1991 (6) TMI 7 - HC - Income Tax

Summary

Issues:
Interpretation of section 80M of the Income-tax Act, 1961 in relation to deduction for dividend income received by a trustee from the beneficiary company.
Applicability of section 161 of the Act in determining the tax liability of trustees in comparison to beneficiaries.
Whether the same company receiving dividend income from the trustees can avail of deduction under section 80M.

The judgment addresses a question of law referred to the High Court regarding the application of section 80M of the Income-tax Act, 1961. The case involves trustees of a pension fund who received dividend income from a company, of which the company itself was the sole beneficiary. The Income-tax Officer initially allowed a deduction under section 80M, but the Commissioner of Income-tax later disallowed it, stating that the deduction was not available to the trustees as they were assessed as an association of persons, not a company. The Tribunal, however, held that the deduction under section 80M should be allowed, citing a Supreme Court decision. The Revenue argued that section 80M only applies to intercorporate dividends, not dividends received by the same company. The assessee contended that section 161 of the Act imposes vicarious liability on trustees and that relief under section 80M aims to prevent double taxation of dividend income. The judgment refers to previous Supreme Court decisions emphasizing the equivalence of assessment between trustees and beneficiaries under section 161. The High Court agreed with the assessee, ruling that the trustees should be treated in the same manner as the beneficiary for both income computation and tax determination. The court also rejected the Revenue's argument that the same company receiving dividend income cannot avail of section 80M deduction, highlighting that the receipt of dividends by the company as a beneficiary is distinct from its payment as an individual entity. The judgment concludes by affirming the Tribunal's decision to allow the deduction under section 80M and awarding costs to the assessee.