1985 (4) TMI 47 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income received by the assessee through the trust was an income by way of dividend within the meaning of section 80M of the Income-tax Act, 1961.
2. Whether the assessee was entitled to the deduction under section 80M of the Income-tax Act, 1961, in respect of the income received through the trust.

Issue-wise Detailed Analysis:

1. Income by Way of Dividend under Section 80M:

The Tribunal held that the income received by the assessee through the trust was indeed an income by way of dividend within the meaning of section 80M. The facts revealed that the assessee company was not the registered shareholder, but the trust was. Despite this, the Tribunal concluded that the gross total income of an assessee, being a company, included any income by way of dividends from a domestic company, thus entitling the assessee to deduction under section 80M. The Tribunal noted that whether the assessee company was a registered holder of shares was immaterial for the deduction. The Tribunal also reviewed various provisions of the I.T. Act, 1961, relating to dividend income and found that the circumstances did not warrant the Additional CIT's assumption of jurisdiction under section 263(1) to hold the ITO's orders as erroneous and prejudicial to the Revenue.

2. Entitlement to Deduction under Section 80M:

The Additional CIT had argued that the trust, not the assessee, was the owner of the shares, and thus the assessee was only entitled to the profits as a beneficiary. Consequently, the Additional CIT directed the ITO to withdraw the relief under section 80M. However, the Tribunal found that the assessee company, though not the registered shareholder, was entitled to the deduction under section 80M because the gross total income included income by way of dividends. The Tribunal emphasized that section 80M does not require the assessee company to be the registered holder of the shares to claim the deduction. The condition precedent for granting exemption under section 80M is the inclusion of income by way of dividends from a domestic company in the gross total income, which was satisfied in this case.

Supreme Court Decisions Cited:

Several Supreme Court decisions were cited, including Howrah Trading Co. Ltd. v. CIT, ITO v. Arvind N. Mafatlal, and CIT v. C. P. Sarathy Mudaliar, which established that only registered shareholders are entitled to certain tax benefits. However, the Tribunal differentiated these cases by pointing out that section 80M does not necessitate the assessee being the registered shareholder. The Tribunal also referred to section 199 and rule 30A, which allow a person other than the registered shareholder to get credit for tax deducted at source, reinforcing the assessee's entitlement to the deduction under section 80M.

Conclusion:

The High Court affirmed the Tribunal's decision, holding that the assessee company was entitled to the deduction under section 80M for the dividend income received through the trust. The Court concluded that the inclusion of dividend income in the gross total income of the assessee satisfied the requirements of section 80M, making the assessee eligible for the deduction. The Court answered both questions in the affirmative and in favor of the assessee, with no order as to costs.