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TMI Blog1986 (1) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has relied on the decisions in CIT v. Jupiter General Insurance Co. [1975] 101 ITR 370 (Bom.), A. V. Thomas Co. v. CIT [1977] 110 ITR 515 (Ker.), CIT v. Sunderam Industries (P.) Ltd. [1985] 151 ITR 769 (Mad.) and CIT v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. [1984] 146 ITR 178 (MP). He has also relied on the decision of the Tribunal for the assessment years 1973-74 and 1974-75. All these decisions are based on the principle laid down by the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. In that decision the Supreme Court held that the words 'income by way of dividends' occurring in section 80M of the Income-tax Act, 1961 ('the 1961 Act'), referred to gross dividends and not net dividends. However, the said decision has been overruled recently by a five Judge Bench of Supreme Court in Distributors Baroda (P.) Ltd. v. Union of India [1985] 155 ITR 120. The Supreme Court has held that the words 'such income by way of dividends' referred to net dividend income and not gross dividend income. The Supreme Court has further held that the decision in Cloth Traders (P.) Ltd.'s case was wrong. Consequently, identical words in rule 1(viii) and (ix) woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch income by way of dividends' in section 80M which occurred in the same setting as the words in rule 1(viii) and rule 1(ix) occurred. 5. The learned representative of the assessee drew our attention to the fact that from 1-4-1981 Explanation has been inserted by the Finance Act, 1981 in rule 1 in which a specific provision has been made to the effect that the amount of any income, profits and gains which was required to be excluded from the total income under rule 1 would be the amount of such income, profits and gains as computed in accordance with the provisions of the 1961 Act as reduced in accordance with the provisions in Chapter VIA of the 1961 Act. It was submitted that since this amendment was brought into force with effect from 1-4-1981 it should be presumed that the intention of the Legislature was that prior to 1-4-1981 gross amounts of income, profits and gains should be excluded under various clauses of rule 1. It was further submitted that whereas section 80AA of the 1961 Act was inserted by the Finance (No. 2) Act, 1980 with effect from 1-4-1968 in order to make provision to the effect that net income by way dividends should be taken into accounts for calculating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at on the basis of the decision of the Supreme Court in Distributors Baroda (P.) Ltd.'s case, we should hold that what is to be excluded under clauses (viii) and (ix) of rule 1 is income by way of dividends as reduced by expenses incurred for earning the same and income by way of royalties as reduced by expenses incurred for earning royalties and that reduction under Chapter VIA from income by way of dividends and income by way of royalties should not be taken into accounts. We are unable to accept this submission. In section 80A of the 1961 Act it is mentioned that in computing the total income, reduction are to be made in accordance with the provisions of Chapter VIA. It is obvious that the total income is computed by deducting the amounts mentioned in various sections in Chapter VIA from gross total income. Some of these reductions have direct reference to the particular head of income. For example, in section 80M reduction is to be made from income by way of dividends as computed under other provisions of.the 1961 Act. Similarly, under section 80-O of the 1961 Act reduction is provided from income by way of royalties. In the computation of the total income, income by way of div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal for the assessment year 1973-74 referred to above. The departments wants to keep the issue alive. We respectfully follow the said decision and confirm the order of the Commissioner (Appeals) on this point. 11. The next ground which only arises in the departmental appeal for the assessment year 1977-78 is that the learned Commissioner (Appeals) had erred in holding that the amount deposited by the assessee-company with IDBI in lieu of surcharge that would have been payable by the assessee-company. The point in controversy was considered at length by the Special Bench of the Tribunal in Travancore Chemicals Mfg. Co. Ltd. v. ITO [1985] SOT 364 (Coch.) and was against the assessee and in favour of the department. The assessee wants to keep the issue alive. We respectfully follow the said decision of the Special Bench of the Tribunal and set aside the order of the Commissioner (Appeals) on this point and restore that of the STO. 12. We now come to the appeals filed by the assessee. The first ground raised is that the learned Commissioner (Appeals) had erred in upholding the action of the ITO in reducing short provision of gratuity from general reserve while computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 1961 Act amounting to Rs. 5,60,101. This ground arises in the assessee's appeal for the assessment year 1979-80 only. The assessee had made donation of Rs. 5,60,101 to charitable institutions referred to section 80G (2). Under sub-section (1) of section 80G, deduction of an amount equal to 50 per cent of the said amount of donation was allowable. However, sub-section (1) was subject to sub-section (4) of section 80G. Sub-section (4) laid down that the deduction under sub-section (1) shall not be allowed in respect of such sum exceeded 10 per cent of the gross total income or five lakhs, whichever was less. In the present case the amount of five lakhs was the smaller amount. Consequently, deduction under section 80G was allowable with reference to amount of Rs. 5 lakhs in the present case. In the income-tax assessment deduction of 50 per cent of Rs. 5 lakhs amounting to Rs. 2,50,000 was granted. Clause (vii) of rule 1 of the First Schedule is as follows : "In computing the chargeable profits of a previous year, the total income computed for the year under the Income-tax Act shall be adjusted as follows : 1. Income, profits and gains and other sums falling within the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to which a deduction is allowed to the company under the provision of section 80G of the Income-tax Act', the upper limit of Rs. 2 lakhs which was the limit at the time when the Tribunal decided the appeal would have to be taken into account. However, since the word used is 'allowable' and not 'allowed' the upper limit in sub-section (4) of section 80G should be ignored. What was lost sight of was that no deduction can be allowed.unless deduction is allowable, and, as such, deduction allowable would always be equivalent to deduction allowed. Consequently, the use of the word 'allowable' would not make any difference. It is to be noted that clause (vii) refers to section 80G as a whole and not to sub-section (1) of section 80G. Consequently, when we have to ascertain as to what was the sum with reference to which deduction is allowable under section 80G, we have to consider all the sub-section of 80G. Sub-section (4) of section 80G cannot be ignored. In fact, sub-section (1) is subject to sub-section (4) of section 80G. Consequently, the sum mentioned in sub-section (4) is in substance the sum with reference to which deduction is allowable to the company under provis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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