D.B. Lal, J.
1. At the instance of the assessee, who are Messrs. Mohan Meakin Breweries Ltd., Solan, the Income-tax Appellate Tribunal, Chandigarh, has referred to us the following question of law for opinion :
' Whether on a true interpretation of Rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, and on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the action of the Income-tax Officer in excluding Rs. 13,685 only instead of Rs. 34,212 and Rs. 11,576 instead of Rs. 29,441 for the assessment years 1968-69 and 1969-70, respectively, from the total income for arriving at the chargeable profits under the said Act '
2. The facts giving rise to this reference may now be stated. Messrs. Mohan Meakin Breweries Ltd. which is a public limited company carries on the business of manufacture and sale of beer, Indian made foreign liquors, malt, breakfast food and soft drinks, etc. The assessee-company besides doing their business is also earning dividends from investments made in other Indian companies. For the assessment years 1968-69 and 1969-70, the gross income of the assessee from dividends from such Indian companies amounted to Rs. 34,212 and Rs. 29,441, respectively. The assessee's claim was that the gross amount of dividends was to be excluded from the total income for the purpose of computation of the chargeable profits. But the ITO deducted the reduced amounts of Rs. 13,685 and Rs. 11,576 for these assessment years. According to the ITO, the amount of dividend liable to be reduced under Section 80M of the I.T. Act, 1961, would give the reduced figure, which only could be the income of the assessee from dividends and as such only the reduced amount could be adjusted while computing the chargeable profits under Rule 1(viii) of the First. Schedule to the C. (P.) S. T. Act, 1964. Being aggrieved by the decision of the ITO, the assessee filed an appeal before the AAC, who too agreed with the ITO and dismissed the appeal. Thereafter, the assessee came in further appeal before the Tribunal, but did not succeed. The Tribunal referred to the language used in Rule 1 of the First Schedule ' shall be excluded from such total income ' and held that only that amount could be excluded which was included for the purpose of income-tax and that amount could only be the reduced figure after application of Sections 57 and 80M of the I.T. Act, 1961. The assessee, however, contended that the words ' income by way of dividends ' used in Rule 1(viii) should be taken to mean the gross amount of dividends before deductions are made under Sections 57 and 80M of the I.T. Act. The revenue on the other hand contended that income by way of dividends could only be the reduced income after making the adjustments under the aforesaid sections of the Act. Since the Tribunal did not agree with the contention made by the assessee, the latter asked for a reference of a question of law to this court and in this manner the matter is placed before us for opinion.
3. The relevant statutory provisions with which we are concerned need be stated at this stage. As obvious, the present case relates to surtax and the relevant provisions of the C. (P.) S. T. Act, 1964, are given below :
' Section 2(5).--' Chargeable profits ' means the total income of an assessee computed under the Income-tax Act, 1961 (43 of 1961), for any previous year or years, as the case may be, and adjusted in 'accordance with the provisions of the First Schedule. '
4. As evident, chargeable profits deal with two specific steps :
(1) of computation of the total income of an assessee as assessed under the I.T. Act, 1961, and
(2) of adjustment in accordance with the provisions of the First Schedule.
5. The surtax is, of course, charged in respect of so much of the chargeable profits as exceed the statutory deduction at the rate specified in the Third Schedule : (Section 4).
'The First Schedule
[See Section 2(5)]
Rules for computing the chargeable profits
In computing the chargeable profits of a previous year, the total income computed for that year under the Income-tax Act shall be adjusted as follows :--
1. Income, profits and gains and other sums falling within the following clauses shall be excluded from such total income, namely :--... (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 ;...'
