2010 (7) TMI 971 - HC - Income Tax

Summary

Issues involved:
The judgment deals with the issues of deduction under Section 36(1)(viii) and Section 80M of the Income Tax Act, 1961, specifically regarding whether the deduction should be allowed under business income or Income from other sources, and the correct method of calculating deductions on dividend income.

Deduction under Section 36(1)(viii):
The Assessee, a housing finance company, claimed deduction under Section 36(1)(viii) on total income including dividend income. The assessing authority noted that deduction under Section 80M should be based on dividend income computed under the Act, after reducing the claim under Section 36(1)(viii). The Commissioner (Appeals) agreed with the Assessee that deduction under Section 80M should be based on dividend income computed under "Income from other sources." The Tribunal upheld this decision, stating that if deduction under Section 36(1)(viii) is allowed for business income while dividend income is taxed under "Income from other sources," the deduction does not alter the dividend income. Therefore, the Tribunal affirmed the lower appellate authority's decision.

Interpretation of Sections 36(1)(viii) and 80M:
The revenue contended that granting deductions under both Section 36(1)(viii) and Section 80M on the same dividend income would result in double benefit, citing Section 80AA which aims to calculate net income in accordance with the Act. However, the Assessee argued that Section 36(1)(viii) falls under Chapter IV, dealing with business income, while Chapter VI-A covers deductions for total income. The Assessee maintained that both sections operate in distinct areas, and the additional benefit accruing to them is not prohibited by law. The appellate authorities were justified in granting the benefit of these provisions.

Relevant Provisions and Conclusion:
Section 36(1)(viii) allows deduction for special reserves created by financial corporations engaged in long-term finance for industrial or agricultural development. Section 80AA specifies that deductions under Section 80M should be based on dividend income computed under the Act. A harmonious reading of these provisions clarifies that deductions under Section 36(1)(viii) and Section 80M operate in different fields. The judgment concludes that the Assessee is entitled to benefits under both sections, and there is no prohibition on claiming these deductions concurrently. Therefore, the appeal was dismissed in favor of the Assessee.