TaxTMI 
TaxTMI 
1972 (7) TMI 10
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....ns of section 99(1)(iv) (as it then stood) of the Income-tax Act, 1961, or under section 85A of the said Act. In Income-tax Reference No. 9 of 1971, the respondent-assessee has also claimed exemption under the provisions of section 85 and section 235 of the same Act in respect of dividend income. In each of the cases the department has claimed that exemption no doubt can be allowed but not upon the full amount of the dividend received by each company but only on the net dividend earned, that is to say, after the deduction of proportionate expenses of management from the total amount of the dividend. 3. In the Income-tax Reference No. 60 of 1971, in the case of the New Great Insurance Co. Ltd., the total income, the total expenses and the total dividend received in the account year which is the calendar year 1962 (assessment year 1963-64) were as under Rs. Total income 10,25,974 Total expenses 37,97,480 Total dividend received 3,49,952 4. In Income-tax Reference No. 9 of 1971, in the case of the Indian Guarantee and General Insurance Co. Ltd., the position was as under for the account year, which is the calendar year 1964 (assessment year 1965-66....
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.... "99. Income not chargeable to super-tax.--(1) Super-tax shall not be payable by an assessee in respect of the following amounts which are included in his total income .......... (iv) if the assessee is a company, any dividend received by it from an Indian company, subject to the provisions contained in the Fifth Schedule." (Underlining is ours.) 8. This was the provision in force until the levy of super-tax was abolished and section 85A was brought into force on the 1st April, 1965. Section 85A, therefore, though it makes the same provision refers only to income-tax and not the super-tax. Section 85A as it then existed was as follows : 85A. Deduction of tax on inter-corporate dividends.--Where the total income of an assessee being a company includes any income by way of dividends received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculate....
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.... received from Indian companies. We stress this point here because it was argued at one stage on behalf of the department that these are no longer dividends but have merged in the stream of "total income" and must be treated only as part of the total income. That the amounts were dividends and nothing else is shown by the statement of the case, paragraph 2, in the cases of the New Great Insurance Co. Ltd. where it is stated that "In the course of the said previous year the assessee was in receipt of a sum of Rs. 3,49,952 by way of dividend from other companies" and in the case of the Indian Guarantee and General Insurance Co. Ltd. that "the gross dividend was Rs. 15,61,163 and after deduction of the proportionate management expenses, which were attributed to the dividend income, the Income-tax Officer gave the rebate under section 85A on a sum of Rs. 14,71,947." Even the questions posed in all the cases refer to them as "gross dividend" or as "dividend income." The sole dispute, therefore, is whether these dividends received by these companies, which otherwise satisfy the requirements of section 99, are, upon the terms of that section, gross dividends in the hands of the assessees ....
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.... the words "dividend which is assessable" and that gives the clue to the meaning of the words "any dividend received" in clause (iv) of section 99(1). Now, no doubt, clause (iv) is made subject to the provisions of the Fifth Schedule, but the Fifth Schedule does not make any provision for the subject dealt with in section 99(1)(iv). The exemption which the Fifth Schedule grants is on quite a different basis from the exemption granted by section 99(1)(iv) and the companies qualified to earn that exemption are also quite different. The provisions of the Fifth Schedule were intended to encourage companies which were engaged in an industry for the purpose of manufacture or production of one or more of the several articles specified in Part A of that Schedule. This exemption is granted as a measure of encouragement to certain types of industries producing the stated articles in the interests of the national economy. It has nothing to do with the exemption granted by section 99. Section 99(1)(iv) was introduced with a totally different object, namely, to prevent double taxation of dividends, once in the hands of the Indian company which declared it and a second time in the hands of a com....