5. The expression ' income by way of dividends ' to be excluded from the total income computed for the purpose of the I.T. Act created a difficulty in the present case. The assessee contended that income by way of dividends would mean the gross income, because in respect of the dividend only that income was received. It was a different question that certain deductions were made for the purpose of income-tax payment with reference to Sections 57 and 80M of the I.T. Act, 1961. Notwithstanding such deductions, it could not but be stated that the company received the gross dividend and only that gross dividend is contemplated in Rule 1(viii) for exclusion from payment of surtax and the total income computed for the purpose of I.T. Act is to be reduced to the extent of the gross dividend for payment of surtax under the Surtax Act, 1964. The revenue, however, pleaded that income by way of dividend only meant the reduced income which they preferred to call net dividend after making necessary deductions under Sections 57 and 80M of the I.T. Act, 1961.
6. The other relevant statutory provisions may also be referred to as these will be availed of during the discussion made in this judgment.
7. The legislative predecessors of the Surtax Act, 1964, were the provisions relating to super-tax and Section 99 of the then I.T. Act is reproduced below to the extent relevant for our purpose :
' 99. Incomes 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 or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India;......'
8. The expression to be noted is ' any dividend received by the assessee ' and the decisions which noticed this expression held that gross dividend is to be excluded for the purpose of super-tax. The analogy is extended to Rule 1(viii) of the First Schedule and it is pleaded that similarly the gross dividend is to be excluded from computation. However, the other two provisions are more important. These are : Section 85A of the I.T. Act which was substituted after amendment by Section 80M. The relevant part of Section 85A is as below :
' 85A. Deduction of tax on intercorporate dividends.--Where the total income of an 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. The provision is for deduction from the income-tax with which the assessee is chargeable on its total income. If the assessee has included any income by way of dividend received by it, a proportion of the income so included is adjusted for payment of income-tax.
10. The substituted Section 80M is in the following terms :
'80M. (1) Where the gross total income of an assessee, being a domestic company includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to--... (b) In respect of such income byway of dividends other than the dividendsreferred to in Clause (a) sixty per cent. of such income. '
11. This section uses the words ' gross total income of an assessee ' and further says that if a company includes any income by way of dividends, then from such income by way of dividends, 60% is to be excluded. Tire question would be whether the gross dividend is to be construed as received by the company as income by way of dividends.
12. As we proceed, in the course of this judgment, we have to clarify, that certain principles have been enunciated in judicial decisions which we have to follow while interpreting the relevant rules.
13. This court noted these principles governing interpretation in taxing statutes in CIT v. Mohan Meakin Breweries Ltd. . The Division Bench of which one of us was a member observed (p. 589) :
' The rules of interpretation applicable to a taxing statute are well founded. The cardinal rule of interpretation of statutes is to construe its provisions literally and grammatically giving the words their ordinary and natural meaning. It is only when such a construction leads to an obvious absurdity which the legislature cannot be supposed to have intended that the court in interpreting the rule may introduce words to give effect to what it conceives to be the true intention of the legislature. It is not any and every inconvenience that justifies . adoption of this extreme rule of construction. '
14. The Bench also noted the observations made by Chagla C.J. in Elphinstone Spinning and Weaving Mills Co. Ltd. v. CIT : 28ITR811(Bom) which were to the following effect :
' The Advocate-General says we should avoid giving a construction which would lead to absurd results. That canon is applicable where the language of a statute is capable of bearing a construction which would avoid absurd results. But, where the language is clear and not capable of any other construction, then however illogical the position, however absurd the result, however much the construction put may defeat the object of the legislature, the statute must be construed according to the plain language used by the legislature and the more so if that plain language supports the subject against the taxing department. '
15. The above-noted case went up to the Supreme Court and their Lordships approved of the dicta regarding the interpretation of a taxing statute. They described in axiomatic language that if the words of a taxing statute fail, then so must, the tax. The courts cannot, except rarely and in clear cases, help the draftsmen by a favourable construction. The Bench in CIT v. Mohan Meakin Breweries Ltd. also referred to the observations of the Supreme Court in CIT v. Shahzada Nand and Sons : 60ITR392(SC) . The Supreme Court observed in that case :
' In a taxing Act one has to look merely at what is clearly stated, and in case of reasonable doubt the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. The underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just or expedient. The expressed intention must guide the court. '
16. According to these observations, if the case is of a reasonable doubt the construction most beneficial to the subject is to be adopted.
