Fifth Schedule dividend exemption turns on rule 1, not public subscription, where shares were issued by a private company.

Rule 1 of the Fifth Schedule governs dividends from Indian companies falling within clauses (a) and (b) by reference to the nature of the articles manufactured and the relevant period of formation or registration. Rule 2 applies only where the Indian company has raised fresh capital by public subscription, a condition that cannot be satisfied by a private company because it cannot invite the public to subscribe for its shares. The rules operate in different fields, and dividends received from a private company remain within rule 1 even if the shares were part of fresh capital issued by that company. On that basis, the assessee-company was entitled to exemption from super-tax under section 99(1)(iv).

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Issues: Whether the assessee-company was entitled to exemption from super-tax under section 99(1)(iv) read with the Fifth Schedule to the Income-tax Act, 1961, on dividends received from an Indian company whose fresh capital had not been raised by public subscription.

Analysis: Rule 1 of the Fifth Schedule governs dividends from Indian companies of the categories specified in clauses (a) and (b), depending on the nature of the articles manufactured and the relevant period of formation or registration. Rule 2, by contrast, applies only where the Indian company has raised fresh capital by public subscription. A private company cannot invite the public to subscribe for its shares, and therefore the condition of public subscription in rule 2 cannot be satisfied in such a case. The two rules operate in different fields, and rule 1 applies to the dividend received from a private company even where the shares were part of fresh capital issued by that company.

Conclusion: The assessee-company's claim was governed by rule 1 and not by rule 2, and the exemption from super-tax was available.

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