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Issues:
- Interpretation of Section 80M of the Income-tax Act, 1961 regarding deduction for inter-corporate dividend. - Whether a partner in a firm can claim deduction under Section 80M for dividend income received from the firm. - Determining the eligibility of a company for deduction under Section 80M based on the ownership of shares. - Correct calculation and allocation of income for the purpose of claiming deduction under Section 80M. Analysis: 1. The appeal by the revenue was against the order of the CIT(A) for the assessment year 1988-89, challenging the allowance of relief under Section 80M on dividend income of Rs. 91,100. The assessee, a Private Limited Company, was a partner in a firm and received dividend income along with other sources of income. The CIT(A) allowed the claim based on the principle that income retains its character even when assessed in the hands of a partner. 2. The Assessing Officer initially rejected the claim, arguing that as the assessee was a shareholder in a firm, it could not be considered to have dividend income from a domestic company. However, the CIT(A) relied on previous court decisions to support the assessee's claim that income retains its character, leading to the allowance of relief under Section 80M. 3. The main contention revolved around whether the assessee, as a partner in the firm, could claim deduction under Section 80M for the dividend income received from the firm. The Departmental Representative argued that the deduction cannot exceed the income from the firm added to the assessee's income. The counsel for the assessee contended that ownership lies with the partners in their profit-sharing ratio, and the character of income remains the same in the hands of the partners. 4. The Tribunal analyzed the provisions of Section 80M, emphasizing that the deduction is allowed to a domestic company in respect of dividend income included in its gross total income. The Tribunal concluded that the share income from the firm, representing dividend income, should be considered for deduction under Section 80M, regardless of ownership of shares. 5. The Tribunal further clarified that the ownership of shares by the assessee was not a prerequisite for claiming the deduction under Section 80M. The key factor was whether the gross total income included income by way of dividend, which, in this case, was satisfied. Previous court judgments were cited to support this interpretation. 6. The Tribunal noted that the deduction allowed by the CIT(A) for the entire amount of Rs. 91,100 was not in accordance with law. The correct calculation of the gross total income revealed that only Rs. 25,449 should be considered for the deduction under Section 80M, not the entire dividend income. This adjustment was made to align with legal principles and previous court decisions. 7. Consequently, the appeal was partly allowed, modifying the order of the CIT(A) to limit the deduction under Section 80M to 60% of Rs. 25,449, the portion of dividend income included in the gross total income. The Tribunal's decision upheld the legal interpretation of Section 80M and clarified the eligibility criteria for claiming the deduction in the context of partnership income.
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