Net dividend basis governs deduction under surtax rules; gross dividends are not the measure.

Rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964 was construed to require deduction with reference to dividends as they enter total income in net form, rather than on gross dividends. The Supreme Court affirmed the Delhi High Court's interpretation and followed the earlier construction of the analogous provision. The assessee's contention that the deduction should be computed on gross dividends was rejected, and the issue was answered against the assessee and in favour of the Revenue.

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Issues: Whether, for the purpose of computing chargeable profits under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the deduction is to be made with reference to gross dividends or only net dividends.

Analysis: The operative language of rule 1(viii) was held to require inclusion of the dividend amount as it enters the total income in its net form, and the deduction is correspondingly to be worked out on that basis. The Court affirmed the view that the correct interpretation is the one adopted by the Delhi High Court, following the earlier construction placed on the analogous provision.

Conclusion: The question was answered in the negative against the assessee and in favour of the Revenue.

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