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TMI Blog2009 (10) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... Originally, these appeals were adjudicated along with the assessee's appeals in ITA Nos. 1413/Mad/2000, 100/Mad/1999, 1669/Mad/2000 and 936 and 937/Mad/2003 vide consolidated order dt. 4th Sept., 2006. Later on, the assessee filed miscellaneous petition in respect of ITA Nos. 1057 and 1006/Mad/2003. After considering the detailed arguments, the Tribunal vide paras 3 and 4 of its order in MP Nos. 234 and 235/Mad/2007, dt. 14th March, 2008 has held as under: "3. Having heard both the parties on the point, we recall our order to adjudicate the issue whether s. 80M deduction is available qua the dividend income irrespective of the fact whether it is assessed as business income or other sources income. 4. In the result, the miscellaneous petition filed by the assessee stands allowed." Therefore, the order stands recalled for the purpose of determining the question whether the deduction under s. 80M of the IT Act is available in respect of dividend income and whether the same should be allowed on gross basis or net basis. 2. Before us, the learned Departmental Representative referred to the assessment order for the asst. yr. 1994-95 and pointed out that the assessee had conceded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgments cited by the parties. No doubt, the Hon'ble jurisdictional High Court has held that when some addition is made on the basis of concession, then the assessee could not be said to have been aggrieved and, therefore, no appeal would lie to the first appellate authority. However, the relevant part of the assessment order which is para 3, reads as under: "3. The assessee's representative has agreed for the restriction to be applied in respect of dividends from Unit Trust of India; he has argued that in the assessee's case, deduction under s. 80M has to be allowed on the gross dividend and not on the net dividend after apportioning the interest expenses and management expenses. The assessee's representative by letter dt. 20th Feb., 2001 has relied upon various decisions of the Tribunal and High Court in support of his argument. The assessee's representative has also cited the decision of the Calcutta High Court in the case of CIT vs. United Collieries Ltd. (1993) 203 ITR 857 (Cal) wherein it has been held that only actual expenditure for earning the income and not notional expenditure should be deducted for the purposes of s. 80M. He also relied on the decision of the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to deduction under s. 80M of the Act. There is no restriction that once such dividend was considered as business income then deduction under s. 80M is not available. Para 5 of the original order of the Tribunal reads as under: "5. Relying on the decision of the Tribunal the CIT(A) held that the investment was in the normal course of business and the dividend income received on the shares in question formed part of the business income of the assessee. We have perused the reasonings adduced in the impugned order. In our opinion the CIT(A) took a correct view in the matter and as such his order calls for no interference on this count. Accordingly we uphold the same." Thus, it is clear that the Tribunal has held that the income from dividend should be treated as business income. 6. Now, the question is when dividend income is treated as business income, whether the same is eligible for deduction under s. 80M of the Act and the further question would be whether s. 80M deduction should be granted on gross or net dividend. The Hon'ble Bombay High Court in the case of CIT vs. Emrald Co. Ltd. has held that: "The assessee is a trader dealing specifically in shares and his bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en able to agree with the findings and conclusion as drawn by the learned AM with regard to allowability of deduction under s. 80M, whether net or gross and my reasons for the same are given below. 7.1 In this case, the controversy is whether deduction under s. 80M is required to be made on gross dividend or net dividend income on the shares other than UTI. 7.2 In this regard, the Hon'ble jurisdictional High Court in the case of CIT vs. Chemical Holdings Ltd. (2001) 169 CTR {Mad} 339 : (2001) 249 ITR 540 (Mad) has held as under: "The extent of benefit allowed by Parliament for dividend income is an amount which is required to be calculated with reference to the net dividend. The Act prescribes the amounts which are deductible from the gross dividend to arrive at the figure of net dividend. That computation has necessarily to be done before determining the amount on which deduction under s. 80M of the IT Act, 1961, can be allowed. The computation insofar as dividends are concerned is to be made under s. 57. Sec. 57, cl. (i), requires that in the case of dividends or interest on securities any reasonable sum paid by way of commission or remuneration of a banker or any other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion in favour of the Department, viz., to the effect that the proportionate management expenses had to be deducted from the gross dividend for the purpose of the relief under s. 80M.-Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) applied; Decision of the Bombay High Court in CIT vs. United General Trust (P) Ltd. (1979) 119 ITR 664 (Bom) reversed." 7.4 In another case, the Hon'ble jurisdictional High Court in the case of CIT vs. Madras Motor General Insurance Co. Ltd. (1986) 51 CTR (Mad) 71 : (1986) 159 ITR 601 (Mad) has held as under: "Held, that (1) in view of the decision of the Supreme Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC), the Tribunal was not correct in holding that the benefit under s. 80M should be granted on the gross dividend income without deducting the proportionate management expenses." 