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TMI Blog1981 (11) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... st year and Rs. 9,876 for the second year received by way of dividends from a company which was entitled to relief under section 84 of the Income-tax Act ? " The assessee is an individual who had shares in two registered firms and was a shareholder of several companies. The assessment years in question are 1966-67 and 1967-68, the relevant previous years ending on 31st March, 1966, and 31st March, 1967, respectively. In the first year under consideration, the assessee received certain dividends amounting to Rs. 8,360. Out of this amount, a sum of Rs. 7,000 was the dividend from M/s. East Coast Flour Mills Pvt. Ltd. This company certified that an amount of Rs. 4,494 related to profits of the company which were exempt under s. 84 of the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include any positive income from a new industrial undertaking on which rebate could be allowed under s. 85 he held that the assessee was not entitled to any relief. He, thus, deleted the relief already granted. Being aggrieved, the assessee appealed to the AAC. The AAC was of the view that even if the dividend income resulted in a loss the assessee was entitled to the rebate under s. 85 and this relief should be granted. He, therefore, held that the ITO was in error in withdrawing the relief on the ground that the total income did not include dividend income. He also noted that it was wrong for the ITO to refuse relief to the assessee under s. 85 on the ground that it had been granted under s. 84 to the firm. The AAC accordingly directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief under s. 85 in respect of any dividend included in his total income which had been received by him from companies, the profits of which qualified for exemption under s. 84. In coming to this conclusion the Tribunal drew support from the decision of the Supreme Court in CIT v. South Indian Bank Ltd. [1966] 59 ITR 763 and a decision of the Bombay High Court in CIT v. Industrial Investment Trust Co. Ltd. [1968] 67 ITR 436. Accordingly, it confirmed the order of the AAC and dismissed the department's appeal. The question of law as set out above is now before us for consideration. In order to appreciate the arguments, it is necessary to examine the relevant provision. Section 85, as it stood at the relevant time, reads: " Subject to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nus the amount of interest borrowed for earning the same or, for earning other dividends. , According to us, in the present case, it would, therefore, mean the full amount of dividend paid to the assessee by a company, as pertains to the profits and gains of a new industrial undertaking, which is exempt under (s. 85) of the Act. This view is supported by the decisions of the Calcutta and Bombay High Courts in CIT v. Darbhanga Marketing Co. Ltd. [1971] 80 ITR 72 (Cal), CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348 and CIT v. Indore Exporting and Importing Co. Ltd. 1976] Tax LR 471. In the last of the three mentioned cases, a Division Bench of the Calcutta High Court, while dealing with s. 85 of the 1961 Act, relied on the earlier tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. of " such income ", as the case may be. The words " such income " did not have reference to the quantum of the income included but referred only to the category of the income included, i.e., income by way of dividend from a domestic company. In the present case, however, it would appear that the position is even clearer With regard to the provisions contained in s. 85. Section 85 provides for relief to the shareholder who has any dividend income paid to him out of the profits and gains of an industrial undertaking to which the provisions of s. 84 apply and he shall not be liable to pay tax on that portion of the dividend income which is attributable to that part of such pro I fits and gains. The amount entitled to exemption is determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income chargeable to income-tax, it would appear to us, he is entitled to relief under s. 85 in respect of any dividend included in his total income which has been received by him from companies whose profits qualify for exemption under s. 84. Before parting with the case, we may mention that Mr. Wazir Singh appearing for the Revenue, placed considerable reliance on Cambay Electric Supply Industrial Company Ltd. v. CIT [1978] 113 ITR 84 (SC), and also referred to a judgment of the Gujarat High Court in CIT v. Gautam Sarabhai [1981] 129 ITR 133. Learned counsel suggested that there was conflict between the principle enunciated in Cloth Traders (P.) Ltd. [1979] 118 ITR 243 (SC), and that outlined in Cambay Electric Supply Industrial Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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