1981 (4) TMI 20 - HC - Income Tax

High Court rules deduction based on average super-tax rate, not specific dividend income. Assessee wins.

The High Court ruled in favor of the assessee, determining that the deduction under section 101(2) of the Income Tax Act should be calculated based on the ... Average Rate, Super Profits Tax Issues:Interpretation of section 101(2) of the Income Tax Act, 1961 for assessment years 1962-63 and 1963-64.Analysis:The controversy in this case revolved around the interpretation of section 101(2) of the Income Tax Act, 1961 concerning the entitlement to a deduction of super-tax on dividend income earned from an industrial undertaking. The assessee's total income for the assessment year 1962-63 comprised interest and dividend income. The dispute arose when the Income Tax Officer (ITO) granted a rebate of only 5% on the dividend income, while the assessee argued for a deduction of 12.72% based on the total super-tax payable on the total income. The Assistant Commissioner (AAC) supported the assessee's contention, allowing relief at the average super-tax rate of 12.72%. A similar issue arose for the assessment year 1963-64, where the Commissioner granted relief at the rate of 20.14%. The Income Tax Tribunal upheld the AAC's decision, leading to a reference to the High Court on the correct interpretation of section 101(2).The key question before the High Court was whether the deduction under section 101(2) should be calculated based on the average rate of super-tax on the total income or specifically on the dividend income earned from the industrial undertaking. The Revenue argued for the latter interpretation, contending that the deduction should be based on the super-tax rate applicable to the dividend income. However, the court disagreed with the Revenue's interpretation. The court analyzed the language of section 101(2) and concluded that the deduction should be calculated at the average rate of super-tax on the total income, as per the plain reading of the provision.The court highlighted that the language of section 101(2) did not qualify the rate of deduction based on the dividend income from a particular undertaking. It emphasized that the average rate of super-tax should be calculated by dividing the total super-tax payable on the total income, not just on the dividend income. The court noted that for the assessment years in question, the average rates of super-tax were 12.72% and 20.14%, respectively, based on the total income. Therefore, the court upheld the Tribunal's decision, affirming that the assessee was entitled to relief at the average super-tax rates for the respective years.In conclusion, the High Court answered the question in favor of the assessee, ruling that the deduction under section 101(2) should be calculated based on the average rate of super-tax on the total income. The court found no grounds to interfere with the Tribunal's decision and directed the Revenue to pay costs.