1967 (9) TMI 3 - HC - Income Tax

Court rules all dividend income exempt from super-tax without deduction of business expenses.

Commissioner Of Income-Tax, Bombay City II Versus Industrial Investment Trust Company Limited.

Commissioner Of Income-Tax, Bombay City II Versus Industrial Investment Trust Company Limited. - [1968] 67 ITR 436 Issues Involved:1. Interpretation of the term 'income' in the context of Notification No. 47 dated December 9, 1933.2. Determination of whether the assessee is entitled to exemption from super-tax on the whole of the dividend income without deduction of any loss or other expenses.3. Allocation of business expenses between exempt and non-exempt income for super-tax purposes.Issue-Wise Detailed Analysis:1. Interpretation of the term 'income' in the context of Notification No. 47 dated December 9, 1933:The primary issue revolves around the interpretation of the term 'income' as used in the notification. The department argued that 'income' should mean the computed or total income, not the gross income. The Income-tax Officer and the Appellate Assistant Commissioner had allowed exemption only on the computed income after deducting business expenses. However, the Tribunal accepted the assessee's contention that the term 'income' in the notification referred to the gross dividend income received without any deductions for expenses.The court referred to the Supreme Court decision in Commissioner of Income-tax v. South Indian Bank, which held that the term 'interest receivable' in a similar notification referred to the gross interest and not the computed income after deductions. Applying this principle, the court held that the term 'income' in the notification must be construed as the gross dividend income received by the assessee.2. Determination of whether the assessee is entitled to exemption from super-tax on the whole of the dividend income without deduction of any loss or other expenses:The court examined whether the assessee was entitled to exemption from super-tax on the entire amount of dividend income derived from other companies that had paid or would pay super-tax. The court concluded that the notification was self-contained and provided for exemption on the gross dividend income received by the assessee without any deductions for expenses. The court emphasized that the purpose of the notification was to avoid double taxation on the same income, first in the hands of the paying company and then in the hands of the receiving company.3. Allocation of business expenses between exempt and non-exempt income for super-tax purposes:The department contended that even if the entire dividend income was exempt from super-tax, the business expenses should be allocated between exempt and non-exempt income. The court referred to the Supreme Court decision in Commissioner of Income-tax v. Indian Bank Ltd., which held that allowable business expenses should be deducted from the total income of the business without allocating them between exempt and non-exempt income.The court noted that the assessee's business was a single activity generating both exempt and non-exempt income. Therefore, the entire business expenses were allowable as deductions from the income liable to tax. The court rejected the department's argument that expenses should be allocated proportionately between exempt and non-exempt income.Conclusion:The court concluded that the assessee is entitled to exemption from super-tax on the whole of the dividend income derived from other companies that had paid or would pay super-tax, without any deduction of business expenses. The court held that the Income-tax Officer was not entitled to deduct any loss or other expenses from the exempt dividend income. The Commissioner was directed to pay the costs of the assessee.