7.5 Similarly, the Hon'ble Madras High Court in the case of CIT vs. V. Ramakrishna Sons (1989) 76 CTR (Mad) 158 : (1989) 179 ITR 638 (Mad), while considering Distributors (Baroda) (P) Ltd. vs. Union of India has opined as under: "The condition that mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of India Ltd. (1972) 85 ITR 167 (SC)]. Similarly, the doctrine of precedent is applicable to the decisions delivered by the High Court. The law declared by the High Court is binding on all the Courts subordinate to it within its territorial jurisdiction. By judicial precedent the law declared by the High Court is to be followed by the Courts and Tribunal subordinate to it and under its supervisory jurisdiction. The law declared by the High Court in the State is binding on the authorities or Tribunals under its superintendence and they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such proceedings. The launching of proceeding contrary to the law laid down by the High Court would be invalid and proceedings themselves would be without jurisdiction (East India Commercial Co. Ltd. vs. Collector of Customs AIR 1962 SC 1893). Not to follow the decision of the High Court within that jurisdiction would tantamount to committing contempt of that Court [Siemens India Ltd. Anr. vs. K. Subramanian, ITO Anr. (1983) 34 CTR (Bom) 23 : (1983) 143 ITR 120 (Bom)]. In order to give a word of caution, while applying the precedent, the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government undertaking engaged in the activity of promoting industrial development in the State of Tamil Nadu through partnership with private enterprise either in joint sector or associate sector or escort sector. The assessee incurs expenditure on projects and when a particular project becomes viable the expenditure incurred on such project is converted into shares. After successful take-off of the project the assessee disinvests its holding in that project by sale of shares in that company. It also advances loans to its subsidiaries and other companies. In the process of carrying out this activity, the company earns interest and dividend. In fact, its major income is by way of interest and dividend. The remaining income may be by profit on sale of investments and miscellaneous income. All these incomes are credited to the P L a/c. In its return of income, the assessee claimed deduction under s. 80M of the IT Act, 1961 (the Act) on the gross amount of dividend earned by it. The AO was of the view that deduction under s. 80M can be granted only on the net dividend income in view of s. 80AA of the Act. In order to arrive at net dividend income, he apportioned the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end and so also the major item of expenditure was interest. It was pointed out that the deployment of funds in fixed assets was very meagre as compared to the funds deployed in various investments in the shares of other companies. He took us through the schedule of investments in support of this contention. The learned Departmental Representative also referred to note 1 (a) in which it is mentioned that as company holds investments as development organisation on long-term basis, no provision is made for depreciation in the value of investments. His emphasis was on the fact that the investments were held for a long-term and therefore they were necessarily held to earn dividend income. Finally, submitting that the order of learned JM was quite a detailed order, the view expressed therein should be upheld. 5. The contention of the learned counsel was that the question was not whether deduction should be on gross dividend or not on gross dividend. According to him the question is whether the deduction should be on gross dividend or on what amount of dividend should the deduction be granted. It was argued that the only activity of the assessee was development of industries and there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent items, e.g., different house properties or different securities, etc. and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible; and (iii) in computing 'profits and gains of business or profession' when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the question of allowability of the expenditure under s. 37 of the Act will depend on: (a) fulfilment of requirements of that provision noted above; and (b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do, the entire expenditure will be a permissible deduction but if they do not, the principle of apportionment of the expenditure will apply because there will be no nexus between the expenditure attributable to the venture not forming an integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee." In short, the underlying principle laid down is that if different activities carried out by a person co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot making any investment with the sole purpose of earning dividend income. It is performing its role as a development organization to promote industries. Secondly, even if for the sake of argument the submission of the learned Departmental Representative that the investment is on long-term basis, is accepted, the Department has not made any bifurcation of the shares held by the assessee in the projects promoted by it and in the companies encouraged by it by subscribing to its shares. As a matter of fact, it will not be possible to make such bifurcation. These facts go to prove that the various activities carried out by the assessee constitute one single indivisible business which is of promoting industries in the State and therefore, the dividend income earned in the process assumes the character of a business income. In fact, the AO has assessed it as business income not only in this year but in all the earlier years as well. If it is an indivisible business, then there is no question of apportioning any expenditure to the dividend income which is subject to deduction under s. 80M of the Act. 8. In the case of CIT vs. Chemical Holdings Ltd. (2001) 169 CTR (Mad) 339 : (2001) 249 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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