9911796707
TMI Blog1985 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... n Cloth Traders' case, it would become necessary to consider the question of the constitutional validity of s. 80AA which was introduced in the I.T. Act, 1961, by s. 12 of the Finance (No. 2) Act, 1980, with a view to overriding, with retrospective effect, the construction placed on s. 80M by this court in Cloth Traders' case. If, on the other hand, this Bench disagrees with the view taken in Cloth Traders' case and hold that even before the introduction of s. 80AA, s. 80M, on a true interpretation of its language, meant exactly what s. 80AA now retrospectively declares it to mean, no question of constitutional validity of s. 80AA would arise since s. 80AA would then be merely declaratory of the law as it always was and would not be imposing any new tax burden with retrospective effect. The first question that we must, therefore, consider is as to what is the true construction of s. 80M unaided by the subsequent legislative interpretation imposed upon it by the enactment of s. 80AA: do we affirm the view taken in Cloth Traders' case, or do we dissent from it ? We have given our most anxious consideration to this question, particularly since one of us, namely, P. N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeals were pending at different stages at the time of filing of the present writ petition. The assessments for some of the assessment years were also pending before the ITO. So long as the decision in Cloth Traders' case stood unaffected by any constitutionally valid legislative amendment, petitioner No. 1 was entitled to succeed in the appeals as well as in the original assessments which were pending consideration before different authorities. But with a view to overriding the decision in Cloth Traders' case, with retrospective effect, Parliament enacted s. 80AA and since this section was deemed to have been introduced in the I.T. Act, 1961, with effect from April 1, 1968, and it provided that the deduction required to be allowed under s. 80M shall be computed not with reference to the gross amount of dividend received by the assessee from a domestic company, but with reference to the dividend income as computed in accordance with the provisions of the Act, the claim of petitioner No. 1 for deduction on the basis of the full amount of dividend received by it from domestic companies was liable to be rejected and the deduction could be allowed to petitioner No. 1 only wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It may be noticed, and this aspect was emphasised by the Bombay High Court, that what was exempted from super-tax under the notification was "so much of the income of any investment trust company as is derived from dividends paid by any other company " and there was no reference to " total income " in the notification nor was any indication given in the notification that the income derived from dividends which was sought to be exempted from super-tax was dividend income forming part of " total income " and that is why the Bombay High Court came to the conclusion that the dividend income exempted under the notification was the entire income by way of dividend received by the assessee and not the dividend income as computed in accordance with the provisions of the Act. The High Court of Bombay in taking this view in Industrial Investment Trust Company's case [1968] 67 ITR 437 (Bom) was guided by the decision of this court in CIT v. South Indian Bank [1966] 59 ITR 763. Since the decision in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 will be noticed that the entire basis of the judgment of the court was that the notification was a self-contained one and it gave exemption from income-tax in respect of interest receivable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income computed in accordance with the provisions of the Act and forming part of " total income ". The High Court of Bombay accepting the contention of the assessee held that on a plain reading of clause (iv), sub-s. (1) of s. 99, it was clear that the exemption from super-tax was granted in respect of " any dividend received by it from an Indian company " and these last words, according to their plain grammatical construction, could mean only one thing, namely, the entire amount of dividend received by the assessee from an Indian company and nothing less. The Bombay High Court emphasised the word " received " following immediately upon the word " dividend " and observed that the use of this word also showed that the exemption was in regard to the dividend received and not in regard to the dividend received minus the expenses. The High Court of Bombay pointed out that the words " amounts which are included in his total income " in the opening part of s. 99, sub-section (1), did not have any limitative effect but they were used merely as a convenient mode of describing the different items of income set out in clauses (i) to (v) of that sub-section. Clauses (i) to (v) referred to dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an entirely new section, namely, s. 80M, which, as we shall presently point out, is different in its structure, language and content from clause (iv), sub-s. (1) of s. 99. We may point out that some doubt was raised on behalf of the Revenue in regard to the correctness of this view taken by the three High Courts, but we do not think it necessary to consider whether this doubt is well founded or not because we are of the view that even if the construction placed on clause (iv) of sub-s. (1) of s. 99 by the three High Courts were correct, it cannot necessarily lead to the conclusion that A similar construction must also be placed on s. 80M which is different in material respects from clause (iv) of sub-s. (1) of s. 99. It is most unsafe to try to arrive at the true meaning of a statutory provision by reference to an interpretation which might have been placed on an earlier statutory provision which is not only couched in different language but is also structurally different. We must, therefore, construe the language of s. 