Commissioner of Income Tax vs Midland Rubber and Produce Co. Ltd.

V. V. Kamat, J. 1. With regard to the assessment years 1977-78 and 1978-79 in these references, the question is with regard to the exclusion of dividend amount from reckoning in the process of computing chargeable profits. The question expecting answer is as follows :

''''Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled to have the entirety of the dividend excluded from reckoning for the purpose of computing its chargeable profits ?"

The assessee is a limited company and in regard to dividends, as per the Income Tax Act the assessee is entitled for a deduction of 60 per cent. of such dividend income from its total income u/s 80M under Chapter VI-A of the Income Tax Act. Therefore, the Income Tax Officer allowed this deduction resorting to Section 80M of the Act. It appears that the proceedings under the Companies (Profits) Surtax Act, 1964, were also being initiated by the Department and in regard thereto, it appears that as per Clause (viii), Rule 1, of the First Schedule to the Companies (Profits) Surtax Act, 1964, provided that dividends in entirety are to be excluded while computing the chargeable profits. Therefore, the Income Tax Officer excluded the amount of dividend income as reduced by the deduction provided u/s 80M of the Act. It was the contention of the assessee that when the provisions of the Companies (Profits) Surtax Act, 1964, spoke of entire deduction, deduction in its entirety, there was no justification to resort to the provisions of Section 80M of the Income Tax Act. Taking up this contention, the proceedings were taken before the Commissioner of Income Tax (Appeals). The first appellate authority agreed with the approach of the Income Tax Officer and, therefore, allowed only 40 per cent. of the income for the purpose of exclusion under Rule l(viii) under the Surtax Act, 1964. The matter was taken up before the Tribunal urging the same contention. The Tribunal also considered the question of deduction and grant consequently 40 per cent. of the dividend income for the purpose of computation of chargeable profits. The Tribunal placed reliance on the Tribunal decision in the case of Nelliampathy Tea and Produce Co., Alleppey v. ITO, A-Ward, Comp. Circle, Ernakulam, and following the same decision, granted exclusion of the dividend in its entirety for computing the chargeable profits. This has brought the assessee (sic) to this court.

We find that this court in Commissioner of Income Tax Vs. Kil Kotagiri Tea and Coffee Estates Ltd., had an occasion to consider the question of computation of chargeable profits and to reach a conclusion that the entire dividend income cannot be excluded. It is held that with regard to the assessment year in question, the total income computed under the Income Tax Act for that year has to be adjusted and income by way of dividend will have to be excluded. In the process of computation of the total income under the Income Tax Act deduction under Chapter VI-A has to be allowed and it is the net dividend after such deduction that forms part of the total income as computed. It is further specified that in the gross total income, that dividend, after allowing any deduction under the provisions of the Income Tax Act excepting Chapter VI-A, has to be included and from the net dividend included in the gross total income, deduction under Chapter VI-A would have to be allowed for the purpose of arriving at the total income. The Surtax Officer would have to take into account the total income as computed under the provisions of the Income Tax Act for the purpose of adjustment under the Surtax Act and, therefore, whatever has not been included in the assessment cannot be excluded. Only the amount which has been included can be excluded. This court has considered the position and found it as an error to hold that the entire dividend income was to be excluded from the income assessed under Rule l(viii) of the First Schedule. We respectfully follow the same line of reasoning and consequently answer the question in the negative in favour of the Revenue and against the assessee, with a further observation that the Tribunal would have to work out the necessary details accordingly.

A copy of the judgment under the seal of this court and the signature of the Registrar shall be sent to the Income Tax Appellate Tribunal, Cochin Bench, for passing consequential orders.