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2009 (10) TMI 578 - AT - Income TaxDeduction u/s 80M - the learned DR referred to the assessment order for the asst. yr. 1994-95 and pointed out that the assessee had conceded before the AO for restriction and, therefore, the assessee cannot be said to be aggrieved by the order of the assessment order - The learned counsel for the assessee submitted even if dividend income was classified as business income, deduction under s. 80M could not be denied as there is no such restriction in s. 80M of the Act - Deduction under s. 80M has to be allowed on the gross dividend and not on the net dividend after apportioning the interest expenses and management expenses - On the basis of majority view, AO is directed to allow the deduction under s. 80M of the Act on net basis in respect of dividend from UTI and on gross basis in respect of dividend from other shares Appeal is partly allowed
Issues Involved:
1. Whether the deduction under section 80M of the Income Tax Act is available in respect of dividend income. 2. Whether the deduction under section 80M should be allowed on a gross basis or net basis. Issue-Wise Detailed Analysis: 1. Deduction under Section 80M for Dividend Income: - The Tribunal initially adjudicated the appeals, including the assessee's appeals, and later reconsidered the issue of section 80M deduction for dividend income. - The Tribunal recalled its order to adjudicate whether section 80M deduction is available for dividend income, regardless of whether it is assessed as business income or income from other sources. - The Tribunal allowed the miscellaneous petition filed by the assessee, thus recalling the order to determine if the deduction under section 80M is available for dividend income and whether it should be allowed on a gross or net basis. 2. Gross vs. Net Basis for Section 80M Deduction: - The Departmental Representative argued that the assessee had conceded before the Assessing Officer (AO) for restriction, and thus, the assessee should not have filed an appeal, and the CIT(A) should not have adjudicated the appeal. - The Departmental Representative relied on the decision of the Hon'ble Supreme Court in the case of Motilal Pesticides (I) (P) Ltd. vs. CIT, arguing that the deduction under section 80M should only be allowed on a net basis. - The assessee's counsel argued that even if dividend income is classified as business income, section 80M deduction cannot be denied, and referred to various judicial decisions supporting the deduction on a gross basis. - The Tribunal considered the rival submissions and noted that the assessee's representative had only conceded in respect of dividend from UTI, not for other shares. - The Tribunal concluded that for the dividend from UTI, the deduction under section 80M should be allowed on a net basis, while for other shares, it should be allowed on a gross basis. Separate Judgments by Judges: - One member, U.B.S. Bedi, disagreed with the findings regarding the allowability of section 80M deduction on a gross or net basis, citing the jurisdictional High Court's decision in CIT vs. Chemical Holdings Ltd., which held that the deduction should be on the net dividend. - The Third Member, Pradeep Parikh, was nominated to resolve the difference of opinion. He examined the facts and concluded that the assessee's activities constituted an indivisible business, and therefore, the dividend income should be treated as business income, eligible for deduction under section 80M on a gross basis. Final Decision: - The majority view, including the Third Member's opinion, held that the deduction under section 80M should be allowed on a gross basis for dividend income, except for the dividend from UTI, which should be on a net basis. - Consequently, the order of the CIT(A) was partly set aside, and the AO was directed to allow the deduction under section 80M on a net basis for UTI dividends and on a gross basis for other shares. - The appeals filed by the Revenue were partly allowed.
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