1983 (1) TMI 65 - HC - Income Tax

Summary

Issues:
1. Computation of chargeable profits under the Companies (Profits) Surtax Act, 1964.
2. Interpretation of rule 2(i)(a) of the First Schedule to the Surtax Act regarding the exclusion of income-tax payable on dividend income for arriving at chargeable profits.

Analysis:
The judgment delivered by the High Court of Madras pertains to a reference under the Companies (Profits) Surtax Act, 1964, focusing on the computation of chargeable profits. The case involved a private company, Express Newspapers Private Ltd., Madras, which had claimed a deduction of dividend income from its total income for the assessment year 1972-73. The dispute arose when the Assistant Commissioner directed the exclusion of proportionate income-tax payable on the dividend income while calculating chargeable profits, based on rule 2(i)(a) of the First Schedule to the Surtax Act.

The assessee appealed to the Tribunal against this direction, arguing that the proportionate income-tax payable on the dividend was nil, and therefore, should not affect the chargeable profits after deducting the dividend income. The Tribunal agreed with the assessee, stating that the practical application of rule 2(i)(a) would not impact the computation of chargeable profits concerning the deduction of dividend income. The Tribunal's decision was challenged by the Department on the question of whether any tax on the gross dividend had to be excluded under rule 2(i)(a).

The High Court analyzed rule 2(i)(a) and emphasized that if no income-tax is payable on the dividend income, the entire income-tax liability would reduce the total income for arriving at chargeable profits. In this case, the dividend income of the assessee had not borne any income-tax due to interest charges exceeding the dividend income, resulting in a net loss. Therefore, as no income-tax was payable on the dividend income, the court concluded that rule 2(i)(a) had no application, and no adjustment was necessary for arriving at the chargeable profits.

Ultimately, the High Court ruled in favor of the assessee, stating that the Department must pay the assessee's costs. The judgment highlighted the inapplicability of rule 2(i)(a) in cases where no income-tax is payable on dividend income, leading to the exclusion of such tax from the computation of chargeable profits under the Surtax Act.