17. There is a further rule of interpretation with which we are faced, and we refer to CIT v. Tata Sons Private Ltd. : 97ITR128(Bom) . The said rule is what we call a rule of stare decisis. In this case, their Lordships observed (p. 131) :
' The attempt of Mr. Hajarnavis was to reargue all the questions decided in the above decision before us and to persuade us to make findings contrary to, and inconsistent with, the findings made therein. We have informed Mr. Hajarnavis that having regard to ' uniform policy laid down in income-tax matters ' we did not propose to give him a long hearing as he desired. The practice and the policy established is that in these matters 'whatever our own view may be we must accept the view taken by another High Court on the interpretation of the section of a statute which is an all-India statute '. '
18. The principle of stare decisis has its own value and, in our opinion, must be observed unless a departure from that principle is permissible for any valid reason. The view that we propose to take in this case is the one already taken by the High Courts of Madras, Bombay and Kerala, and, to our regret, that view may be contrary to the view taken by the Gujarat High Court, but supporting the principle of stare decisis we adhere to the view taken by the other three High Courts as we are aware that we are dealing with an all-India statute. This would be another principle adopted by us for interpreting the language used in the statute.
19. We shall then at once proceed to the decisions which may influence us for taking a definite view on this subject. As we have observed, we have to deal with the definition of ' chargeable profits ' provided in Section 2(5) of the C (P.) S.T. Act, 1964. The said definition deals with the total income of an assessee computed under the I.T. Act and the said total income is further required to be adjusted in accordance with the provisions of the First Schedule. In the First Schedule, upon its plain language, we have to adjust the said total income by excluding income ' by way of dividends '. The stock argument before the Tribunal was that while computing the total income for income-tax what was included should necessarily be excluded under the First Schedule, r, l(viii). But that cannot be a position we have to adopt necessarily, in view of the language used in Rule 1(viii). The legislature has permitted exclusion from such total income the income ' by way of dividends from an Indian company ', which means the gross income shown in the books of the company received by way of dividends and the mere fact that some of that income was reduced because certain deductions were made at the source would be of no effect, as nevertheless it would be considered that so much .gross income pertained to dividends, and in fact, that would be the dividend declared by the Indian company in which the investments were made by the assessee. Therefore, when the legislature speaks of ' income by way of dividends ', it refers to the gross income shown in the books of the assessee and not the actual net income computed by the assessee. Shri K. D. Sood, the learned counsel appearing for the assessee, brought to our notice CIT v. Darbhanga Marketing Co. Ltd. : 80ITR72(Cal) and CIT v. New Great Insurance Co. Ltd. : 90ITR348(Bom) . These two decisions referred to Section 99 and dealt with deductions to be made therein. We have to observe that Section 99 uses the expressions ' amounts included in its total income ' and ' dividend received by it '. The latter expression was, of course, subsequently deleted. It was held in these cases that dividend received would be the gross dividend and as such the same would be excluded for the purpose of super-tax. Shri Indar Singh, the learned counsel representing the revenue, contended that the language used in Section 99 is different from the language used in Section 85A or Section 80M or Rule 1(viii) of the First Schedule of the Surtax Act, 1964. According to the learned counsel, the expression used is ' income by way of dividend ', and that would indicate only the net income from dividend. The two decisions, CIT v. Darbhanga Marketing Co. Ltd. : 80ITR72(Cal) and CIT v. New Great Insurance Co. Ltd. : 90ITR348(Bom) referred to the plain language used in Section 99. It was observed in : 90ITR348(Bom) that the receipt of dividend was being taxed and not the income. It was further observed that Sections 85A and 99 used the same language and the decision made was that gross dividend was liable to be excluded. These two decisions, in our opinion, refer to Section 99 which no doubt uses a different language as compared to Section 85A or Section 80M. The language used in the latter two sections is similar to the language used in Rule 1(viii) of the First Schedule, We, therefore, do not propose to place much reliance on : 80ITR72(Cal) or : 90ITR348(Bom) . However, the other four cases relied upon by Shri K. D. Sood would certainly be pertinent to the enquiry before us. These cases are : CIT v. Madras Motor & General Insurance Co. Ltd. : 99ITR243(Mad) CIT v. Jupiter General Insurance Co. : 101ITR370(Bom) CIT v. Emcete & Sons (P.) Ltd. : 109ITR491(Mad) and A. V. Thomas & Co. v. CIT : 110ITR515(Ker) .
