2008 (6) TMI 169 - HC - Income Tax

Appellant, a scheduled bank, claimed deduction of 4/5th of the dividend income received from the UTI under proviso (a) to Section 80 M(1) - argument of the Revenue that admissible deduction for dividend income from UTI for the year 1994-95 is only 4/5th of 60% of such income is rejected - assessee is entitled to deduction of 4/5th of the dividend income received from the UTI - For the year 1995-96, the limitation is only what is provided in clause (b) of the proviso to S. 80M(1)

Summary

Issues:
Interpretation of Section 80M for deduction of dividend income from Unit Trust of India.

Analysis:
The appellant, a scheduled bank, claimed deduction of 4/5th of the dividend income received from the Unit Trust of India under proviso (a) to Section 80M(1) of the Income Tax Act for the assessment year 1994-95. The Assessing Officer restricted the deduction to 4/5th of 60% of the dividend income from the Unit Trust, interpreting 'such income' to mean 60% of dividend income mentioned in sub-clause (i) of Section 80M(1). The First Appellate Authority allowed the appeal, granting the appellant deduction of 60% on the dividend income from the Unit Trust. However, the Tribunal reversed this decision, leading to the appeal raising questions on the entitlement to deduction. The main issue was whether the appellant is entitled to 4/5th of the dividend income from the Unit Trust of India or only 4/5th of 60% of the dividend income for the assessment year 1994-95.

The interpretation of 'such income' in provisos (a) and (b) of Section 80M was crucial to determine the deduction entitlement. The proviso introduced by the Finance Act 1993 phased out deductions for dividend income from the Unit Trust of India for domestic companies. The appellant argued that 'such income' refers to dividend income from the Unit Trust of India, entitling them to 4/5th of the total dividend income. The Revenue contended that 'such income' meant 60% of the dividend income received from the Unit Trust due to the appellant being covered by clause (i) of Section 80M(1). The purpose of the proviso was to gradually eliminate deductions for dividend income from the Unit Trust of India.

The Court held that 'such income' in the proviso referred to dividend income from the Unit Trust of India, not the relief portion of 60%. The proviso aimed to phase out deductions for such income, starting with 4/5th for the year 1994-95. The limitation was specific to clause (a) of the proviso, not clause (i) of Section 80M(1). Therefore, the appellant was entitled to deduction of 4/5th of the dividend income from the Unit Trust of India for the assessment year 1994-95. The appeal was allowed, reversing the Tribunal's decision and restoring the First Appellate Authority's order in favor of the assessee.