9911796707
TMI Blog1984 (11) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... e money borrowed for investment in shares and allowing 60 per cent on the balance, allowed relief of Rs. 12,15,244. The question, thus, was whether the relief should be allowed with reference to the gross dividend received by the assessee or after deducting the expenses by way of interest as above. According to the assessee's calculation, the interest attributable to the dividend is only Rs. 11,042, whereas according to the calculation adopted by the ITO, the interest attributable to this dividend was Rs. 5,99,340. When the ITO completed the assessment originally deducting interest of Rs. 5,99,340 as against Rs. 11,042 claimed, rejecting the claim of the assessee that to compute the deduction due under section 80M, it should not be the gross dividend income but net dividend income. Thereupon, there was an appeal to the AAC, who agreed with the assessee's contention that it was the gross dividend that should be taken into consideration under section 80M and not the net dividend. But he did not touch upon the question as to whether the interest should be Rs. 5,99,340 or Rs. 11,042. The revenue appealed to the Tribunal. In that appeal, the Tribunal held that the finding of the AAC tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received interest and if at all it is decided to allocate the interest to dividend income and other business income, only the net interest paid must be allocated and not the gross interest as was done in this case. Both these points were taken up in the cross-objections filed before the Tribunal, when it disposed of the original appeal. The Commissioner (Appeals) did not permit the assessee to raise these two new grounds with the following observations : " I am of the view that within my invested jurisdiction in this appeal, I shall not be able to go beyond the directions of the Income-tax Appellate Tribunal. The clear mandate is to enter into an enquiry as to the facts, which may justify allocation of a part of interest expenses ; the assessee on its part having already accepted that allocable part was only Rs. 11,042. 7. In view of the above, I reject the new points raised by the learned A.R. and proceed to examine the facts in the context of enquiry for allocation of interest towards earning of dividend income under section 57. " Then he proceeded to consider the amount to be allowed by way of interest under section 57 of the Act and found that for the earlier assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand strongly relying on the order of the Commissioner (Appeals), submitted that the assessee was trying to enlarge the scope of enquiry at the level of the Commissioner (Appeals) and it should not be permitted. Accepting the assessee's contention would, according to the learned departmental representative, mean rewriting the direction of the Tribunal given earlier. He also submitted that it was never the case of the assessee that interest should be deducted in its entirety against business income and nothing should be deducted against dividend income. If that were so, the question of arriving at a figure of Rs. 11,042 as allocable interest towards dividend, would not arise. There is, thus, a contradiction in the assessee's stand and the Commissioner (Appeals) was, therefore, right in not permitting the assessee to change its stand and make it mutually contradictable. 5. In our opinion, the view taken by the Commissioner (Appeals) does seem on the narrower side. The directions given by the Tribunal quoted above, in our opinion, do vest in the AAC with the power to enquire into the matter in all its aspects and not to restrict in any manner than to arrive at the interest all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n elaborate statement prepared and filed before the ITO, the assessee-company had shown the name of the company of which shares are purchased, the quantity of shares purchased, the amount invested, the date of investment and how the amount came, whether by overdraft from the bank or whether out of the balance already available in the bank, and interest, if at all, paid on those purchases. A cursory glance of this statement would show to any one that in majority of the cases, these shares were purchased out of the existing money and no borrowed funds were utilised. If any one had looked into this statement and applied his mind, verified them with regard to the books, a conclusion will have been reached that the assessee purchased these shares out of its own money and not out of borrowed funds and where the overdraft money was utilised, the interest payable thereon was very nominal. Such interest calculations were arrived at Rs. 64,242, Rs. 12,765 and Rs. 17,477 for the years ending on30-6-1965,30-6-1966and30-6-1969, respectively. Prepared in the same way, the interest payable for the year under appeal came to Rs. 11,042. When the ITO by applying section 57 has to arrive at the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t his enquiry is confined only to whether Rs. 11,042 is to be allowed or Rs. 5,99,340 should be allowed. We also find that the Commissioner (Appeals) has not discussed as to how the assessee's claim of Rs. 11,042 should be rejected and why the claim of the Commissioner (Appeals) should be approved of. The demerits, if any, in the assessee's case were not at all pointed out. This is also a lacuna in