Gross dividend excluded for surtax computation where dividend relief under the schedule uses plain language.

Rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964 excludes "income by way of dividends" on the plain meaning of that expression. The court stated that the exclusion refers to the gross dividend received by the company, not the reduced net amount after deductions under the Income-tax Act, 1961, including deductions under sections 57 and 80M. It preferred authority treating dividend relief as based on gross dividend and distinguished the contrary view drawn from section 85A, because that provision used different language tied to income included in total income. The operative position is that gross dividend is the relevant amount for surtax computation.

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Issues: Whether, for computing chargeable profits under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the exclusion for "income by way of dividends" means the gross dividend received by the company or only the net dividend after deductions under the Income-tax Act, 1961.

Analysis: Section 2(5) of the Companies (Profits) Surtax Act, 1964 requires total income computed under the Income-tax Act to be adjusted under the First Schedule. Rule 1(viii) directs exclusion of "income by way of dividends" from an Indian company. The Court held that the language of the rule is plain and refers to the dividend income shown in the assessee's books, namely the gross dividend received, and not the reduced amount after deductions under sections 57 and 80M of the Income-tax Act, 1961. The Court treated the words used in section 80M and the rule as materially similar and preferred the line of authority holding that dividend relief is to be computed on gross dividend. It also declined to follow the contrary view taken on the basis of section 85A because that provision used different language concerning income-tax deduction on income included in total income.

Conclusion: The exclusion under rule 1(viii) applies to gross dividend, not net dividend; the assessee was entitled to reduction of the full dividend amounts.

Ratio Decidendi: Where a surtax provision directs exclusion of "income by way of dividends" without limiting language tying the exclusion to the amount actually included in total income, the expression refers to gross dividend received and not to dividend income reduced by deductions under the Income-tax Act, 1961.

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