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TMI Blog1994 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... amount admissible under section 80K of the Income-tax Act, 1961 ? " In Income-tax References Nos. 9 of 1985, 11 of 1985, 12 of 1985, 13 of 1985, 197 of 1985, 16 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 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). 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 purport and scope of section 80AA it has to be, borne in mind that the section as such only lays down that deduction under section 80M will have to be with reference to the income by way of dividends i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the whole of such income way of 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, item 4 (excluding alloy, malleable and S. G. iron castings), items 7 to 15 (both inclusive), items 17 and 18, item 23 (excluding refractories) and items 24, 26, 27, 28, 29, 30 and 33 in the list in the Ninth Schedule (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of a company which is entitled to get deduction under section 80K as well as section 80M(1). It provides that, if a company is entitled to deduction under section 80K, then income by way of dividends shall be reduced by the amount of deduction under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80K as well as under section 80M. The bracketed portion, namely, "before making any deductions under this Chapter" used in section 80AA 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. In the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, the Supreme Court considered sections 80M and 80AA 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 80AA is merely declaratory of the law as it always was since April 1, 1968. The court further observe that it was common ground between the parties that the main object of the relief under section 80M is to avoid taxation once again in the hands of the receiving company of the amount which has already borne full tax in the hands of the paying company and in order to encourage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M, 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 80AA by holding that the said section was clarificatory in nature and would not involve imposition of any new tax burden. 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 Incometax 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 taken into consideration and not on the basis of only the net dividend, relying upon decisions of the various High Courts : " Having regard to the definition of 'gross total income' under section 80B(5) whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, 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 80AA 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 justification for holding that the concept of net or gross dividend should have anything to do with the matter for reducing the quantum of dividend income for granting the benefit under section 80M. The language of section 80AA and sub-sections (1) and (2) of section 80M is also clear. There is no ambiguity nor was section 80AA inserted to give a different meaning to section 80M so as to make sub-section (2) of section 80M o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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