1987 (8) TMI 131 - AT - Income Tax

Summary

Issues:
Calculation of deduction under section 80M(1) based on gross dividend income or net dividend income.
Interpretation of provisions of sections 80M(1), 80M(2), 80K, and 80AA of the Act.
Effect of insertion of section 80AA by the Finance Act, 1980 on the calculation of deduction under section 80M(1).
Impact of the Supreme Court judgments on the interpretation of section 80M(1).
Validity of ignoring the provisions of sub-section (2) of section 80M in light of section 80AA.

The judgment pertains to an appeal by the department concerning the assessment year 1981-82, focusing on the calculation of deduction under section 80M(1) based on gross or net dividend income. The assessee, a company, had gross dividend income of Rs. 6,76,599, with attributable expenses of Rs. 38,561, resulting in net dividend income of Rs. 6,38,038. The Income-tax Officer allowed a deduction under section 80M(1) of Rs. 3,67,436 after deducting relief under section 80K. The Commissioner of Income-tax (Appeals) accepted the assessee's plea that the deduction should be calculated on the gross amount. The department appealed, arguing that relief under section 80K should have been deducted before allowing the deduction under section 80M(1).

The Tribunal analyzed the provisions of sections 80M(1), 80M(2), 80K, and 80AA of the Act to determine the correct method of calculating the deduction under section 80M(1). It noted that the Supreme Court initially held that the deduction should be based on gross dividends but later reversed this decision, clarifying that the deduction is allowable on net dividends after deducting expenses. Section 80AA was inserted to nullify the initial Supreme Court ruling, emphasizing that the deduction under section 80M(1) should be computed based on net dividends, excluding deductions under Chapter VIA.

Section 80AA was introduced to clarify that the deduction under section 80M(1) should be calculated based on net dividends, excluding deductions under Chapter VIA. The Tribunal highlighted that the intention was to grant relief on dividends computed under all provisions of the Act except Chapter VIA. The Tribunal rejected the assessee's argument that section 80AA rendered sub-section (2) of section 80M redundant, emphasizing that the two provisions serve distinct purposes and are not in conflict.

The Tribunal emphasized that interpreting the deduction under section 80M(1) based on gross dividends would lead to an anomalous result, where the total deduction could exceed the dividend income, which was not the legislative intent. It upheld the computation made by the Income-tax Officer and set aside the direction of the Commissioner of Income-tax (Appeals) based on the correct interpretation of section 80AA and section 80M(1).

In conclusion, the Tribunal allowed the department's appeal, reaffirming that the deduction under section 80M(1) should be calculated on net dividends as per the provisions of section 80AA, and rejecting the contention that sub-section (2) of section 80M should be ignored. The Tribunal aligned its decision with the interpretation provided by a previous decision of the Delhi Bench of the Tribunal, emphasizing consistency in legal interpretation.