TMI Blog1978 (9) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... income and dividend income included in such gross total income is relevant only to Chapter VIA of the IT Act and not to all the provisions of the Act; much less to the provisions of Surtax Act. He, therefore, rejected the contentions of the assessee in this regard. 3. The Surtax Officer also held the contention of the assessee that income from dividends means gross income before deducting expenses incurred in connection with the earning of that income too was equally irrelevant in so far as the facts of the case of the assessee were concerned because what had been allowed to the assessee in computing the total income were the statutory deductions provided under s. 80K, 80L and 80M and not the expenses. Such deductions do not in any way mean expenditure incidental to the earning of such income. Accordingly, it was held by him that the assessee is entitled to the exclusion from the total income only of that amount of dividend income which was included in its total income, which for the asst. yr. 1971-72 was Rs. 53,849. 4. The Surtax Officer also considered the provisions of R. 4 of the Second Schedule to the Surtax Act which provides that where a part of the income, profits and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 53,849 as against the claim of the assessee amounting to Rs. 3,02,764 for the asst. yr. 1971-72 and the AAC following the order of the Tribunal, Chandigarh Bench, in S.T.A. No. 2 o 1974-75 dated 25th May, 1976, for the asst. yr. 1970-71 in the case of the assessee itself held that the assessee was entitled to deduction to the full amount of dividend of Rs. 3,02,764. Though he did not mention the figures for the asst. yr. 1972-73 yet he allowed this claim for both the assessment year under appeal. 7. With regard to the proportionate reduction in the capital, the AAC held that the word `includible' referred to in r. 4 of the second schedule to the Companies (Profits) Surtax Act, 1964 referred to income exempt from income-tax such as mentioned in s. 10 and 11 of the IT Act and not to deductions referred to in Chapter VIA of the IT Act. The appeals of the assessee were, therefore, allowed on this issue as well. Thus the assessee having lost before the Surtax Officer on both the ground, succeeded completely before the AAC for both the years. Hence the present appeals by the Revenue before us. 8. It was contended on behalf of the Revenue with respect to the first ground of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the sense propounded above. Now the Surtax Officer had included in the total income for the asst. yr. 1971-72 dividend to the extend of Rs. 53,849 and in the asst. yr. 1972-73 to the extent of Rs. 74,894 R. 1 of the First Schedule speaks of income, profits and agains and other sums. Thus the adjustment to be made to the total income computed for a particular asst. yr. under the IT Act for computing the chargeable profits under the First Schedule would require exclusions from such total income there kinds income namely, income simpliciter, profits and gains and other sums. It was submitted that this becomes clear from the various clauses of r. 1 of the First Schedule as the very first clause speaks of income chargeable under the IT Act under the head `Capital gains' and clause (iii) speaks of profits and gains of any business or life insurance and clause (viii) deals with income by way of dividend from an Indian Company and as such the dividend to be excluded from the total income computed under the IT Act, 1961, is the dividend in the total income by way of income. The AAC therefore erred in allowing deduction in respect of the amounts which were not included in the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under this Chapter have to be allowed to the assessee from his "gross total income" in accordance with the subject to the provisions of this Chapter. The concept of `gross total income,' therefore, took inception with the introduction of this Chapter and with it the entire concept of computing the total income has changed. Ss. 80K and 80L with respect to which the quantum of dividend for deduction is in dispute formed part and parcel of this Chapter VIA. The emphasis placed on the words `total income' by p the learned Counsel for the Revenue, it was contended by Shri Sharma, is, therefore, not very relevant because the First Schedule to the Companies (Profits) Surtax Act, 1964 total speaks of total income and not gross total income. The interpretation of total income will be the same and not different sections of the IT Act. Therefore the meaning given to the word `dividend' as explained in ss. 85 and 85A (ss. 80 K and 80M) by the Bombay High Court in the case of News Great Insurance Company Ltd.(1) has to apply in interpreting the word `dividend' used in clause (viii) of r. 1 of the First Schedule to the Surtax Act. 13. On the ratio decidendi of the case of Madras High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroduced with the introduction of Chapter VI I.A. is unwarranted because the definition of `total income'' under section 2(45) of the IT Act, 1961, is the same as its definition earlier and merely the manner of computation of `total income' has undergone a change. This does not mean that the income as computed under the Act should not be understood in its earlier concept as explained by the Supreme Court in ₹ 113 ITR 84 : 1978 CTR (SC) 50 referred to supra. It was also submitted that if the Legislature enacted a particular provision and that enactment has the effect of altering any other provision and consequently the interpretation of that provision undergoes a change, there is no rule of interpretation that such a change should not be taken not of. 17. We have given a careful consideration to the rival submissions and have also perused the relevant provisions of law including the rules made under the statute. Before we come to the provisions of law, let us see what the ITO did in computing the total income for the asst. yrs. 1971-72 and 1972-73 under the provisions of IT Act, 1961. The computation of the total income as a whole is not material as the issue involved in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified in the Third Schedule. The Third Schedule to the Act in turn provides that surtax shall be charged on the amount by which the 'chargeable profits' exceed the amount of the 'statutory deduction' at the rates provided therein. Chargeable profits have been defined in clause (5) if s. 2 of the Surtax Act and mean the total income of an assessee computed under the IT Act, 1961 for any previous year of years, as the case may be, as adjusted in accordance with the provisions of the First Schedule. Statutory deduction is also defined by clause (8) of s. 2 of the Surtax Act as an amount equal to 10 per cent of the capital of the Company as computed in accordance with the previsions of the Second Schedule or an amount of two hundred thousand rupees which ever is greater. The provisos to this clause provide for variation in the statutory deductions under certain circumstances. 