COMMISSIONER OF INCOME TAX Vs. SUNDARAM INDUSTRIES LIMITED

JUDGEMENT

(1.) AT the instance of the Revenue, the following questions of law relating to the asst. yr. 1969 -70 have been referred by the Tribunal for our opinion under s. 256(1) of the IT Act, 1961 r/w s. 18 of the Companies (Profits) Surtax Act, 1964 :

(2.) THE assessee is a private limited company and for the asst. yr. 1969 -70, the assessee filed a return under the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "Surtax Act") showing the net chargeable profit of Rs. 12, 30, 015. The Surtax Officer, while computing the chargeable profits excluded the net dividend income from the total income of the assessee. The Surtax Officer took the view that the dividend income after granting deduction under ss. 80K and 80M of the IT Act, 1961, is subjected to tax and therefore, the net dividend income should be taken into consideration. The assessee filed an appeal challenging the order of the Surtax Officer on the ground that under the provisions of r. 1(viii) of the First Schedule to the Surtax Act, only the gross dividend should be taken into consideration and that should be excluded from the total income. The AAC accepted the contention of the assessee and directed the Surtax Officer to exclude the gross dividend income from the total income of the assessee under r. 1(viii) of the First Schedule to the Surtax Act. The Surtax Officer on receipt of the order of the AAC gave effect to the appellate order by excluding the gross dividend income from the total income. Simultaneously he also made certain adjustments in the income -tax under r. 2(i)(a) of the First Schedule to the Surtax Act. He calculated the income -tax on the gross dividend of Rs. 4, 61, 112 which was arrived at 59.38 per cent and excluded a sum of Rs. 2, 73, 838 from the income -tax payable by the assessee. He determined the chargeable profit at Rs. 2, 46, 464. The assessee filed an appeal challenging that part of the order of the Surtax Officer deducting gross dividend. The AAC, on appeal by the assessee, held that the ITO has no jurisdiction to deduct the net dividend from the chargeable profit and that his action was not warranted under law. The Revenue preferred an appeal before the Tribunal against the order of the AAC. A contention was raised before the Tribunal that the direction of the AAC in the earlier appeal was only with reference to the gross dividend and he exceed his jurisdiction in adopting Rs. 2, 73, 838 as tax to be deducted from the income -tax. The Tribunal went into the merits of the lease and held that on a reading of r. 2(i)(a) of the First Schedule to the Surtax Act, the tax that should be payable is only on the dividend income and only the tax in respect of that should be taken into account in determining the figure under r. 2(i)(a) of the First Schedule to the Surtax Act. The Revenue questioned the order of the Tribunal on both the points and hence, the above said two questions have been referred to us at the instance of the Revenue.

(3.) IN so far as the first question of law is concerned, Mr. C. V. Rajan, learned counsel for the Revenue submitted that this Court in the assessee's own case in CIT vs. Sundaram Industries (P) Ltd. held that only gross dividend is liable to be excluded under r. 1(viii) of the First Schedule to the Surtax Act, from the total income computed in order to arrive at the chargeable profit. He, therefore, submitted that when the gross dividend was directed to be excluded as per the decision of this Court cited supra, under r. 1(viii) of the First Schedule to the Surtax Act, r. 2(i)(a) of the First Schedule to the Surtax Act should also be so construed that it refers to income -tax that will be payable on the gross dividend income that is excludible in the total income. He submitted that r. 1(viii) of the First Schedule to the Surtax Act is closely connected with r. 2(i)(a) of the First Schedule of the said Act and if the gross dividend was excluded as per r. 1(viii), the income -tax payable on the gross dividend should be deducted from the amount of income -tax mentioned in r. 2(i)(a) of the First Schedule.