D.K. Kapur, J.
1. There are 11 Income-tax References before this court relating to four assessment years 1966-67 to 1970-71. Some of the applications under section 256(1) of the Income-tax Act, 1961, were at the instance of the Commissioner of Income-tax and some at the instance of the assessed. Out of the seven questions referred to us, questions Nos. 1 to 4 are at the instance of the Department and questions Nos. 5 to 7 are at the instance of the assessed. The questions are as follows :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the annual premium paid by the assessed-company on the accident insurance of its directors was not their perquisite within the meaning of the term used in section 17(1) of the Income-tax Act, 1961
2. Whether, on the facts and in the circumstances of the case, the assessed was entitled to deduction under section 35(1)(iii) of the Income-tax Act, 1961, on account of rent paid by it on behalf of M/s. Shri Ram Centre for Industrial Relations in the accounting years relevant to the assessment years 1967-68 to 1970-71
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessed-company was an 'industrial company' within the meaning of section 2(7) of the Finance (No. 2) Act, 1967, and was, thereforee, entitled to be assessed at concessional rates
4. Whether, on the facts and in the circumstances of the case, and on a proper appreciation of the entries against items Nos. 7 and 24 in the list of articles specified in the Fifth Schedule to the Income-tax Act, 1961, the assessed was entitled to deduction under section 80E of the Income-tax Act, 1961, for the assessment year 1967-68 and section 80-I for the assessment year 1968-69, in respect of its share of profits derived from the firm, M/s. Electrical Industries Corporation
5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in respect of intercorporate dividend earned by the assessed-company from other domestic companies, the rebate under section 85A of the Income-tax Act, 1961, for the assessment year 1967-68 and deduction under section 80M for the assessment years 1968-69 to 1970-71, was to be computed on the basis of the net amount of dividend arrived at, by deducting, from the gross amount of such intercorporate dividend, the interest allocable to the income earned by way of dividend
6. If the answer to question No. 5 is in the negative, whether any part of the interest was in law allocable to the income earned by way of dividend
7. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the rebate admissible under section 85A of the Income-tax Act, 1961, for the assessment year 1967-68, was to be computed on the basis of the net amount of dividend arrived at by deducting from the intercorparate dividend received by the assessed-company from other domestic companies, the interest relatable to such dividend income, but deducting neither the dividend exempt from tax nor the dividend ascribable to agricultural income ?'
2. It would be convenient to deal with these questions one by one. The first question relates to the insurance premium paid by the assessed-company in respect of the accident insurance of its five directors. These payments were treated as perquisite to those five directors by the Income-tax Officer for computation of the deductions permissible under section 40(c) and section 40A of the Act. The Appellate Assistant Commissioner followed the judgment of the Delhi High Court in CIT v. Lala Shri Dhar : 84ITR192(Delhi) , to hold that the payment of accident insurance was not a perquisite. The same view has also been endorsed in a later judgment of this court in CIT v. Vinay Bharat Ram : 129ITR128(Delhi) . The Tribunal merely followed this court's view. We see no reason to differ from the same and accordingly question No. 1 is answered in the affirmative, in favor of the assessed and against the Department.
3. Now, turning to question No. 2, we have to notice that the amount of deduction which was claimed was on account of rent paid on behalf of M/s. Shri Ram Centre for Industrial Relations in the four assessment years in question. The Bombay High Court and the Mysore High Court have held in CIT v. Associated Cement Co. Ltd. 0043/1967 : 68ITR478(Bom) and CIT v. Bangalore Woollen, Cotton and Silk Mills Co. Ltd. : 91ITR166(KAR) , that the payment need not be in cash and may be in kind. Learned counsel for the Department urges that the wording of section 35(1)(iii) shows that the sum in question has to be paid to the institution in question to be used for research in social science or statistical research, etc., and, in this case, the payment is not to the institution. We find little difference between the payment made directly to the institution or indirectly to a creditor of the institution. In each case, the payment results in a credit to the institution concerned. However, learned counsel submits that the payment is for rent and not for research. We do not find any force in this contention. An institution being concerned in research has also to have a building and has to incur expenditure in retaining that building. So, any payments made towards the rent would be payments towards the research. In any event, to the extent that the rent has been paid, additional funds would be available to the institution for carrying on research. So, from whatever angle it is looked at, the eventual result is additional research by the institution concerned. Any funds paid to a body connected with research have necessarily to be spent by that body in furtherance of that research. Retaining the building in which the research is to be carried on or getting additional funds for research, are all expenses incurred in research, and not otherwise. So, we uphold the decision of the Tribunal and answer the question referred to us in the affirmative, in favor of the assesseds and against the Department.
4. Question No. 3 above is concerned with whether the assessed is an 'industrial company' within the meaning of section 2(7)(d) of the Finance (No. 2) Act of 1967. In fact, a similar provision is to be found in all the Finance Acts for the subsequent periods also. The real point is, whether the lower rate of tax is to be charged from the assessed as an 'industrial company'.
