Gross dividend exclusion for surtax computation applied without Income-tax Act deductions for the years in question.

For surtax computation under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, income by way of dividends from an Indian company was treated as a distinct category of income and not as a net amount after deductions under the Income-tax Act, 1961. The gross dividend was therefore excludible in computing chargeable profits, and the deductions under sections 57, 80K, 80L and 80M were held not to govern that exclusion for the assessment years in question. The later insertion of section 80AA and the explanation to rule 1 were noted as subsequent changes and were not applied retrospectively.

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Issues: Whether, in computing chargeable profits under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the assessee was entitled to exclude the gross dividend received from another Indian company, without applying the deductions under sections 57, 80K, 80L and 80M of the Income-tax Act, 1961.

Analysis: Rule 1(viii) requires exclusion of income by way of dividends from an Indian company from the total income computed under the Income-tax Act. The expression was construed as referring to the category of income and not merely the quantum that survived after deductions under the Income-tax Act. The distinction between gross and net dividend was rejected as controlling the surtax computation. The subsequent amendment introducing section 80AA of the Income-tax Act, 1961 and the later explanation to rule 1 of the First Schedule were noted, but they did not govern the assessment years in question.

Conclusion: The assessee was entitled to exclusion of the gross dividend amount for surtax computation, unaffected by sections 57, 80K, 80L and 80M of the Income-tax Act, 1961.

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