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TMI Blog1996 (7) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... unal was right in holding that while computing the chargeable profits for purposes of surtax assessment, the deductions contemplated in clauses (viii) and (ix) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964, should be allowed at their gross amounts?" The assessee is a company in which the public are substantially interested and the assessment years involved are 1975-76 to 1979-80 for which the respective financial years are the accounting years. The point for consideration relates to adjustment of dividends and royalty for the purpose of computing the chargeable profits in terms of rule 1(viii) and (ix) of the First Schedule to the Companies (Profits) Surtax Act, 1964. The rule provides for adjustment of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as the first part of the question relating to deduction claimed under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, is concerned, the assessee claimed that the gross dividend income received should be allowed as deduction and not the net income after deducting the expenditure. A similar question came up for consideration before the Calcutta High Court in CIT v. Hindustan Gum and Chemicals Ltd. [1990] 182 ITR 396, wherein the Calcutta High Court, by following the decision of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd. v. Union of India [1985] 155 ITR 120 held that the assessee deriving dividend income from another Indian company is not entitled to exclusion of the gross dividend income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1964, should be given with regard to the gross dividend. Accordingly, we answer the first part of the question referred to us in the negative and in favour of the Department. In so far as the second part of the question referred to us is concerned, it relates to deduction contemplated in clause (ix) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964. According to the assessee, the royalty amount received from the Government should be allowed as deduction while computing the chargeable profits for the purpose of surtax assessment. But, according to the Department, in view of the various decisions rendered by various High Courts and the Supreme Court, the deduction should be given only with regard to the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is not entitled to ask for deduction of the gross royalty income received from the Government while computing the chargeable profits for the purpose of the surtax assessment. However, learned counsel appearing for the assessee submitted that in the decision rendered by the Supreme Court in Distributors (Baroda) Pvt. Ltd.'s case [1985] 155 ITR 120 the Board's circular to the effect that the Explanation brought into the Companies (Profits) Surtax Act, rule 1, would be applicable only from the assessment year 1981-82, was not brought to the notice of the Supreme Court. Therefore, according to learned counsel, the abovesaid Explanation would be applicable only from the assessment year 1981-82 onwards. So also, learned counsel submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the Explanation, the deduction under clause (viii) of rule 1, for computing chargeable profits would be of the net income received from dividends. As the Explanation has no application to the assessment year 1968-69, the gross income from dividends has to be deducted in computing the chargeable profits for that year. While rendering this decision, the Madhya Pradesh High Court followed the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. This decision was reversed by the Supreme Court in Distributors (Baroda) Pvt. Ltd.'s case [1985] 155 ITR 120. Further, this decision is concerned with clause (viii) of rule 1 and not with regard to clause (ix) of rule 1. While considering the Explanation to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1964, and while granting deduction, the net interest income derived alone should be deducted while computing the chargeable profit under the Companies (Profits) Surtax Act, 1964. In the abovesaid decision, while considering the Explanation brought to rule 1 of the First Schedule to the Companies (Profits) Surtax Act, the Bombay High Court observed that an Explanation may be appended to a section to explain the meaning of the words used in the section. There is no presumption that an Explanation which is inserted subsequently introduces something new, which was not present in the section before. Ordinarily, an Explanation is inserted to clear up any ambiguity in the section and it should be so read as to harmonise it with the section and to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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