1979 (5) TMI 2 - SC - Income Tax

Interpretation of ss. 85A and 80M - whether rebate is admissible on the actual amount of dividend received by an assessee or it is confined only to the dividend income as computed in accordance with the provisions of the Act, that is, after making the deductions specified in s. 57 including deduction of the interest paid on borrowings for making the investments - deduction is allowable u/s 80M with reference to the full amount of dividends and not net dividend income

Issues Involved:
1. Interpretation of Sections 85A and 80M of the Income-tax Act, 1961.
2. Whether rebate of income-tax is admissible on the actual amount of dividend received by an assessee or only on the dividend income computed after making deductions specified in Section 57.
3. Historical context and previous judicial interpretations of similar provisions.
4. Legislative amendments and their impact on the interpretation of Sections 85A and 80M.

Issue-wise Detailed Analysis:

1. Interpretation of Sections 85A and 80M:
The judgment primarily focuses on the interpretation of Sections 85A and 80M of the Income-tax Act, 1961. The central question is whether the rebate of income-tax is admissible on the actual amount of dividend received by an assessee, being a company, from an Indian company, or if it is confined to the dividend income as computed in accordance with the provisions of the Act, after making the deductions specified in Section 57, including the deduction of interest paid on borrowings for making the investments.

2. Rebate on Actual Dividend vs. Computed Dividend:
The Gujarat High Court had taken a view against the assessee, while the Bombay, Madras, and Calcutta High Courts had different interpretations. The appeals were preferred by the assessee against the judgment of the Gujarat High Court, relating to assessment years 1965-66 and 1966-67 when Section 85A was in force. The Tribunal made references directly under Section 257 of the Act due to the conflict of opinion among the High Courts. The judgment clarifies that the interpretation of both Sections 85A and 80M is involved, with Section 85A in force during assessment years 1965-66 to 1967-68 and Section 80M effective from the commencement of the assessment year 1968-69.

3. Historical Context and Judicial Interpretations:
The judgment delves into the history of legislative provisions granting rebate of super-tax or income-tax on inter-corporate dividends. It references the earliest provision made in 1933 and subsequent interpretations by various High Courts, including CIT v. Industrial Investment Trust Co. Ltd. [1968] 67 ITR 436 and CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348. These cases interpreted that the exemption from super-tax was on the entire dividend income received by the assessee, not just the computed income after deductions.

4. Legislative Amendments and Impact:
The judgment discusses the amendments made by the Finance Act, 1968, which omitted the words "received by it" from Sections 99(1)(iv) and 85A, with retrospective effect. This omission was intended to widen the scope of tax relief, making it available even if the shares were registered in another person's name. The judgment concludes that this omission does not affect the interpretation of Sections 99(1)(iv) and 85A concerning the present question. The judgment supports the view that the entire amount of dividend received from an Indian company is exempt from super-tax and eligible for rebate under these sections.

Conclusion:
The judgment concludes that the assessees are entitled to relief under Section 85A for the assessment years 1965-66, 1966-67, and 1967-68, and under Section 80M for the assessment years 1968-69 and 1969-70, in respect of the entire amount of dividend income without deduction of interest paid on borrowings for acquiring the shares. The Commissioner is directed to pay the costs of the appeals and references to the respective assessees.

← Previous Next →