the order passed by the Commissioner (Appeals). Having regard to these aspects, we think it would be very proper and just that the matter should be restored again to the file of the Commissioner (Appeals), with the direction that he should go into all these aspects again and then give his decision thereon keeping in view the above discussion. He should decide whether at all any interest is allocable as a deduction from dividend income having regard to the assessee's contention that the interest was attributable only to the business activities and nothing is allocable towards dividend on the ground that its activity was an indivisible whole or whether the gross interest should be taken or net interest should be taken and also whether the claim of the assessee that Rs. 11,042 alone should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (2) ibid. which is to avoid deduction in respect of the same income being allowed 100 per cent under section 80K and 60 per cent under section 80M(1) comes into play after 'the income by way of dividends' has been determined under section 80M(1), read with section 80AA. The words in parenthesis in section 80AA should apply to the first stage of determining the income by way of dividends and not to the later stage, when 60 per cent of the income is to be determined. So understood, there should remain no doubt as to the real meaning and purpose of section 80AA or section 80M(2). I, therefore, reject the additional ground of appeal. " The question that is now debated before us proceeded on the same lines as before the authorities below. Section 80M(1) and (2) is in the following terms : " (1) Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to-- (a) in respect of such income by way of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be deducted but if the dividend happens to be falling in the category (b), only 60 per cent thereof is to be exempted. In this case, it is the 60 per cent category that is disputed. Sub-section (2) of section 80M puts an embargo on the allowance of deduction under section 80M(1). It will be seen from the section quoted above that if the assessee happens to be a company entitled to relief both under sections 80M and 80K, the deduction under section 80M would be as reduced by the deduction allowable under section 80K. In other words, in the case of a company entitled to relief under sections 80M and 80K, deduction under section 80K is given preference over the deduction under section 80M. Here in the case before us, the relief due to the assessee under section 80K is of the order of about Rs. 18.91 lakhs. What the assessee claimed was, that of the gross dividends of Rs. 26,27,907 no interest was allocable as deduction and from the gross amount the deduction allowable under sections 80K and 80L of the Act was only Rs. 3,160 and of the balance of Rs. 26,24,747 deduction under section 80M at 60 per cent should be allowed, which worked out to Rs. 15,74,848. What the ITO did was, he ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, where the Supreme Court held that deduction under section 80M in respect of inter-corporate dividend is to be computed with reference to the gross amount of such dividend and not the net amount arrived at minus admissible expenditure. That was the reason why section 80AA was inserted with retrospective effect from1-4-1968, providing that the deduction under section 80M is to be computed with reference to the net dividend income and not the gross dividend income. If this is the entire object of enacting of section 80AA then it cannot be said that its object was to nullify the effect of section 80M( 2), which was inserted with effect from1-4-1972. One has no relation to the other. He then gave us instances to show where both could co-exist in furtherance of the legislative intention. Shri Vaish, on the other hand, by citing several examples opposed this view. 7. But we are of the view that the view canvassed on behalf of the assessee is difficult to accept. Assuming for a minute that Shri Vaish is right, what section 80AA clearly says is (i) where any deduction is required to be allowed under section 80M in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of income by way of dividends under section 80K or section 80L, the deduction under sub-section (1) shall be allowed in respect of income by way of dividends referred to therein as reduced by the aggregate of the deductions, if any, in respect of income by way of dividends under section 80K and section 80L. " This Explanation later became sub-section (2) of section 80M inserted by the Finance (No. 2) Act, 1971, with effect from1-4-1972. The whole idea is that if an assessee is entitled to relief under sections 80K and 80M, the relief under section 80K must first be given and only the balance shall be entitled to the relief under section 80M. While section 80M gives relief in respect of inter-corporate dividends received by domestic companies, section 80K relief is allowable to shareholders. Since a shareholder can also be a domestic company receiving dividend from another company, the object perhaps is to see that no double advantage is taken by the same assessee. The history of section 80M, particularly the reason for inserting section 80M(2), must be borne in mind to understand the purpose of insertion of section 80AA, which as we have noticed earlier is to off-set th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