20. In the Madras case : 99ITR243(Mad) , although the case related to Section 99, yet their Lordships also considered the surtax payable for the assessment year 1964-65 under the C.(P.) S.T. Act, 1964. In respect of the assessment year 1964-65, the assessee contended that in view of the provisions in Rule 1 (viii) of the First Schedule of that Act it was not liable to pay the surtax on the entire dividend received by it. The Tribunal gave the relief to the assessee but referred the question of law to the court on the application by the department. The argument before the court on behalf of the department was that the dividend income as reduced by proportionate share of the total expenses of the company was liable to be excluded. The court held that there was no warrant for such an interpretation. It was further observed that the Act only referred to dividend and not to net dividend or any other expression which would imply or justify a deduction of proportionate expenditure. It was held that the proportionate management expenses are not liable to be deducted and the rebate has to be given on the gross dividend.
21. In CIT v. Jupiter General Insurance Co. : 101ITR370(Bom) the question related to C.(P.) S.T. Act, 1964, and the Bench held that gross dividend under Rule 1(viii) was to be excluded. They referred to CIT v. Industrial Investment Trust Co. Ltd. : 67ITR436(Bom) and CIT v. New Great Insurance Co. Ltd. : 90ITR348(Bom) and followed those decisions. The question before the Bench was whether for computing the chargeable profits the gross dividend should be deducted or the net dividend arrived at by excluding proportionate management expenses should be deducted and the Bench held that the question depended upon the proper construction of Rule 1(viii) of the First Schedule. The Bench referred to the expression ' income by way of dividend ' and observed that the expression referred to gross dividend received by the assessee and not the net dividend arrived at after excluding the proportionate management expenses. This was again a decision on the plain language used in Rule 1(viii).
22. In CIT v. Emcete & Sons (P.)Ltd. : 109ITR491(Mad) their Lordships were considering Section 80M of the I.T. Act. The language of Section 80M is in pari materia similar to the language used in Rule 1(viii) of the First Schedule. The expression ' income by way of dividend ' is very much there. In Section 80M, if gross income includes an income by way of dividends, the argument was that deduction of only such income is liable to be made. Shri Indar Singh emphasised on the expression ' income by way of dividend ' and contended that the income which is to be excluded cannot but be the net income. But, in our opinion, on a plain reading of the language used in Rule 1(viii), income by way of dividend is the gross income by way of dividend and that alone is to be reduced for adjusting the chargeable profits. If the legislature intended that only net dividend is to be excluded, they would have used some language other than the expression ' income by way of dividend '. In the books of the assessee, the income by way of dividend was the dividend declared by the company with whom investments were made. It is immaterial that a portion of the dividend was reduced at the source because of some expenses incurred or tax levied, notwithstanding that the dividend declared would be the gross dividend and that alone would be entered in the books of the assessee. Approving this view, their Lordships held in CIT v. Emcete & Sons (P.) Ltd. : 109ITR491(Mad) that the assessee would be entitled to the deduction of 50% from the gross total income by way of dividends received from domestic companies without deducting the expenses connected with the earning of such income and that would be a proper interpretation of the language used in Section 80M.
