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TMI Blog1977 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 80K in respect of the amounts received by him as dividends. Rejecting that contention, the Addl. CIT directed the ITO to modify the assessments in respect of the two assessment years by withdrawing the deductions allowed under s. 80K of the Act and revise the tax demand for the two years accordingly. The assessee then preferred an appeal before the Income-tax Appellate Tribunal and the Tribunal allowed the appeal holding that " Section 80K applies when the gross total income includes any income by way of dividends." At the instance of the Addl. CIT the following question has been referred under section 256(1) of the Act, by the Tribunal for our decision : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to relief under section 80K of the Income-tax Act, 1961, for the assessment years 1968-69 and 1969-70 ? " Mr. Ramarao, the learned counsel appearing for the revenue, contended that the assessee is not entitled to the benefit of s. 80K, as there would be no dividend income when the income chargeable under the head " Income from other sources " is computed after giving him deduction in respect of the interest paid on amounts borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. " " Gross total income " is defined in s. 80B to mean the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A or under s. 280-O. The relevant section under which deduction is claimed and which calls for interpretation by us is s. 80K which is in these terms : " 80K. Where the gross total income of an assessee, being-- (a) the owner of any share or shares in a company, or (b) a person who is chargeable to tax under this Act on the income by way of dividends on any share or shares in a company owned by any other person, includes any income by way of dividends paid or deemed to have been paid by the company in respect of such share or shares, there shall, subject to any rules that may be made by the Board in this behalf, be allowed, in computing his total income, a deduction from such income by way of dividends of an amount equal to such part thereof as is attributable to the profits and gains derived by the company from an industrial undertaking or ship or the business of a hotel, on which no t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the nature of capital expenditure or personal expenses of the assessee. The moneys were borrowed by the assessee exclusively for the purpose of investment in business and on the borrowings, he has paid interest as declared by him in the returns. The assessee was, therefore, entitled to deductions under cl. (iii) of s. 57 in respect of the interest paid by him on the borrowings for the purpose of investment in the business of M/s. Poly Mould Industries, Madras. Section 80K does not contemplate any expenditure for the purpose of earning income. Section 80K only deals with dividend income attributable to profits and gains from new industrial undertakings. As may be seen from the marginal note of s. 80K, the intention of Parliament in enacting Chap. VI-A is manifest. The marginal note reads " Deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships or hotel business ". The legislature wanted new industrial undertakings to come into existence and to attract capital for new ventures, whether it be shipping industry or hotel business or any other industrial undertaking, this concession has been given. That seems to be the principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder. In CIT v. South Indian Bank Ltd. [1966] 59 ITR 763, the Supreme Court, dealing with a notification of the Central Government issued under s. 60A of the 1922 Act, which provided that no income-tax shall be payable by an assessee on the interest receivable on certain income-tax free loans issued by the former Governments of Travancore and Cochin, provided that such interest was received within the territories of the State of Travancore- Cochin and was not brought into any other part of the taxable territories, held that the notification was a self-contained one giving a total exemption from income-tax. There was no scope for controlling the provisions of the notification with reference to s. 8 of the I.T. Act. " Interest receivable " was an unambiguous expression ; it could only mean the amount of interest calculated in accordance with the terms of the securities ; it could not mean interest receivable minus the amount spent in receiving the same. This decision goes to show that dividends received in respect of which deduction is allowable under s. 80K could only mean dividend amount received and it could not mean dividend amount received minus the interest paid on the borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king. " The case of Madras Auto Service v. ITO [1975] 101 ITR 589 (Mad) is somewhat nearer to the facts of the present case. That was a case where the assessment of the assessee for 1966-67 was sought to be reopened by the ITO on the ground that by reason of the deduction of the entire interest paid on borrowings from the business profits, excessive relief had been granted to the assessee. The officer proposed to arrive at the net dividend on which alone he held the assessee to be entitled to the relief under ss. 80K and 80M. That led to the assessee filing a writ petition and the Madras High Court held, following an earlier decision of the court in CIT v. Madras Motor and General Industries Co. Ltd. [1975] 99 ITR 243 (Mad) that the principle of that decision that the relief under s. 99(1)(iv) would be available on the gross dividend income and not on the net dividend income would apply to the case before them as well, in view of the language in s. 99(1)(iv) and s. 80K being similar, and hence there was no question of any excessive relief having been granted and, accordingly, the proposal for reassessment was not valid. In CIT v. Central Bank of India Ltd. [1976] 103 ITR 196, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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