1986 (11) TMI 90 - AT - Income Tax

Summary

Issues:
1. Computation of chargeable profits - gross vs. net dividend income.
2. Treatment of Debenture Redemption Fund as reserve or provision for computation of capital employed.
3. Proportionate reduction in capital employed for surtax purposes.

Analysis:

Issue 1: Computation of chargeable profits - gross vs. net dividend income:
The appeal raised concerns regarding the computation of chargeable profits, specifically whether gross or net dividend income should be excluded. The Explanation added to the First Schedule of the Surtax Act in 1981 was discussed. The Tribunal referred to a previous decision regarding the same issue for the assessment year 1972-73, where it was held that gross dividend income should be excluded. The Tribunal rejected the department's argument that the Explanation should apply retrospectively, emphasizing that the law was not amended to have retrospective effect. Consequently, the Tribunal upheld the decision to exclude gross dividend income for the assessment year 1974-75.

Issue 2: Treatment of Debenture Redemption Fund:
The second issue pertained to whether the Debenture Redemption Fund should be treated as a reserve or a provision for computing capital employed. Referring to a prior decision for the assessment year 1971-72, the Tribunal held that the Debenture Redemption Fund is a provision, not a reserve, as it is intended to meet a foreseeable liability in the future. Consequently, the Tribunal upheld the decision of the CIT(A) to treat the fund as a provision and not a reserve.

Issue 3: Proportionate reduction in capital employed:
The final issue revolved around the proportionate reduction in capital employed for surtax purposes due to deductions allowed under sections 80M and 80J. The CIT(A) reversed the ITO's decision based on a previous decision in the assessee's case. The Tribunal cited a decision by the Hon'ble Delhi High Court, which clarified that certain deductions permitted under Chapter VI-A of the IT Act should not be considered for reducing the capital base. Following this legal precedent, the Tribunal upheld the CIT(A)'s decision. Consequently, the appeal by the Revenue was dismissed on all three points.

In conclusion, the Tribunal rejected the Revenue's appeal on all grounds, maintaining the decisions regarding the computation of chargeable profits, treatment of the Debenture Redemption Fund, and the proportionate reduction in capital employed for surtax purposes.