80M on its own terms uninhibited by any interpretation which may have been placed on clause (iv) of sub-s. (1) of s. 99 by any High Court. We may, proceeding f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m an Indian company, so that if this particular category of income is included in the computation of total income, the assessee would be entitled to a deduction of so much of the amount of income-tax calculated at the average rate of income-tax on the " income so included " as exceeds an amount of twenty-five per cent of such income. The words " income so included " were read to mean not the quantum of the " income by way of dividends " included in the total income but the income falling within the category of " income by way of dividends from an Indian company " included in the total income. Thus, the view taken by the Bombay High Court was that under s. 85A also, the deduction admissible was in respect of entire dividend received by the assessee from an Indian company and not in respect of dividend income minus deductions allowable under the provisions of the Act in computing " total income ". But here again we are not concerned in inquiring whether the view taken by the Bombay High Court in New Great Insurance Co's case [1973] 90 ITR 348 is correct, though it must be conceded that it has been held to be correct in the decision in Cloth Traders' case [1979] 118 ITR 243 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A or under s. 280-0. Section 80M is the new section which corresponds to the repealed s. 85A and it provides for deduction in respect of certain categories of intercorporate 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 stood when originally enacted: " 80M. Deduction in respect of certain intercorporate dividends.-(1) Where the gross total income of an assessee being a company includes any income by way of dividends received by it 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) where the assessee is a foreign company- (i) in respect of such income by way of dividends received by it from an Indian company w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal was allowed by the judgment delivered in Cloth Traders' case [1979] 118 ITR 243. This court overruled the view taken by the Gujarat High Court and held that the deduction required to be allowed under s. SOM must be calculated " with reference to the full amount of dividends received from domestic company and not with reference to the dividend income as computed in accordance with the provisions of the Act, that is, after making deductions provided under the Act ". This decision was given by the court on May 4, 1979. Now, according to Parliament, this interpretation placed on s. 80M by the summit court was not in conformity with the legislative intent and it resulted in considerable unjustified loss of revenue. Parliament, therefore, immediately proceeded to set right what, according to it, was an interpretation contrary to the legislative intent and, with a view to setting at naught such interpretation, Parliament, by s. 12 of Finance (No. 2) Act, 1980, introduced in the I.T. Act, 1961, s. 80AA with retrospective effect from April 1, 1968, that is, the date when s. 80M was originally enacted, providing that the deduction required to be allowed under s. 80M in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of the arguments. Now when an amount by way of dividend is received by the assessee from the paying company, the full amount of such dividend would have suffered tax in the assessment of the paying company and it is obvious, that, in order to encourage inter-company investments, the Legislature intended that this amount should not bear tax once again in the hands of the assessee either in its entirety or to a specified extent. But the amount by way of dividend which would otherwise suffer tax in the hands of the assessee would be the amount computed in accordance with the provisions of the Act and not the full amount received from the paying company. Therefore, it is reasonable to assume that in enacting s. 80M, the Legislature intended to grant relief with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received from the paying company. It is difficult to imagine any reason why the Legislature should have intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount which is liable to suffer tax once again in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of dividends " following upon the specification of this condition, cannot have reference to the quantum of the income included but must be held referable only to the category of income included, that is income by way of dividends from a domestic company. This was the same argument which found favour with the court in Cloth Traders' case [1979] 118 ITR 243, but on fuller consideration, we do not think it is well founded. We may assume with the court in Cloth Traders' case [1979] 118 ITR 243, that 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 gross total income, irrespective of what is the quantum of the income so included but it is difficult to see how the factor of quantum can altogether be excluded when we talk of any category of income included in the gross total income. What is included in the gross total income in such a case is a particular quantum of income belonging to the specified category. Therefore, the words " such income by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by the assessee. This indication was also unfortunately lost sight of by the court in Cloth Traders' case [1979] 118 ITR 243, presumably because it was not brought to the attention of the court. The court observed in Cloth Traders' case [1979] 118 ITR 243, that the whole of the income by way of dividends from a domestic company or 60% 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. We are afraid this observation appears to have been made under some misapprehension, because what sub-s. (1) of s. 80M requires is that the deduction of the whole or a specified percentage must be made from " such income by way of dividends " and not from the gross total income. Sub-s. (1) of s. 80M provides that in computing the total income of the assessee, there shall be allowed a deduction from " such income by way of dividends " of an amount equal to the whole or a specified percentage of such income. Now, when in computing the total income of the assessee, a deduction has to be made from " such income by way of dividends ", it is elementary that It such income by way of dividends " from which deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled with the court in placing a particular interpretation on sub-s. (1) of s. 80E would equally be applicable to the interpretation of sub-s. (1) of s. 80M. Section 80E, as it stood at the material time, provided, inter alia, as follows in sub-s. (1) I " 80E. (1) Deduction in respect of Profits and gains from specified industries in the case of certain companies.