2007 (7) TMI 654 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deduction claimed u/s 80-M of the Income Tax Act, 1961.
2. Applicability of Section 115-O (5) of the Income Tax Act, 1961.

Summary:

Issue 1: Disallowance of Deduction Claimed u/s 80-M
The assessee company received dividend income of Rs. 1,00,95,751/- from seven different Indian companies during the Assessment Year 2003-04 and distributed Rs. 1,00,90,000/- as dividend on 07.08.2003. The assessee claimed a deduction u/s 80-M of the Income Tax Act, 1961. The Assessing Officer disallowed the claim, stating that the deduction u/s 80-M was only available for dividends distributed between 01.04.2002 and 31.03.2003. The CIT(A) upheld this disallowance, noting that Section 80-M was omitted by the Finance Act, 2003 with effect from 01.04.2004, and thus, the assessee was not entitled to the deduction for dividends distributed after 31.03.2003.

Issue 2: Applicability of Section 115-O (5)
The CIT(A) further reasoned that Section 115-O (5) prohibits any deduction for the amount on which dividend distribution tax has been paid. The CIT(A) concluded that since the dividend distribution tax was paid on the dividend distributed after 01.04.2003, the deduction u/s 80-M could not be allowed. The assessee argued that the deduction was claimed on account of dividend earned, not distributed, and that Section 115-O (5) does not restrict the allowability of the claim u/s 80-M. The Tribunal agreed with the assessee, stating that Section 115-O (5) does not restrict the deduction u/s 80-M, which pertains to dividends received, not distributed.

Conclusion:
The Tribunal held that the assessee is entitled to claim the deduction u/s 80-M for the dividend income received during the year to the extent of Rs. 1,00,90,000/-. The appeal filed by the assessee was allowed.

Order Pronounced:
The appeal was allowed on 18th July, 2007.