2010 (10) TMI 859 - HC - Income Tax

Income distributed by PNB Mutual Fund - whether deduction u/s 80-M allowed - Held that - A bare reading of provision of Sec 80M clearly spells out that where the gross total income of an assessee which is a domestic company in any previous year includes any income by way of dividends from another domestic company, the assessee shall be entitled to deduction of such dividend from its income as does not exceed the amount of dividend distributed by such domestic company. Thus, the assessee is entitled to deduction when it receives dividend income from another domestic company. As in the present case, neither the income received from PNB Mutual Fund can be termed as dividend income nor can the said fund be categorized as the domestic company within the meaning of Section 80M the question of law is answered against the assessee.

Summary

Issues:
1. Whether deduction under Section 80M of the Income Tax Act is allowable for income distributed by PNB Mutual Fund?

Analysis:
1. The judgment concerns the disposal of multiple appeals involving a common question of law and facts related to the deduction under Section 80M of the Income Tax Act.

2. The substantial question of law considered was whether the Tribunal was correct in disallowing the deduction under Section 80M to the assessee company for income distributed by PNB Mutual Fund.

3. The assessee, engaged in textile and hosiery garment manufacturing, claimed a deduction under Section 80M for the assessment year 1992-93. The Assessing Officer disallowed the deduction, which was upheld by the CIT(A) and the Tribunal, leading to the present appeal.

4. The primary issue for determination was whether the income received by the assessee from PNB Mutual Fund could be considered for deduction under Section 80M of the Act.

5. The counsel for the assessee argued that the income from PNB Mutual Fund was akin to dividend income, making it eligible for deduction under Section 80M, citing relevant case law to support the claim.

6. Conversely, the revenue's counsel contended that the income distributed by PNB Mutual Fund was not dividend income and that the Mutual Fund did not qualify as a domestic company, thus disallowing the deduction under Section 80M.

7. The court examined Section 80M, emphasizing that the deduction is permissible when a domestic company receives dividend income from another domestic company, highlighting the specific criteria for eligibility.

8. The Assessing Officer's decision to disallow the deduction was based on the grounds that PNB Mutual Fund was not a domestic company, rendering the income received not eligible for deduction under Section 80M.

9. The findings of the CIT(A) and the Tribunal concurred with the Assessing Officer's decision, further clarifying that no deduction under Section 80M could be claimed for the income received from a mutual fund.

10. The court differentiated the present case from precedent, emphasizing that the income from PNB Mutual Fund did not qualify as dividend income and that the fund itself did not meet the criteria of a domestic company under Section 80M.

11. Ultimately, the court ruled against the assessee, dismissing the appeals and upholding the decision to disallow the deduction under Section 80M for the income distributed by PNB Mutual Fund, in favor of the revenue.