1994 (2) TMI 21

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....mployed could not be diminished proportionately with reference to the income exempted under sections 80M and 80J of the Income-tax Act, 1961 ? 2. Whether, the Appellate Tribunal has not erred in law and on facts of the case in holding that gross dividend income is deductible in computing the chargeable profits ? 3. Whether, the entire amount of debentures issued to the public is required to be treated as capital under the Second Schedule to the Surtax Act, 1964 ? " The relevant assessment year is 1976-77. As regards question No. 1, the controversy therein is covered by the decision of the Supreme Court in the case of Second ITO v. Stumpp Schuele and Somappa P. Ltd. [1991] 187 ITR 108. In the said judgment, the Supreme Court has obs....

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.... at the conclusion that, in computing the chargeable profits, the net income by way of dividend which is a component part of the total income computed under the Income-tax Act, is required to be excluded and not the gross income by way of dividend. We, therefore, hold that the Tribunal has erred in holding that the gross dividend income is deductible in computing the chargeable profit and hence, question No. 2 is answered in the negative, in favour of the Revenue and against the assessee. Regarding question No. 3, for appreciating the controversy involved the provisions of rules 1(iv) and 3 of the Second Schedule to the Act for computing the capital of a company for the purposes of surtax contained in the Second Schedule are reproduced b....