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Interpretation of rules in the Fifth Schedule to the Income Tax Act, 1961 for assessment year 1963-64. Analysis: The judgment of the High Court of Bombay, delivered by Justice Chandurkar, pertained to the construction of rules in the Fifth Schedule to the Income Tax Act, 1961, for the assessment year 1963-64. The case involved an assessee-company that had purchased shares of an Indian company, Suhrid Geigy Ltd., engaged in the manufacture of dye-stuff. The assessee claimed exemption from super-tax on dividends received from Suhrid Geigy Ltd. The Income Tax Officer (ITO) rejected the claim, citing non-compliance with rule 2 of the Fifth Schedule, which required fresh capital raised by public subscription. The Appellate Tribunal, however, held that rules 1 and 2 of the Fifth Schedule were independent and that rule 2 applied only to public companies raising fresh capital by public subscription. The Tribunal concluded that rule 1 applied to the assessee, entitling them to exemption on dividends from the Indian company. The revenue challenged this decision, leading to the reference question on the correct interpretation of the rules in the Fifth Schedule. The court examined the relevant provisions, including section 99(1)(iv) and rules 1 and 2 of the Fifth Schedule. Rule 1 exempted super-tax for dividends from specific Indian companies based on the items manufactured, subject to conditions like Central Government satisfaction and applicability of section 84. Rule 2, on the other hand, focused on dividends from fresh capital raised by Indian companies through public subscription, with specific timelines and requirements. The court emphasized that rule 2 applied to public companies raising fresh capital by public subscription, while rule 1 governed other scenarios, including private companies. Notably, the court highlighted the prohibition against private companies issuing shares to the public, making rule 2 inapplicable to such entities. Therefore, the court affirmed the Tribunal's decision that the assessee's exemption claim fell under rule 1, not rule 2. In conclusion, the High Court answered the reference question in favor of the assessee, emphasizing the correct application of rules 1 and 2 of the Fifth Schedule based on the nature of the Indian company and the source of dividends. The court directed the revenue to bear the costs of the reference, settling the matter in favor of the assessee based on the interpretation of the relevant provisions of the Income Tax Act, 1961.
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