RAMASWAMI J.

These two references relate to the same assessee but xojatqs in respect of two different assessment years. The first reference relates to the assessment year 1963-64, and the second relates to the assessment year 1964-65. The assessee is a public limited company carrying on business in motor and general insurance. The previous years relevant to the assessment years in question are calendar years 1962 and 1963, respectively. In respect of these assessment years the assessee filed the returns of income showing income from different sources separately. The total of such income for the assessment year 1963-64 came to Rs. 22, 15, 583. This income included a sum of Rs. 4, 85, 802 being the income from dividends from other companies. The assessee claimed that it is entitled to a rebate of Corporation tax at 45% on this dividend income as per the Finance Act, 1963

"Whether, on a construction of the provision of the Finance Act, 1963, Paragraph D, Part II, the rebate in respect of Corporation tax should be restricted to the dividend received by the assessee less the proportionate management expenses or on the gross amount of dividend amounting to Rs. 4, 85, 802." *

In respect of the assessment year 1964-65, the assessee filed the return of income showing the total income at Rs. 26, 28, 344 which included a dividend income of Rs. 4, 91, 470. In this case the assessee claimed that the entire dividend income should be exempted from levy of Corporation tax by virtue of the provisions of section 99(1)(iv) read with the Finance Act, 1964

"Whether, on a construction of the provision of the Finance Act, 1964, Paragraph D, Part II, the rebate in respect of the Corporation tax should be restricted to the dividend received by the assessee less the proportionate management expenses or on the gross amount of dividend amounting to Rs. 4, 91, 470 ?" *

In respect of the assessment year 1964-65, the, assessee also contended that, in view of the provisions in rule (1)(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, it was not liable to pay the surtax on the entire dividend received by it. Though the Tribunal gave relief in respect of surtax as claimed by the assessee and agreed in its order dated 24th May, 1969, to refer the question of law to this court on the application made by the department, no separate question has been referred to this court in respect of surtax. In the order of the Tribunal it is stated that R. A. No. 1697 of 1967-68 which related to the question of surtax is only consequential to the reference made in respect of super-tax. It also stated that the question of law that arises is the same as in the case of super-tax. Probably because of this view expressed by the Tribunal no separate question has been referred. Though a separate question had not been referred, the learned counsel for the revenue as also the assessee are agreed that it is not necessary for us at this stage to call for that question from the Tribunal and since the Tribunal had already expressed the view that the same question which was referred in T. C. No. 120 of 1968 should also be referred in respect of the surtax we may consider that question as comprehending within it the surtax, as well. We, therefore, proceed to consider the case on the basis that this reference in T. C. No. 120 of 1968 also includes the question in respect of surtaxThe answer to the reference made in respect of the assessment year 1963-64 depends on the construction of Paragraph D of Part II in the Finance Act, 1963. The relevant portion reads as follows

"In the case of every company, other than the Life Insurance Corporation of India

(ii) a rebate .... at the rate of 45 per cent. on so much of the total income as consists of dividends from any other Indian company ... shall be allowed ......" *

It was the contention of the learned counsel for the revenue that in the case of general insurance business in view of the special basis of computation of