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2014 (11) TMI 413 - DELHI HIGH COURTAllowability of deduction u/s 80M and 80K – Dividend income reduced or not as permissible u/s 36(1)(viii) – Held that:- The assessee had not challenged reduction of deduction u/s 80K and the CIT(A) had not dealt with the issue – the Tribunal fell in error in treating the deduction u/s 80K and disallowance made u/s 36(1)(viii) as a ground raised by the Revenue in appeal - Section 80M in the opening words refers to the expression “gross total income of an assessee” and thereafter stipulates that where gross total income of the assessee includes income by way of dividends etc., the deductions would be allowed - The expression “gross total income” for the purpose of Chapter VI-A as defined in Section 80B(5) meant total income computed in accordance with the provisions of this Act but before making any deductions under Chapter VI-A - the Section postulated that the gross total income meant total income computed under Chapter III of the Act - the total income computed u/s 28 of the Act after allowing deductions u/s 36(1)(viii), plus other income of the assessee, as computed, would constitute the gross total income on which deduction u/s 80M could be allowed - The deduction allowed u/s 36(1)(viii) of the Act got excluded and did not partake income included in gross total income on which deduction u/s 80M was to be allowed - The amounts deducted u/s 36(1)(viii) ceased to be part of the gross total income as stipulated in Section 80B(5). Section 80M stood enacted with the object to provide relief on inter-corporate dividends for the said income had already suffered incidence of tax in the hands of paying company and, therefore, should not be subjected to tax twice - where the dividend would not have otherwise suffered tax, the said amount of dividend should not be allowed the deduction - The assessee had received dividend - The total income before deduction under VI-A, necessarily would be much higher - the dividend income was a miniscule and a fraction of the total income - The total (taxable) income was computed after allowing deduction u/s 36(1)(viii) of ₹ 17.75 crores, an amount if not subtracted would have further increased the quantum the total income – it would not be correct to treat dividend income as a part of ₹ 17.75 crores, deposited and transferred to the special reserve - The dividend income could well be treated and regarded as a part of and included in the total income, subjected to tax of ₹ 25.35 crores/ ₹ 25.96 crores. There is therefore a basic fallacy and flaw in the argument raised by the Revenue. Section 36(1)(viii) required creation of a special reserve by a finance corporation engaged in long-term finance for industrial or agricultural development in India - Deduction could not exceed 40% of the total income computed before making any deduction under the clauses of section 36(1) or Chapter VI A - An amount not exceeding 40% of the total income could be allowed as a deduction under the headings “profits and gains” of business or profession. Reference was thereafter made to the heading “income from other sources”, under Chapter III of the Act - Sections 36(1)(viii) and 80M read with Section 80AA operated in altogether different fields and in the absence of any provision, prohibiting benefit, appellate authorities were justified in deciding the issue in favour of the assessee – Decided partly in favour of Partly.
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