2008 (1) TMI 13 - HC - Income Tax

Deduction - Revenue contended that assessee is not entitled for deduction u/s 80M in respect to the interim dividend related to next AY declared by the assessee before return filing of current AY - After bare reading of section 80M doesn t found revenue contention valid, hence deduction allowed to assessee

Summary

Issues:
1. Whether the Tribunal was justified in dismissing the appeal of the Revenue regarding the deduction under Section 80M of the Income Tax Act?
2. Whether the Tribunal was correct in allowing the deduction under Section 80M for the Assessment Year 1997-98 even though the dividend distributed was related to the subsequent year?

Analysis:

Issue 1:
The appellant raised concerns about the Tribunal's decision to dismiss the Revenue's appeal based on its own order in a previous case. The case involved an Assessee Company that declared an interim dividend for the financial year 1997-98 before the due date for tax returns. The company claimed a deduction under Section 80M of the Income Tax Act, which was initially disallowed by the Assessment Officer but later allowed by the Commissioner of Income Tax (Appeals). The Tribunal relied on a previous judgment and directed the Assessment Officer to allow the deduction. The Revenue argued that the dividend declared and paid in a subsequent year should not be deducted from the income of the previous year. However, the Court found that the requirements of Section 80M were met by the Assessee Company as the dividend income was redistributed to shareholders before the due date, fulfilling the legislative intent behind the provision. Therefore, the appeal was dismissed.

Issue 2:
The second issue revolved around the correctness of allowing the deduction under Section 80M for the Assessment Year 1997-98, even though the dividend distributed was related to the subsequent year. The Revenue contended that permitting the deduction for a subsequent year's dividend in the previous year would lead to an unintended result. The Revenue relied on a Supreme Court judgment to argue for a broader interpretation of the law. However, the Court determined that the literal interpretation of Section 80M did not lead to an absurd result and that the legislative intent was clear in ensuring the redistribution of dividend income to shareholders before the due date. Therefore, the Court upheld the Tribunal's decision to allow the deduction, emphasizing that all requirements of Section 80M were satisfied by the Assessee Company. Consequently, the questions raised in the appeal were deemed irrelevant, and the appeal was dismissed.