2014 (11) TMI 553 - HC - Income Tax

Relief u/s 80M Investment made from owned funds - Whether the Tribunal is right in treating the investment as having been made by the assessee from his own funds for granting relief u/s 80M - Held that - The Tribunal rightly observed that the amount of interest on borrowings for purchase of shares has to be deducted from the gross total income - The decision rendered in the case of Distributors (Baroda) Pvt. Ltd vs. Union of India & Others 1985 (7) TMI 1 - SUPREME Court was considered by the Tribunal wherein it is held that the deduction required to be allowed u/s 80M has to be calculated with reference to amount of dividend computed in accordance with the provisions of the Income Tax Act and forming part of the gross dividend received by the assessee - the CIT(A) was justified in holding that the interest attributable to acquisition of shares of domestic companies has to be deducted from the gross total income which includes dividend from the domestic companies before computation of deduction u/s 80M of the Act Decided against revenue.

Summary

Issues:
Interpretation of Section 80M of the Income Tax Act for deduction on dividend income.

Analysis:
The appellant challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the treatment of a substantial investment for granting relief under Section 80M of the Income Tax Act. The Assessing Officer initially rejected the claim of the assessee regarding interest expenses and dividend income. The Commissioner of Income Tax (Appeals) directed the AO to deduct the interest attributable to investments from the dividend received by the assessee and compute the deduction under Section 80M on the net amount. The ITAT upheld the CIT(A)'s order. The appellant contended that the Tribunal erred in treating the investment as made from the assessee's own funds. However, the High Court agreed with the Tribunal's reasoning. The Court referenced the case of Distributors (Baroda) Pvt. Ltd vs. Union of India & Others, stating that the deduction under Section 80M must be calculated based on the dividend income forming part of the gross total income. Therefore, the interest attributable to the acquisition of shares had to be deducted before computing the deduction under Section 80M. Consequently, the Court ruled in favor of the assessee and dismissed the appeal, affirming the decision of the ITAT.