Dividend declared for rebate purposes means the net amount paid to shareholders, not grossed-up tax-inclusive figures.

For rebate under the Indian Finance Act, 1949, the expression "dividend declared" in the proviso refers only to the net amount actually distributed to shareholders, not the grossed-up figure including tax deducted at source. The tax paid by the company on its own profits remained part of the company's tax liability and was payable whether or not a dividend was declared, so it could not be treated as part of the dividend merely because income-tax provisions deem it paid by the shareholder for assessment purposes. The relevant amount for deduction was therefore the actual dividend paid.

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Issues: Whether, for the purpose of the rebate provision in the Indian Finance Act, 1949, a dividend declared at a stated percentage less income tax means the net amount actually paid to the shareholders or the gross amount including the tax deducted therefrom.

Analysis: The relevant proviso required the amount of dividends declared to be deducted in computing the excess on which rebate was allowable. The declaration in question was of 6 per cent less tax, and the financial effect of that declaration was confined to the amount actually distributed to the shareholders. The tax deducted by the company was part of its own tax liability and was payable in any event, whether or not any dividend was declared. The provisions of the Income-tax Act governing grossing up and deemed payment by shareholders operated only for shareholder assessment and did not convert the company's tax payment into part of the dividend declared. The definition of dividend under the Act was also directed to distributions, not to tax paid by the company on its own profits.

Conclusion: The expression dividend declared in the proviso means the net amount actually paid to the shareholders, namely Rs. 1,54,687, and not the grossed-up amount of Rs. 2,25,000.

Ratio Decidendi: For computing the amount of dividends declared under the rebate proviso, only the sum actually distributed by the company as dividend is relevant; tax paid by the company on its own profits is not part of the declared dividend merely because it is later treated as paid by the shareholder for assessment purposes.

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