B.N.KIRPAL, J. - (1.) IN respect of the asst. year 1972 -73 the Tribunal has stated the case and referred the following question to this Court : "Whether, on a true interpretation of r. 1(viii) of the First Schedule to the Companies (Profits) Sur - tax Act, 1964 and on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the action of the ITO in excluding Rs. 1,19,492 being the net amount of dividend only instead of Rs. 2,98,729 being the gross amount of dividend from the total income for arriving at the chargeable profits under the said Act -
(2.) BRIEFLY stated the facts, as found by the Tribunal, are as follows : The income of the assessee for the purpose of IT Act, 1961, for the asst. year 1972 -73 was determined at Rs. 22,30,346. In order to arrive at the chargeable profit liable to tax under the Companies (Profits) Surtax Act, 1964, income by way of dividend from an Indian company or a company which had made the prescribed arrangements for the declaration and payment of dividend within India, was to be excluded from such total income in accordance with r. 1(viii) of the First Schedule to the said Act. Such dividend was Rs. 2,98,729. After deducting the allowance under S. 80M of the IT Act, 1961, from the above dividends, the net amount worked out to Rs. 1,19,492. The Surtax Officer excluded this amount only from the total income as computed under the IT Act, rejecting the claim of the assessee that the deduction should have been made for the entire amount of dividend being the gross dividend. The assessee filed an appeal to the AAC which came to the conclusion that the gross dividend of Rs. 2,98,729 was deductible. Thereafter the Department filed an appeal to the Tribunal who analysed the entire scheme of the IT Act and after referring various authorities came to the conclusion that it is only the net dividend which was entitled to be deducted. Thereafter at the instance of the assessee the aforesaid question of law has been referred.
(3.) THE short question which is involved is the correct interpretation of r. 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, under which the chargeable taxes are computable. The only point in issue in this connection is whether it is a net dividend which is received from the other companies after deduction which has to be taken into consideration or the gross dividend. Identical question came up for consideration before the Calcutta High Court in the case of CIT vs. Hindustan Gum and Chemicals Ltd. (1990) 182 ITR 396 (Cal). Following the decision of the Supreme Court in the case of Distributors (Baroda) P. Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC), it came to the conclusion that the assessee deriving dividend income from another Indian company was not entitled to exclusion of the gross dividend amount and it is only the net dividend after deduction of the amount allowed under S. 80M of the Act which was deductible. As we have already noticed, the aforesaid decision in based on the judgment of the Supreme Court where the Supreme Court in Distributors (Baroda) case (supra) was concerned with the construction of S. 80M and the question arose whether it was to be allowed deduction out of the gross dividend or the net dividend. The Court came to the conclusion that deduction was to be out of net dividend and not gross. This is the conclusion which was followed by the Calcutta High Court in Hindustan Gum & Chemicals case (supra) while determining as to how should the chargeable profits be computed. We are in agreement with the Calcutta High Court that for the purpose of r. 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964, in computing the chargeable profits of the previous year the total income computed for that year under the IT Act shall be adjusted by deducting the net dividend and not the gross dividend. The question of law is, therefore, answered in the affirmative and in favour of the Department. There will be no order as to costs.;