1985 (5) TMI 22 - HC - Income Tax

Summary

Issues:
1. Apportionment of expenses against dividend income for rebate under section 235 of the Income-tax Act, 1961.
2. Determination of relief under section 235 based on gross dividend without deduction for proportionate expenses.

Analysis:

Issue 1:
The case involved a reference under section 256(2) of the Income-tax Act, 1961, for the assessment year 1962-63 regarding the apportionment of expenses against dividend income for the rebate under section 235. The Income-tax Officer had allocated expenses against dividend income, reducing the net dividend income for rebate calculation. The Appellate Assistant Commissioner and the Tribunal disagreed with this apportionment, holding that expenses should not be deducted from the gross dividend income. The High Court affirmed the Tribunal's decision, emphasizing that if dividend income is reduced by expenses, the relief under section 235 would also be reduced. The court relied on previous decisions to support the view that when dividend income is earned as business income, expenses should be allowed under the business income head without apportionment.

Issue 2:
The second issue pertained to the determination of relief under section 235 based on gross dividend without deducting proportionate expenses. The court referred to a previous case where it was held that relief under section 235 should be calculated on the total amount of the dividend without apportionment. The court further cited a Kerala High Court decision emphasizing that relief under section 235 is based on the entire dividend paid to the shareholder, not just a portion included in the shareholder's total income. Therefore, the court answered the second question in favor of the assessee, affirming that relief under section 235 should be calculated on the total amount of dividend paid to the shareholder.

In conclusion, the High Court ruled in favor of the assessee on both issues, holding that expenses should not be apportioned against dividend income for rebate calculation and that relief under section 235 should be based on the total amount of dividend without deduction for proportionate expenses.