TaxTMI 
TaxTMI 
1992 (2) TMI 6
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.... includible in computing the capital base ? 2. Whether, on the facts and in the circumstances of the case, gross dividends are deductible in arriving at the chargeable profits but not the net dividends ? " In so far as the first question is concerned, it is represented by learned counsel for the parties that it is covered by the judgment of this court in the case of the assessee for an earlier year in CIT v. Vazir Sultan Tobacco Co. Ltd. [1988] 173 ITR 567. The question is, therefore, answered in favour of the assessee and against the Revenue. Regarding the second question it would be useful to refer to the facts giving rise to this question. The assessee-company receives what is commonly known as intercorporate dividends. For the ....
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.... year, the total income computed for that year under the Income-tax Act shall be adjusted as follows : 1. Income, profits and gains and other sums falling within the following clauses shall be excluded from such total income, namely :-- . . . (viii) income by way of dividends from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India. " Before embarking upon an interpretation of this rule, it would be useful to keep in mind the principles laid down by the Supreme Court in Distributors (Baroda) Pvt. Ltd. v. Union of India [1985] 155 ITR 120. In that case, their Lordships of the Supreme Court were construing the provisions of sections 80A(2), 80AA and 80....
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.... intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount which is liable to suffer tax once again in the hands of the assessee. The Legislature could certainly be attributed with the intention to prevent double taxation but not to provide an additional benefit which would go beyond what is required for saving the amount of dividend from taxation once again in the hands of the assessee. " Now, keeping in view the above principles, we shall read the rule under consideration. A perusal of the rule, extracted above, shows that income by way of dividends from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of....
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....n why the Legislature should have intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount which is liable to suffer tax once again in the hands of the assessee. Therefore, on a consideration of the language of the abovesaid rule 1(viii), we are clear in our mind that the real intention of the rule-making authority is to see that the amount of dividends which has already suffered tax should not be taxed again. The gross amount of dividend has already suffered tax. Now, for the second time that whole amount is not taken into computation, but only the amount of net dividend computed in accordance with the provisions of the Income-tax Act, is taken in arriving at the tot....
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....[1974] 97 ITR 140 which was dissented from by the High Court of Himachal Pradesh, has been reversed by the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, the amount of gross dividend should be held as deductible. We are afraid, we cannot accept the contention of learned counsel for the assessee. Firstly, because the judgment of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 was itself reversed by the Supreme Court subsequently in Distributors (Baroda) Pvt. Ltd. v. Union of India [1985] 155 ITR 120 and, secondly, because the Gujarat High Court on interpretation of the very same provision which falls for our consideration, came to the conclusion that it is only the net dividends that ar....
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....owing all permissible deductions including the deduction under section 80M of the Income-tax Act, can only be excluded. Learned counsel next contends that the Explanation to rule 1(viii) of the Surtax Act was added by the Finance Act of 1981, with effect from April 1, 1981, and, therefore, it must be understood that the law before the insertion of the Explanation must have been different. This contention is untenable. There is no doubt that the Explanation was inserted from April 1, 1981, and it provides that the amount of any income or profits and gains which is required to be excluded from the total income under that clause shall be only the amount of such income or profits and gains as computed in accordance with the provisions of ....