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TMI Blog1994 (2) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, 1961 : At the instance of the Revenue : Where the Tribunal has not erred in law and on facts in holding that deduction under section 80M is admissible before deduction of the amount admissible under section 80K of the Income-tax Act, 1961? 3. In Income-tax Reference Nos. 9 of 1985, 12 of 1985, 13 of 1985, 197 of 1985, 230 of 1985, 232 of 1985, 234 of 1985, 245 of 1984, 13 of 1986, 36 of 1986 and 152 of 1986, a similar question is referred by the Tribunal for our opinion. In all these references, the Tribunal has relied upon the decision of the Tribunal of the Bombay Bench in Income-tax Act Appeals Nos. 49 and 3016/(Bom) of 1981 decided on February 12, 1982, wherein it was held that, while computing the relief under section 80M(1), the net dividend income should not be reduced by the deduction allowed to the assessee under section 80K as required by section 80M(2). 4. Subsequently, the Special Bench of the Bombay Tribunal in Income-tax Appeal No. 6419/(Bom) of 1982, in the case of Jeevan Limited v. ITO, decided on November 26, 1985, had taken a contrary view. It was held, inter alia, as under : Therefore, in order to understand the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 80M in respect of any income by way of dividends from the domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends. 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 the whole of such income 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y : 2. Section 80K provides for grant of deduction in the case of assessee including companies or persons, who are having income by way of dividends from industrial undertaking, or a ship, or a business of a hotel, on which no tax is payable by the company (i.e., dividends attributable to the profits of the new industrial undertakings enjoying tax holiday concession ) : the effect of the proviso to section 80K is not required to be considered in the present references. Hence it is not dealt with. 3. Section 80K is applicable to all assessees including companies and it provides for 100 per cent. deduction on income by way of dividends received from a company which is an industrial undertaking, or a ship, or business of a hotel, on which no tax is payable by the company. 4. As provided under sub-section (1) of section 80M, where the gross total income of an assessee includes income by way of dividends, deduction shall be allowed on such income by way of dividends of an amount equal to as computed as per clauses (a) and (b) of section 80M. However, this deduction would be subject to the provisions of sub-section (2); 5. Sub-section (2) carves out an exception in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at deduction under section 80M(1) is to be computed before reducing the income by way of dividends by the amount of deduction allowable under section 80K. Sub-section (2) operates only in those cases where the company is entitled to get deductions under section 80K as well as under section 80M. The bracketed portion, namely, before making any deductions under this Chapter used in section 80A is used only in connection with operating section 80M(1) and has nothing to do with the operation of sub-section (2) of section 80M. 9. In the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, the Supreme Court considered sections 80M and 80A and held that, so far as section 80M(1) of the Income-tax Act is concerned, the deduction required to be allowed under that provision has to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee. The court further held that section 80A is merely declaratory of the law as it always was since April 1, 1968. The court further observed that it was common g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if there be profits and gains so attributable, deduct eight per cent. thereof from such profits and gains and then arrive at the net total income exigible to tax. 11. The court further observed that structurally there is hardly any difference between section 80E, sub-section (1), and section 80M, sub-section (1), and the reasoning which appealed to the court in the interpretation of sub-section (1) of section 80E must apply equally in the interpretation of sub-section (1) of section 80M. The court finally dismissed the writ petition challenging the constitutional validity of section 80A by holding that the said section was clarificatory in nature and would not involve imposition of any new tax burden. 12. Similarly, the Supreme Court has considered section 80AB in the case of CIT v. P. K. Jhaveri [1990] 181 ITR 79. In that case, there was a reference under section 257 of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal. The Tribunal has referred the following question to the Supreme Court for its decision at the instance of the Revenue, because the Tribunal has taken a view that for working out the relief under section 80K, gross dividend is required to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee under section 80K, as provided in section 80M(2). 15. Learned counsel for the assessee relied upon the non obstante clause notwithstanding anything contained in that section (i.e., section 80M) used in section 80A for contending that section 80A would govern the provisions of sub-section (1) of section 80M and, therefore deduction under section 80M is required to be computed with reference to the income by way of net dividend without resorting to sub-section (2). In our view, this submission is totally misconceived because section 80A deals with section 80M(1) and has no bearing on sub-section (2). In the context, it would read that deductions under sub-section (1) shall be allowed in respect of income by way of such dividends as computed in accordance with the provisions of the Income-tax Act, before making any deduction under Chapter VI-A and the income by way of the said dividends would not be gross amount of such dividends before making deduction under other provisions of the Income-tax Act. Further, considering the purpose of two sub-sections, in our view, there is no jurisdiction for holding that the concept of net or gross dividend should have anything to do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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