1. Rule has been issued in respect of two questions one of which relates to the inclusion of a sum of Rs. 35,029 appearing as reserve for doubtful debts in the capital computation under the Super Profits Tax Act, 1963, and the other relates to the point whether the Tribunal was right in holding that the amount of dividend was Rs. 1,83,304 for the purpose of determining the chargeable profits of the assessee-company for the purpose of super profits tax assessment for the year 1963-64.
2. It appears that for calculating the capital base for the purpose of the Super Profits Tax Act, 1963, the Income-tax Officer excluded the balance sum of Rs. 35,029 standing as reserve for doubtful debts on the ground that since this amount was earmarked for specific liability it could not be regarded as a reserve amount. The Appellate Assistant Commissioner who heard the appeal allowed the appeal on this point and reversed the Income-tax Officer's orders. The department went in second appeal to the Tribunal and the Tribunal dismissed that appeal of the department holding that it was clear that the reserve account was not maintained to meet any specific liability for bad and doubtful debts and that being so it was not even in the nature of general reserve whatever the nomenclature of the said amount was and the Tribunal upheld the Appellate Assistant Commissioner's order that the said amount should be included in the capital base. The first question pertains to this amount and in our view it was on an appreciation of the materials that were placed before the Tribunal that it came to the conclusion that the amount was not meant to be utilise for a specific purpose even by way of contingency. The Tribunal found as a fact that the said account stood in the company's books for the past several years and that it was not meant to be utilise for writing off bad or doubtful debts and that such debts were invariably debited to the profit and loss account and not to the reserve account. The Tribunal therefore concluded that the account was not maintained to meet any specific liability for bad or doubtful debts and that the account was not in the nature of specific reserve irrespective of the nomenclature of the said account. The question whether the account was in the nature of a provision or a reserve was decided by the Tribunal by considering the factual position and one consideration of the factual position it answered in favour of the assessee and in doing so it followed the principle laid down by the Supreme Court in Metal Box Co. In this view of the matter we do not think that any question of law arises out of the Tribunal's order.
3. The second question pertains to computation of chargeable profits. Admittedly the assessee had earned gross dividend of Rs. 1,83,304 but the Income-tax Officer for the purpose of computing the chargeable profits deducted only the net dividend of Rs. 94,412 arrived at by excluding proportionate management expenses. The question whether for computing the chargeable profits the gross dividend should be deducted or the net dividend arrived at by excluding the proportionate management expenses should be deducted depended upon the proper construction of rule 1(viii) under the First Schedule to the Companies (Profits) Surtax Act, 1964. Under rule 1 it has been provided that in computing the chargeable profits of a previous year, the total income computed for that year under Income-tax Act shall be adjusted in the manner specified and under rule 1 certain items are deemed to be excluded is item (viii), which runs as follows :
'(viii) income by way of dividends from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India'
and the question is whether the expression 'income by way of dividends' would refer to the gross dividend received by the assessee in the case or the net dividend received by the assessee arrived at after excluding the proportionate management expenses. The Tribunal noticed that the expression 'income by way of dividends' occurring in item (viii) was not qualified by any limitation as was sought to be suggested by the department and there was sought to be suggested by the department and there was no indication that it was the net dividend arrived at by excluding the proportionate management expenses that was to be taken into account for the purpose of computation of the chargeable profits. On a plain reading of the said clause occurring in item (viii) the Tribunal took the view that it was the gross dividend received by the assessee-company that was required to be excluded. In arriving at this conclusion the Tribunal followed the interpretation which has been put on identical words occurring in certain sections of the Income-tax Act, 1961, such as section 80M of that Act, by the Bombay High Court in Commissioner of Income-tax v. Industrial Investment Trust Co. Ltd. A similar view has been taken by this court in Commissioner of Income-tax v. New Great Insurance Co. Ltd. It is true that the two decisions on which reliance was placed by the Tribunal pertain to the provisions contained in the Income-tax Act, 1961. But since the expression that fell for construction in those two decisions is admittedly the same as occurring in the Companies (profits) Surtax Act, 1964, there is no reason why different interpretations on these words should be placed unless the context otherwise indicates.
4. In the circumstances, we feel that the rule should be discharged with costs.