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Issues Involved:
1. Exclusion of gross dividend income from total income for computing chargeable profits under the Companies (Profits) Surtax Act, 1964. 2. Proportionate reduction in the capital employed for surtax purposes due to deductions under Chapter VIA of the IT Act, 1961. Detailed Analysis: Issue 1: Exclusion of Gross Dividend Income The core issue was whether the gross dividend income or the net dividend income should be excluded from the total income for computing chargeable profits under the Companies (Profits) Surtax Act, 1964. The assessee argued that the entire dividend received should be excluded, while the Surtax Officer contended that only the net dividend included in the total income should be excluded. The Surtax Officer held that the concept of gross total income and dividend income included in such gross total income is relevant only to Chapter VIA of the IT Act and not to all the provisions of the Act, much less to the provisions of the Surtax Act. Consequently, he excluded only the net dividend income from the total income for the assessment years 1971-72 and 1972-73. The AAC, however, allowed the assessee's claim, following the Tribunal's earlier decision in the case of the assessee itself for the assessment year 1970-71, which held that the gross dividend should be excluded. The Revenue appealed, arguing that only the net dividend included in the total income should be excluded. The Tribunal considered the arguments and relevant provisions, including the First Schedule to the Surtax Act, which provides for exclusions from the total income computed under the IT Act. The Tribunal noted that the expression "income by way of dividends" refers to the gross amount of dividends and not just the portion included in the total income as computed under the IT Act. The Tribunal cited decisions of the Madras High Court and Bombay High Court, which interpreted the expression to mean the entire amount of income derived by way of dividends. The Tribunal concluded that the AAC's decision was in accordance with the law and directed the exclusion of the gross amounts of dividends received by the assessee from the specified companies. Issue 2: Proportionate Reduction in Capital Employed The second issue was whether the deductions under Chapter VIA of the IT Act, 1961, should lead to a proportionate reduction in the capital employed for surtax purposes. The Surtax Officer reduced the capital employed by the proportionate amount of deductions allowed under sections 80K, 80L, and 80M for the assessment years 1971-72 and 1972-73. The AAC held that the word "includible" in Rule 4 of the Second Schedule to the Surtax Act refers to incomes exempt from income-tax under sections 10 and 11 of the IT Act and not to deductions under Chapter VIA. Consequently, the AAC allowed the assessee's appeal on this issue as well. The Revenue argued that the AAC erred in his interpretation and that the deductions under Chapter VIA should lead to a proportionate reduction in the capital employed. The Tribunal, however, found that deductions allowed under Chapter VIA cannot be considered as sums "not includible" in the total income. The Tribunal noted that the IT Act itself provides examples of incomes not included in total income under section 10, and deductions that already form part of the total income cannot be said to be "not includible." The Tribunal cited direct authorities, including the Madras High Court judgment, which supported the assessee's position. The Tribunal concluded that Rule 4 of the Second Schedule to the Surtax Act does not apply to sums allowed as deductions under Chapter VIA of the IT Act, 1961. Conclusion: The Tribunal dismissed the Revenue's appeals on both issues, confirming the AAC's decision to exclude the gross dividend income from the total income for computing chargeable profits and to disallow the proportionate reduction in the capital employed due to deductions under Chapter VIA of the IT Act, 1961.
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