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TMI Blog1979 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian company, or it is confined only to the dividend income as computed in accordance with the provisions of the Act, that is, after making the deductions specified in s. 57 including deduction of the interest paid on borrowings for making the investments. The Gujarat High Court has taken a view against the assessee while a different view has been taken by the Bombay, Madras and Calcutta High Courts. The appeals are preferred by the assessee, namely, Cloth Traders (P.) Ltd. against the judgment of the Gujarat High Court and they relate to the assessment years 1965-66 and 1966-67, when s. 85A was in force. The references before us have been made directly by the Tribunal under s. 257 of the Act in view of the conflict of opinion amongst the High Courts. Out of these references, three are at the instance of the assessees, namely, C. V. Mehta (P.) Ltd., M/s. Distributors (Baroda) Pvt. Ltd. and H. K. (Investment) Co. Pvt. Ltd. and one is at the instance of the Commissioner of Income-tax, Gujarat. They relate to different assessment years : assessment year 1969-70 in the cases of C. V. Mehta (P.) Ltd. and Distributors (Baroda) Pvt. Ltd., and assessment years 1965-66 to 1969-70 in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come less any further amounts " because " the notification must be regarded as a self-contained one and not controlled by any other provision of the Act " and there was " no warrant to construe the word ' income ' in the notification as total income, nor to qualify the dividend income specified in the said notification as the dividend income computed under s. 12 of the Act ". It was thus held that the entire amount of dividend received by an investment trust company would be exempt from super-tax and not the amount of dividend minus the expenses incurred in earning it. This notification was followed by a provision of a similar kind granting exemption from super-tax in respect of certain specified categories of inter-corporate dividends introduced as s. 56A in the Indian I.T. Act, 1922 (hereinafter referred to as the " old Act ") by the Finance Act, 1953. It is not necessary to make any detailed reference to this provision since there is no decided case which has considered this provision or expressed any opinion upon it. When the old Act was repealed and the present Act enacted with effect from 1st April, 1962, s. 99, sub-s. (1), was introduced in the present Act exempting certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a convenient mode of describing the different items of income set out in cls. (i) to (v) of that sub-section. Clauses (i) to (v) referred to different items of income which were sought to be exempted from super-tax under sub-s. (1) of s. 99 and it was only if these items of income were included in the total income of the assessee that the question of exemption from super-tax would arise and hence the legislature used the general words " amounts which are included in his total income " in the opening part of sub-s. (1) of s. 99 as an omnibus formula to cover these different items. These words according to the High Court were descriptive of the items of income included in the computation of the total income and were not indicative of the quantum of the amounts of the different items included in such computation and they did not, therefore, have the effect of cutting down the plain natural meaning of the words " any dividend received by it from an Indian company " which represented the quantum of income in respect of which exemption from super-tax was granted under the section. This view, observed the High Court, not only followed logically and inevitably from the words used in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by an amendment made by the Finance Act, No. 10 of 1965, s. 99, sub-s. (1), was omitted and Chap. VI-A and s. 85 were introduced in the present Act with effect from 1st April, 1965. Chapter VI-A comprised ss. 80A to 80D providing for certain specified deductions to be made in computing total income while s. 85A, in so far as material, provided as follows : " 85A. Deduction of tax on intercorporate dividends.--Where the total income of an assesseee being a company includes any income by way of dividends received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included (other than any such income on which no income-tax is payable under the provisions of this Act) as exceeds an amount of twenty-five per cent. thereof :........" There were some amendments made in s. 85A by the Finance Act, 1966, but they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of an assessee there shall be allowed from his gross total income, in accordance with and subject to the provisions of Chap. VI-A, the deductions specified in s. 80C to s. 80VV and sub s. (2) of that section imposes a ceiling on such deductions by enacting that the aggregate amount of such deductions shall not, in any case, exceed the gross total income of the assessee. The expression " gross total income " is defined in cl. (5) of s. 80B to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chap. VI-A or under s. 280-O. Section 80M is the new section which corresponds to the repealed s. 85A and it provides for deduction in respect of certain categories of inter-corporate dividends. It is the interpretation of this section which constitutes the subject-matter of controversy between the parties and hence it would be desirable to set it out in extenso. This section has undergone changes from time to time since the date of its enactment and we will, therefore, reproduce it in the form in which it was during the assessment years 1968-69 and 1969-70, being the assessment years with which we are concerned in these cases : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... good any more in view of the retrospective deletion of the words " received by it " in the opening part of these sections. The argument was that the decisions of the Bombay, Calcutta and Madras High Courts upholding the view that the exemption from super-tax under s. 99, sub-s. (1), cl (iv), and the deduction of income-tax under s. 85A were admissible in respect of the entire amount of dividend received by an assessee without any deduction, were based on the words " received by it " and since these words were retrospectively omitted, these decisions could no longer be regarded as valid. We do not think this contention of the revenue can be sustained if we have regard to the object and purpose for which the words " received by it " were deleted. It is clear from the