Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1972-73, the following questions of law have been referred to this court: "(1) 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 dividend from another Indian company is entitled to the exclusion of the gross dividend amount received unaffected by the provisions of Section 80M of the Income-tax Act, 1961.
(2.) Whether, on the facts and in the circumstances of the case, rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, is applicable for proportionately reducing the capital apportionable to dividend deduction under Section 80M of the Income-tax Act, 1961?" 2. The second question is concluded by the decision of this court in Income-tax Reference No. 131 of 1978 (CIT v. Britannia Industries Co. Ltd. [1990] 182 ITR 113) where judgment was delivered on April 10, 1989, holding that rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, cannot be invoked for proportionately reducing the capital apportionable to deduction made under Chapter VI-A of the Income-tax Act, 1961. Following the said decision, we answer the second question in the negative and in favour of the assessee.
(3.) The facts so far as relevant to the controversy raised in the first question are that the assessee earned dividend income totalling Rs. 27,500 which was credited to the profit and loss account. A deduction of Rs. 16,500 out of the said dividend income was allowed under Section 80M of the Act in the income-tax assessment of the assessee. The Income-tax Officer, while computing the chargeable profit in the surtax assessment of the assessee, has taken the said net dividend of Rs. 11,000 only as deductible from the chargeable profit against the stand of the assessee that the gross and not the net dividend should be so deducted.;