court ruled in favor of the assessee on all relevant issues, affirming their entitlement to relief/rebate on gross dividends and tax-free dividends without reductions by management expenses and allowing the set-off of capital loss from the sale of property at Rangoon against capital gain from the sale of property at Karachi. The Department was directed to pay the costs of the reference.