1991 (6) TMI 91 - AT - Income Tax

Summary

Issues:
1. Interpretation of Rule 1 (viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964 regarding the exclusion of gross dividend income for computation of chargeable profits.
2. Applicability of judicial precedents in determining the treatment of gross dividend income for tax purposes.
3. Impact of the Supreme Court decision in Distributors (Baroda) (P.) Ltd.'s case on earlier High Court decisions.
4. Treatment of bonus shares issued during the year in increasing capital employed for assessment purposes.

Analysis:

Issue 1:
The primary issue in this case pertains to the interpretation of Rule 1 (viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964 regarding the exclusion of gross dividend income for the computation of chargeable profits. The contention revolves around whether only the 40% of dividend income included in the total income should be excluded or if the entire gross dividend should be treated as covered by the rule. The Departmental authorities excluded only the 40% included in total income, while the assessee argued for the exclusion of the entire gross dividend. The Tribunal held that only what is included in total income can be excluded, emphasizing the specific language of the rule.

Issue 2:
The second issue addresses the applicability of judicial precedents in determining the treatment of gross dividend income for tax purposes. The assessee relied on various High Court decisions, including the Bombay High Court decision in CIT v. Jupiter General Insurance Co., to support their claim. However, the Departmental Representative argued that the Supreme Court decision in Distributors (Baroda) (P.) Ltd.'s case had overruled earlier decisions, including those cited by the assessee. The Tribunal noted that the Supreme Court decision effectively reversed the interpretation of similar provisions, indicating that prior decisions were no longer valid.

Issue 3:
The impact of the Supreme Court decision in Distributors (Baroda) (P.) Ltd.'s case on earlier High Court decisions is crucial in this case. The Tribunal highlighted that the Supreme Court decision specifically overruled previous interpretations, including those by the Bombay, Calcutta, and Madras High Courts. The Tribunal concluded that the Bombay High Court decision in Jupiter General Insurance Co.'s case, which relied on income-tax decisions, should not be followed post the Supreme Court ruling. The Tribunal emphasized that the facts of the cited case were different, leading to the rejection of the assessee's grounds of appeal.

Issue 4:
Regarding the treatment of bonus shares issued during the year in increasing capital employed for assessment purposes, the Tribunal referred to the Bombay High Court decision in CIT v. Century Spg. & Mfg. Co. Ltd. The Tribunal upheld the decision against the assessee, thereby rejecting the ground of appeal related to this issue.

In conclusion, the Tribunal dismissed all three appeals of the assessee, emphasizing the importance of adhering to the current legal interpretations and precedents set by higher courts, particularly the Supreme Court, in tax matters.