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TMI Blog2007 (7) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... venue and put forward their contentions. 4. The issue in the present appeal is against the disallowance of deduction under Section 80-M of the I.T.Act. The brief facts of the case are that the assessee company during the year under consideration had received dividend aggregate to ₹ 1,00,95,751/- from seven different Indian companies. The assessee company distributed dividend income of ₹ 1,00,90,000/- for the year ending 31.03.2003 on August 7, 2003 i.e., before the due date for filing the Return of Income. The assessee claimed deduction under Section 80-M of the I.T.Act in respect of the aforesaid inter-corporate dividend income. The assessee had made similar claim of deduction under Section 80-M of the Act in the earlier Assessment Years, which was allowed to the assessee. For the year under consideration, the Assessing Officer disallowed the claim of the assessee observing that the deduction under Section 80-M of the I.T.Act was available to the assessee only for the dividend distributed during the year 01.04.2002 to 31.03.2003. According to the Assessing Officer, since the dividend had been distributed after 31.03.2003 and the provisions of Section 115-O o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial year (up to 31.03.2003) where the provisions of Section 115-O (1) are not applicable and thereafter upto 31.10.2003 being due date of filing of the Return of Income in the case of a company, provides it does not come into conflict with the provisions of Section 115-O of the Act. Similarly, section 115-O provides for payment of dividend distributed tax in respect of dividend distributed out of current or accumulated profits, where such distribution takes place on or after 01.04.2003. Sub-section 115-O (5) prohibits any deduction of the amount in respect of which the dividend distribution tax has been paid. 27. Hence as harmonious construction of the two sections, one has to conclude that, where the date of distribution of dividend by the company is on or after 01.04.2003, and where dividend distribution tax u/s. 115-O (I) has been paid the deduction u/s. 80-M cannot be allowed. The appellant can be permitted deduction in respect of the amount distributed after 01.04.2003 only in a case dividend distribution tax has not been paid. Since the findings of the Assessing Officer is to the contrary and dividend distribution tax has been paid on dividend distributed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax and distributed profits, the Assessing Officer says no deduction is allowable under Section 80-M of the I.T.Act because of the provisions of Section 115-O (5) of the I.T.Act. He further stressed that the assessee company had not claimed any deduction on account of dividend paid, but the deduction was being claimed on account of dividend earned, but to the extent of distributed profits. The learned AR further stated that when any company distributing dividend pays tax on such dividend under the provisions of Section 115-O of the I.T.Act, shareholder do not pay taxes as per the provisions of Section 10 (33) of the I.T.Act, which was omitted from 01.04.2003. 6. Referring to the history of Section 80-M of the I.T.Act, the learned AR pointed out that it was inserted by Finance Act 2002 with effect from 01.04.2003. The learned AR thus pointed out that in one year i.e., Assessment Year 2003-04, the companies were to pay taxes. The learned AR concluded by stating that the provisions of Section 115-O of the I.T.Act are applicable on dividend declared after 01.04.2003. The learned AR relied upon the decision of Mumbai Tribunal in ITO vs. M/s.Kalkabod Byramjee and Sons Agency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no deduction in respect of amount charged to tax. The Learned AR concluded by stating that in any case deduction out of gross total income is capped by the provisions of Section 80-AB of the I.T.Act. 9. We have heard the rival submissions and perused the records. During the year under consideration, the assessee had earned dividend aggregating ₹ 1,00,95,751/- from different concerns. For the profits earned in Financial Year 2002-03, relevant Assessment Year 2003-04, the assessee has the option to distribute dividend before the due date of filing the Return of Income as per the provisions of Section 80-M (1) of the I.T.Act. The dividend of ₹ 1,00,90,000/- was distributed by the assessee company on 07.08.2003 in respect of the income earned in Financial Year 2002-03 relevant to Assessment Year 2003-04. The assessee claimed the deduction under Section 80-M of the I.T.Act in respect of the dividend earned and dividend distributed. The assessee was claiming similar deduction in the earlier years which was being allowed to the assessee. 10. Originally, Section 80-M was introduced in place of Section 85-A by the Finance (No. 2) Act, 1967 with effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company for the previous year 2002-03 relevant to Assessment Year 2003-04. The provisions of the Act further provided that the dividend distributable to the shareholders as on the close of the year can be distributed to the shareholders prior to the date of furnishing Return of Income. Reference is invited to Explanation 2 to Section 80-M of the I.T.Act, which provides that where any deduction is allowed in respect of dividend distributed by the domestic company under sub-section 1 in any previous year, no deduction in respect of such amount shall be allowed in any other year. 12. In addition to the tax payable on income earned during any previous year, the domestic companies are also to pay tax on its distributed profits by way of dividends under the provisions of Section 115-O of the I.T.Act. The Finance Act, 1997 inserted the Section 115-O with effect from 01.06.1997, according to which the tax liability of shareholders was shifted to companies as additional tax on distributed dividend. The dividends received by shareholders were non-taxable in the hands of shareholders as per the provisions of Section 10 (33) of the I.T.Act. The provisions of Section 115-O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any by way of dividend whether interim or otherwise on or after the April 1, 2003, whether out of current or accumulated profits............ 15. Sub-section 5 of Section 115-O provides that once additional tax has been charged on the distributed profits on a domestic company under sub-section (1) of Section 115-O of the Act, no deduction under any other provisions of the Act shall be allowed to the company. The dividends were earlier exempted under the provisions of Section 10 (33), which was omitted by the Finance Act, 2002, with effect from 01.04.2003. Thereafter, sub-section (34) to Section 10 was inserted by Finance Act, 2003 with effect from. 01.04.2004, which provides as under : [(34) any income by way of dividends referred to in section 115-O. [Explanation. For the removal of doubts, it is hereby declared that the dividend referred to in section 115-O shall not be included in the total income of the assessee, being a Developer or entrepreneur;] 16. The word dividend is defined under Section 2 (22) of the I.T.Act, which is an exhaustive definition including any form of distribution to the shareholders by a company in the nature provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts which it distributes by way of dividend out of its profits. Such dividend is included in the profits determined on the close of the year i.e., 31.03.2003 in the appeal before us; then such dividend can be distributed after 31.03.2003, but before the due date of filing the Return of Income. In the facts of the present case, the assessee had received dividend of ₹ 1,00,95,751/- during the Financial Year 2002-03 against which it sets off the dividend income distributable on its profits determined as on 31.03.2003, but distributed in actual fact on 07.08.2003. The assessee claims set off of ₹ 1,00,90,000/- against the dividend income received amounting to ₹ 1,00,95,751/-. As per the provisions of Section 80-M of the I.T.Act, the assessee is entitled to such set off as on the close of the year i.e., 31.03.2003, though the actual dividend has been distributed on 07.08.2003. 19. The deduction under Section 80-M of the I.T.Act is in respect of any income received by way of dividends from another domestic company included in the gross total income of the recipient company, but such deduction is to be restricted to the amount of dividend distributed by reci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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