2013 (7) TMI 625 - HC - Income Tax

Deduction u/s 80M - Dividend received from UTI - CIT(A) rejected deduction u/s 80M as dividend distribution was related to earlier years - Tribunal granted deduction - Held that - Section 80M(1) for the purpose of interpretation can be segregated into two parts or postulates two requirements. The first requirement is that gross income of a domestic company in the previous year should include income by way of dividend from another domestic company. The said condition it is accepted is satisfied as the respondent-assessee had received dividend from another domestic company - The second part of Section 80M(1) states that in the year in which the dividend was received, the assessee company would be allowed a deduction of an amount equal to and not exceeding the amount of dividend distributed on or before the due date - Dividend was paid to the shareholders of the assessee before due date - second part of Section 80(1) of the Act, does not specifically postulate or prescribes the requirement that dividend distributed must match or relate to the assessment year itself - Payment of dividend in several cases may spill over and distribution can and does take in the subsequent year - Following decision of The Commissioner of Income-tax Versus M/s. Saumya Finance & Leasing Co. (P) Ltd. 2008 (1) TMI 13 - BOMBAY HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 80M of the Income Tax Act, 1961 regarding deduction for intercorporate dividends.
2. Claim for deduction under Section 80M based on dividend distribution from previous financial years.
3. Requirement of matching dividend distribution with the assessment year for claiming deduction.

Analysis:
1. The judgment concerns the interpretation of Section 80M of the Income Tax Act, 1961, specifically focusing on whether the Income Tax Appellate Tribunal was correct in allowing a deduction under this section. The case involved a domestic company wholly owned by the Government of NCT of Delhi for the Assessment Year 1993-94, which claimed a deduction under Section 80M based on receiving a dividend from Unit Trust of India (UTI).

2. The Assessing Officer disallowed the deduction under Section 80M, stating that the dividend distribution related to earlier financial years, 1990-91 and 1991-92, and not the current assessment year. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing that the dividend payment was not for the relevant year. However, the Income Tax Appellate Tribunal noted that the dividend was distributed before the due date, which is a crucial factor for claiming the deduction under Section 80M.

3. The court analyzed the provisions of Section 80M in detail, highlighting that the second part of the section does not mandate the dividend distribution to match the assessment year itself. The judgment referenced a similar case from the Bombay High Court, emphasizing that the focus is on the distribution of dividends rather than the specific year to which the dividends relate. The court rejected the Revenue's argument that such an interpretation would lead to absurd results, stating that the intention of the legislature was to ensure dividend income redistribution to shareholders.

4. Ultimately, the court ruled in favor of the respondent-assessee, affirming that the deduction under Section 80M should be allowed based on the distribution of dividends before the due date, regardless of the specific financial year to which the dividends relate. The judgment highlighted that accepting the Revenue's interpretation would undermine the purpose of the provision and potentially deny benefits to many companies. The court dismissed the appeal, upholding the respondent's entitlement to the deduction under Section 80M.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the court's reasoning behind the decision regarding the interpretation and application of Section 80M of the Income Tax Act, 1961.