Skip to content


Commissioner of Income-tax Vs. New Great Insurance Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference Nos. 9, 60 and 97 of 1971
Judge
Reported in[1973]43CompCas446(Bom); [1973]90ITR348(Bom)
ActsIncome Tax Act, 1961 - Sections 80K, 80M, 85, 85A, 99(1) and 235
AppellantCommissioner of Income-tax;commissioner of Income-tax;commissioner of Income-tax
RespondentNew Great Insurance Co. Ltd.;Indian Guarantee and General Insurance Co. Ltd.;jupiter General Insuran
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateS.P. Mehta, Adv.
Excerpt:
direct taxation - exemption - sections 80k, 80m, 85, 85a, 99 (1) and 235 of income tax act, 1961 - whether dividend income received by respondent companies is wholly exempted from super-tax either under provisions of section 99 (1) or under section 85a - sections 85a and 99 (1) clearly indicate that full amount of dividend is exempted from super-tax. - - the three assessees, therefore, appealed to the income-tax tribunal and in each of the cases the income-tax tribunal has held that whether it is section 99(1)(iv) or section 85a the wording of the sections clearly indicates that it is the full amount of the dividends that is exempt from super-tax. 15. the next argument on behalf of the department is to emphasize the words is the opening clause of section 99(1) 'amounts which are.....kotval, c.j. 1. the judgment in this income-tax reference shall also govern the disposal of i.t. reference no. 9 of 1971 and i.t. reference no. 97 of 1971. these three references involve the same point and substantially raise the same question. they were also argued together. 2. the respondents in each of the these three references are insurance companies doing general insurance business and each of these companies derived an income which consists of dividends arising out of their investments. these dividends are received from indian companies. the short question is whether the dividend income received by the three respondent companies is wholly exempt from super-tax either under provisions of section 99(1)(iv) (as it then stood) of the income-tax act, 1961, or under section 85a of the.....
Judgment:

Kotval, C.J.

1. The judgment in this income-tax reference shall also govern the disposal of I.T. Reference No. 9 of 1971 and I.T. Reference No. 97 of 1971. These three references involve the same point and substantially raise the same question. They were also argued together.

2. The respondents in each of the these three references are insurance companies doing general insurance business and each of these companies derived an income which consists of dividends arising out of their investments. These dividends are received from Indian companies. The short question is whether the dividend income received by the three respondent companies is wholly exempt from super-tax either under provisions of section 99(1)(iv) (as it then stood) of the Income-tax Act, 1961, or under section 85A of the said Act. In Income-tax Reference No. 9 of 1971, the respondent-assessee has also claimed exemption under the provisions of section 85 and section 235 of the same Act in respect of dividend income. In each of the cases the department has claimed that exemption no doubt can be allowed but not upon the full amount of the dividend received by each company but only on the net dividend earned, that is to say, after the deduction of proportionate expenses of management from the total amount of the dividend.

3. In the Income-tax Reference No. 60 of 1971, in the case of the New Great Insurance Co. Ltd. the total income, the total expenses and the total dividend received fin the account year which is the calendar year 1962 (assessment year 1963-64) were as under :

Rs.Total Income 10,25,974Total expenses 37,97,480Total dividend received 3,49,952

4. In Income-tax Reference No. 9 of 1971, in the case of the Indian Guarantee and General Insurance Co. Ltd., the position was as under for the account year, which is the calendar year 1964 (assessment year 1965-66) :

Rs.Total Income 30,19,041Total expenses 4,25,476Total dividend received 15,61,163

5. In Income-tax Reference No. 97 of 1971, in the case of the Jupiter General Insurance Co. Ltd., the position for the four years, viz., calendar years 1962 to 1965 corresponding to the assessment years 1963-64 to 1966-67, was as under :

