1985 (5) TMI 67 - AT - Income Tax

Summary

Issues:
- Interpretation of section 80K of the Income Tax Act
- Eligibility of the assessee for exemption under section 80K
- Allocation of dividend income to the assessee
- Applicability of relief under section 80K to the assessee

Analysis:

The case involved an appeal by the Revenue for the assessment year 1981-82 regarding the eligibility of the assessee for exemption under section 80K of the Income Tax Act. The Revenue contested the order of the CIT (A) which granted the assessee exemption on its share of dividend income from a firm in which it was a partner. The Revenue argued that the exemption, if applicable, should be in the hands of the shareholder firm and not the assessee as per the provisions of section 80K. The assessee, a Private Limited Company, derived income from manufacturing and also received share income from a firm, with dividend income allocated to its share.

The assessee's counsel claimed relief under section 80K for the assessee, regardless of the shareholder firm also claiming the same relief. The counsel argued that the income from dividends should be apportioned to the assessee's share under the head 'Dividend income,' making the assessee eligible for relief under section 80K. However, upon examining the provisions of section 80K, the Tribunal concluded that the CIT (A) had erred, and the Revenue was correct in asserting that the deduction under section 80K was not allowable to the assessee. The Tribunal highlighted the significance of the word 'or' in the section, indicating that the deduction is available to either the owner of shares or a person chargeable to tax on dividend income, not both simultaneously.

The Tribunal emphasized that section 80K aims to provide relief to the person in whose hands the dividend income is taxable, not to multiple entities simultaneously. It clarified that the provision applies to the beneficial owner of shares whose dividend income is taxed, not the legal owner whose name is registered in the company's books. Since the shareholder firm, not the assessee, was the beneficial owner of the shares, the Tribunal ruled in favor of the Revenue, reversing the decision of the CIT (A) and reinstating the order of the Income Tax Officer. Consequently, the appeal of the Revenue was successful, and relief under section 80K was denied to the assessee.