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....85A and does not advance the argument any further. 16. Then it was urged that if this is to be the interpretation then the words in the opening clause "amounts which are included in his total income" would be deprived of all meaning. We do not think that that would be the effect. When we consider the provisions of section 99, particularly clauses (i) to (iv) of sub-section (1) of section 99, each of these clauses provides for a different item of exemption, again with the object of preventing double taxation of the same amount and the consequent hardship. In clause (i) the case contemplated is of an assessee who is a partner in an unregistered firm. In such a case any portion of that assessee's share in the profits and gains of the firm which have borne super-tax in the hands of the firm, is exempt in the hands of the partner. Similarly, in clause (ii) where the assessee is a member of an association of persons or any other body of individuals, such amount as he receives from the association or body which has already borne super-tax in the hands of the association or body, is exempt in the bands of the member. These and similar other provisions which are made in the five clau....
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....received are merely a business receipt and if so, before such a receipt can be allowed in income-tax, proportionate expenses attributable to such a receipt must be deducted. 19. This question was never raised or agitated before any of the authorities nor it seems has the Tribunal in any of the cases dealt with. Moreover, it is not a fact stated in any part of the three statements of the case that one of the businesses of the assessees was investment or earning of the dividends. We doubt that the provisions of the Insurance Act which were referred to also lead to such a conclusion. Indeed section 27 and the succeeding sections to which we have referred occur in a part which is entitled "Investment, loan and management" thus showing that the management of the insurance is an item apart from investment of its funds, but we need not go into that because as we have said the question was never raised nor is any foundation laid in the statements of the case nor any questions framed in any of the three cases referred to that aspect. From the figures which have been worked out in these cases by the Income-tax Officer upon the contention of the department, it appears that the manner in wh....
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....e of the authorities which were cited before us. In Commissioner of Income-tax v. Industrial Investment Trust Co. Ltd., a Division Bench of this court was concerned to interpret the Notification No. 47 dated 9th December, 1933, under section 66(1) of the Indian Income-tax Act in which exemption was granted from super-tax in the following words : "So much of the income of any investment trust company as is derived from dividends paid by any other company which has paid or will pay super-tax in respect of the profits out of which such dividends are paid is exempt from super-tax." 23. It will be noticed that in that notification the words used were "income of any investment trust company" and even in that context the Division Bench interpreted the words "dividends paid by any other company" to mean the gross dividend. In clause (iv) which we are called upon to construe moreover there is an even stronger word used namely "received" after the words "any dividend", thus showing that it is the receipts that are being taxed and not the income. In Industrial Investment Trust Co.'s case the words "dividends paid" were used in the context of "income of any investment trust com....
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....n Commissioner of Income-tax v. Darbhanga Marketing Co. Ltd., and the identical contention as is raised before us was raised before the Calcutta High Court. The department, there desired to deduct an amount of Rs. 21,326 which was said to be the interest paid to various parties on moneys borrowed in connection with investments in shares. After considering the provisions of section 99 the Division Bench held at page 77 as follows : "....... it is manifest, in our opinion, that under section 99, super-tax shall not be payable by an assessee in respect of the 'amounts' of 'any dividend received by it'. Therefore, it means the amount of dividend received by the assessee. It cannot mean dividend received minus the amount of interest on moneys borrowed for earning the same. The expressions 'which are included in his total income' in sub-section (1) of section 99 and 'incomes forming part of total income' in the heading are descriptive of the items included in the computation of the total income and not indicative of the quantum of the amounts included under the different items in the computation of total income. Such a construction of these expres....
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....er, on the facts and in the circumstances of the case, the relief under those sections should be calculated on the gross dividend income or on the dividend income as reduced by proportionate management expenses. Section 84 as it then stood before it was omitted by the Third Schedule to the Finance (No. 2) Act, 1967, with effect from 1st April, 1968, granted exemption from income-tax to certain newly established industrial undertakings or hotels and section 85 made similar provision for dividends received by shareholders from such new industrial undertakings or hotel business and it provided as follows : "Subject to any rules that may be made by the Board in this behalf, income-tax shall not be payable by a shareholder in respect of so much of any dividend paid or deemed to be paid to him out of the profits and gains derived by a company from an industrial undertaking or the business of a hotel....to which section 84 applies as is attributable to that part of such profits and gains on which income-tax is not payable by the company under section 84." 31. Therefore, to the same extent that section 84 exempted the profits and gains of the stated businesses of the new indust....