1979 (11) TMI 74 - HC - Income Tax

Summary

Issues: Interpretation of rule 1(viii) of the First Schedule of the Companies (Profits) Surtax Act, 1964 regarding exclusion of income by way of dividends from total income computed under the Income Tax Act.

In this case, the primary issue revolved around the interpretation of rule 1(viii) of the First Schedule of the Companies (Profits) Surtax Act, 1964, concerning the exclusion of income by way of dividends from the total income computed under the Income Tax Act. The assessee, a company deriving income from grinding wheat, claimed that the entire dividend income of Rs. 2,25,734 should be excluded from the total income assessed under the Income Tax Act. However, the Income Tax Officer (ITO) only excluded Rs. 89,894, the amount included in the total income assessed. The assessee appealed to the Appellate Assistant Commissioner (AAC), who accepted the contention and excluded the entire dividend income. Subsequently, the revenue appealed to the Tribunal, which upheld the AAC's decision. The main question referred to the High Court was whether the gross dividend of Rs. 2,25,734 or the net dividend of Rs. 89,894 should be excluded from the total income for income tax assessment purposes.

Upon thorough analysis, the High Court examined various provisions of the Income Tax Act and the Companies (Profits) Surtax Act, along with relevant case law. Referring to the interpretation of similar provisions by the Supreme Court and other High Courts, the High Court held that the exclusion of dividend income should be based on the gross income shown in the books of the assessee, not the actual net income computed. The Court emphasized that the legislative intent was to exclude the category of income by way of dividends, not just the quantum of dividend income. The Court agreed with the Division Bench of the Himachal Pradesh High Court and other High Courts that had adopted a similar interpretation. Ultimately, the High Court ruled in favor of the assessee, affirming the Tribunal's decision to exclude the gross dividend income of Rs. 2,25,734 from the total income assessed under the Income Tax Act.

In conclusion, the High Court dismissed the revenue's appeal, emphasizing that the interpretation of rule 1(viii) of the First Schedule should focus on excluding the category of dividend income rather than solely the quantum of income. The judgment aligned with the consistent interpretation by various High Courts and upheld the exclusion of the gross dividend income from the total income for income tax assessment purposes.