Gross dividend income must be excluded in surtax computation, not just the net amount assessed under income tax law.

For rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the dividend adjustment was construed to require exclusion of gross dividend income, not merely the net amount that remained in the assessed total income. The reasoning treated the expression used in the surtax schedule as corresponding to the category of dividend income itself, consistent with the construction adopted for "such income" in section 80M of the Income-tax Act. On that basis, dividend income was to be excluded in full when computing surtax liability.

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Issues: Whether, for the purpose of rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the gross dividend income or only the net dividend actually included in the total income computed under the Income-tax Act was to be excluded.

Analysis: The statutory scheme required the total income computed under the Income-tax Act to be adjusted by excluding income by way of dividends. The expression used in the surtax schedule was construed in the same manner as the phrase "such income" considered in the context of section 80M of the Income-tax Act, namely, as referring to the category of dividend income and not merely to the amount remaining after deductions. The Court accepted the view that the legislature intended exclusion of the gross dividend income and not merely the net figure that entered the total income assessment.

Conclusion: The gross dividend of Rs. 2,25,734 was to be excluded, and the issue was decided in favour of the assessee and against the revenue.

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