Income Tax Appellate Tribunal - Mumbai
Indian Hotels Co. Ltd. vs Inspecting Assistant Commissioner on 13 June, 1991
Equivalent citations: [1991]38ITD596(MUM)
ORDER
R.N. Singhal, Accountant Member
1. Under the Surtax Act, these three appeals by the assessee involve one common point. For the sake of facility, therefore, they are disposed of by a consolidated order.
2. On the inter-corporate dividend, assessee was allowed deduction under Section 0M and the point involved is that in terms of Clause (viii) of Rule 1 of First Schedule, of the Surtax Act, the gross dividend income should be excluded or only that part which is included in the total income for income-tax purposes. It may be noted that in terms of Section 80M of the Income-tax Act, 60% of the gross dividend income is allowed as deduction and the balance 40% only is included in the total income. The corresponding figures for these three years are furnished by the assessee as follows:
Sl.No Asst. year Gross dividend 40% dividend Difference 1. 1978-79 7,920 3,168 4,752 2. 1979-80 59,250 23,700 35,550 3. 1980-81 3,97,506 1,59,003 2,38,503
Departmental authorities have excluded only the 40% of the dividend income, which is included in the total income, while assessee's claim is mat the whole of the gross dividend should be so treated as covered by Rule 1 (viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964.
3. Before us, learned Chartered Accountant for the assessee very strongly relied on the Bombay High Court decision in CIT v. Jupiter General Insurance Co. [1975]101 ITR 300 and submitted that the principle laid down in that decision of the jurisdic-tional High Court should be followed. He also cited the following three other decisions in support of his contentions-
(a) CIT v. Patiala Flour Mills Co. (P.) Ltd. (No. 2) [1980] 123 ITR 273 (Punj. and Har.)
(b) A.V. Thomas and Co. v. CIT [1977] 110 ITR 515 (Ker.)
(c) Mohan Meakin Breweries Ltd. (No. 2) v. CIT [1979] 118 ITR 300 (HP).
He emphasised that though in the matter of Jupiter General Insurance Co.'s case (supra), the precise question was one of deduction for management expenses, etc. from dividend income, the principle involved is the same. He argued that in the said Rule, the expression is 'income by way of dividends' and this phraseology has a wider connotation. He further submitted that even under the Income-tax Act, relief under Section 80M is restricted, with effect from 1-4-1981 consequent upon the amendment of the Act, by the Finance Act of 1980 and therefore, according to him, all the three years involved in these three appeals were covered by the Bombay High Court decision in the case of Jupiter General Insurance Co. (supra) cited above.
4. Learned Departmental Representative, on the other hand submitted that in the First Schedule, there is provision for exclusion of items which are included in the total income and hence it implies that what is not included in the total income cannot qualify for exclusion. He further submitted that at any rate, the Supreme Court decision in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 had specifically reversed the view taken in earlier decisions by various High Courts and Supreme Court, ending with the Supreme Court decision in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. He submitted that up to the stage of Supreme Court decision in Cloth Traders (P.) Ltd.'s case (supra) judicial pronouncements could have justified the exclusion of the gross dividends, but not after the Supreme Court decision in Distributors (Baroda) (P.) Ltd.'s case (supra). He further submitted that in the last cited decision, the Supreme Court had specifically regressed many of the decisions which are the basis of assessee's claim and also the basis of judicial pronouncements which are cited by the assessee.
5. In reply, learned Chartered Accountant for the assessee submitted that the Supreme Court decision in Distributors (Baroda) (P.) Ltd.' s case (supra) should not make any difference, once under the same enactment, the decision of the jurisdictional High Court is available in Jupiter General Insurance Co.'s case (supra).
6. We have very carefully considered the rival submissions. At the outset, we may note the relevant parts of the First Schedule to the Companies (Profits) Surtax Act, 1964, as follows--
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-
(i) to (vi)...
(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,...
Thus, certain items included in the total income shall be excluded for computation of chargeable profits. We therefore, agree with the observations of the CIT(A) in para 1.4 of his order for assessment year 1978-79 that only that can be excluded, which has been included. If only 40% of the gross dividend is included in the total income, it is that 40% only, which can be excluded. Where is the question of excluding what is not included in the total income?
