The amount of inter-corporate dividends deductible in computing chargeable profits under the Companies (Profits) Surtax Act, 1964 is the net amount of dividend computed in accordance with the provisions of the Income-tax Act.

SYED SHAH MOHAMMED QUADRI, J.

( 1 ) AT the request of the Commissioner of Income-tax, A. P. I. , Hyderabad, the Income-tax Appellate Tribunal, Hyderabad, referred the following questions under section 256 (1) of the Income-tax Act, 1961 :"1. Whether, on the facts and in the circumstances of the case, amounts standing under capital redemption reserve are includible in computing the capital base ? 2. Whether, on the facts and in the circumstances of the case, gross dividends are deductible in arriving at the chargeable profits but not the net dividends ?"

( 2 ) IN so far as the first question is concerned, it is represented by learned counsel for the parties that it is covered by the judgment of this court in the case of the assessee for an earlier year in CIT v. Vazir Sultan Tobacco Co. Ltd. [1988] 173 ITR 567. The question is, therefore, answered in favour of the assessee and against the Revenue.

( 3 ) REGARDING the second question it would be useful to refer to the facts giving rise to this question. The assessee-company receives what is commonly known as inter corporate dividends. For the assessment years 1978-79 and 1979-80, the assessee sought deduction of the gross amount of dividends received by it from other companies in computing chargeable profits under the Companies (Profits) Surtax Act, 1964 (for short, "the Surtax Act" ). The Income-tax Officer did not accept the contention and allowed the deduction of only net dividends. On appeal by the assessee, the Commissioner of Income-tax (Appeals) accepted the assessee s claim for deduction of the gross dividends. Dissatisfied with the order passed by the Commissioner of Income-tax (Appeals), the Commissioner filed an appeal before the Tribunal, which was dismissed and at the instance of the Revenue the above said questions were referred for our opinion.

( 4 ) THE profits of the assessee-company are assessable under the Surtax Act. Section 4 of the said Act provides that on the from the 1st day of April, 1964, surtax shall be charged on every company for every assessment year in respect of so much of its chargeable profits of the previous year or years which exceed the statutory deduction, at the rate specified in the Third Schedule. The chargeable profits under the Surtax Act have to be computed in accordance with the Rules (hereinafter referred to as "the Surtax Rules") contained in the First Schedule. Rule 1 (viii) of the Surtax Rules is relevant for our purpose and it will be apt to read the said provision here :"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 clause 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 ) BEFORE embarking upon an interpretation of this rule, it would be useful to keep in mind the principles laid down by the Supreme Court in Distributors (Baroda) Pvt. v. Union of India [1985] 155 ITR 120. In that case, their Lordships of the Supreme Court were construing the provisions of sections 80a (2), 80aa and 80m of the Income-tax Act, 1961. Their Lordships observed (at page 130) :"it is most unsafe to try to arrive at the true meaning of a statutory provision by reference to an interpretation which might have been placed on an earlier statutory provision which is not only couched in different language but is also structurally different. "

( 6 ) THE principle governing deduction of inter-corporate dividends with reference to section 80m of the Income-tax is elucidated thus (at page 134) :"now when an amount by way of dividend is received by the assessee from the paying company, the full amount of such dividend would have suffered tax in the assessment of the pa

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