9911796707
TMI Blog1972 (7) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ence No. 9 of 1971, the respondent-assessee has also claimed exemption under the provisions of section 85 and section 235 of the same Act in respect of dividend income. In each of the cases the department has claimed that exemption no doubt can be allowed but not upon the full amount of the dividend received by each company but only on the net dividend earned, that is to say, after the deduction of proportionate expenses of management from the total amount of the dividend. In the Income-tax Reference No. 60 of 1971, in the case of the New Great Insurance Co. Ltd., the total income, the total expenses and the total dividend received in the account year which is the calendar year 1962 (assessment year 1963-64) were as under Rs. Total income 10,25,974 Total expenses 37,97,480 Total dividend received 3,49,952 In Income-tax Reference No. 9 of 1971, in the case of the Indian Guarantee and General Insurance Co. Ltd., the position was as under for the account year, which is the calendar year 1964 (assessment year 1965-66) : Rs. Total income 30,19,041 Total expenses 4,25,476 Total dividend received 15,61,163 In Income-tax Reference No. 97 of 1971, in the case of the Jupiter Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in the Fifth Schedule." (Underlining is ours.) This was the provision in force until the levy of super-tax was abolished and section 85A was brought into force on the 1st April, 1965. Section 85A, therefore, though it makes the same provision refers only to income-tax and not the super-tax. Section 85A as it then existed was as follows : 85A. Deduction of tax on inter-corporate dividends.--Where the total income of an assessee being a company includes any income by way of dividends received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included (other than any such income on which no income-tax is payable under the provisions of this Act) as exceeds an amount of twenty five per cent. thereof : ........... (Underlining is ours.) Thus, though section 99(1)(iv) granted exemption to dividends in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 2, in the cases of the New Great Insurance Co. Ltd. where it is stated that "In the course of the said previous year the assessee was in receipt of a sum of Rs. 3,49,952 by way of dividend from other companies" and in the case of the Indian Guarantee and General Insurance Co. Ltd. that "the gross dividend was Rs. 15,61,163 and after deduction of the proportionate management expenses, which were attributed to the dividend income, the Income-tax Officer gave the rebate under section 85A on a sum of Rs. 14,71,947." Even the questions posed in all the cases refer to them as "gross dividend" or as "dividend income." The sole dispute, therefore, is whether these dividends received by these companies, which otherwise satisfy the requirements of section 99, are, upon the terms of that section, gross dividends in the hands of the assessees or net dividends after deducting the proportionate management expenses. Now it seems to us, on a plain reading of sub-clause (iv) of sub-section (1) of section 99, that the matter admits of no doubt or difficulty. The words used are "any dividend received by it" (the assessee) and in the context in which it is used "any dividend" must necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fifth Schedule grants is on quite a different basis from the exemption granted by section 99(1)(iv) and the companies qualified to earn that exemption are also quite different. The provisions of the Fifth Schedule were intended to encourage companies which were engaged in an industry for the purpose of manufacture or production of one or more of the several articles specified in Part A of that Schedule. This exemption is granted as a measure of encouragement to certain types of industries producing the stated articles in the interests of the national economy. It has nothing to do with the exemption granted by section 99. Section 99(1)(iv) was introduced with a totally different object, namely, to prevent double taxation of dividends, once in the hands of the Indian company which declared it and a second time in the hands of a company which is the shareholder who receives the dividend. If double taxation of this type were to be permitted, perhaps investment in shares of companies would be prevented and that is why the taxation of the same dividend which has borne tax in the hands of the shareholder, which is a company, was prevented by the grant of the exemption. No doubt section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1) of section 99, each of these clauses provides for a different item of exemption, again with the object of preventing double taxation of the same amount and the consequent hardship. In clause (i) the case contemplated is of an assessee who is a partner in an unregistered firm. In such a case any portion of that assessee's share in the profits and gains of the firm which have borne super-tax in the hands of the firm, is exempt in the hands of the partner. Similarly, in clause (ii) where the assessee is a member of an association of persons or any other body of individuals, such amount as he receives from the association or body which has already borne super-tax in the hands of the association or body, is exempt in the bands of the member. These and similar other provisions which are made in the five clauses of section 99(1) provide different exemptions which had to be all covered by a general opening clause. It was not possible to refer to each case in the opening clause and, therefore, the general words were used "amounts which are included in his total income". They afford a convenient description of the particular types of amounts mentioned in clauses (i) to (v). That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case that one of the businesses of the assessees was investment or earning of the dividends. We doubt that the provisions of the Insurance Act which were referred to also lead