Net dividend tax exclusion under surtax rules is confined to income-tax on the amount actually included in total income.

While computing chargeable profits under the First Schedule to the Companies (Profits) Surtax Act, 1964, the exclusion under rule 2(i)(a) was limited to income-tax attributable to the amount actually included in total income. Because the total income contained only net dividend and not gross dividend, the tax exclusion had to be confined to income-tax payable on the net dividend alone. The analysis treated the issue as one of giving effect to an appellate order rather than any open controversy on dividend exclusion, and the request to require a reference was therefore refused.

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Issues: Whether, while computing chargeable profits under the First Schedule to the Companies (Profits) Surtax Act, 1964, the tax to be excluded under rule 2(i)(a) is the income-tax attributable to the net dividend or the gross dividend.

Analysis: The question arose from the manner of giving effect to an appellate order and not from any open controversy about exclusion of gross or net dividend under rule 1(viii). Rule 2(i)(a) permits exclusion of income-tax payable on income included in the total income under the specified clauses. Since what was included in the total income was the net dividend and not the gross dividend, the exclusion had to be confined to the tax payable on the net dividend alone.

Conclusion: The exclusion under rule 2(i)(a) was correctly confined to income-tax payable on the net dividend, and the request to require a reference was rightly refused.

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