1984 (1) TMI 101 - AT - Income Tax

Summary

Issues:
Interpretation of section 80M of the Income-tax Act, 1961 regarding deduction for inter-corporate dividends received by a domestic company from another domestic company.
Determining whether the Unit Trust of India qualifies as a domestic company for the purpose of claiming deduction under section 80M.

Analysis:
In the assessment proceedings for the assessment year 1980-81, the assessee-company claimed a deduction under section 80M of the Income-tax Act, 1961 for the dividend income received from the Unit Trust of India. The Income Tax Officer (ITO) disallowed the claim stating that the deduction under section 80M is allowable only for dividends declared by a domestic company, and the Unit Trust of India did not qualify as a domestic company under section 80M. The Commissioner (Appeals) upheld the ITO's decision, emphasizing that the Unit Trust of India did not meet the criteria of a domestic company as per the definition in section 80B(2) of the Act. The Commissioner's reasoning was based on the requirement that prescribed arrangements for the declaration and payment of dividends should have been made in respect of income liable to tax under the Act, which was not the case for the Unit Trust of India.

Upon appeal by the assessee, the Appellate Tribunal reviewed the relevant provisions, including section 32(3) of the Unit Trust of India Act, 1963, which deems the trust to be a company for the purposes of the Income-tax Act, 1961. The Tribunal noted that the Unit Trust of India qualifies as a 'domestic company' under the Act, as confirmed by the specific provision in section 32(3) of the Unit Trust of India Act. The Tribunal disagreed with the Commissioner (Appeals)'s interpretation, stating that the Unit Trust of India falls under the definition of an Indian company, which is the first part of the definition of 'domestic company' under section 80B(2). Since the Unit Trust of India is considered an Indian company under the law, there is no need to delve into the second part of the definition in section 80B(2).

Consequently, the Tribunal allowed the appeal, ruling in favor of the assessee and granting the deduction under section 80M for the dividend income received from the Unit Trust of India. The Tribunal clarified that the Unit Trust of India qualifies as a domestic company for the purpose of claiming the deduction, based on the provisions of the Unit Trust of India Act and the relevant sections of the Income-tax Act, 1961.

In conclusion, the Appellate Tribunal's decision favored the assessee, recognizing the Unit Trust of India as a domestic company and allowing the deduction under section 80M for the dividend income received from the trust. The Tribunal's analysis focused on the specific provisions of the Unit Trust of India Act and the Income-tax Act, emphasizing the classification of the Unit Trust of India as an Indian company within the definition of a 'domestic company' under the relevant tax laws.