Assessment year 1963-64 Rs.Total Income 18,83,582Total expenses 39,92,922Total dividend received 1,83,304Assessment year 1964-65 Rs.Total Income 21,16,323Total expensesTotal dividend received 1,16,633Assessment year 1965-66 Rs.Total Income 21,83,025Total expenses 37,91,647Total dividend received 1,14,373Assessment year 1966-67 Rs.Total Income 18,20,879Total expenses 46,83,545Total dividend received 1,08,588

6. It will be noticed from the figures which we have stated above that the figures of dividend received by each of the three assessees who are respondents in the three references is the figure of gross dividends. The department claimed and the Appellate Assistant Commissioner accepted that claim that these dividends were not exempted wholly under the provisions of either section 99(1)(iv) or section 85A. According to the department the proportionate amount of the total expenditure on the management of the company has to be deducted from these amounts of dividends earned in order to arrive at the net figure of dividends which is exempt from super-tax or income-tax under the aforesaid provisions. In each of the cases, therefore, the department computed the amount of the dividend which had earned exemption in the following manner : They took the ratio of the total expenses to the total income of each company and applied that ratio to the total amount of the dividends earned and reduced the figure of the dividends earned in the same ratio that the total expenses bore to the total income. The three assessees, therefore, appealed to the Income-tax Tribunal and in each of the cases the Income-tax Tribunal has held that whether it is section 99(1)(iv) or section 85A the wording of the sections clearly indicates that it is the full amount of the dividends that is exempt from super-tax.

7. The relevant portion of section 99 (as it then stood) with which we are concerned is as follows :

'99. Income not chargeable to super-tax. - (1) Super-tax shall not be payable by an assessee in respect of the following amounts which are included in his total income - ........

(iv) if the assessee is a company, any dividend received by it from an Indian Company, subject to the provisions contained in the Fifth Schedule.'

8. This was the provision in force until the levy of super-tax was abolished and section 85A was brought into force on the 1st April, 1965. Section 85A, therefore, though it makes the same provision refers only to income-tax and not the super-tax. Section 85A as it then existed was as follows :

'85A. Deduction of tax on inter-corporate dividends. - Where the total income of and assessee being a company includes any income by way of dividends received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included (other than any such income on which no income-tax is payable under the provisions of this Act) as exceeds an amount of twenty-five per cent. thereof .......'

9. Thus, though section 99(1)(iv) granted exemption to dividends in respect of super-tax, section 85A grants exemption of dividends in respect of income-tax but only in so far as it does not exceed an amount of 25% thereof, but for the purposes of the point raised in these references that difference is hardly material. The exemption in either case is granted upon income by way of dividends received by the words 'dividends received by it from an Indian company'.

10. The contention on behalf of the department, however, is that upon a proper construction of either section 99(1)(iv) or section 85A the dividend mentioned is not the full amount of the dividend received by an insurance company but only such amount of dividend reduced by deduction of the proportionate share of expenses of the management attributable to the earning of that dividend income of that insurance company. The Tribunal has negatived this contention relying upon the decision of this court in Commissioner of Income-tax v. Industrial Investment trust Co. Ltd., and they have held that the income by way of dividend should be construed as the gross income from dividend without any deduction for any expenses. They have also relied upon their own decision in Income-tax Appeal No. 9111 of 1966-67 decided on 16th May, 1968.

11. Turning first to the provisions of section 99, its requirements are four in number : (1) that the assessee must be a company; (2) that it must have a dividend income included in its total income; (3) that the dividend income must be received by the assessee from an Indian company; and (4) that the exemption is subject to the provisions of the Fifth Schedule. We shall show a little later that the requirements of section 85A are similar except that it includes a case of a company which had made a prescribed arrangements for the declaration and payment of dividends within India, which of course does not apply to the facts of any of the cases before us.

