Report No. 12

59. Grossing up of dividends.-

(1) For the purposes of inclusion in the total income of an assessee any dividend paid by a company whose total income is chargeable to income-tax under this Act shall be the gross amount of the dividend as determined under sub-section (2).

[Section 16(2), main para., part]

(2) Subject to the provisions of sub-section (3), the gross amount of the dividend shall be the amount of the net dividend as increased in accordance with the following formula-

Increase =	D x R
	100 minus R.

In the above formula,-

(i) "Increase" stands for the increase to be made in the amount of the net dividend;

(ii) 'D' stands for the amount of the net dividend; and

(iii) 'R' stands for the average rate of income-tax applicable to the company for the financial year in which the dividend is paid, credited or distributed or deemed to have been paid, credited or distributed. The rate is to be expressed as a percentage; for example, where the rate is 25 naya paise 'per rupee, 'R' stands for the figure 25.

[Section 16(2), main para., part]

(3) When the fund out of which the dividend has been paid, credited or distributed or deemed to have been paid, credited or distributed includes-

(i) any profits and gains of the company not included in its total income, or

(ii) any income of the company on which income-tax was not payable, or

(iii) any amount attributable to any allowance made in computing the profits and gains of the company, the increase to be made under sub-section (2) shall be calculated only upon such proportion of the net dividend as the said fund after deduction of the inclusions enumerated above bears to the whole of that fund.

[Section 16(2), proviso]