-(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company." The question which arose in Cambay Electric Supply Co.'s case [1978] 113 ITR 84 (SC) was whether unabsorbed depreciation and unabsorbed development rebate were liable to be deducted in arriving at the figure of profits and gains exigible to deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be profits and gains so attributable, deduct 8% thereof from such profits and gains and then arrive at the net total income exigible to tax. " The learned judge then proceeded to apply this interpretation of subs. (1) of s. 80E to the facts of the case before him and observed (p. 94): " As indicated earlier, sub-section (1) contemplates three steps being taken for computing the special deduction permissible thereunder and arriving at the net income exigible to tax and the first two steps read together contain the legislative mandate as to how the total income-of which the profits and gains attributable to the business of the specified industry forms a part-of the concerned assessee is to be computed and according to the parenthetical clause, which contains the key words, the same is to be computed in accordance with the provisions of the Act except section 80E and since in this case it is income from business, the same will have to be computed in accordance with sections 30 to 43A which would include section 32(2) (which provides for carry forward of depreciation) and section 33(2) (which provides for carry forward of development rebate for eight years). In other words, in comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ostime v. Australian Mutual Provident Society [1960] AC 459, 480 -: " The doctrine of precedent does not compel your Lordships to follow the wrong path until you fall over the edge of the cliff. " Here we find that there are overriding considerations which compel us to reconsider and review the decision in Cloth Traders' case. In the first place, the decision in Cloth Traders' case was rendered by this court on May 4, 1979, and immediately thereafter, within a few months, Parliament introduced s. 80AA with retrospective effect from April 1, .1968, with a view to overriding the interpretation placed on s. 80M in Cloth Traders' case. The decision in Cloth Traders' case did not, therefore, hold the field for a period of more than a few months and it could not be said that any assessee was misled into acting to its detriment on the basis of that decision. There was no decision of this court in regard to the interpretation of sub-s. (1) of s. 80M prior to the decision in Cloth Traders' case and there was therefore no authoritative pronouncement of this court on this question of interpretation on which an assessee could claim to rely for making its fiscal arrangemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Traders' case and on such reconsideration and review, we have come to the conclusion that the decision in Cloth Traders' case is erroneous and must be overturned. It is obvious that, on this view, it becomes unnecessary to consider the question of constitutional validity of the retrospective operation of s. 80AA. Section 80AA in its retrospective operation is merely declaratory of the law as it always was since April 1, 1968, and no complaint can validly be made against it. We, accordingly, dismiss the writ petition but, in the peculiar circumstances of the case, we direct that each party shall bear and pay its own costs. AMARENDRA NATH SEN J.-I have had the benefit of reading the judgment of my learned brother Bhagwati, J. My learned brother in this judgment has set out all the material facts and circumstances of the case. He has referred to the relevant statutory provisions and to the legislative history of s. 80M of the I.T. Act. He has also considered the earlier decisions of various courts including the decisions of this court in Cloth Traders Ltd. v. Addl. CIT [1979] 118 ITR 243 and in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. He has ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neous. In my opinion, it cannot be said that in deciding the case of Cloth Traders, this court had taken one of I two reasonably possible views. My learned brother in his judgment has aptly pointed out on a proper interpretation of s. 80M that the view taken by this court in Cloth Traders' case is fallacious and wrong. I am in entire agreement with the interpretation of s. 80M made by my learned brother for reasons stated in his judgment. It may be noted that as soon as the decision of this court in Cloth Traders' case was given, Parliament to clearly manifest the legislative intent and to indicate that the decision did not reflect the true intention of the Legislature introduced by amendment s. 80AA with retrospective effect. In view of the proper interpretation of s. 80M in the judgment of my learned brother with which I agree, it cannot be said that s. 80AA has the effect of imposing any fresh tax with retrospective effect. Section 80AA is clearly declaratory in nature and merely declares what the correct position has always been. No question of imposition of any fresh tax with retrospective effect falls for consideration in this case. It may also be pointed out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