12. Now in all the three cases in the present reference there is no dispute that the amounts of the dividends which we have mentioned above were dividends in fact and were received from Indian companies. We stress this point here because it was argued at one stage on behalf of the department that these are no longer dividends but have merged in the stream of 'total income' and must be treated only as part of the total income. That the amounts were dividends and nothing else is shown by the statement of the case, paragraph 2, in the cases of the New Great Insurance Co. Ltd. where it is stated that 'In the course of the said previous year the assessee was in receipt of a sum of Rs. 3,49,952 by way of dividend from other companies', and in the case of the Indian Guarantee and General Insurance Co. Ltd. that 'the gross dividend was Rs. 15,61,163 and after deduction of the proportionate management expenses, which were attributed to the dividend income, the Income-tax Officer gave the rebate under section 85A on a sum of Rs. 14,71,947.' Even the questions posed in all the cases refer to them as 'gross dividend' or as 'dividend income'. The sole dispute, therefore, is whether these dividends received by these companies, which otherwise satisfy the requirements of section 99, are, upon the terms of that section, gross dividends in the hands of the assessees or set dividends after deducting the proportionate management expenses.

13. Now it seems to us, on a plain reading of sub-clause (iv) of sub-section (1) of section 99, that the matter admits of no doubt or difficulty. The words used are 'any dividend received by it' (the assessee) and in the context in which it is used 'any dividend' must necessarily imply all dividends received by the assessee from an Indian company. The word 'dividend' is quite unqualified and it can mean only one thing, namely, the entire dividend paid to the assessee by the company which declares the dividend. It is no doubt true as was argued that when a shareholder receives a dividend warrant the figure of the gross dividend is shown and tax at the maximum rate deducted from it and it is the net dividend which the shareholder receives upon the dividend warrant, but it can hardly be said even upon that accounting that the shareholder has received only the net dividend. On the other hand, he must be held to have received the full or gross dividend even though the tax has been deducted at source. The other and perhaps the more important consideration is the word 'received' which immediately follows the word 'dividend' and it shows that the exemption is in regard to the dividend received and not regard to the dividend as assessed or the dividend income. If a simple question were to be asked, 'which was the dividend received in the present cases by the assessee ?', the obvious answer would be that it is the gross or full amount of the dividend as declared by the Indian company which paid it to them and it is that dividend which is by the section declared to be exempt. The plain reading of the section, in our opinion, therefore leaves no scope for argument that any amount less than the gross dividend received by the assessee qualifies for exemption under section 99.

14. Nothing moreover turns upon the qualifying clause at the end of the sub-section 'subject to the provisions contained in the Fifth Schedule.' The 5th Schedule grants exemption from super-tax in respect of certain dividends by the following words of paragraph I 'super-tax shall not be payable by a company in respect of any dividend which is assessable for the assessment year commencing on the 1st day of April, 1962, and for the subsequent assessment years ......' The argument is that paragraph I of the Fifth Schedule uses the words 'dividend which is assessable' and that gives the clue to the meaning of the words 'any dividend received' in clause (iv) of section 99(1). Now, no doubt, clause (iv) is made subject to the provisions of the Fifth Schedule, but the Fifth Schedule does not make any provision for the subject dealt with in section 99(1)(vi). The exemption which the Fifth Schedule grants is on quite a different basis from the exemption granted by section 99(1)(iv) and the companies qualified to earn that exemption are also quite different. The provisions of the Fifth Schedule were intended to encourage companies which were engaged in an industry for the purpose of manufacture of production of one more of the several articles specified in Part A of that Schedule. This exemption is grant as a measure of encouragement to certain types of industries producing the stated articles in the interests of the national economy. It has to with the exemption granted by section 99. Section 99(1)(iv) was introduced with a totally different object, namely, to prevent double taxation of dividends, once in the hands of the Indian company which declared it and a second time in the hands of a company which is the shareholder who receives the dividend. If double taxation of this type were to be permitted, perhaps investment in shares of companies would be prevented and that is why the taxation of the same dividend which was borne tax in the hands of the shareholder, which is a company, was prevented by the grant of the exemption. No doubt section 99(1)(iv) had to be made subject to the Fifth Schedule because it had to be made clear that the exemption in the Fifth Schedule be first granted and then the exemption under section 99(1)(iv) should be considered, but we cannot accept the contention that in view of this reference to the Fifth Schedule the word 'assessable' as used in the First Paragraph of the Fifth Schedule should also be read into the context of section 99(1)(iv). From the fact that one exemption is made subject to another, it does not follow that the terms upon which the first exemption is granted should be modified in the light of the terms upon which the second exemption is granted.

