Chargeable profits under the Surtax Act exclude only dividend income actually included in assessed total income, not gross dividends.

For computation of chargeable profits under the Surtax Act, only dividend income actually included in the assessed total income after permissible deductions can be excluded; the gross dividend figure cannot be mechanically deducted. The High Court also held that a prior decision could not be applied without a definite finding that the material facts were identical, so the question whether the development allowance reserve formed part of capital required fresh adjudication. One issue was remitted to the Tribunal for decision in accordance with law, while the dividend-income issue was answered against the assessee and in favour of the Revenue.

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Issues: (i) Whether the entire development allowance reserve could be included in the computation of capital under the Surtax Act; (ii) Whether the entire dividend income was to be excluded from the income assessed under rule 1(viii) of the First Schedule to the Surtax Act.

Issue (i): Whether the entire development allowance reserve could be included in the computation of capital under the Surtax Act.

Analysis: The Tribunal had not recorded a definite finding that the facts of the case were identical to the earlier decision on which it relied. In the absence of such a finding, the matter could not be treated as concluded merely by reference to the earlier case. The issue therefore required fresh adjudication on the relevant facts.

Conclusion: The issue was remitted to the Tribunal for fresh decision in accordance with law.

Issue (ii): Whether the entire dividend income was to be excluded from the income assessed under rule 1(viii) of the First Schedule to the Surtax Act.

Analysis: In light of section 80AA of the Income-tax Act, 1961, and the principle that only the dividend actually included in the assessed total income can be excluded while computing chargeable profits, the entire dividend income could not be deducted. The adjustment under the Surtax Act had to be made with reference to the assessed income after permissible deductions, not the gross dividend figure.

Conclusion: The answer was against the assessee and in favour of the Revenue.

Final Conclusion: The reference was disposed of by remitting one issue for fresh adjudication and by answering the dividend-income issue against the assessee.

Ratio Decidendi: For computation of chargeable profits under the Surtax Act, only dividend income actually included in the assessed total income after permissible deductions can be excluded; a prior precedent cannot be mechanically applied without a finding that the facts are identical.

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