Dividend deduction for surtax purposes applies to net dividend after sections 80L and 80M adjustments, not gross dividend.

For computing chargeable profits under clause (viii) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, the deductible amount in respect of dividend income is the net dividend after giving effect to deductions under sections 80L and 80M of the Income-tax Act, not the gross dividend. The High Court applied the settled Supreme Court position and held that the Tribunal was wrong to allow deduction of the entire gross dividend. The Revenue's view was accepted and the referred question was answered in the negative.

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Issues: Whether, for computing chargeable profits under clause (viii) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964, the deductible amount in respect of dividend income was the entire gross dividend or the net dividend after deduction under sections 80L and 80M of the Income-tax Act, 1961.

Analysis: The question was referred under section 256(1) of the Income-tax Act, 1961. The parties agreed that the issue was governed by the Supreme Court decision holding that, for the purpose of the relevant surtax computation, the dividend deductible is not the gross dividend but the dividend after giving effect to the deductions under sections 80L and 80M. The court therefore applied that settled position to the referred question.

Conclusion: The question was answered in the negative. The Tribunal was not right in holding that the entire gross dividend was deductible; the Revenue's view prevailed.

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