15. The next argument on behalf of the department is to emphasize the words is the opening clause of section 99(1) 'amounts which are included in his total income'. The argument based upon this clause is that in the ultimate analysis the exemption is upon the total income and not upon the amount of the dividend and it is said that, in view of this clause in the opening words of section 99(1), the words in clause (iv) 'any dividend received' should also receive a like interpretation. In other words, it should be read as 'total income received by way of dividend.' We are unable to accept this argument because, in the first place, the words in clause (iv) of section 99(1), as we have said, are clear beyond any doubt. They exempt dividends received and nothing more or less than that and 'dividend received' cannot obviously imply dividend received minus the expenses, but, secondly, the expression 'total income' is defined in section 2(45) of the Act as meaning 'the total amount of income referred to in section 5, computed in the manner laid down in this Act.' Thus 'total income' is defined as the amount 'computed in the manner laid down in this Act and, therefore, we must once again turn to the provisions of the Act in order to ascertain what is 'total income'. The definition, therefore, refers back to section 99(1)(iv) or section 85A and does not advance the argument any further.

16. Then it was urged that if this is to be the interpretation then the words in the opening clause 'amounts which are included in his total income' would be deprived of all meaning. We do not think that that would be the effect. When we consider the provisions of section 99, particularly clauses (i) to (iv) of sub-section (1) of section 99, each of these clauses provides for a different item of exemption, again with the object of preventing double taxation of the same amount and the consequent hardship. In clause (i) the case contemplated is of an assessee who is a partner in an unregistered firm. In such a case any portion of that assessee's share in the profits and gains of the firm which have borne super-tax in the hands of the firm, is exempt in the hands of the partner. Similarly, in clause (ii) where the assessee is a member of an association of persons of any other body of individuals, such amount as he receives from the association or body which has already borne super-tax in thee hands of the association or body, is exempt in the hands of the member. These and similar other provisions which are made in the five clauses of section 99(1) provide different exemptions which had to be all covered by a general opening clause. It was not possible to refer to each case in the opening clause and, therefore, the general words were used 'amounts which are included in his total income'. They afford a convenient description of the particular types of amounts mentioned in clauses (i) to (v). That clauses in the opening words of section 99(1) has no higher significance and certainly cannot affect the plain words of clause (iv) of section 99(1). As we read, the clause is not deprived of a meaning. We do not think, therefore, that the use of the words 'amounts which are included in his total income' affect in any manner the interpretation which have put upon clause (iv) of section 99(1).

17. Another basic point was sought to be raised. It was urged that the amount of dividends received by the assessee had ceased to partake of the nature of dividend and had become part of the total income. There is no plea or finding to that effect. The question was never raised before. On the other hand, we have shown that in the statements of the case as also in the questions framed the amounts are referred to only as 'dividends' and not as amount of total income of the assessee. We have already emphasized this point earlier. We cannot, therefore, entertain such as contention at the stage of reference.

18. Lastly, it was contended that investment is a necessary part of or a continuation of the business of insurance which is the business of all the assessees and, therefore, when each of these companies invested its surplus funds in different Indian companies and derived dividends from those investments, it was only a part of the business of the assessees themselves, and, therefore, upon general principles against the item of income, expenses involved in earning it must be deducted. It was said to be a concomitant of the earning of dividends which is an integral part of the business of an insurance company. In this respect reference was made to several provisions of the Insurance Act, 1938, particularly to sections 27, 27A, 28, 28A and 28B and section 30 and to the Form 'F' in the Third Schedule to the Insurance Act. By virtue of these provisions in the Insurance Act it was said that investment and earning of dividends is part and parcel of the business of insurance and, therefore, the dividends received are merely a business receipt and if so, before such a receipt can be allowed in income-tax, proportionate expenses attributable to such a receipt must be deducted.

