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TMI Blog2004 (10) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... assed in R. A. Nos. 161 and 162/Ind/1997 which arise out of an order passed by the Tribunal, dated August 5, 1997, in I.T.A. Nos. 210 and 211/Ind/1992 to this court for answering the following question of law: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the lower authorities and holding that the expenditure at 10 paise per Rs. 100 of the dividend income be taken for deduction under section 80M?" The facts in so far as they are relevant for answering the aforesaid question need to be taken note of from the statement of case drawn by the Tribunal while referring the question to this court. The issue relates to the assessment years 1985-86 and 1986-87. The assessee is a bank and is declared to be a company for the purpose of the Income-tax Act by the Central Board of Direct Taxes (the CBDT). The assessee also, in addition to their banking business derives income from dividend, i.e., income from other sources as defined under section 56 of the Act. For the assessment year in question, the assessee claimed deduction under section 80M at the rate of 60 per cent. of gross dividend income earned by them. The question, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t best what may be taken into consideration is the actual expenditure, if any, incurred by an assessee while earning dividend but not any notional expenditure by way of apportionment. In other words, the submission is that so long as it is not proved as a fact that a particular amount is actually spent by way of expenditure in earning dividend, the same cannot be taken into consideration on hypothetical/notional basis. According to him, in the case in hand, a sum of 10 paise is taken as a notional expenditure for every Rs. 100 for the purpose of deduction. This, according to learned counsel, is neither legal nor proper. It was further contended that such course adopted by the Assessing Officer is neither recognised by section 80M nor by section 57(1) ibid so as to make it an acceptable deduction from the gross income of dividend earned by an assessee. Learned counsel further contended that the assessee being a bank does not, as a fact, incur any expenditure either at the time of earning or while depositing in their account or has, in fact, incurred any expenditure as such in the assessment year in question and hence, the Assessing Officer ought not have taken 10 paise as an expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Act". It is this view of the Supreme Court rendered in what is known as Cloth Traders' case [1979] 118 ITR 243 that led Parliament to enact a new section 80AA with its retrospective operation. Obviously, section 80AA was enacted to overcome the interpretation made by the Supreme Court of section 80M. It is this introduction of section 80AA which gave rise to another round of litigation on the scope and ambit of section 80M read with section 80AA ibid in the case of Distributors (Baroda) [1985] 155 ITR 120 (SC). It is in this case, the questions arose as to (i) whether the law laid down by the Supreme Court in the case of Cloth Traders [1979] 118 ITR 243 is correct, or it needs to be overruled? (ii) whether section 80AA is ultra vires the provisions of the Constitution and thus can be declared unconstitutional? and lastly, (iii) whether section 80M requires to be reinterpreted? It is essentially these three questions which were examined by the Supreme Court in this case. Their Lordships, after examining the entire issues, held that their earlier view, taken in the case of Cloth Traders [1979] 118 ITR 243 (SC), does not lay down the correct law and hence, need to be overrule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning/depositing the dividend, then it is difficult for us to hold that some hypothetical and/or notional expenditure can be made a basis for deduction. In other words, we have not been able to notice any provision which may entitle the taxing authorities to work out by way of expenditure any notional figure for the purpose of section 80M though, in fact, it has not been so incurred by an assessee while encashing the dividend. In somewhat similar circumstance, this question had come up for consideration thrice before the Calcutta High Court. These cases are- CIT v. National and Grindlays Bank Ltd. [1993] 202 ITR 559; CIT v. United Collieries Ltd. [1993] 203 ITR 857 (Cal) and lastly CIT v. Enemour Investments Ltd. [1994] 72 Taxman 370 (Cal). In all the three cases, their Lordships of the Calcutta High Court have taken a consistent view that we have taken. It has been held that: "In our view, only the actual expenditure incurred by the assessee in earning the dividend income shall be deducted from the gross dividend income. There is no scope for any estimate of expenditure being made and no notional expenditure can be allocated also for the purpose of earning income unless the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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