Law:

Section:

section 85a [now section 80m] of the income-tax act, 1961-deduction of tax on intercorporate dividend received from a domestic company-how the expression "the average rate of income-tax on the income so included" should be interpreted-held that the average was to be determined in the manner laid down in section 2(10) Facts For the assessment year 1965-66, the assessee-company's total income was Rs. 18,45,522 including Rs. 6,18,572 of taxable dividend income, in respect of which deduction under section 85A was available to it "at the average rate of income-tax on the income so included" less 25 per cent. The ITO found that the aggregate income-tax payable by the assessee-company on its total income was Rs. 10,09,373. This, according to him, meant that the above dividend income suffered tax at the average rate of 54.69 per cent (Rs. 10,09,373 divided by Rs. 18,45,522). Accordingly, he allowed deduction at the rate of 29.69 per cent (i.e., 54.69 less 25 per cent). The amount of deduction came to Rs. 1,83,654. The calculation was considered to be correct both by the AAC and the Tribunal. The assessee, however, contended that the 'average rate' for the purpose of section 85A was the average rate of tax on the intercorporate dividends and not the average rate on the total income as was calculated by the ITO and that the section was required to be interpreted in consistence with the declared aim and objective of the provision and with the position existing earlier under a comparable provision under section 99(1)(iv). On reference: Held There was no ambiguity in the clear wording of section 2(10) which defined the expression, "average rate of income-tax". Hence, there was no question of adopting a view which was more favourable to the assessee. The ITO's calculation was correct. Case referred to ITO v. Raleigh Investment Co. Ltd. [1976] 102 ITR 616 (Cal.). JUDGMENT Desai J.-This is a reference at the instance of the assessee under section 256(1) of the Income-tax Act, 1961, and in the reference the following question has been referred to us : "Whether deduction of tax on inter-corporate dividends in the hands of the assessee has been properly allowed under the…

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