23. A. V. Thomas & Co. v. CIT : 110ITR515(Ker) is a case directly on C.(P.) S.T. Act, 1964, interpreting Rule 1(viii) of its First Schedule. Their Lordships held that there is no warrant to detract from the generality of the words ' income by way of dividends ' and to confine these words only to such income as has been reduced by applying the provisions of Section 57 or Section 80M or any other provision of the I.T. Act, 1961. Therefore, according to their Lordships, while computing chargeable profits under the C. (P.) S.T. Act, 1964, a company deriving income by way of dividends from another Indian company is entitled to the exclusion of the gross dividend recieved, unaffected by the provisions of Sections 57 and 80M of the I.T. Act. Their Lordships referred to most of the decisions which we have noted above and significantly observed that the decisions under Section 99 would not be availed of so that their conclusion 'should in any way be affected or blurred by these citations '. They specifically stated that they referred to those decisions under Section 99 by way of deference to the counsel who cited those decisions. As we have said, Section 99 decisions may not be very material and let our decision be not ' blurred ' by those citations. We confine ourselves to the decisions made under Section 85A or Section 80M of the I.T. Act and the two decisions of the Bombay and Kerala High Courts which directly refer to Rule 1(viii) of the First Schedule of the Companies (Profits) Surtax Act, 1964. We have observed that the language used in Section 85A or Section 80M and the language used in Rule 1(viii) of the Surtax Act, 1964, are in pari materia similar, and therefore, the decisions arrived at with reference to Section 85A and Section 80M would certainly be more pertinent for our interpretation. We have referred to these decisions and it is our considered view that upon the plain language used in Rule 1(viii) of the First Schedule, the chargeable profit computed for purpose of the I.T. Act, after necessary deductions and adjustments, would nevertheless be amenable for reduction of gross dividend which is income by way of dividend of the assessee.
24. The question does not appear to be still free from difficulty because Shri Indar Singh confronts us with the decision of the Gujarat High Court in Addl. CIT v. Cloth Traders (P.) Ltd, : 97ITR140(Guj) . My Lord the Chief Justice was then the judge of the Gujarat High Court and delivered the judgment in that case. With due deference to the opinion expressed by their Lordships, we are constrained to take a different view in consonance with the decisions of the Madras, Bombay and Kerala High Courts. Firstly, we approve of the reasoning that prevailed in those High Courts and as per our own interpretation we read in the plain language utilised in Rule l(viii) of the First Schedule that gross dividend is meant when the legislature used the language that ' income by way of dividend ' is to be excluded from the total income computed for that year under the I.T. Act. We also adopt this line of interpretation on the principle of stare decisis because the Surtax Act being an all-India legislation must be interpreted in the manner in which it ha- been interpreted by the majority of the High Courts. The second ground on which we respectfully differ from the view taken by the learned judges in Addl. CIT v. Cloth Traders (P.) Ltd. : 97ITR140(Guj) is the language used in Section 85A which was the subject-matter of discussion in that case. It is evident, the said decision is not under Rule 1(viii) of the First Schedule with which we are really concerned. Their Lordships, while referring to Section 85 : 97ITR140(Guj) , based their finding on the primary argument which referred to the expressions ' includes any income by way of dividends received ' and ' so much of the amount of income-tax calculated at the average rate of income tax on the income so............included..................as exceeds an amount of 25% thereof.........' This is what is held by that court (p. 144) :
' The second part of the sectim says that the deduction shall be fromthe income-tax with which the company is chargeable on its ' total income '.But still the question is how much deduction should be given. The secondpart provides an answer to this question by saying that the deductionshould be on that amount of tax, calculated at the average rate on thedividend income included in the ' total income ', which exceeds 25% of theincome so included. The point to be noted is that the second part contemplates deduction of tax ' on income so included '. The words ' so included 'have reference to the inclusion in the ' total income ' contemplated by theabove referred second condition of the first part of the section. In otherwords, only that tax can be deducted which could be assessed on thedividend income which is included in the ' total income ' of the assessee-company. To put it differently, the said dividend income is thatincome which has become one of the component parts of the ' totalincome '. If that be so, gross dividend income can form the base of thededuction contemplated by Section 85A only if it has become a component of' total income ' and not otherwise. The discussion which follows shows thatit is the net dividend income and not the gross one which can become acomponent of ' total income '.'
