2019 (1) TMI 1531 - HC - Income Tax

Deduction u/s 80M - revision u/s 263 - Deduction in respect of certain inter-corporate dividends - case of the Revenue is that the benefit of the dividend declared in respect of Assessment Year 2002 to 2003 cannot be taken by the Assessee particularly seeing as the provisions of Section 80M were themselves introduced only with effect from 01.04.2003 - whether dividend distributed would include dividends declared in the earlier year but paid out in the current year? Held that - No fetter set out in the provision in this regard. Though the declaration of dividend by the appellant had been occasioned in the financial years 2001-02 as well as 2002-03, there is no dispute on the position that the dividend had in fact, been paid out by the assessee only during the relevant financial year and that too prior to the due date for filing the return. Accepting the submission of the Revenue, would, in our view tantamount to inserting a new condition in the statutory provision which is impermissible in law. We are thus in agreement with the Tribunal in their conclusion that the assessee is entitled to the deduction sought. We draw support in this regard from the decisions of the Division Bench of the Delhi High Court in the case of Commissioner of Income Tax V. Delhi Tourism & Transportation Development Corporation Ltd.(2013 (7) TMI 625 - DELHI HIGH COURT) and Commissioner of Income Tax V. Saumya Finance and Leasing Co. P. Ltd. (2008 (1) TMI 13 - BOMBAY HIGH COURT), which have taken views similar to the one expressed by us above. - decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of Section 80M of the Income Tax Act regarding deduction for inter-corporate dividends.
2. Validity of Commissioner's revision of assessment under Section 263 of the Act.
3. Determination of whether dividend declared in an earlier year but paid out in the current year qualifies for deduction under Section 80M.
4. Assessment of whether dividend declared before the enactment of Section 80M but paid out after its implementation can be considered for deduction.

Analysis:
Issue 1: The case involved a dispute over the interpretation of Section 80M of the Income Tax Act, which allows for a deduction in respect of inter-corporate dividends. The Commissioner, under Section 263, revised the assessment, limiting the deduction claimed by the assessee. However, the Income Tax Appellate Tribunal ruled in favor of the assessee, stating that there was no legal condition supporting the Commissioner's decision. The High Court agreed with the Tribunal, emphasizing that the deduction is allowed for dividends received from a domestic company, provided the distribution of the dividend occurs before the due date of filing the return of income.

Issue 2: The Commissioner's exercise of powers under Section 263 to revise the assessment was challenged. The High Court examined the provisions of Section 80M and determined that the Commissioner's restriction on the deduction claimed by the assessee was not supported by the law. The Court upheld the Tribunal's decision, emphasizing that inserting new conditions into statutory provisions is impermissible in law.

Issue 3 and 4: The High Court addressed the questions raised regarding the treatment of dividends declared in earlier years but paid out in the current year, as well as dividends declared before the enactment of Section 80M but paid out after its implementation. The Court found that there was no legal impediment to considering such dividends for deduction under Section 80M, as long as the distribution occurred before the due date for filing the return of income. The Court cited decisions from the Delhi High Court and the Bombay High Court to support its interpretation.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee on all substantial questions of law. The judgment clarified the interpretation of Section 80M and emphasized that deductions are permissible for dividends distributed before the due date for filing the return of income, irrespective of when the dividends were declared.