20. The First Schedule to the Act lays down the procedure for adjustment of the total income computed for that year under the IT Act for purposes of arriving at the chargeable profits. r. 1 of this Schedule enumerates certain exclusions from the total income so computed and r. 2 deals with the deductions to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal Chapter VIA of the IT Act, 1961, had been inserted by the Finance Act, 1965, with effect from 1st day of April, 1965. This Chapter was amended between 1965 1967 and was finally substituted by the Finance (No.2) Act, 1967 with effect from 1968. The IT Act, 1961, was amended w.e.f. 1st day of April,1968and the amended provisions provided outright deductions in place of the rebate allowed earlier. For example, the items covered, previously by ss. 84 88 85B and 85c initially qualified for a rebate after the amounts falling under these sections were included in the total income but became eligible as deductions in the computation of total income itself as provided under ss. 80J, 80G, 80M, 80N and 80-O respectively. s. 86A which was inserted in place of s. 86(I) and (ii) substituted deduction of tax at a flat rate instead of a rebate on the average rate. With the abolition of super-tax, 99(i)(iv) was replaced by s. 85A which provided for a rebate and this was in turn substituted by s. 80M providing for reduction of a percentage. So, while carrying out the corresponding changes in the Sur-tax Rules, the Legislature omitted clause (v), modified clause (vii)of r. 1 but retained cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the total income as the balance of the amounts covered by ss. 80K and 80M respectively amounting to Rs. 2,45,916 and Rs. 2,77,399 for the asst. yr. s 1971-72 and 1972-73 had been allowed deductions and did not form part of the total income as computed under the IT Act. The Revenue as noted supra, emphasised that the expression "as computed under the Act" has to be understood as explained by the Supreme Court in the case of Combay Electric Supply Industrial Co.(3) and as such income as computed under the IT Act which included only a proportion of the dividends could not be reduced by the gross amounts of dividends major portion of which did not form part of it because the Legislature intended only a single deduction and not double deduction which would result from the AAC's order. The AAC according to the Revenue was, therefore, in error in directing the exclusion of the gross amount of dividends in each assessment year in place of the amounts actually in the total income as computed under the IT Act. 25. The stand of the Revenue, in our opinion, is untenable because r. 1 of the First Schedule, though in its preamble prescribes the exclusions to be made from the income as com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought before us. 27. However, we would like to point out certain incongruities which need correction. In the order of the AAC the figures of net and gross dividends are recorded for the asst. yr. 1971-72 and not for the asst. yr. 1972-73 though apparently he has dealt with the issue for both the years. We have not been provided with the orders of income-tax assessment for the years under appeal by any side and, there fore, we have not been able to ascertain the exact amounts of the gross dividends claimed by the assessee. Our directions issued above, therefore, are to be understood that we direct the exclusion of the gross amounts of dividends received by the assessee from the Companies specified in clause (viii) of r. 1 of the First Schedule. They should be ascertained by the Surtax Officer and allowed. 28. Before we proceed to deal with the other issue involved in these appeals, we would like to record that this Bench of the Tribunal in the case of the assessee before us for the asst. yr. 1970-71 had taken the same view in S.T.A. No. 2 of 1974-75 decided on 25th May, 1976 to which one of us was a party. Therefore, the view taken by us is also consistent with the view of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roportionate reduction in the capital for the assessment year under appeal respectively at Rs. 9,96,082 and Rs. 9,48,080. This reduction in the capital affected by him in the respective assessment years resulted in the reduction of capital employed leading to the reduction in the statutory deduction. This was also challenged in appeal before the AAC and as we have seen above, the AAC allowed the relief to the assessee. 31. The Revenue argued that the AAC erred in holding that the word 'includible' referred to in r. 4 of Second Schedule to the Companies (Profits) Surtax Act, 1964, refers to incomes exempt from income-tax under s. 10 and 11 and not to deductions referred to in Chapter VIA of the Act. It was further submitted that the language of r. 4 of the Second Schedule to the Surtax Act focuses attention not only on the phrase "not includible" but on the entire portion of the Rule. dealing with the income, profits and gains of a company as computed under the Act and the phrase "not includible" derives its colour with reference to the income, profits and gains of a company as computed under the IT Act. As such, it was submitted that it would cover deductions in Chapter VIA of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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