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Issues: Whether, for computing chargeable profits under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the deductible amount of dividend income was the gross dividend or the net dividend after deduction under section 80M of the Income-tax Act, 1961.
Analysis: The dividend income received from another Indian company was first subjected to deduction under section 80M of the Income-tax Act, 1961, and the question was whether the amount to be excluded from total income while computing chargeable profits under the Surtax Act should be the entire dividend receipt or only the balance remaining after such deduction. The reasoning followed the construction adopted by the Supreme Court in relation to section 80M and the subsequent application of that principle by the Calcutta High Court in computing chargeable profits under the Surtax Act.
Conclusion: Only the net dividend, and not the gross dividend, was deductible in computing chargeable profits under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964.
Ratio Decidendi: For computation of chargeable profits under the Surtax Act, dividend income is to be excluded only to the extent of the net dividend remaining after deduction of the allowance under section 80M of the Income-tax Act, 1961.
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