19. This question was never raised or agitated before any of the authorities nor it seems has the Tribunal in any of the cases dealt with. Moreover, it is not a fact stated in any part of the three statements of the case that one of the business of the assessees was investment or earning of the dividends. We doubt that the provisions of the Insurance Act which were referred to also lead to such a conclusion. Indeed section 27 and the succeeding sections to which we have referred occur in a part which is entitled 'Investment, loan and management' thus showing that the management of the insurance is an item apart from investment of its funds, but we need not go into that because as we have said the question was never raised nor is any foundation laid in the statements of the case nor any questions framed in any of the three cases referred to that aspect. From the figures which have been worked out in these cases by the Income-tax Officer upon the contention of the department, it appears that the manner in which the department wanted the amount of dividend ascertained was to take the dividend income multiplied by the total income of the insurance company. In other words, that the department wants to do is first to ascertain the ratio of total expenses to total income of each insurance company and then deduct the pro rata management expenses from the amount of the dividend. In doing so what is really deducted is the proportionate amount of the management expenses of the assessee-company and not any amount of expenses related to the earning of dividends. The expenses for earning dividends is not what is deducted but the expenses of the general management of the whole company is sought to be proportionately deducted from the amount of the dividends. It was argued on behalf of the assessees that this cannot be done even having regard to the normal method of accounting for the purpose of finding out the net income of a party.

20. We do not, however, propose to go into this question because, as we have said, in our opinion, the provisions of clause (iv) of section 99(1) and the other analogous provisions are clear beyond any doubt. They clearly grant exemption in respect of 'any dividend received', which in our opinion means the full amount of all dividends received by the assessee or, in other words, the gross figure of dividends which comes into the hands of the assessee from the Indian company. Upon that interpretation no question arises of what expenses should be allocated to the dividend income and deducted from it.

21. The object of the enactment is plainly to prevent double taxation of dividends with a view to encourage investment by companies in the share capital of other companies. The amount of the dividends declared by an Indian company is taxable in its hands as its profits and having once borne that tax, it was considered inequitable to have the same amount bear tax a second time in the hands of the shareholder in the shape of dividend which he receives. It was considered that such a burden may result in companies not investing in the shares of other companies and hence it was decided to grant this exemption. The interpretation which we have put upon the words of clause (iv) of section 99(1) is consonant with that object.

22. The view which we have taken is also borne out by some of the authorities which were cited before us. In Commissioner of Income-tax v. Industrial Investment Trust Co. Ltd., a Division Bench of this court was concerned to interpret the Notification No. 47 dated 9th December, 1933, under section 66(1) of the Indian Income-tax Act in which exemption was granted from super-tax in the following words :

'So much of the income of any investment trust company as is derived from dividends paid by any other company which has paid or will pay super-tax in respect of the profits out of which such dividends are paid is exempt from super tax.'

23. It will be noticed that in that notification the words used were 'income of any investment trust company' and even in that context the Division Bench interpreted the words 'dividends paid by any other company' to mean the gross dividend. In clause (iv) which we are called upon to construe moreover there is an even stronger word used namely 'received' after the words 'any dividend', thus showing that it is the receipts that are being taxed and not the income. In Industrial Investment trust Co.'s case, the words 'dividends paid' were used in the context of 'income of any investment trust company' and nonetheless the Division Bench held that the words 'from dividends paid' must necessarily mean 'dividends without any deduction of any expenses'. The same argument as is advanced in the present cases, that the word 'income' as used in the notification meant computed income or the total income as computed and not the gross income, was repelled by the Division Bench at page 442 of the report. No doubt that was not a case of an insurance company as in the present case but upon what we have said having regard to the provisions of the Insurance Act also, we do not think that that makes any material difference to the interpretation which we have put in this case.

