2015 (7) TMI 572 - HC - Income Tax

Entitlement to deduction of gross dividend under Section 80-M - Whether Tribunal was correct in allowing the deduction whereas the Apex Court had in Distributors Baroda Pvt. Ltd. (1985 (7) TMI 1 - SUPREME Court ) held that only net dividend is deductible? - Held that - It is undisputable that the Hon ble Supreme Court in Distributors (Baroda) Pvt. Ltd. (supra) has held that deductions under Section 80-M would not be of the gross amount but of the net amount of dividend received i.e. after deducting the interest paid on monies borrowed. In the facts before the Hon ble Apex Court, the Distributors (Baroda) Pvt. Ltd. borrowed to invest in shares for earning dividend income. Thus the decision in the case of Distributors (Baroda) P. Ltd. (supra) is distinguishable in facts as in those facts there was interest paid on money borrowed to make investment in companies which resulted in income to the assessee therein. This is not so factually in this case. The decision of the Apex Court would have no application in the present facts and hence gross dividend and net dividend received is the same. In the present facts, as amply demonstrated in the impugned order, the respondent-assessee had its own funds available to make the investment. Therefore, the presumption as set out in Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - HIGH COURT BOMBAY) would apply, which presumption the revenue has not disturbed. Moreover, for the earlier assessment year, the revenue has extended the benefit of deduction under Section 80-M as claimed by the respondent-assessee without deducting any amount. In view of the above, the impugned order has granted deduction under Section 80-M of the Act as claimed. - Decided against revenue. Profits of the Marketing Division of the respondent Company - whether entitled for deduction under Section 80IB - Held that - The impugned order the Tribunal has upheld the respondent s claim for deduction under Section 80I of the Act by merely following its own decision in the case of Hindustan Petroleum Corpn. Ltd. 1989 (7) TMI 150 - ITAT BOMBAY-B . In the above decisions wherein in respect of identical issue, this Court has held that deduction under Section 80I of the Act refers to profits and gains from industrial undertaking. It held that manufacturing, processing and marketing are part of the industrial undertaking.- Decided against revenue.

Summary

Issues:
1. Deduction of gross dividend under Section 80-M
2. Deduction for profits of the Marketing Division under Section 80IB

Analysis:

Issue 1: Deduction of gross dividend under Section 80-M

The appeal by the revenue challenged the order passed by the Income Tax Appellate Tribunal (the Tribunal) regarding the deduction of gross dividend under Section 80-M for the assessment year 2003-04. The Assessing Officer disallowed the claim for deduction under Section 80-M on a net basis, citing the Supreme Court judgment in Distributors (Baroda) P. Ltd. v/s Union of India, which held that only net dividend is deductible. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing the lack of proof that interest-bearing funds were not invested in shares for earning dividend income. However, the Tribunal noted that the respondent received dividends from various companies, with significant investments made from its own funds. The Tribunal relied on the principle that if an assessee has sufficient interest-free funds available, a presumption arises that investments were made from such funds. As the revenue contended that deductions should be allowed only on a net basis, the Tribunal differentiated the facts from Distributors (Baroda) P. Ltd., where interest was paid on borrowed money for investments. In this case, the respondent had its own funds for investments, justifying the allowance of deduction on a gross basis under Section 80-M. The Tribunal's decision, based on factual findings, was upheld as not perverse or arbitrary, thus not necessitating consideration as a substantial question of law.

Issue 2: Deduction for profits of the Marketing Division under Section 80IB

The Tribunal upheld the respondent's claim for deduction under Section 80I by following its decision in Hindustan Petroleum Corpn. Ltd., which held that profits and gains from industrial undertakings include activities like manufacturing, processing, and marketing. This interpretation was consistent with previous decisions of the Court, affirming that marketing activities fall under the purview of an industrial undertaking. As the revenue did not challenge the applicability of the previous decision to the current case, the Tribunal's order was deemed appropriate, and the issue did not raise a substantial question of law for consideration.

In conclusion, the appeal was dismissed, and no costs were awarded.