1974 (6) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to rebate of Corporation tax on dividend income under the Finance Act, 1963.
2. Entitlement to rebate of Corporation tax on dividend income under the Finance Act, 1964.
3. Liability for surtax on dividend income under the Companies (Profits) Surtax Act, 1964.

Detailed Analysis:

1. Entitlement to Rebate of Corporation Tax on Dividend Income under the Finance Act, 1963:

The assessee, a public limited company engaged in motor and general insurance, filed returns for the assessment year 1963-64, including dividend income of Rs. 4,85,802. The Income-tax Officer, guided by Board's Circular No. 15-D (XXXIII-10) of 1964, granted a rebate on a reduced amount after deducting proportionate management expenses, resulting in a rebate of Rs. 1,95,723. The Appellate Assistant Commissioner upheld this decision, denying full rebate on the entire dividend income.

The Tribunal, however, concluded that the assessee was entitled to a rebate on the entire dividend income without any deduction for management expenses. The High Court agreed with the Tribunal, stating that Paragraph D of Part II of the Finance Act, 1963, does not warrant any deduction of expenses. The provision refers to the factual existence of dividend income and not its assessability under any specific head of income. The Court emphasized that the Finance Act intended to provide relief to all companies, excluding only the Life Insurance Corporation of India, and thus, the assessee was entitled to a rebate on the gross dividend amount of Rs. 4,85,802.

2. Entitlement to Rebate of Corporation Tax on Dividend Income under the Finance Act, 1964:

For the assessment year 1964-65, the assessee included a dividend income of Rs. 4,91,470 in its total income. The Income-tax Officer, following the same rationale as in the previous year, granted a rebate after deducting proportionate expenses. The Appellate Assistant Commissioner and the Tribunal both held that the assessee was entitled to a rebate on the gross dividend income.

The High Court noted that Section 99(1)(iv) of the Finance Act, 1964, as amended, exempted dividend income from super-tax. The Court rejected the revenue's argument that the rebate should be on the net dividend after expenses, especially since the words "received by it" were deleted retrospectively by the Finance Act, 1968. Therefore, the assessee was entitled to a rebate on the entire gross dividend amount of Rs. 4,91,470.

3. Liability for Surtax on Dividend Income under the Companies (Profits) Surtax Act, 1964:

The assessee contended that it was not liable for surtax on the dividend income under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964. The Tribunal agreed, and although no separate question was referred to the High Court, both parties accepted that the issue was consequential to the super-tax reference.

The High Court held that the language of rule 1(viii) was similar to Section 99(1)(iv) of the Finance Act, 1964. Consequently, the dividend income was exempt from surtax for the same reasons it was exempt from super-tax. Thus, the assessee was not liable for surtax on the dividend income.

Conclusion:

The High Court ruled in favor of the assessee on all counts. The assessee was entitled to a rebate on the gross dividend income without any deduction for management expenses for both assessment years under the respective Finance Acts. Additionally, the assessee was not liable for surtax on the dividend income. The Court awarded costs to the assessee, with counsel's fee set at Rs. 250 for each case.