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TMI Blog2014 (11) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the assessee, as computed, would constitute the gross total income on which deduction u/s 80M could be allowed - The deduction allowed u/s 36(1)(viii) of the Act got excluded and did not partake income included in gross total income on which deduction u/s 80M was to be allowed - The amounts deducted u/s 36(1)(viii) ceased to be part of the gross total income as stipulated in Section 80B(5). Section 80M stood enacted with the object to provide relief on inter-corporate dividends for the said income had already suffered incidence of tax in the hands of paying company and, therefore, should not be subjected to tax twice - where the dividend would not have otherwise suffered tax, the said amount of dividend should not be allowed the deduction - The assessee had received dividend - The total income before deduction under VI-A, necessarily would be much higher - the dividend income was a miniscule and a fraction of the total income - The total (taxable) income was computed after allowing deduction u/s 36(1)(viii) of ₹ 17.75 crores, an amount if not subtracted would have further increased the quantum the total income – it would not be correct to treat dividend income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961 ( Act , for short), vide assessment order dated 30th March, 1989. Total income was assessed at ₹ 25,35,90,870/-. The assessee was allowed deduction under Section 36(1)(viii) of the Act and was also allowed deduction under Sections 80M and 80K of the Act on dividend income of ₹ 2,26,12,593/-. The total quantum of deduction allowed under Section 36(1)(viii) was ₹ 17,81,18,441/-. Similarly, the assessee was allowed amortisation of expenses of ₹ 72,574/- in respect of the leasehold land. 3. The Commissioner of Income Tax, under Section 263 of the Act, by her order dated 7th March, 1991 issued directions to the Assessing Officer to pass a fresh or re-frame the assessment order on the aforementioned deductions, after giving due opportunity. 4. Thereupon, order dated 9th August, 1991 was passed by the Assessing Officer. The Assessing Officer after referring to Section 80AA and 80AB of the Act held that the deduction under Sections 80M and 80K should be allowed with reference to the gross total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. The dividend income included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt involved was only ₹ 18,790/-. Similarly, the assessee did not challenge the re-computation of deduction under Section 36(1)(viii) with reference to the second proviso. 8. Revenue preferred an appeal raising the following grounds:- On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in: (i) directing A.O. to allow deduction u/s 80-M 80-K without reducing from the dividend income the deduction admissible u/s 36(1)(viii) following its order in other asst. year which has not been accepted by department. (ii) directing the A.O. to allow the deduction u/s 36(1)(viii) to the extent of 40% of the income determined without restricting the amount transferred to the reserve created during the year u/s 36(1)(viii) by following appellate order for earlier year, which has not been accepted by the department. (iii) deleting the disallowance of ₹ 72,574/- in respect of leasehold property by following the appellate order for earlier year, which not been accepted by the department. 9. It is noticeable that the Revenue while framing the grounds of appeal did not notice that the assessee had not challenged reduction of deduction under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act, 1956 (1 of 1956) xxxxxxxxxxxx 80M. (1) Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to- (a) in respect of such income by way of dividends from a company formed and registered under the Companies Act, 1956 ( 1 of 1956), after the 28th day of February, 1975, and engaged exclusively or almost exclusively in the manufacture or production of any one or more of the articles or things specified in items 2 and 3, item 4 (excluding alloy, malleable and S.G. iron castings), items 7 to 15 (both inclusive), items 17 and 18, item 23 (excluding refractories) and items 24, 26, 27, 28, 29, 30 and 33 in the list in the Ninth Schedule. the whole of such income (b) in respect of such income by way of dividends other than the dividends referred to in clause (a) sixty per cent of such income (2) Where a company to which this section applies is entitled also to the deduction under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing total income. Section 80M in the opening words refers to the expression gross total income of an assessee and thereafter stipulates that where gross total income of the assessee includes income by way of dividends etc., the deductions would be allowed. The expression gross total income for the purpose of Chapter VI-A as defined in Section 80B(5) meant total income computed in accordance with the provisions of this Act but before making any deductions under Chapter VI-A. Accordingly, the Section postulated that the gross total income meant total income computed under Chapter III of the Act. Thus, the total income computed under Section 28 of the Act after allowing deductions under Section 36(1)(viii), plus other income of the assessee, as computed, would constitute the gross total income on which deduction under Sections 80M could be allowed. The deduction allowed under Section 36(1)(viii) of the Act got excluded and did not partake income included in gross total income on which deduction under Sections 80M was to be allowed. The amounts deducted under Section 36(1)(viii) ceased to be part of the gross total income as stipulated in Section 80B(5). Thus, there is no ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that this amount should not bear tax once again in the hands of the assessee either its entirety or to a specified extent. But the amount by way of dividend which would other-wise suffer tax in the hands of the assessee would be the amount computed in accordance with the provisions of the Act and not the full amount received from the paying company. Therefore, it is reasonable to assume that in enacting Section 80M the Legislature intended to giant relief with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received from the paying company. It is difficult to imagine any reason why the Legislature should have intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount which is liable to suffer tax once again in the hands of the assessee. The Legislature could certainly be attributed with the intention to prevent double taxation but not to provide an additional benefit which would go beyond what is required for saving the amount of dividend from taxation once again in the hands of the assessee. Bearing in mind thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax versus Madhya Pradesh Audyogik Vikas Nigam Limited, (2005) 274 ITR 625 wherein reference was made to the decision of the High Court of Madras in CIT versus Chemical Holdings Limited, (2001) 249 ITR 540 and the decision of the High Court of Bombay in CIT versus Maganlal Chhaganlal Private Limited, (1999) 236 ITR 456, observing that Section 80AA only stipulated income by way of dividends included in the gross total income and it was inapposite to state that deductions under section 80M should take place after deducting the sum allowable under section 36(1)(viii). The deduction under Section 36(1)(viii) should be computed with reference to the income by way of dividends as computed in accordance with the provisions of the Act. The relevant words were before making any deduction under this Chapter and not with reference to gross amount of such dividends . Examining the aforesaid provisions, the courts had observed that the provisions did not support the submission of the Revenue. The ratio stands approved by the Karnataka High Court in CIT versus Canfin Homes Limited, ITA No. 3159/2005 decided on 5th July, 2010, wherein it was held that Section 36(1)(viii) requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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