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TMI Blog2002 (8) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... of brevity referred to as, "the Tribunal"), in terms of section 256(1) of the Income-tax Act, 1961 (hereinafter for the sake of brevity referred to as, "the said Act"): "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the Commissioner of Income-tax (Appeals) thereby directing the Income-tax Officer to adjust the deduction under section 80K/80M of the Income-tax Act, 1961, against the dividend income before arriving at the gross total income of the assessee? 2. Whether, on the facts and in the circumstances of the case, the directions of the Tribunal are not against the specific provisions of section 80A of the Income-tax Act?" The assessment year in question is 1976-77. The assessee submitted a return showing its income at a loss of Rs. 23,612 which was computed in the following manner: "That the assessee-company had returned its income at a loss of Rs. 23,612 computed in the following manner: ------------------------------------------------------------------------------------------------ Rs. Rs. ------------------------------------------------------------------------------------------------ Profits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under section 80M has been allowed. The assessment order says nothing about the deduction under section 80K. The appellant points out that when this point had earlier arisen in the appellant's case in the assessment year 1975-76, the Appellate Assistant Commissioner had held that the appellant was entitled to full relief under sections 80K and 80M out of its dividend income and that only the balance of the dividend income could be set off against the business loss, the remaining business loss to be carried forward. The Departmental appeal against the Appellate Assistant Commissioner's order was dismissed by the Tribunal vide their order dated October 27, 1979. Despite this past history it is surprising that the Income-tax Officer has furnished in following his old method of computation though the assessment order is dated November 23, 1979, without saying anything about the order of the Appellate Assistant Commissioner or of the Tribunal for the assessment year 1975-76. In the absence of any material to the contrary I am unable to take a view different from the one taken by the appellate authorities in the assessment year 1975-76. Accordingly, the Income-tax Officer is direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip which is first brought into use after that date or from the business of a hotel which starts functioning after that date. 80M. Deduction in respect of certain intercorporate dividends.-(1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to, - (i) in the case of a scheduled bank or a public financial institution, or a State financial corporation or a State industrial investment corporation or a company registered under section 25 of the Companies Act, 1956 (1 of 1956), sixty percent of the income by way of dividends from another domestic company; (ii) in the case of any other domestic company, so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due date: Provided that where any domestic company receives any income by way of dividend from the units of the Unit Trust of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80M(1) of the said 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 said Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee. Section 80AA, in its retrospective operation, is merely declaratory of the law as it always was since April 1, 1968, and no complaint can be validly made against the retrospective operation of the section on the ground that it enhances the tax burden of the assessee and, therefore, infringes the fundamental right of the assessee under article 19(1)(g) of the Constitution of India. In Distributors (Baroda) P. Ltd.'s case [1985] 155 ITR 120, the apex court overruled the decision of Cloth Traders P. Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC), whereupon the learned Tribunal and the Commissioner of Income-tax (Appeals) relied, stating: "There is also one other strong indication in the language of sub-section (1) of section 80M which clearly compels us to take the view that the deduction envisaged by that provision is required to be made with reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (1) of section 99 and section 85A, the correctness of which is not in issue before us, so far as sub-section (1) of section 80M is concerned, the deduction required to be allowed under that provision is liable 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. This view which we are taking in regard to the construction of subsection (1) of section 80M is also supported by the decision of a Bench of this court consisting of one of us, Chandrachud C. J. and Tulzapurkar J., in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. This decision was rendered by the court on April 11, 1978, at least a year before the decision in Cloth Traders' case [1979] 118 ITR 243, but, unfortunately, it appears, it was not brought to the attention of the court when Cloth 'Traders' case [1979] 118 ITR 243 was argued, because we have no doubt that if it had been cited, the court would have certainly made a reference to it in the judgment in Cloth Traders' case [1979] 118 ITR 243. The section whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... domestic company. "Gross total income" is defined in section 80B, clause (5), to mean the "total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under section 280-O". Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on moneys borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or, in other words, forms part of the gross total income, the condition specified in the opening part of sub-section (1) of section 80M would be fulfilled and the provision enacted in that sub-section would be attracted.' We are unable to hold that the observations made in the judgment while construing the words 'such income by way of dividends' in any way detract from the above-quoted observations inasmuch as this court has clearly said: 'It is obvious, as a matter of plain grammar, that the words "such income by way of dividends" must have reference to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax (Appeals) and the learned Tribunal appear to have lost sight of the definition of "gross total income". "Gross total income" means the total income computed in accordance with the provisions of the said Act, before making any deduction under this Chapter, as contained in sub-section (5) of section 80B of the said Act. There, thus, cannot be any doubt whatsoever that while computing the income, all provisions are required to be applied and thereafter only the deductions had to be allowed. Section 80AA of the said Act, as it stood then before its repeal, which provided for computation of deduction under section 80M was in the following terms: "80AA. Computation of deduction under section 80M.-Where any deduction is required to be allowed under section 80M in respect of any income by way of dividends from a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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