1989 (11) TMI 1 - SC - Income Tax

Dividends - Whether Tribunal was justified in allowing deduction under section 80K on the gross dividend income without taking into account deduction for interest paid on moneys borrowed specifically for investment in shares - It may be mentioned that the statutory provisions have also been subsequently modified by the insertion of section 80AB with effect from April 1, 1981 - hence question referred to us is answered in the negative and in favour of the appellant

Summary

Issues:
Interpretation of section 80K of the Income-tax Act, 1961 regarding allowance of relief on gross dividend income vs. net dividend income.

Analysis:
The case involved the interpretation of section 80K of the Income-tax Act, 1961, regarding the allowance of relief on gross dividend income as opposed to net dividend income. The assessee, an individual, had a gross dividend income of Rs. 1,04,198 and had paid Rs. 44,219 as interest on borrowings for investments that earned the income. The Income-tax Officer allowed relief under section 80K only on the net dividend income of Rs. 59,979, deducting the interest payments made. The Appellate Assistant Commissioner, relying on previous court decisions, upheld the assessee's contention that relief under section 80K should be allowed on gross dividends, not net dividends.

The Department appealed the decision before the Tribunal, which also rejected the departmental stand. The Tribunal emphasized that the expression 'income by way of dividends' in sections 80K and 80M should be construed to include gross dividend received by an assessee without any limitation. Referring to past court decisions, the Tribunal dismissed the departmental appeal, stating that relief under section 80K should be based on gross dividends, not net dividends.

The matter was then referred to the Supreme Court, which cited previous judgments like Cambay Electric Supply Industrial Co. Ltd. v. CIT and Distributors (Baroda) P. Ltd. v. Union of India. The Court noted that the question posed had been answered negatively in these cases and that statutory provisions had been modified by the insertion of section 80AB. Consequently, the Supreme Court answered the question in the negative, in favor of the appellant, directing the Tribunal to dispose of the case in line with the judgment under section 260 of the Act. The Court also ruled that there would be no order as to costs, ultimately answering the question in the negative.