25. As is evident, their Lordships emphasised on the expression ' on income so included ' and, since in the total income only the reduced amount of dividend was included, concluded that the said reduced amount or the net dividend is to be excluded. This principle of inclusion and exclusion of dividend income was ascertained from the specific language used in Section 85A. In Rule 1(viii) of the First Schedule such a language cannot be found. There is nothing to indicate that only so much of the dividends is to be excluded which has been included in the total income. Therefore, the very crux of the argument that prevailed before their Lordships in Addl. CIT v. Cloth Traders (P.) Ltd. : 97ITR140(Guj) , failed before us. We ourselves may have been inclined to take that view had we been called upon to interpret Section 85A, but we are concerned with Rule 1(viii) of the First Schedule and there the language is clear. The First Schedule begins by saying : ' In computing the chargeable profits of a previous year, the total income computed for that year under the Income-tax Act shall be adjusted as follows ', meaning thereby that the total income may have included the net dividend for the purpose of the I.T. Act, but the said amount of total income has ' to be adjusted as follows ', referrable to Rule 1(viii). Therefore, it does not necessarily follow that the total income computed for that year under the I.T. Act is necessarily to be adjusted by exclusion of net dividend and not gross dividend, although the latter alone was the income by way of dividend from an Indian company. Therefore, upon the very language used in Rule 1(viii) of the First Schedule, we are on a reasonable ground to take a different view and hence we respectfully differ from the view taken by the learned judges in Addl. CIT v. Cloth Traders (P.) Ltd. : 97ITR140(Guj) . That was the main argument which prevailed before their Lordships, and whereas we deflect from that argument we are left with no choice but to follow the other three High Courts and to take that view which we propose to take in this case. There is yet a third ground on which we can assail that judgment of the Gujarat High Court. The learned judges while taking that view seemed to have expressed a desire to provide for the deduction so as to encourage investment by a company in shares of another company by substantially avoiding the tax burden. It was stated in that judgment (p. 143) :
' It is obvious that the dividend becomes liable to tax in the hands ofthe company which declares it. If the extent of its liability to tax is thesame in the hands of the company which holds the shares, it is obvious thatthere would be less inducement to the companies to make investment inother companies. The legislature has, therefore, provided for the relief contemplated by the section. '
26. With respect, we may observe that the very object sought to be achieved by the learned judges is defeated if the view taken by them is approved by us. The company which declared the dividends obviously paid the tax on the gross dividend. If for computation of surtax only net dividend is reduced from total income, the remaining part of the dividend would again be left to payment of surtax. That would be a case of double taxation which has to be avoided. Therefore, the principle enunciated by their Lordships in the above-noted decision is well preserved when the view that we have taken is sustained. With these observations, we are constrained to follow the view taken by the Madras, Bombay and Kerala High Courts and adhering to that view, we consider that the gross dividend is to be excluded under Rule 1(viii) of the First Schedule from the total income computed for that year under the I.T. Act in order to arrive at the chargeable profits for payment of surtax.
27. We, therefore, answer the question referred to us by saying that the Tribunal was not justified in upholding the action of the ITO in excluding Rs. 13,685 only instead of Rs. 34,212 and Rs. 11,576 instead of Rs. 29,441 for the assessment years 1968-69 and 1969-70, respectively, from the total income for arriving at the chargeable profits under the C. (P.) S. T. Act, 1964.
28. The record shall be sent back to the Tribunal with this opinion for further action in the matter. We, however, leave the parties to bear their own costs.