Notes on clause 31 which subsequently became s. 31 of the Finance Act, 1968, that the amendments retrospectively deleting the words " received by it " from the opening part of s. 99, sub-s. (1), cl. (iv), and s. 85A were made with a view to widening the scope of the relief granted under these sections, as it was felt that the presence of these words might render those sections inapplicable in cases where the shares to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of which exemption from super-tax is granted to net dividend computed in accordance with the provisions of the Act and forming part of the total income. It may be noticed that the exemption from super-tax granted under s. 99, sub-s. (1), is not only in respect of " dividend from an Indian company " referred to in cl. (iv), but also in respect of other items of income mentioned in cls. (i) to (iii) and (v). The legislature clearly and understandably wanted to provide that the different categories of income mentioned in cls. (i) to (v) should be eligible for exemption from super-tax only if they are included in the total income and the legislature could have made such a provision separately in respect of each category of income in the opening part of s. 99, sub-s. (1), but instead of adopting such legislative device, which would have been both inapt and inelegant, the legislature chose to use an omnibus expression " the following amounts which are included in his total income ", which would cover all the different items of income dealt with in cls. (i) to (v). These words were introduced merely to provide that the category of income in respect of which exemption from super-tax is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax free loans mentioned therein. It gives that exemption subject to two conditions, namely, (i) that the interest is received within the territories of the State of Travancore-Cochin, and (ii) that it is not brought into any other part of the taxable territories. It includes the said exempted interest in the total income of the assessee for the purpose of section 16 of the Income-tax Act. Shortly stated, the notification is a self-contained one ; it provides an exemption from income-tax payable by an assessee on a particular class of income subject to specified conditions. Therefore, there is no scope for controlling the provisions of the notification with reference to section 8 of the Income-tax Act. The expression ' interest receivable on income-tax free loans ' is clear and unambiguous. Though the point of time from which the exemption works is when it is received within the territories of the State of Travancore-Cochin, what is exempted is the interest receivable. ' Interest receivable ' can only mean the amount of interest calculated as per the terms of the securities. It cannot obviously mean interest receivable minus the amount spent in receiving the same. " It may be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itute the words " income by way of dividends from an Indian company " for the words " income so included ". Then it would be obvious--indeed it would need no argument to hold--that the rebate on income-tax is to be calculated by applying the average rate of tax to the " income by way of dividends from an Indian company " which can only mean the full amount of dividend received from an Indian company. This was the view taken by the Bombay High Court in New Great Insurance Co.'s case [1973] 90 ITR 348, and we find ourselves in agreement with it. We must now turn to consider s. 80M for the purpose of arriving at its true interpretation. There is a close similarity between s. 85A and s. 80M so far as the opening part of the two sections is concerned, but when we come to the latter part, we find that there is a difference, inasmuch as s. 85A provides for calculation of rebate of income-tax on " income so included ", while s. 80M provides for deduction of the whole or part of " such income by way of dividends ". Even if there be any doubt or ambiguity in regard to the meaning of the words " income so included " in s. 85A, though we do not think that there is any scope for such doubt or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividends is received. Now, the words " such income by way of dividends " must be referable to the income by way of dividends mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income. The whole of such income, that is, income by way of dividends from a domestic company or 60 per cent. of such income, as the case may be, would be deductible from the gross total income for arriving at the total income of the assessee. The words " where the gross total income of an assessee...... includes any income by way of dividends from a domestic company " are intended only to provide that a particular category of income, namely, income by way of dividends from a domestic company, should form a component part of the gross total income. These words merely prescribe a condition for the applicability of the section, namely, that the gross total income must include the category of income described by the words " income by way of dividends from a domestic company ". If the gross total income includes this particular category of income, whatever be the quantum of such income included, the condition would be satisfied and the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in respect of the income by way of dividends from a company falling within cl. (a) of sub-s. (1) of s. 80M may exceed the quantum of such income included in the gross total income, but that possibility is indeed contemplated and taken care of by s. 80A, sub-s. (2), which provides that the aggregate amount of the deductions shall not in any case exceed the gross total income of the assessee. We may point out that even though the consistent view taken by the Bombay, Madras and Calcutta High Courts in regard to the interpretation of s. 99, sub-s. (1), cl. (iv), was that the exemption from super-tax under that provision was admissible in respect of the full amount of dividends received from an Indian company and was not limited to the dividend income computed in accordance with the provisions of the Act and forming part of total income and the same view was taken by the Bombay High Court in New Great Insurance Co.'s case [1973] 90 ITR 348 in regard to the interpretation of s. 85A which contained the opening words " where the total income of an assessee ...... includes any income by way of dividends from an Indian company ", similar to the opening words in sub-s. (1) of s. 80M and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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