TMI Blog1989 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... s on sale of property at 30, Tara Chand Dutta Street, Calcutta, amounting to Rs. 1,89,000. The Income-tax Officer set off against this income from capital gains of Rs. 1,89,000 the earlier year's loss under the head "Income from capital gains" brought forward amounting to Rs. 1,14,500 and on the balance amount of Rs. 74,500, the Income-tax Officer allowed deduction under section 80T of Rs. 5,000 on the first Rs. 5,000 and 35% of the balance. The assessee went up in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, while not accepting some of the claims in the appeal before him, accepted the assessee's claim that the deduction under section 80T should be worked out on the capital gains for this year without first setting off the losses under the head "Capital gains" brought forward from the earlier years. The Revenue appealed to the Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal held that the deduction under section 80T should have been worked out after setting off the loss brought forward from the earlier years and on that portion of the amount of the long-term capital gains which Were included in the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-0". Although this definition came by way of an amendment with retrospective effect, the Supreme Court has held in the aforesaid case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120, that the Explanation was clarificatory. It did not change the law in any way. The controversy before the Supreme Court in the case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 was as to the manner of calculating relief under section 80M in respect of intercorporate dividend. The language of section 80 M ( 1 ) is as follows : "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. . ." The argument on behalf of the assessee in that case was that "such income by way of dividends" appearing in section 80M must be the gross amount of dividends received by the assessee. The contention of the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and then arrive at the net total income exigible to tax." The controversy before the Supreme Court in that case was two fold. Firstly, the question was whether the balancing charge of Rs. 7,55,807 arising out of sale of some old machineries and buildings should be taken into account while computing the deduction of 8% under section 80E. The second question was whether unabsorbed depreciation and development rebate amounting to Rs. 2,54,613 carried over from the earlier years of assessment were deductible in computing the profits under section 80E. It was observed by Tulzapurkar J. that (at p. 91) : ". . . it is obvious that in computing the total income of the concerned assessee, the balancing charge arising as a result of sale of old machinery and buildings and worked out as per section 41(2), irrespective of its real character, will have to be taken into account and included as income of the business." On the question whether unabsorbed depreciation and development rebate were deductible or not in computing the profits under section 80E(1) of the Act, it was pointed out that the first two steps indicated earlier in the judgment contained (at p. 94) ". . . the legislative man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend received by an assessee, being a company, from an Indian company, or it was confined only to the dividend income as computed in accordance with the provisions of the Act, that is, after making the deductions specified in section 57 including deduction of the interest paid on borrowings for making the investments. It was held in that case that the expression "such income by way of dividends" in section 80M was referable to the income by way of dividends which was included in the gross total income. These words merely prescribe a condition for the applicability of the section, namely, 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 included this particular category of income, whatever was the quantum of such income included, the condition would be satisfied and the assessee would be eligible for deduction of the whole or 60% of "such income" as the case may be. The words "such income" would only mean the full amount of dividends received from a domestic company. "The deduction permissible under section 80M was, therefore, to be calculated with reference to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. includes any income by way of dividends from a domestic company' in the opening part of sub-section (1) of section 80M refer only to the inclusion of the category of income and not to the quantum of such income and, therefore, the words 'such income by way 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 (SC), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome by way of dividends' and not from the gross total income. Subsection (1) of section 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, deduction has to be made from 'such income by way of dividends', it is elementary that 'such income by way of dividends' from which deduction has to be made must be part of gross total income. It is difficult to see how the language of this part of sub-section (1) of section 80M can possibly fit in if 'such income by way of dividends' were interpreted to mean the full amount of dividend received by the assessee. The full amount of dividend received by the assessee would not be included in the gross total income ; what would be included would only be the amount of dividend as computed in accordance with the provisions of the Act. If that be so, it is difficult to appreciate how for the purpose of computing the total income from the gross total income, any deduction should be required to be made from the full amount of dividend. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkar J. are to be taken, then the computation of gross total income in accordance with the provisions of the Income-tax Act has to be made first. The second step will be to find out what part of the gross total income, so computed, represented any income chargeable under the head "Capital gains". The third step will be to deduct the prescribed percentage of the amount of five thousand rupees plus a further sum equal to 25% of the amount by which the long-term capital gains exceed five thousand rupees. Therefore, the basis on which relief under section 80T will have to be computed is the amount of long-term capital gains computed in accordance with the provisions of the Income-tax Act. In order to arrive at that income, adjustments and set off as provided under the various provisions of the Act will have to be made first. It is the resultant figure after all adjustments and set off which is included in the gross total income. If any portion of the total amount of income under the head "Capital gains" is not brought within the computation of gross total income because of deduction or adjustments of losses of earlier years then the deductions will be calculated only on that portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been argued that logically this principle should also be extended to the case of the petitioner who has made capital gains by selling certain assets and had suffered capital losses in some other capital assets in the earlier years of account. I am unable to uphold this contention. The principles laid down in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) were categorically affirmed by a Bench of five judges of the Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120. Therefore, it cannot be presumed that a judgment delivered by a Bench of five judges has been overruled or modified by a Bench of two judges. Moreover, a distinction has been made about the case of a priority industry which is included in the list of such industries in the Fifth Schedule. It is to be noted that even in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), where it was held that the relief under section 80E(1) was to be calculated on the basis of income "as computed in accordance with the other provisions of the Act, meant that income from business had to be computed not only in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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