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TMI Blog1985 (11) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80AA of the Income-tax Act, 1961 ('the 1961 Act') he observed that while section 80AA has been made retrospective with effect from 1-4-1968, a similar amendment of the Surtax Act was made effective from 1-4-1981 only. 2. The learned departmental representative relied on the decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 for the proposition that section 80AA was only clarificatory, and that the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 was erroneous. Therefore, the law always was that the deduction under section 80M of the 1961 Act would have to be net amount of dividend less interest, etc., paid on moneys borrowed for earning such inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance Co.'s case [1973] 90 ITR 348 is correct, though it must be conceded that it has been held to be correct in the decision in Cloth Traders' case [1979] 118 ITR 243 (SC). We do feel, however, that another view in regard to the interpretation of section 85A is possible. It is not at all unreasonable to construe the words 'income so included' as meaning the quantum of income by way of dividends included in the total income of the assessee. These words in the context in which they occur have obviously reference to quantum of the income by way of dividends to which the average rate of income-tax is to be applied. The quantum is defined by these words and in order to determine it, we have to ask the question : what is the income by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted the words 'income by way of dividends' in rule 1(viii) as the gross income shown in the books of the assessee and not the net dividends which actually form part of the total income of the assessee. Reliance was placed on the Supreme Court decision in Cloth Traders (P.) Ltd.'s case and the Punjab and Haryana High Court decision in 118 ITR 400 (sic), but the Supreme Court has already overruled the decision in Cloth Traders (P.) Ltd.'s case. Therefore, it is clear that if the High Court had before it the Supreme Court decision in Distributors (Baroda) (P.) Ltd.'s case, the reference would have been answered in favour of the revenue. 7. In Jupiter General Insurance Co.'s case the Bombay High Court interpreted rule 1(viii) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of dividends actually included in the total income and the High Courts' rulings had resulted in giving an unintended benefit to companies in respect of dividends received by them from domestic companies. It is thus clear that if the case of Cloth Traders (P.) Ltd. was wrongly decided, as now held by the Supreme Court, then the High Court decisions under the Surtax Act were also wrongly decided. Since section 80AA has been held to be only clarificatory, the Explanation to rule 1 would also be held to be only clarificatory and not substantive. 10. We, therefore, allow the departmental appeal on ground No. 1 and accept the departmental contentions. 11. [This para is not reproduced here as it involves minor issue]. 12. The appeal is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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