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TMI Blog1979 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... KOSHAL. and P. N. BHAGWATI. JUDGMENT The judgment of the court was delivered by BHAGWATI J.-- This group of appeals and references raises a short question of construction of ss. 85A and 80M of the Income-tax Act, 1961 (hereinafter referred to as the "present Act "). The question is whether on a true interpretation of these sections, rebate of income-tax is admissible on the actual amount of dividend received by an assessee, being a company, from an Indian company, 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. The Gujarat High Court has taken a view against the assessee while a different view has been taken by the Bombay, Madras and Calcutta High Courts. The appeals are preferred by the assessee, namely, Cloth Traders (P.) Ltd. against the judgment of the Gujarat High Court and they relate to the assessment years 1965-66 and 1966-67, when s. 85A was in force. The references before us have been made directly by the Tribunal under s. 257 of the Act in view of the conflict of opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the question was whether the dividend income exempted from super-tax was the entire income by way of dividend received by an investment trust company or the dividend income as computed in accordance with the provisions of the Act, that is, after deducting the expenses incurred in earning it. The High Court of Bombay held that the " dividend income which was exempted under the notification would be the dividend income received by the assessee and not the said income less any further amounts " because " the notification must be regarded as a self-contained one and not controlled by any other provision of the Act " and there was " no warrant to construe the word ' income ' in the notification as total income, nor to qualify the dividend income specified in the said notification as the dividend income computed under s. 12 of the Act ". It was thus held that the entire amount of dividend received by an investment trust company would be exempt from super-tax and not the amount of dividend minus the expenses incurred in earning it. This notification was followed by a provision of a similar kind granting exemption from super-tax in respect of certain specified categories of inter-corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. The High Court emphasised the word " received " following immediately upon the word " dividend " and observed that the use of this word also showed that the exemption was in regard to the dividend received and not in regard to the " dividend received minus the expenses ". The High Court pointed out that the words " amounts which are included in his total income " in the opening part of s. 99, sub-s. (1), did not have any limitative effect, but they were used merely as a convenient mode of describing the different items of income set out in cls. (i) to (v) of that sub-section. Clauses (i) to (v) referred to different items of income which were sought to be exempted from super-tax under sub-s. (1) of s. 99 and it was only if these items of income were included in the total income of the assessee that the question of exemption from super-tax would arise and hence the legislature used the general words " amounts which are included in his total income " in the opening part of sub-s. (1) of s. 99 as an omnibus formula to cover these different items. These words according to the High Court were descriptive of the items of income included in the computation of the total income and were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opening part of sub-s. (1) of s. 99, all the three High Courts, namely, Bombay, Calcutta and Madras, took the view that the entire amount of dividend received by the assessee from an Indian company was exempt from super-tax and the exemption was not limited to dividend income computed in accordance with the provisions of the Act and forming part of the total income. Section 99, sub-s. (1), however, remained in force only up to the close of the assessment year 1964-65 and by an amendment made by the Finance Act, No. 10 of 1965, s. 99, sub-s. (1), was omitted and Chap. VI-A and s. 85 were introduced in the present Act with effect from 1st April, 1965. Chapter VI-A comprised ss. 80A to 80D providing for certain specified deductions to be made in computing total income while s. 85A, in so far as material, provided as follows : " 85A. Deduction of tax on intercorporate dividends.--Where the total income of an assesseee being a company includes any income by way of dividends received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Indian company and not in respect of dividend income minus deductions allowable under the provisions of the Act in computing the total income. The original Chap. VI-A and certain other sections including s. 85A were deleted from the present Act by the Finance (No. 2) Act, 1967, with effect from 1st April, 1968, and replaced by a new Chap. VI-A which contains a fasciculus of sections from s. 80A to s. 80VV. Section 80A, sub-s. (1), provides that in computing the total income of an assessee there shall be allowed from his gross total income, in accordance with and subject to the provisions of Chap. VI-A, the deductions specified in s. 80C to s. 80VV and sub s. (2) of that section imposes a ceiling on such deductions by enacting that the aggregate amount of such deductions shall not, in any case, exceed the gross total income of the assessee. The expression " gross total income " is defined in cl. (5) of s. 80B to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chap. VI-A or under s. 280-O. Section 80M is the new section which corresponds to the repealed s. 85A and it provides for deduction in respect of certain categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80M was to be read as if the words " received by it " were not in the opening part of that section. We shall presently consider the language of s. 80M for the purpose of arriving at its true interpretation, but before we do so, we must refer to an argument advanced on behalf of the revenue that whatever might have been the interpretation placed on s. 99, sub-s. (1), cl. (iv), by the Bombay, Calcutta and Madras High Courts and on s. 85A by the Bombay High Court, it cannot hold good any more in view of the retrospective deletion of the words " received by it " in the opening part of these sections. The argument was that the decisions of the Bombay, Calcutta and Madras High Courts upholding the view that the exemption from super-tax under s. 99, sub-s. (1), cl (iv), and the deduction of income-tax under s. 85A were admissible in respect of the entire amount of dividend received by an assessee without any deduction, were based on the words " received by it " and since these words were retrospectively omitted, these decisions could no longer be regarded as valid. We do not think this contention of the revenue can be sustained if we have regard to the object and purpose for which the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lse than the full amount of dividend derived from an Indian company. They cannot obviously mean dividend from an Indian company minus any expenses incurred in earning it, or less any other deduction allowable under the Act. It is no doubt true that the opening part of s. 99, sub-s. (1), contains the words " the following amounts which are included in his total income ", but these words do not have any limitative effect so as to restrict " dividend from an Indian company " in respect of which exemption from super-tax is granted to net dividend computed in accordance with the provisions of the Act and forming part of the total income. It may be noticed that the exemption from super-tax granted under s. 99, sub-s. (1), is not only in respect of " dividend from an Indian company " referred to in cl. (iv), but also in respect of other items of income mentioned in cls. (i) to (iii) and (v). The legislature clearly and understandably wanted to provide that the different categories of income mentioned in cls. (i) to (v) should be eligible for exemption from super-tax only if they are included in the total income and the legislature could have made such a provision separately in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r computation in accordance with s. 8 of the old Act which was includible in the total income and liable to bear tax and the exemption from tax could, therefore, only be in respect of such amount. This argument was negatived by this court and it was pointed out by Subba Rao J. that : "...this notification does not refer to the provisions of section 8 of the Income-tax Act at all. It gives a total exemption from income-tax to an assessee in respect of the interest receivable on income-tax free loans mentioned therein. It gives that exemption subject to two conditions, namely, (i) that the interest is received within the territories of the State of Travancore-Cochin, and (ii) that it is not brought into any other part of the taxable territories. It includes the said exempted interest in the total income of the assessee for the purpose of section 16 of the Income-tax Act. Shortly stated, the notification is a self-contained one ; it provides an exemption from income-tax payable by an assessee on a particular class of income subject to specified conditions. Therefore, there is no scope for controlling the provisions of the notification with reference to section 8 of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nores the context in which these words occur. If the opening part of the section refers to inclusion of the particular category of income denoted by the words " income by way of dividends from an Indian company ", the words " so included " cannot have reference to the quantum of the income included, but they must be held to refer only to the category of income included, that is, income by way of dividends from an Indian company. The meaning of the section would become clear if we substitute the words " income by way of dividends from an Indian company " for the words " income so included ". Then it would be obvious--indeed it would need no argument to hold--that the rebate on income-tax is to be calculated by applying the average rate of tax to the " income by way of dividends from an Indian company " which can only mean the full amount of dividend received from an Indian company. This was the view taken by the Bombay High Court in New Great Insurance Co.'s case [1973] 90 ITR 348, and we find ourselves in agreement with it. We must now turn to consider s. 80M for the purpose of arriving at its true interpretation. There is a close similarity between s. 85A and s. 80M so far as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-s. (1), opens with the words " where the gross total income of an assessee...... includes any income by way of dividends from a domestic company " and proceeds to say that in such a case there shall be allowed in computing the total income of the assessee a deduction " from such income by way of dividends " of an amount equal to the whole of such income or 60 per cent. of such income, as the case may be, depending on the nature of the domestic company from which the income by way of dividends is received. Now, the words " such income by way of dividends " must be referable to the income by way of dividends mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income. The whole of such income, that is, income by way of dividends from a domestic company or 60 per cent. of such income, as the case may be, would be deductible from the gross total income for arriving at the total income of the assessee. The words " where the gross total income of an assessee...... includes any income by way of dividends from a domestic company " are intended only to provide that a particular category of income, namely, income by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e referable to the quantum of income includible in the gross total income, overlooking the fact that the opening words in the section, namely, " where the gross total income of an assessee ...... includes any income by way of dividends from a domestic company " refer only to the inclusion of the category of income by way of dividends from a domestic company and they are not indicative of the quantum of the income included in the gross total income. It is true that on this view the deduction in respect of the income by way of dividends from a company falling within cl. (a) of sub-s. (1) of s. 80M may exceed the quantum of such income included in the gross total income, but that possibility is indeed contemplated and taken care of by s. 80A, sub-s. (2), which provides that the aggregate amount of the deductions shall not in any case exceed the gross total income of the assessee. We may point out that even though the consistent view taken by the Bombay, Madras and Calcutta High Courts in regard to the interpretation of s. 99, sub-s. (1), cl. (iv), was that the exemption from super-tax under that provision was admissible in respect of the full amount of dividends received from an Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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