Exemption notification and business expense apportionment: full dividend exemption applied, with no proportional deduction from exempt income.

An exemption notification was construed on its own terms, so dividend income covered by the notification was fully exempt from super-tax and was not reduced by any proportionate share of business expenses or losses. Where the assessee carried on a single business yielding both exempt and taxable income, allowable business expenditure could not be apportioned merely because part of the receipts was exempt; the full allowable expenditure or loss had to be deducted against the taxable income. The reference was therefore answered in favour of the assessee on both issues.

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Issues: (i) Whether the exemption notification covered the whole of the dividend income received by the investment trust company without deducting proportionate expenses or losses. (ii) Whether, where a single business yielded both exempt and taxable income, the business expenses could be apportioned and only a part deducted against the taxable income.

Issue (i): Whether the exemption notification covered the whole of the dividend income received by the investment trust company without deducting proportionate expenses or losses.

Analysis: The notification exempted from super-tax so much of the income of an investment trust company as was derived from specified dividends. The expression used in the notification was treated as referring to the dividend income actually received, and not to dividend income reduced by a proportion of business expenses. The exemption notification was treated as self-contained and not controlled by the computation provisions of the Act.

Conclusion: The whole of the specified dividend income was exempt from super-tax, without deduction of proportionate expenses or losses.

Issue (ii): Whether, where a single business yielded both exempt and taxable income, the business expenses could be apportioned and only a part deducted against the taxable income.

Analysis: The business carried on by the assessee was a single business. The allowable business expenditure was to be dealt with under the provisions governing deductions, and the fact that part of the business receipts was exempt did not justify splitting the expenditure and confining deduction only to the taxable receipts. The entire allowable business loss or expenditure had to be deducted from the taxable part of the income.

Conclusion: The business expenses could not be apportioned in the manner adopted by the Income-tax Officer, and the assessee was entitled to have the full allowable business loss deducted from the taxable income.

Final Conclusion: The reference was answered in favour of the assessee, holding that the dividend income covered by the notification was fully exempt and that no proportionate deduction of expenses could be made from that exempt income.

Ratio Decidendi: An exemption notification must be construed according to its own terms, and where a single business yields both exempt and taxable income, allowable business expenditure is not to be apportioned merely because part of the receipts is exempt.

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