COMMISSIONER OF INCOME TAX V. SUNDRAM INDUSTRIES(P) LTD.

C.A. No.-005547-005549 - 1994

AI Insights

The case involves the Commissioner of Income-Tax appealing against Sundram Industries (P) Ltd. concerning the interpretation and application of certain provisions under the Income-tax Act and the Companies (Profits) Surtax Act, 1964. The primary legal issues revolved around the computation of the capital base and chargeable profits, particularly concerning the deductions allowed under Chapter VI and the treatment of dividends in the computation of chargeable profits. The High Court had previously answered these questions in favor of the assessee, which the Supreme Court partly upheld, specifically regarding the treatment of dividends.

• Counselvise Citation: [2000] 140 COUNSELVISE.COM (IT) 468942 (SC)
• Appeal Type: Supreme court cases
• Pronouncement Date: 01-11-2000
• Other Referred Cases: Second Income Tax Officer and Another vs. Stumpp Schuele and Somappa P. Ltd. (187 I.T.R. 108), Distributors (Baroda) P. Ltd. vs. Union of India and Others (155 I.T.R. 120), Commissioner of Surtax vs. Modi Industries Ltd. (200 I.T.R. 325)
• Laws Referred To: Income-tax Act, Companies (Profits) Surtax Act, 1964
• Result in Favour of: Partly Allowed
• Court: SUPREME COURT
• Assessee Lawyers: H N SALVE; SUSHMA SURI
• Keywords: Capital base; Chargeable profits; Ex-parte; Income Tax; Net dividends
• Section: vi; III; 1(viii)

Judgement Text

" 2262.UP 10 2; Draft, smtst; -n -PA4 -dFX-NORMAL -y -e; dumbp L.......T.......T.......T.......T.......T.......T.......T.......T....R L.......T.......T.......T.......T.......T.......T.......T.......T....R ITEM No.114 COURT No. 2 SECTION IIIA S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Civil Appeal Nos.5547-5549 of 1994@@ CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC Commissioner of Income-Tax Appellants VERSUS Sundram Industries (P) Ltd. Respondent (With Office Report) Date : 01/11/2000 These appeals were called on for hearing today. CORAM : HON’BLE MR. JUSTICE S.P. BHARUCHA HON’BLE MR. JUSTICE D.P. MOHAPATRA HON’BLE MR. JUSTICE Y.K. SABHARWAL For Appellant (s) Mr. H.N. Salve,SG. Ms. Sushma Suri,Adv. For Respondent(s) Ex-parte UPON being mentioned the Court made the following O R D E R ..L.....I.......T.......T.......T.......T.......T.......T.......T...J. The civil appeals are allowed partly. No order as to costs. (T.I. Rajput) (S.Sen Gupta) Court Master Court Master (Signed order is placed on the file) .PA .PL55 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal Nos.5547-5549 of 1994@@ CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC Commissioner of Income-Tax ...Appellant (s) Versus˜ Sundram Industries (P) Ltd. ....Respondent (s) O R D E R@@ CCCCCCCCCCCCC ....L......I.....T.......T.......T.......T.......T.......T.......J .SP2 The Revenue is in appeal against the judgment of a Division Bench of the High Court at Madras delivered upon a reference application by the Revenue. The three questions that the High Court considered read as follows: ...........L.....T.......T.......T.......T.......T.......J .SP1 \"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer was not justified in diminishing the capital base with reference to the deductions allowed under Chapter VI from the total income? 2. Whether the Tribunal’s view that for the purpose of the computation of capital base, the provisions of Rule 4 of the Second Schedule would apply only to items of income which are wholly exempt under Chapter III and that those provisions would not apply to the deduction allowed under Chapter VI-a is sustainable in law? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was - 2 - right in holding that for the purpose of the computation of chargeable profits, the deduction under Rule 1(viii) of the First Schedule should be made only with reference to gross dividends but not the net dividends as done by the Income-tax Officer?\" ....L............T.......T.......T.......T.......T.......T.......J .SP2 The High Court answered the questions in the affirmative and in favour of the assessee. It is not in dispute that the first two questions are covered against the Revenue by the judgment of this court in Second Income Tax Officer and Another vs. Stumpp Schuele and@@ CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC CCCCCCCCCCCCCCCCCC Somappa P. Ltd. (187 I.T.R. 108). The question to@@ CCCCCCCCCCCCCCCCCC consider, therefore, is the third question. The judgment of this court in Distributors (Baroda) P. Ltd. vs. Union of@@ CCCCCCCCCCCCCCCCCCCCCCCCCCCCCC CCCCCCCCC India and Others (155 I.T.R. 120) delivered in respect of a@@ CCCCCCCCCCCCCCCCC similar provision was considered by the Delhi High Court in the case of Commissioner of Surtax vs. Modi Industries Ltd.@@ CCCCCCCCCCCCCCCCCCCCCC CCCCCCCCCCCCCCCCCCCCC (200 I.T.R. 325). The question before the Delhi High Court was akin to Question No.3 before us. The Delhi High Court considered the judgment in Distributors (Baroda) Pvt.Ltd.@@ CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC (S.C.) and noted that following that judgment, several High Courts had taken the view that on a correct interpretation of Rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, it was only the net dividend which was included in the total income and, therefore, it was this amount which was deductible in arriving at the figure of the chargeable profits. In our view, having regard to the ...3/- - 3 - language of the Rule, this is the correct position and, accordingly, we affirm the view taken by the Delhi High Court in the case of Modi Industries Ltd. The third question is,@@ CCCCCCCCCCCCCCCCCCCC therefore, answered in the negative and in favour of the Revenue. The civil appeals are allowed to that extent. No order as to costs. .SP1 .........................J. (S.P. Bharucha) .........................J. (D.P. Mohapatra) .........................J. (Y.K. Sabharwal) New Delhi, November 01, 2000. "