24. In Industrial Investment Trust Co.'s case, case the Division Bench referred to a decision of the Supreme Court in Commissioner of Income-tax v. South Indian Bank, which also throws a flood of light upon the question before us. In that case in the notification issued under section 60A of the Indian Income-tax Act, 1922, the operative words were 'on the interest receivable on the following income-tax free loans' (see page 766). An argument was advanced that the terms of the notification were to be construed in the light of the provisions of section 8 of the Indian Income-tax Act, 1922, but that argument was repelled and as to the wording of the notification the Supreme Court held :

'The expression 'interest receivable' on income-tax free loans is clear and unambiguous. Though the point of time from which the exemption works is when it is received within the territories of the State of Travancore-Cochin, what is exempted is the interest receivable. 'Interest receivable' can only mean the amount of interest calculated as per the terms of the securities. It cannot obviously meant interest receivable minus the amount spent in receiving the same.'

25. We can find hardly any difference between the notification which their Lordships were construing in that case and the notification before us, except that whereas the words used in section 99(1)(iv) are 'any dividend received' the words used in that notification were 'interest receivable'. For the purposes of the point before us the difference between the words 'receivable' and 'received' can hardly make any difference.

26. The very provisions of section 99(1)(iv) came up for construction before a Division Bench of the Calcutta High Court in Commissioner of Income-tax v. Darbhanga Marketing Co. Ltd., and the identical contention as is raised before us was raised before the Calcutta High court. The department there desired to deduct an amount of Rs. 21,326 which was said to be the interest paid to various parties on moneys borrowed in connection with investments in shares. After considering the provisions of section 99 the Division Bench held at page 77 as follows :

'....... It is manifest, in our opinion, that under section 99, super-tax shall not be payable by an assessee in respect of the 'amounts' of 'any dividend by it.' Therefore, it means the amount of dividend received by the assessee. It cannot mean dividend received minus the amount of interest on moneys borrowed for earning the same. The expressions 'which are included in his total income' in sub-section (1) of section 99 and 'incomes forming part of total income' in the heading are descriptive of the items included in the computation of the total income and not indicative of the quantum of the amounts included under the different items in the computation of total income. Such a construction of these expressions would be in harmony with the obvious meaning of the expression 'dividend received'. Any other construction would result in an anomaly'.

27. In coming to that decision the Calcutta High court followed the decision of this court in Industrial Investment trust Co.'s case, and the decision of the Supreme court in South Indian Bank Ltd. Co.'s case, The decision in Darbhanga Marketing Co.'s case, is directly in point upon the question raised before us so far as section 99(10(iv) is concerned.

28. Turning to section 85A we have already said that except for minor differences the exemption under section 85A is granted in regard to income-tax (while under section 99 it is in regard to super-tax), but in almost identical language. The key words of section 85A are 'any income by way of dividends received by it'. These words area almost identical with the words we were called upon to construe in Commissioner of Income-tax v. Industrial Investment Trust Co. Ltd., and the construction put in that case would be applicable here. We do not think that the use of the expression 'any income by way of dividends' would make any difference because dividends received are always income and the words used were just a convenient mode of description. The section begins with the words 'where the total income of an assessee being a company', therefore, it was necessary to add 'includes any dividends'. In the context the use of the word 'income' before the words 'by way of dividends' does not show that the dividends received are to be dividends as computed income or dividends minus the expenditure incurred in earning it. For these reasons we think that our interpretation of section 85A must be the same as in the case of section 99(1)(iv) and that having regard to both these provisions the assessee would be entitled to exemption from super-tax or income-tax as the case may be on the whole of the dividend received from an Indian company.

29. What we have said above is sufficient to decide the questions referred in Income-tax references Nos. 60 to 1971 and No. 97 of 1971, and a part of the question referred in Income-tax reference No. 9 of 1971.

