1988 (12) TMI 61 - HC - Income Tax

Inclusion of Gross Dividends in Total Income for Surtax Calculation

The High Court of Punjab and Haryana held that for the computation of total income for surtax purposes, gross dividends received by an assessee from other ... Chargeable Profits, Surtax Issues:Interpretation of 'chargeable profits' under the Companies (Profits) Surtax Act, 1964 in relation to the treatment of dividends received by an assessee from other companies.Analysis:The judgment delivered by the High Court of Punjab and Haryana addressed the issue of whether gross dividend or only the portion not exempt under section 80M of the Income-tax Act, 1961, should be included in the computation of total income for surtax purposes. The case involved an assessee who received dividends from other companies during the relevant accounting period. The Income-tax Officer included only 40% of the dividend in the total income calculation, as 60% was exempt under section 80M. However, the Appellate Assistant Commissioner and the Tribunal allowed the entire dividend amount to be included in the total income.The court referred to the relevant provisions of the Companies (Profits) Surtax Act, 1964, specifically Rule I (viii) of the First Schedule, which excludes income by way of dividends from an Indian company or a company with prescribed dividend arrangements from the total income. Citing the Supreme Court's decision in Cloth Traders (P.) Ltd. v. CIT, the court interpreted 'income by way of dividends' to refer to the gross income shown in the assessee's books, not the net dividend forming part of the total income. This interpretation was further supported by previous judgments such as CIT v. Patiala Flour Mills Co. P. Ltd. and other authorities.Based on the settled legal position that gross dividends are to be excluded from total income for surtax purposes, the court answered the reference question in the affirmative, favoring the assessee. The judgment did not award costs to either party.