7. Coming to the case-law, we do not agree with the reply of the learned chartered Accountant for the assessee that the Supreme Court decision in Distributors (Baroda) (P.) Ltd.'s case (supra) should not make any difference. We may first note that vide para marked 1 on page 2 of the order of the CIT(A), assessee had relied on the following three decisions-
(a) CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348 (Bom.)
(b) Cloth Traders Ltd.'s case (supra)
(c) A.V. Thomas & Co.'s case (supra) Now, before us, the assessee has excluded for reliance on the first two decisions cited above. The learned Departmental Representative is right in mentioning that those two decisions have been specifically disapproved and over-ruled by the Supreme Court in the case of Distributors (Baroda) (P.) Ltd. (supra). Actually, a careful reading of that decision shows that the other decisions which propounded similar view were also noted and by implication all stood over-ruled. For example, we may now note the following extract from the decision of Supreme Court in Distributors (Baroda) (P.) Ltd.'s case (supra) from p. 129 of the Reports (155 ITR)-
... It may be pointed out that the same view in regard to the construction of Clause (iv) of Sub-section (1) of Section 99 was taken by the Calcutta High Court in CIT v. Darbhanga Marketing Co. Ltd. [1971] 80 ITR 72 and this decision of the Calcutta High Court was noted with approval by the High Court of Bombay in new Great Insurance Co.'s case [1973] 90 ITR 348. The same view was also taken by the Madras High Court in CIT v. Madras Motor and General Insurance Co. [1975] 99 ITR 243 and it was approved in a later decision of the same High Court in Madras Auto Service v. ITO [1975] 101 ITR 589. It would thus be seen that, on a construction of Clause (iv) of Sub-section (1) of Section 99, three High Courts, namely, Bombay, Calcutta and Madras, took the view that the entire amount of dividend received by the assessee from an Indian company was exempt from super-tax and the exemption was not limited to dividend income computed in accordance with the provisions of the Act and forming part of the 'total Income'.
In our opinion, it is obvious that though the Supreme Court in Distributors (Baroda) (P.) Ltd.'s case (supra) specifically noted and over-ruled only a few decisions, logically speaking, it must be held that the earlier approach taken in whatever decision and under whatever enactment stood over-ruled. We may now note specifically the Bombay High Court decision in Jupiter General Insurance Co.'s case (supra) and extract below the concluding and operating part of the said decision in the following terms--
... 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.
Obviously, the Hon'ble Bombay High Court in delivering that decision in Jupiter General Insurance Co.'s case (supra) relied on the decisions rendered under the Income-tax Act in the context of Section 80M and corresponding provisions and held that on account of the similarity of phraseology used in both the enactments the view taken on that phraseology income-tax cases should be adopted for the super profits tax also. Thus, the income-tax decisions formed the sole basis for the Bombay High Court decision in the super profit tax case. Therefore, if those decisions under the Income-tax Act stand over-ruled, it is but logical to infer that the Hon'ble Bombay High Court decision in Jupiter General Insurance Co.' s case (supra) need not be followed in view of the subsequently delivered judgment of the Supreme Court in Distributors (Baroda) (P.) Ltd.'s case (supra). We may also note that as indicated already, the facts of the case in Jupiter General Insurance Co.'s case (supra) were not on all fours with the facts of this case. In the cited decision, the question was of proportionate management expenses, while in the case before us, the question is of relief or deduction allowed under the Income-tax Act under Section 80M in computation of total income. For all these reasons, we would reject on this point, assessee's grounds of appeal for all the three years involved.
8. For assessment year 1980-81, there is one more ground taken by the assessee, which is as follows-
On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in holding that the Appellant-company is not entitled in law in increasing its capital employed on a pro-rata basis in respect of bonus shares issued during the year.
It is common ground that it is covered against the assessee and in favour of the Department by the Bombay High Court decision in CIT v. Century Spg. & Mfg. Co. Ltd. [1978] 111 ITR 6. This ground of appeal is also rejected.
9. In effect, assessee's all the three appeals are dismissed.