30. In the latter reference the question referred mentions two other sections, namely, section 85 and section 235 of the Act, and again poses the question whether, on the facts and in the circumstances of the case, the relief under those sections should be calculated on the gross dividend income or on the dividend income as reduced by proportionate management expenses. Section 84 as it then stood before it was omitted by the Third schedule to the Finance (No. 2) Act, 1967, with effect from 1st April, 1968, granted exemption from income-tax to certain newly established industrial undertakings or hotels and section 85 made similar provision for dividends received by shareholders from such new industrial undertakings or hold business and it provided as follows :

'Subject to any rules that may be made by the Board in this behalf, income-tax shall not be payable by a shareholder in respect of so mush of any dividend paid or deemed to be paid to him out of the profits and gains derived by a company from an industrial undertaking or the business of a hotel ..... to which section 84 applies as is attributable to that part of such profits and gains on which income-tax is not payable by the company under section 84.'

31. Therefore, to the same extent that section 84 exempted the profits and gains of the stated business of the new industrial undertakings or hotels, to that same extent the dividend paid to shareholders from such new industrial undertakings or hotels, was also exempted. The wording of this section rather reinforces what we have said about the provisions of section 85A or section 99(1)(iv) for it says that 'income-tax shall not be payable by a shareholder in respect of so much of any dividend paid or deemed to be paid to him'. In this case it is the dividend 'paid' that is exempt and not dividend received an in section 85A or section 99(1)(iv), with the result that under section 85 there can no argument available to the department that the dividend must be subject to all deductions for expenses incurred in earning the dividend. The emphasis is on the amount of the dividend paid and not upon any receipts or income of the assessee. In the latter case, an argument may be possible (though we have already repelled it) that it is the net receipt or net income that is contemplated but such an argument is not possible where the word used is 'paid'. Under section 85 also, therefore, we must hold that the full amount of the dividend paid the assessee by such Indian companies as partook of the nature of new industrial undertaking or hotel business would be wholly exempt from income-tax.

32. Section 235 similarly grants an exemption to a certain extent in respect of agricultural income-tax attributable to the dividends paid to the assessee and the opening words of section 235 are :

'Where a company pays to a shareholder any dividend out of its profits and gains which is assessed to agricultural income-tax by any State Government, the shareholder shall be entitled to a reduction from the tax payable by him under this Act, of a sum equal to - (a) that proportion of the agricultural income-tax (including super-tax, if any) paid by the company as the amount of the dividend attributable to the profits of the company assessed to agricultural income-tax bears to its total profits assessed to agricultural income-tax, reduced by the amount of refund, if any, allowed to him by the State Government ......'

33. Here again, the reference is to the case of a company paying to its shareholder a dividend out of its profits and gains and, therefore, no argument would be sustainable that it is the net income or total income of the assessee that is exempt so that any deductions for expenditure would be allowable. The exemption then is clearly in favour of the full dividend paid by the company out of its profits and gains to the extent specified. Under section 235 also, therefore, we must hold that subject to these provisions the dividend which is exempt under that section is the gross dividend and not the net dividend minus the expenditure.

34. In the result we answer the questions referred in each of the there references as follows :

Income-tax Reference No. 60 of 1971.

Question :

Whether, on the facts and in the circumstances of the case, the assessee was entitled to rebate on gross dividends or on the net dividends, i.e., gross dividend after deducting proportionate management expenses

Answer :

The assessee was entitled to a rebate on the gross dividends and not on the net dividends, i.e., not on gross dividend after deducting proportionate management expenses.

Income-tax Reference No. 9 of 1971.

Question :

Whether, on the facts in the circumstances of the case, the relief under section 85, 85A and 235 of the Act should be calculated on the gross dividend income or on the dividend income as reduced by proportionate management expenses

Answer :

The relief under sections 85, 85A and 235 of the Act should be calculated on the gross dividend income and to on the dividend income as reduced by proportionate management expenses.

Income-tax reference No. 97 of 1971.

Question :

Whether the assessee is entitled to a rebate in respect of its dividend income on the gross amount of dividend or less any proportionate amount of expenses of management

Answer :

The assessee is entitled to rebate in respect of its dividend income on the gross amount of dividend.

35. The Commissioner to pay the costs of the assessee in each of the cases.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //