Ajit K.Sengupta, JJ. - (1.) At the instance of the Commissioner of Income-tax, Central-I, Calcutta, the following question of law has been referred to this court under Section 256(1) of the I.T. Act, 1961, read with Section 18 of the Companies (Profits) Surtax Act, 1964 : " Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, in computing the chargeable profits under the said Act and the Rules made thereunder, the assessee-company deriving income by way of dividends from another Indian company is entitled to the exclusion of the gross dividend amount received, unaffected by the provisions of Sections 57, 80K, 80L and 80M of the Income-tax Act, 1961?"
(2.) The assessee is a public limited company. For the assessment years 1971-72 and 1972-73, the total gross dividend income of the assessee came to Rs. 27,01,558 and Rs. 32,93,399, respectively. In respect of the said income, the assessee was entitled to deductions under Sections 80K and 80M of the 1961 Act totalling to Rs. 19,08,433 for the assessment year 1971-72, and Rs. 19,76,039 for the assessment year 1972-73. The assessee in its surtax assessments for the years under consideration urged before the ITO that in computing the chargeable profits, the deduction under Rule 1(viii) of the First Schedule to the Act should be of the aforesaid gross amounts of dividend before deductions under Section 80K, 80L and 80M of the Act of 1961. This claim of the assessee has been negatived by the ITO by observing that " what is includible in total income is the net dividend and not the gross dividend."
(3.) On appeal, the AAC upheld the orders of the ITO. The AAC observed as follows: " The total income as computed for the purpose of income-tax assessment has been taken by the Income-tax Officer in computing the chargeable profits and in seeking adjustments as per rule 1, certain items of income, profits and gains and other sums ' shall be excluded from such total income'. Now, only that item of income, profits and gains can be excluded from such total income (taken to be the base by the Income-tax Officer) which was included in it What was included in the total income computed by the Income-tax Officer as per the Income-tax Act was Rs. 7,59,686 and Rs. 13,17,360 (dividends from an Indian company) in the assessment years 1971-72 and 1972-73, respectively. I do not think that rule 1 of the First Schedule to the Surtax Act provides any scope for excluding from the total income computed by the Income-tax Officer any amount in excess of what was included in it. In this view of the matter, the Income-tax Officer's computation of chargeable profits for both the years seems correct. If the total income computed under the Income-tax Act is taken to be the total of incomes referred to in Section 5 (i.e., without the consideration of deductions in Chapter VIA), then the gross dividend, as claimed by the appellant, will necessarily have to be excluded from the total of such incomes. The result, however, will be the same as has been reached by the Income-tax Officer in computing the chargeable profits. As stated earlier, I am inclined to confirm the method of computation of chargeable profits adopted by the Income-tax Officer. ";