CLOTH TRADERS (P) LTD., ETC versus ADDL. COMMR. OF INCOME TAX, GUJARAT-I, ETC.

Citation: [1979] 3 S.C.R. 984 · Decided: 04-05-1979 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
CLOTH TRADERS (P) LTD., ETC . 
•• 
ADDL. COMMR. OF INCOME TAX, GUJARAT-I, ETC. 
May 4, 1979 
ll 
[P. N. BHAGWATI, D. A. DESAI AND A. D. KosHAL. JJ.] 
c 
lncome Tax Act, 1961 (43 of 1961)-Sections 85A 
& 
SOM-Whether 
rebate of income tax admissible on the amount of dividend received bJ 
the 
assessee company from an Indian company or whether confined onl}' to divi-
deml income as computed under the Act after making lhe deduction on 
the 
interest paid on borrowings for making the investmentJ. 
The earliest provision granting exemption Of super-tax in respect of in.ter-
corporate dividends was made aB far back as 9th December, 1933 in a Notifica-
tion issued by the Governor General in Council and it provided as follows : 
'The Governor General in Council is plea<:ed to exempt from super-tax. 
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(i) so much of the income of any investment trust company as is derived 
from dividend paid by any other company which hm; paid or will pay 
super-tax in respect of the profits. out of wliich such dividends are 
paid." 
This Notification was followed by a provision of a similar kind 
granting 
exemption from super-tax in respect of certain specified categories of inter-
E 
corporate dividends introduced as s. 56A in the Indian Income Tax Act, 
1922. 
F 
G 
H 
When this Act was repealed mid the present Act enacted with effect from 1st 
April, 1962 s. 99, sub-section (1) was introduced in the present Act exempting 
c~rtain categories of income from super-tax and one of such cate~t..-rics was that 
set out in cl. (iv). Section 99, sub-section (i) cl. (iv) read as follows: 
"99(1) Super Tax shall not be payable by any asse~!lsee 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, subject to the provi5ions contained in the 
Fifth Schedule." 
This provision continued to be in force upto 31st March, 1965 subject to a 
minor inconsequentiaJ amendment made by Finance Act, 1964, 
but 
by 
an 
amendment made by Finance Act 10 of 1965, the provision was omitted 
and 
Chapter VI-A and s. 85A were introduced in the present .A.ct with effect from 
!st April, 1965. Chapter VIA comprised ss. 80A to SOD providing for certain 
specified deductions to be made in computing total incomf) while s. 85A pro- I 
vided for deduction of tax on inter-corporate dividends. 
The original Chapter VIA and certain other sections ind.uding s. 85A were 
deleted from the present Act by Finance (No, 2) Act, 1967 with effect from !st 
April, 1968 and replaced by a new Chapter VIA which contains a fasciculus of 
soctions from s. 80A to s. 80VV. Section 80A, sub-sectioa (!) provides that 
(984) 
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CLOTH TRADERS V. C.I.T. 
985 
in computing the total income of an assessee there shall be allowed from his 
A 
gross total income, in occordance with and subject to the provisions of Chapter 
VIA, the deductions specified in s. BOC to s. SOVV and sub-section (2) of that 
section imposes a ceiling on slich deductions by enacting that the aggregate. 
amount of such deductions shall not, in any case, exceed the gross total income 
of the essessee. The expression "gross total income" is defined in cl. (5) of s. 
SOB to mean the total income computed in accordance with the provisions of 
the Act before· making any deduction under Chapter ,VJA or -under s. 280. 0 
B 
Section SOM is the new section which corresponds to the repealed s. 85A and it 
provides for deduction in respect of certain categories of inter-corporate 
divi-
dends. There were several amendments made subsequently in this section 
but 
they relate primarily to the percentage of the income to be allowed 
as a 
deduction. 
One amendment that was made by Finance Act, 1968, was that the words 
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"received by it" occurring in sub-section ( l) of s. SOM \vere omitted with effect 
from 1st April, 1968. The Finance Act of 1968 also provided in sub-section 
(2) and (3) of s. 31 that notwithstanding the omission of s. 99, sub-section (I), 
cl. (iv) and s. 85.A, the provisions of these sections shall have and be deemed 
always to have effect, subject to the modification that the words "received 
by 
it" in the opening part of these sections were deleted. 
The net effect of these 
amendments was that the words ''received by it" following upon 
the words 
)) 
"'dividend" were omitted with retrospective effect from s. 99 sub-section (1), cl. 
(iv) and s. 85A and s. SOM was to be read as if the wo

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