1984 (12) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Whether the tax deducted at source on dividend could be treated as income for the purposes of section 11, Income-tax Act, 1961.
2. Whether the entire gross dividend income should be considered under section 80K, Income-tax Act, 1961, and if the pro rata basis applied by the Income-tax Officer for giving relief under section 80K was correct.

Summary:

Issue 1: Tax Deducted at Source on Dividend as Income u/s 11
The Tribunal held that the tax deducted at source on dividend could not be treated as income for the purposes of section 11, Income-tax Act, 1961. The assessee, a charitable trust, did not include the amount of tax deducted at source in its income, arguing that it had not been received and could not be applied for the trust's objectives. The Tribunal referred to a circular by the Central Board of Direct Taxes and concluded that "income" under section 11 should be understood in the commercial sense. Since the tax deducted at source was not actually received by the assessee, it could not be treated as income for the purpose of section 11. The High Court agreed with this interpretation, emphasizing that the immunity from taxation granted by section 11 applies to real income that has been actually received and applied for charitable purposes, not to notional income deemed to be received under section 198.

Issue 2: Gross Dividend Income u/s 80K
The second issue concerned whether the entire gross dividend income should be considered under section 80K, Income-tax Act, 1961. The Income-tax Officer had applied a pro rata basis, reducing the relief under section 80K by the portion of the dividend income that was exempt under section 11. The Tribunal, however, upheld the Appellate Assistant Commissioner's view that the entire gross dividend income should be considered under section 80K without such a pro rata reduction. The High Court agreed, stating that the assessee's gross total income was computed after allowing relief under section 11, and the assessee had sufficient funds apart from the dividend income to meet the expenditure qualifying for exemption. The Court emphasized that there is no legal principle requiring apportionment of income for charitable purposes and that the assessee could allocate its funds in the most advantageous manner.

Conclusion:
Both questions were answered in the affirmative and in favor of the assessee, with no order as to costs.