1981 (11) TMI 22 - HC - Income Tax

Summary

Issues:
Interpretation of relief under section 85 of the Income Tax Act for dividends received from companies entitled to relief under section 84.

Detailed Analysis:

The case involved an individual assessee who received dividends from companies entitled to relief under section 84 of the Income Tax Act for the assessment years 1966-67 and 1967-68. The question was whether the assessee was entitled to relief under section 85 of the Act for these dividends. The Assessing Officer initially allowed the claim but later reopened the assessments, stating that excessive relief had been granted. The Additional Commissioner of Income-tax contended that relief under section 85 should not be granted when there was no positive income from dividends. The Appellate Authority Commissioner (AAC) disagreed and directed the relief to be granted, leading to an appeal by the Department before the Income-tax Appellate Tribunal.

The Tribunal held that the assessee should be entitled to relief under section 85 for dividends received from companies exempt under section 84, even if there was a deficit due to interest payments on shares in other companies. The Tribunal cited relevant case laws to support its decision, including decisions of the Supreme Court and the Bombay High Court. The Tribunal confirmed the AAC's order, dismissing the Department's appeal.

The High Court analyzed the relevant provisions of section 85 and compared it with similar provisions in other sections. It emphasized that the relief under section 85 should be based on the full amount of dividend paid to the assessee by a company with profits from an industrial undertaking exempt under section 84. The Court referred to previous judgments supporting this interpretation, including decisions from the Calcutta and Bombay High Courts.

The Court rejected the Revenue's argument that relief should not be granted when dividend income resulted in a loss, emphasizing that the exemption under section 85 should be determined at the point of dividend payment and should not be reduced by any other expenditure or deficit. The Court upheld the Tribunal's decision, stating that the assessee was entitled to relief under section 85 for the dividends received from companies qualifying for exemption under section 84.

In conclusion, the Court answered the question in favor of the assessee, stating that the relief under section 85 should be granted for dividends received from companies exempt under section 84, regardless of any deficits or interest payments on shares in other companies. The Court awarded costs to the assessee and emphasized the applicability of relevant case laws in interpreting the provisions of the Income Tax Act.