5. The Tribunal in the course of its decision stated that this question was common for assessment years 1967-68 and 1970-71, and had depended on whether income derived by the assessed from a partnership with M/s. Electrical Industries Corporation was to be used as a qualification. We have examined the definition and find that a company is deemed to be an 'industrial company' if its income from manufacture is more than 50 per cent. As the finding is that at least 51 per cent. of the income was from the partnership which was concerned with the manufacture of super-enamelled copper wire, we find that there is no error in the conclusion of the Tribunal and we accordingly answer question No. 3 referred to us in the affirmative on the ground that the company was an 'industrial company' even if the said 51 per cent. or more of the income came from a manufacture in partnership. Whether that income came from a partnership or not makes no difference.
6. Question No. 4 is concerned with the application of section 80E and section 80-I to the profits derived from the firm, M/s. Electrical Industries Corporation. We have been shown the unreported judgment of the assessed's own case for the assessment year 1965-66, which is Income-tax References Nos. 268 to 270 of 1975 and Surtax Nos. 115 and 116 of 1974. In that case also, it was held that relief was available under section 80E.
7. We would not only adopt that decision, but would also say that section 80E was repealed and re-enacted as section 80-I. The history of this enactment is that section 80E was inserted by the Finance Act of 1966 and then that section was replaced by section 80-I with effect from April 1, 1968, by the Finance (No. 2) Act, 1967. This section was itself omitted by the Finance Act, 1972. The provision was for allowing a deduction in respect of profits and gains attributable to certain priority industries. In the provision as it originally stood, i.e., section 80E, it was provided that if the total income included profits and gains attributable to the business of generation or distribution of electricity or any other form of power or the construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there was to be allowed a deduction of eight per cent. There was a finding that part of the profits of the assessed in this case was attributable to the manufacture or production of articles which were to be found in the list contained in the Fifth Schedule, and it would follow that the deduction had to be allowed. This was the conclusion in the previous case, though perhaps not expressed in this way. We think that the same position held true for the assessment year 1967-68 under section 80E. Now, turning to section 80-I as re-enacted, the provision was that the deduction would be available for profits and gains attributable to priority industries. Section 80B defined 'priority industry' as business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. So, section 80-I was the same as section 80E. Later on, by the Finance Act of 1968, there was a subsequent change with which we are not concerned. The position, thereforee, in 1968-69 was the same as in 1967-68. Accordingly, following the aforementioned judgment, we come to the conclusion that this question has to be answered in the affirmative, in favor of the assessed and against the Department.
8. It is now necessary to turn to question No. 5. The decision of this question is in favor of the assessed according to the Supreme Court's decision in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) . The answer given by the Supreme Court was that relief had to be given in respect of the entire dividend income irrespective of interest paid on borrowings made for acquiring shares. However, there has been an amendment in the Income-tax Act with retrospective effect by the introduction of section 80AA with effect from April 1, 1968. This provision permits the deduction to be allowed not with respect to the gross amount of the dividend, but in respect of the dividend as paid in accordance with the provisions of this Act, i.e., the interest, if any, paid for money borrowed to purchase the shares, has first to be deducted from the dividend income and then only is the deduction to be made. It is the net dividend which is to be deducted and not the gross dividend. This amendment is retrospective only up to April 1,1968, and, thereforee, does not cover the assessment year 1967-68. In that year, the entire amount of gross dividend has to be deducted. But, in the assessment years 1968-69 to 1970-71, the net dividend could only be deducted. The question has, thereforee, to be answered in the negative for 1967-68 and in the affirmative for 1968-69 to 1970-71. In other words the Tribunal's finding that the net amount of dividend was to be deducted is upheld only for the years 1968-69 to 1970-71.
9. Question No. 6 is a corollary to question No. 5 and this seems to be a question of fact dependent on the amount of interest actually paid by the assessed in respect of the borrowed capital in accordance with the terms of section 80AA. As the point is one covered by the provisions of section 80AA, the Tribunal has merely to give effect to that provision for the assessment years 1968-69 to 1970-71.
10. It is now necessary to refer to question No. 7. This question is extremely badly worded and counsel for the assessed was even ready to say that he did not press this question. However, the discussion in the statement of case seems to show that this is a Composite question covering the submission of the Commissioner of Income-tax that exempted dividend and dividend attributable to agriculture had also to be deducted under section 85A as well as the assessed's contention that interest was not to be deducted. This is a question that is put forward by both the Department as well as the assessed. The question which arose in the assessment year 1967-68 was that the Income-tax Officer held that the gross dividend was not to be deducted under section 85A of the Act as it then stood, but the interest on money borrowed for purchasing the shares in question had to be deducted and also exempted dividend amounting to Rs. 1,516 had to be deducted as well as Rs. 2,652 which was the dividend attributable to agricultural income. This view was reversed by the Appellate Assistant Commissioner to the extent that the entire net dividend had to be deducted under section 85A after deducting from the gross dividend interest attributable to borrowed capital employed for purchasing the shares. This was the view upheld by the Tribunal. As observed by us already in answer to question No. 5 as far as the assessment year 1967-68 is concerned, the judgment of the Supreme Court in Cloth Traders' case : 118ITR243(SC) , has to apply and, thereforee, the entire gross dividend has to be deducted. By gross dividend is meant the entire dividend received by the company as intercorporate dividend. This would include exempted dividend as well as dividend received from agricultural income. This would be our answer to question No. 7.
11. In the result, all the seven questions have been answered as above. As most of the points involved are covered by previous decisions, we would leave the parties to bear their own costs.