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TMI Blog1985 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... 1967-68, a sum of Rs. 28,53,698 by way of gross dividend from a trust was included. From the gross dividend of Rs. 28,63,820, expenses of Rs. 10,122 were deducted and the balance was included. Thereafter, by an order under s. 155 of the Act in respect of the same assessment year, the ITO included the amount of dividend from the trust of Rs. 28,53,698 and the benefit of tax deducted at source of Rs. 6,04,771 was allowed. In neither of the two orders was there any discussion regarding the deduction under s. 80M. For the assessment year 1968-69, the trust dividend of Rs. 28,63,820 was considered and after deducting a sum of Rs. 10,004 on account of expenses, the balance of Rs. 28,53,816 was included in the total income. The benefit of tax deducted at source for Rs. 6,30,040 was allowed. The ITO also granted deduction under s. 80M with reference to the dividend income. By an order under s. 155(5) of the Act, later on, for the same assessment year, the ITO did not disturb either the inclusion of the said dividend income or the deduction under s. 80M. The Additional CIT considered the aforesaid two assessment orders as framed by the ITO to be erroneous and prejudicial to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essments, the dividend income arising out of the shares held by the trust was included and the benefit of deduction of taxes at source at the time of payment of dividend was allowed. The Tribunal held that once the gross total income of an assessee being a company included any income by way of dividends from a domestic company, the assessee company would become entitled to deduction under s. 80M irrespective of any finding as to whether the assessee company was a registered holder of shares in respect of which the dividend income was earned. The Tribunal also considered various provisions of the I.T. Act, 1961, relating to dividend income, the year of its assessability and the person in whose hands it was assessable. Keeping all these in view, the Tribunal held that the circumstances of the case did not warrant assumption of jurisdiction by the Additional CIT by invoking the provisions of s. 263(1) of the Act in order to hold that the orders passed by the ITO were erroneous and prejudicial to the interests of the Revenue. At the hearing before us it has been contended by Mr. A. C. Moitra, learned advocate on behalf of the Commissioner, that the company for its purposes does not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Act, 1922. There, the shares were held by three partners of a firm but it appeared that the shares were really held by these persons for the firm itself. The Supreme Court held that the only persons who were entitled to be treated as shareholders to whom the provisions of ss. 15(2) and 18(5) were attracted were the three partners, in spite of the fact that they were mere benamidars for the firm. The ITO, therefore, committed an error in treating the registered firm as the owner of the shares. The next decision cited by Mr. Moitra is in the case of CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170 (SC). There, members of a HUF acquired shares in a company with the funds of the family. Loans were granted to the HUF and the question was whether the loans could be treated as dividend income of the family falling within s. 2(6A)(e) of the Indian I.T. Act, 1922. It was held by the Supreme Court that only the loans advanced to shareholders could be deemed to be dividends under s. 2(6A)(e). The HUF could not be considered to be a " shareholder " under s. 2(6A)(e) and, hence, the loans given to the HUF could not be considered as loans advanced to a " shareholder " of the company and cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso of s. 199 reads as follows "(ii) in any other case, where the dividend on any share is assessable as the income of a person other than the shareholder, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person in such circumstances as may be prescribed. " Rule 30A, so far as is material for the purpose of this reference, reads thus : 30A. (1) Subject to the provisions of sub-rule (2), where the dividend on any share is assessable as the income of a person other than the shareholder, any deduction made in accordance with section 194 and paid to the Central Government, shall be deemed to be a payment of tax on behalf of, and the credit in respect thereof shall be given to, such other person in the circumstances specified below, namely :-... (vi) where shares are held by a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913) ), and the dividend thereon is received by the trustee on behalf of, or for the benefit of, any person who is a beneficiary of the trust; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in s. 80M. The question whether the assessee company or any other person is the registered holder of the shares from which dividend income is derived is immaterial for deciding whether the assessee company is entitled to deduction in respect of intercorporate dividends under s. 80M. Section 80M does not postulate that in order to become entitled to the deduction under the said section in respect of income by way of dividends earned from the shares, the assessee company must be the registered holder of the shares in respect of which income by way of dividend is earned. The condition precedent for granting exemption under s. 80M is that there should be income by way of dividends from a domestic company. This has been satisfied in this case. The dividend income has been included and assessed. If the dividend income realised through the trust is assessed, the deduction under s. 80M in computing the total income cannot be denied to the assessee. The assessee company is, therefore, entitled to the benefit of the deduction under s. 80M irrespective of the fact whether the assessee company receives the dividend income through the trust or otherwise. We may also refer to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contained in rule 30A(2), unless the assessee fulfils the conditions prescribed therein, no benefit could be given to the assessee. This contention was never raised before the Tribunal and as such we cannot allow Mr. Moitra to raise this contention before us. Even otherwise we are not concerned herewith the question whether the assessee is entitled to the benefit of the tax credit or not, Under r. 3 OA, when the dividend is included in the income of a person other than the registered shareholder, such person would be entitled to the benefit of the tax credit if he fulfils the conditions prescribed under sub-rule (2) of r. 30A. In this case, we are only concerned with the question whether the dividend which is included in the total income of the assessee would be eligible for deduction under s. 80M. We have referred to the provisions of s. 199 and r. 30A only to emphasise that the dividend income is not only assessable in the hands of the registered shareholder but it can be assessed also in the hands of the beneficiary or any other person who may not be a registered holder of the shares. The Additional CIT who passed the order under s. 263 only directed the ITO to withdraw the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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