to such a conclusion. Indeed section 27 and the succeeding sections to which we have referred occur in a part which is entitled "Investment, loan and management" thus showing that the management of the insurance is an item apart from investment of its funds, but we need not go into that because as we have said the question was never raised nor is any foundation laid in the statements of the case nor any questions framed in any of the three cases referred to that aspect. From the figures which have been worked out in these cases by the Income-tax Officer upon the contention of the department, it appears that the manner in which the department wanted the amount of dividend ascertained was to take the dividend income multiplied by the total amount of the management expenses and divide that figure by the total income of the insurance company. In other words, what the department wants to do is first to ascertain the ratio of total expenses to total income of each insurance company and then deduct the pro rata man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from dividends paid by any other company which has paid or will pay super-tax in respect of the profits out of which such dividends are paid is exempt from super-tax." It will be noticed that in that notification the words used were "income of any investment trust company" and even in that context the Division Bench interpreted the words "dividends paid by any other company" to mean the gross dividend. In clause (iv) which we are called upon to construe moreover there is an even stronger word used namely "received" after the words "any dividend", thus showing that it is the receipts that are being taxed and not the income. In Industrial Investment Trust Co.'s case the words "dividends paid" were used in the context of "income of any investment trust company" and nonetheless the Division Bench held that the words "from dividends paid" must necessarily mean "dividends with out any deduction of any expenses. The same argument as is advanced in the present cases, that the word income "as used in the notification meant computed income or the total income as computed and not the gross income, was repelled by the Division Bench at page 442 of the report. No doubt that was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, that under section 99, super-tax shall not be payable by an assessee in respect of the 'amounts' of 'any dividend received by it'. Therefore, it means the amount of dividend received by the assessee. It cannot mean dividend received minus the amount of interest on moneys borrowed for earning the same. The expressions 'which are included in his total income' in sub-section (1) of section 99 and 'incomes forming part of total income' in the heading are descriptive of the items included in the computation of the total income and not indicative of the quantum of the amounts included under the different items in the computation of total income. Such a construction of these expressions would be in harmony with the obvious meaning of the expression 'dividend received'. Any other construction would result in an anomaly." In coming to that decision the Calcutta High Court followed the decision of this court in Industrial Investment Trust Co.'s case and the decision of the Supreme Court in South Indian Bank Ltd. Co.'s case. The decision in Darbhanga Marketing Co.'s case is directly in point upon the question raised before us so far as section 99(1)(iv) is concerned. Turning to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertakings or hotel business and it provided as follows : "Subject to any rules that may be made by the Board in this behalf, income-tax shall not be payable by a shareholder in respect of so much of any dividend paid or deemed to be paid to him out of the profits and gains derived by a company from an industrial undertaking or the business of a hotel....to which section 84 applies as is attributable to that part of such profits and gains on which income-tax is not payable by the company under section 84." Therefore, to the same extent that section 84 exempted the profits and gains of the stated businesses of the new industrial undertakings or hotels, to that same extent the dividend paid to shareholders from such new industrial undertakings or hotels, was also exempted. The wording of this section rather reinforces what we have said about the provisions of section 85A or section 99(1)(iv) for it says that "income-tax shall not be payable by a shareholder in respect of so much of any dividend paid or deemed to be paid to him". In this case it is the dividend "paid" that is exempt and not dividend received as in section 85A or section 99(1)(iv), with the result that under section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to rebate on gross dividends or on the net dividends, i.e., gross dividend after deducting proportionate management expenses ? Answer : The assessee was entitled to a rebate on the gross dividends and not on the net dividends, i.e., not on gross dividend after deducting proportionate management expenses. Income-tax Reference No. 9 of 1971 Question : Whether, on the facts and in the circumstances of the case, the relief under sections 85, 85A and 235 of the Act should be calculated on the gross dividend income or on the dividend income as reduced by proportionate management expenses? Answer : The relief under sections 85, 85A and 235 of the Act should be calculated on the gross dividend income and not on the dividend income as reduced by proportionate management expenses. Income-tax Reference No. 97 of 1971 Question : Whether the assessee is entitled to a rebate in respect of its dividend income on the gross amount of dividend or less any proportionate amount of expenses of management ? Answer : The assessee is entitled to rebate in respect of its dividend income on the gross amount of dividend. The Commissioner to pay the costs of the assessee in each of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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