TaxTMI 
TaxTMI 
TaxTMI 
1987 (5) TMI 51
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.... gross dividends after deducting therefrom the expenses for earning the dividend income and the deduction from the net dividend admissible under section 80M of the Income-tax Act, 1961. 3. The learned departmental representative, Shri Subramanian, cited before us the ruling of the Hon'ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 wherein their Lordships, while interpreting section 80M of the Income-tax Act, 1961, laid down that the income by way of dividends included in the gross total income refers not only to the nature of the income but also to the quantum thereof, which is included in the gross total income and consequently the deduction under section 80M is admissible not on the gross amount of the dividends but only on the amount of the dividends which are included in the gross total income. He then referred to sub-rule (viii) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964, which speaks of the exclusion from the total income of income by way of dividends in support of his contention that this refers not only to the nature of the income but also the quantum thereof, which is included in the t....
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....earning them and not whether they should be further reduced by the deduction admissible under section 80M and, therefore, the claim now made before us that the gross dividend should not only be reduced by the expenses for earning the gross dividends but also by the deduction under section 80M admissible did not arise out of the ruling of the Hon'ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. He then took us through the sub-rule (viii) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964, which speaks of "income by way of dividends" and submitted to us that this expression as interpreted by the Hon'ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. means only the gross dividends as reduced by the interest and other expenses for earning the same and not the amount arrived at by further deducting therefrom the relief admissible under section 80M. He then referred to the Explanation to rule 1 inserted by the Finance Act, 1981 with effect from 1-4-1981 in support of his contention that the Explanation was not retrospective and could not be said to be clarificatory. Reference in this connection was made by him to an order of the Appe....
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....se. The Income-tax Officer, therefore, in our view, was perfectly justified in holding that in working out the chargeable profits under the First Schedule to the Companies (Profits) Surtax Act, 1964 what will be deducted from the total income will be the amount of dividends included in the total income and not the gross dividends. The direction of the Commissioner (Appeals) on this issue, therefore, does not appear to be correct. On this issue, therefore, the order of the Commissioner (Appeals) is reversed, while what was done by the Income-tax Officer is restored. 6. The next grievance again common to all the three appeals filed by the revenue is against the direction of the Commissioner (Appeals) that the capital worked out under rules 1 to 3 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 shall not be proportionately diminished having regard to the deductions under Chapter VIA of the Income-tax Act, 1961. Both the learned departmental representative, Shri Subramanian, as well as the learned counsel for the assessee-company, Shri Pardiwala, submitted to us that the identical issue cropped up before the Hon'ble High Court of Bombay in the cases of CIT v. Centur....
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....eserves and consequently included in the capital computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964 was admissible and was wrongly not allowed by the revenue authorities. 9. On the other hand, the learned departmental representative, Shri Subramanian, submitted that sub-rule (iii) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 speaks of the reserves and not provisions and if an amount was not a reserve, this sub-rule will have no application to that amount. He then referred to Schedule VIII of the Balance Sheet of the assessee-company where against the sundry debtors an amount of Rs. 1,42,792 for the assessment year 1977-78 and an amount of Rs. 1,25,584 for the assessment years 1978-79 and 1979-80 were considered doubtful and the value of the sundry debtors was reduced by this amount by an entry under the head "Provision for doubtful debts" in order to arrive at the amount of sundry debtors considered good. On this basis, he submitted that these amounts of Rs. 1,42,792 for the assessment year 1977-78 and Rs. 1,25,584 for the assessment years 1978-79 and 1979-80 represented the diminution in the value of assets and could ....