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Issues: (i) Whether, for the purpose of rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the gross dividend or the net dividend was to be excluded from the total income of the assessee; (ii) Whether deductions under sections 80K and 80M of the Income-tax Act, 1961, could be treated as sums not includible in total income so as to be deductible under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, while computing capital employed.
Issue (i): Whether, for the purpose of rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the gross dividend or the net dividend was to be excluded from the total income of the assessee.
Analysis: The issue was answered by following the earlier decision between the same parties and the connected decision relied upon by the Court. The governing approach treated the dividend exclusion under the surtax computation as applying to the dividend amount in the manner previously decided, and the contrary view in favour of the Revenue was not accepted.
Conclusion: The question was answered in the negative, against the Revenue and in favour of the assessee.
Issue (ii): Whether deductions under sections 80K and 80M of the Income-tax Act, 1961, could be treated as sums not includible in total income so as to be deductible under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, while computing capital employed.
Analysis: The Court followed its earlier decision on the same point and held that deductions under sections 80K and 80M did not qualify as sums not includible in the total income for the purpose of rule 4 of the Second Schedule. The Revenue's construction was rejected on the basis of the earlier binding view.
Conclusion: The question was answered in the negative, against the Revenue and in favour of the assessee.
Final Conclusion: Both questions were decided in favour of the assessee, and the reference was disposed of accordingly.
Ratio Decidendi: For surtax computation, dividend exclusions and deductions under Chapter VI-A are to be applied according to the specific statutory scheme and prior binding interpretation, and only amounts legally falling within the relevant exclusion provision can be deducted in computing capital employed.
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