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TMI Blog1991 (7) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessment years are 1979-80 and 1980-81. The contention of the assessee which was accepted by the Appellate Tribunal was that the total dividends received by the assessee shall have to be deducted while computing the chargeable profits of the assessee under the provisions of the Companies (Profits) Surtax Act ("the Surtax Act" for short), while the contention of the Revenue has been that the net dividend arrived at after the deductions permitted under the provisions of the Income-tax Act is the dividend that will have to be deducted under the aforesaid Surtax Act. The question pertains to the interpretation of rule 1(viii) of the First Schedule to the Surtax Act. Section 4 of the Surtax Act charges on every company a tax in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of charging the profits under the Surtax Act. Section 80M of the Incometax Act provides for deduction in respect of the dividends while computing the income of an assessee for the levy of income-tax. According to this, a deduction of an amount equal to 60% of such income from the dividends is envisaged. Therefore, for the purpose of charging the income of a company for the purpose of income-tax, its income from dividends is reduced by 60% and only 40% of the total dividend is included in the taxable income. The language of section BOM itself is that, "in computing the total income of the assessee", sixty per cent. of the total income of the assessee which includes income from dividend is to be deducted. In other words, the term "tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India [1985] 155 ITR 120, the Supreme Court had to consider the question as to how the deductions under Chapter VI-A of the Income-tax Act are to be made with reference to income from dividend. In the said decision, the Supreme Court was concerned mainly with the correctness of an earlier decision of the same court rendered in Cloth Traders (P) Ltd. v. Addl. CIT [1979] 118 ITR 243, at a time when section 80AA was not found in the Incometax Act. For this purpose, the scope of section 80M had to be considered by the Supreme Court afresh and, ultimately, the Supreme Court held that its earlier view was not correct which was rendered in Cloth Traders (P) Ltd.'s case [1979] 118 ITR 243 (SC). In Cloth Traders case, the Supreme Court had held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean the 'total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under section 280-O'. Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or, in other words, forms part of the gross total income, the condition specified in the opening part of sub-section (1) of section BOM would be fulfilled and the provision enacted in that sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. Accordingly, the dividend included in the total income is liable to be excluded under the First Schedule. The Surtax Officer has to take into account the total income as computed under the provisions of the Income-tax Act for the purpose of adjustment under the Surtax Act. Therefore, whatever has not been included in the assessment cannot be excluded. In other words, only the amount which has been included can be excluded. Otherwise, although net dividend is included in the total income, the assessee gets adjustment of a higher amount being the amount of dividend included in the gross total income. What Dr. Pal says is that the total income as computed before allowing deduction under section BOM shall be taken into account. But that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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