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TMI Blog1986 (1) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... Thomas Co. vs., CIT 1977 CTR (Ker) 171 : (1977) 110 ITR 515 (Ker), CIT vs. Sundaram Industries Pvt. Ltd. (1984) 42 CTR (Mad) 316 : (1985) 151 ITR 769 (Mad) and CIT vs. Gwalior Rayon Silk Mfg. (Wvg). Co. Ltd. (1983) 37 CTR (MP) 245 : (1984) 146 ITR 178 (MP). He has also relied on the decision of the Tribunal for the asst. yr. 1973-74 and 1974-75. All these decisions are based on the principle laid down by the Supreme Court in Cloth Traders (P) Ltd. vs. Addl. CIT (1979) 10 CTR (SC) 393 (1979) 118 ITR 243 (SC). In that decision, the Supreme Court held that the words "Income by way dividends" occurring in s. 80-M of the Act, referred to gross dividends and not net dividends. However, the said decision has been overruled recently by a five Member Bench of the Supreme Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC). The Supreme Court has held that the words "such income by way of dividends" referred to net dividend income and not gross dividend income. The Supreme Court has further held that the decision in Cloth Traders P. Ltd. was wrong. Consequently, identical words in rr. 1 (viii) and 1(ix) of the First Schedule to the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich we have placed on these expressions is derived directly from the interpretation put by the Supreme Court on the words "such income by way of dividends" in s. 80-M of the Act which occurred in the same setting as the words in r. 1(viii) and r. 1 (ix) occurred. 5. The ld. representative of the assessee drew our attention to the fact that from 1st April, 1981 Explanation has been inserted by Finance Act, 1981 in r. 1 in which a specific provision has been made to the effect that the amount of any income, profits and gains which was required to be excluded from the total income under r. 1 would be the amount of such income, profits and gains as computed in accordance with the provisions of the IT Act and has reduced in accordance with the provisions in Chapter VI-A of the Act. It was submitted that since this amendment was brought into force with effect form 1st April 1981, it should be presumed that the intention of the legislature was that prior to 1st April 1981 gross amounts of income, profits and gains should be excluded under various clauses of r. 1. It was further submitted that whereas s. 80-AA was inserted w.e.f. 1st April, 1968 by the Finance (No. 2) Act, 1980, in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act. 7. It was further submitted on behalf of the assessee that on the basis of the decision of the Supreme Court in Distributors (Baroda) (P) Ltd., we should hold that what is to be excluded under s. cls. (viii) and (ix) of r. 1 is income by way of dividends as reduced by expenses incurred for earning the same and income by way of royalties as reduced by expenses incurred for earning royalties and that reduction under Chapter VI-A from by way of dividends and income by way of royalties should not be taken in to account. We are unable to accept this submission. In s. 80A it is mentioned that in computing the total income of an assessee that shall be allowed form his gross total income, reductions in accordance with the provisions of Chapter VI-A. It is obvious that total income is computed by deducting the amounts mentioned in various sections in Chapter VI-A from gross total income. Some of these reductions have direct reference to the particular head of income. For example, in s. 80-M reduction is to be made from income by way of dividends as computed under other provisions of the Act. Similarly under s. 80-O reduction is provided from income by way of royalties. In the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee by the Tribunal in the appeal for the asst. yr. 1973-74 referred to above. The Department wants to keep the issue alive. We respectfully follow the said decision and confirm the order of the CIT (A) on this point. 11. The next ground which arises only in the departmental appeal for the asst. yr. 1977-78 is that the ld. CIT (A) had erred in holding that the amount deposited by the assessee company with IOBI in lieu of surcharge was eligible for deduction under r. 2(i) of the First Schedule to the extent of the surcharge that would have been payable by the assessee company. The point in controversy was considered at length by the Special Bench of the Tribunal in Travancore Chemical and Mfg. Co. Ltd. vs. ITO (1985) 4 SOT 364 and was decided against the assessee and in favour of Department. The assessee wants to keep the issue alive. We respectfully follow the said decision of the Special Bench of the Tribunal and set aside the order of the CIT (A) on this point and restore that of the Surtax Officer. 12. We now come to the appeals filed by the assessee. The first ground raised is that the ld. CIT (A) had erred in upholding the action of the ITO in reducing short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the First Schedule to the extent of Rs. 2,50,000 instead or Rs. 2,80,051 being 50 per cent of the donation eligible under s. 80G amount in to Rs. 5,60,101. This ground arises in the assessee's appeal for the asst. yr. 1979-80 only. The assessee had made donation of Rs. 5,60,101 to charitable institutions referred in s. (1) of s. 80-G(2) of the Act. Under sub-s. (1) of s. 80-G, deduction of an amount equal to 50 per cent of the said amount of donations was allowable. However, sub-s. (1) was subject to sub-s. (4) of s. 80-G. Sub-s. (4) laid down that the deduction under sub-s. (1) shall not be allowed in respect of such sum as exceeded 10 per cent of the gross total income or five hundred thousand rupees which ever was less. In the present case the amount of five hundred thousand rupees was lower amount. Consequently, deduction under s. 80G was allowable with reference to amount of Rs. 5,00,000 in present case. In the income-tax assessment deduction of 50 per cent of Rs. 5,00,000 amounting to Rs. 2,50,000 was granted. Clause. (vii) of r. 1 of First Schedule of the Companies (Profits) Sur-tax Act, 1964, is as follows; "In computing the chargeable profits of a previous year, the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er words, the reasons given by the Tribunal is that if the words in cl.(vii) had been "sum with reference under which a deduction is allowed to the company under the provisions of s. 80G of the IT Act", the upper limit of Rs. 2,00,000 which was the limit at the time when the Tribunal decided the appeal would have to be taken into account. However, since the word used is "allowable" and not "allowed" the upper limit in sub-s. 4 of s. 80G should be ignored. What was lost sight of was that no deduction can be allowed unless deduction is allowable, and as such, deduction allowable would always be equivalent to deduction allowed. Consequently, the use of the word "allowable" would not make any difference. It is to be noted that cl. (vii) refers to of 80G as a whole and not to sub-s. (1) of s. 80G. Consequently, when we have to ascertain as to what was the sum with reference to which deduction is allowable under s. 80G, we have to consider all the sub-s. of 80G. Sub-s. (4) of s. 80-G cannot be ignored. In fact, sub-s. (1) is subject to sub-s. (4) of s. 80G. Consequently the sum mentioned in sub-s. (4) is in substance the sum with reference to which the deduction is allowable to the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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