TaxTMI 
TaxTMI 
2002 (8) TMI 73
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....rt for its opinion on the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Rs. 4,55,000 being the cost of shares from which the assessee did not derive any income during the relevant accounting period was to be excluded for determining the assessee's capital for the purposes of surtax under rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964?" The factual matrix leading to the aforementioned dispute is as follows: The assessee held shares in certain companies worth Rs. 4,55,000. During the assessment year 1982-83, the assessee did not derive any dividend income therefrom. The cost of the said shares was excluded by the Assessing Officer as ....
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....e capital of a company. Schedules I and II to the Act contain rules for determining the chargeable profits and capital respectively of a company. Under rule 1 of Schedule I certain incomes are required to be excluded from the total income of the company. The total income is the basis on which the chargeable profits of a company are determined. Rule 2 of the Second Schedule correspondingly makes provision that where certain incomes are required to be excluded from its total income in computing the chargeable profits, the amount of the company's capital shall also be diminished by the cost of such assets. Clauses (iii), (vi) and (viii) of rule 1 of the First Schedule refer to the following incomes:-... (iii) profits and gains of any busine....
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....s rightly excluded in terms of rule 2 of the Second Schedule. The view taken by the Madras High Court would lead to incongruous results, if accrual of some positive income is a precondition for the application of rule 2 of the Second Schedule. By that interpretation for example, if an assessee incurs a loss in a business of life insurance, the entire amount corresponding to assets of that business would be included in the capital for calculating the statutory deduction but if the computation of income from that source results in a meagre profit of say Re. 1, then the value of assets of the insurance business would be excluded from capital. In this respect, the view taken by the Karnataka High Court appears to be a more reasonable view becau....
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....profits of any previous year or previous years, as the case may be, exceeding the statutory deduction, at the rate or rates specified in the Third Schedule. Rule 1 of the First Schedule to the said Act reads thus: "Rule 1: In computing the chargeable profits of a previous year, the total income computed for that year under the Income-tax Act shall be adjusted as follows: - . . . (vi) income chargeable under the Income-tax Act under the head 'Interest on securities' derived from any security of the Central Government issued or declared to be income-tax free or from any security of a State Government issued income-tax free, the income-tax whereon is payable by the State Government; (vii) an amount equal to fifty per cent. of the s....
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....ited Breweries Ltd. [1978] 114 ITR 901, wherein Venkataramaiah J. (as his Lordship then was) held: "The word 'income' in the words 'any assets the income from which' in rule 2 should be read as meaning 'income, if any', in the context in which it appears. If there is an asset, which answers the description or is of the category described in clause (viii) of rule 1 of the First Schedule,, the cost of the said assets to the assessee should be deducted from the capital as determined under rule 1 of the Second Schedule. The rule does not say that its application is dependent upon the actual receipt of the dividend in respect of those shares." However, a contrary view has been taken by the Madras High Court in Addl. CIT v. Madras Motor and....
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..... Ltd.'s case [1979] 117 ITR 354, and followed the decision of the Karnataka High Court in CIT v. United Breweries Ltd. [1978] 114 ITR 901, as also the decision of the Calcutta High Court in Nav Bharat Vanijya Ltd. v. CIT [1980] 123 ITR 865. Having considered the aforementioned decisions, we are of the opinion that the view of the Madras High Court in Madras Motor and General Insurance Co. Ltd. [1979] 117 ITR 354, cannot be accepted as its opinion was based upon equitable considerations. An interpretation of statute cannot be based on equity. A taxing statute, as it well known, must be given its literal meaning. Rule 2 of the Second Schedule to the said Act is merely a description of the assets, which has no nexus with the question as....