Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

1985 (12) TMI 51

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... covered by the decision in CIT v. Motor General Insurance Co. Ltd. [1983] 140 ITR 451 (Mad) and in the light of that judgment, we have to answer these questions in the affirmative and against the Revenue, and it is answered accordingly. Therefore, there is no need to set out the facts relating to the same. So far as the first question is concerned, we need notice only a few facts. The assessee is a general insurance company. In respect of the assessment year 1969-70, it claimed relief both under sections 80K and 80M of the Income-tax Act, 1961. The Income-tax Officer rejected the claim. However, on appeal, the Appellate Assistant Commissioner, following the Tribunal's order in respect of the same assessee for the assessment years 1963-64 and 1964-65, held that the assessee would be entitled to the rebate on the entire dividend income and not merely the net dividend income as computed under the provisions of the Act. This view was accepted by the Tribunal on further appeal. It may be mentioned, by the time the Tribunal took up the matter for consideration, the decision in CIT v. Madras Motor General Insurance Co. Ltd. [1975] 99 ITR 243 (Mad) relating to the same assessee in .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... iled consideration of the provisions of sections 99(1)(iv), 84, 85 and 85A, with reference to section 85, held as follows (p. 361): " ...under section 85 there can be no argument available to the Department that the dividend must be subject to all deductions for expenses incurred in earning the dividend. The emphasis is on the amount of the dividend paid and not upon any receipts or income of the assessee. In the latter case, an argument may be possible (though we have already repelled it) that it is the net receipt or net income that is contemplated but such an argument is not possible where the word used is 'paid' Under section 85 also, therefore, we must hold that the full amount of the dividend paid to the assessee by such Indian companies as partook of the nature of new industrial undertaking or hotel businesses would be wholly exempt from income-tax. " Another Division Bench of the Bombay High Court also took the same view as that in CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348 (Bom) with reference to the scope of section 80K in the decision appended to the decision in Dr. Ramadas M. Pai v. CIT [1978] 115 ITR 883 (Kar) in CIT v. B. M. Grover [1978] 115 ITR 885 (B .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... tal income. The same interpretation was given by the same High Court with reference to the provisions of section 85 of the Act in the decision in CIT v. Indore Exporting Importing Co. [1976] Tax LR 471 (Cal). It may be seen from these cases above referred to that though the courts have approached these questions from various angles, all the High Courts have uniformly taken the view that the words " any income by way of dividends paid or deemed to have been paid " is descriptive of the category of income and when the provision referred to a deduction " from such income by way of dividends of an amount equal to ", the gross dividend received shall be deducted and not the net dividend income as determined with reference to the provision of Chapter VI-A of the Income-tax Act. These decisions have also noted the definition of " gross total income " in section 80B(5). The only other aspect which is to be referred in this connection is that in all these cases, section 85A, which corresponds to section 80M now, was considered to have used identical language and in some cases the interpretation placed on section 85A also was relied on. The Bombay High Court in CIT v. New Great Insurance C .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... to be allowed under section 80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends. 80AB. Deductions to be made with reference to the income included in the gross total income.-Where any deduction is required to be made or allowed under any section (except section 80M) included in this Chapter under the heading 'C-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount o .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... pect of such income by way of dividends other than the dividends referred to in sub-clause (i) 65% of such income; (b) where the assessee is a domestic company in respect of any such income by way of dividends 60% of such income." The learned judges first considered the object behind the grant of relief under section 80M and observed as follows (p. 134 of 155 ITR): " It was common ground between the parties that the main object of the relief under s. 80M is to avoid taxation once again in the hands of the receiving company of the amount which has already borne full tax in the hands of the paying company: Vide the written submission under the heading 'Object of relief on intercorporate dividends' filed by the learned counsel on behalf of the assessee in the 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 specifie .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... urther argument on behalf of the assessee, that the opening part of sub-section (1) of section 80M refers only to the inclusion of the category of income and not to the quantum of such income, the Supreme Court further observed as follows (p. 135 of 155 ITR): " 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 way o .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... me. Sub-section (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 the dividend. The deduction required to be made for computing the total .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... cessary 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-section (1) of section 99 by the three High Courts were correct, it cannot necessarily lead to the conclusion that a similar construction must also be placed on section 80M which is different in material respects from clause (iv) of sub-section (1) of section 99." Again with reference to the decision in Net Great Insurance Co.'s case [1973] 90 ITR 348 (Bom), which construed the provisions of section 85A, the Supreme Court made the following observations (p 131 of 155 ITR): " But, as we have pointed out above, it is not necessary to consider whether the construction placed on section 85A by the Bombay High Court in New Great Insurance Co.'s case [1973] 90 ITR 348, is correct or not, because we are not concerned here with the interpretation of section 85A. It is section 80M which has to be construed and this section, as we shall presently show, is materially different from section 85A. We cannot construe section 80M in the light of the interpretation placed on its predecessor section by the Bombay High Court particularly when section .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ble reliance has been placed on the second part of s. 85A which contemplates the rate of tax which is chargeable on total income. Such wording is not to be found in the two sections under our consideration (ss. 80K and 80L) which allow for a straight deduction. " The main object of section 80K is to extend the benefit given to the company under section 80J, to the shareholders and not avoidance of double taxation. It is extending the benefit of non-taxability of the income of the company under section 80J to the shareholder. Apart from this, Parliament itself seemed to have made a difference to these provisions under sections 80X and 80M. Originally, the Finance (No. 2) Bill of 1980 proposed to introduce only one section as 80AA with effect from April 1, 1968, and the provision sought to be introduced read as follows: "80AA. Deductions to be made with reference to the income included in the gross total income. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading 'C-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income o .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nterest on one lakh of rupees paid to the company 'B', company 'A' when it is assessed is given a deduction on the amount paid as interest. Then in respect of Rs. 2 lakhs which it receives as dividend from company 'B', it claims a deduction for the entire Rs. 2 lakhs, not rupees 2 lakhs minus the interest which they have paid, on which they have claimed deduction. This is a sort of double benefit. That is not the intention at any time of the Government and it has been made clear that when you say 'income', it is net income, not the gross income. Therefore, in fairness and in equity, I have said that when one company, one corporation, makes an investment in another company, another corporation, in respect of those inter-corporate dividends, the expenses incurred in making that investment must be deducted and only the balance should be entitled to income-tax deductions as income of the company 'A'. This nobody can object to except that it has been in the past interpreted the other way and they have claimed double benefit. As far as the other deductions are concerned, as I have said, we will make the law prospective, for instance in section 80-0, deductions in the case of Indian com .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ndment." It may be seen from this statement of the Finance Minister that so far as the interpretation of section 80K is concerned, they did not want to interfere with the interpretation placed by the various High Courts, at least till the assessment year 1981-82 and they wanted to apply the interpretation provision of section 80AB only prospectively with effect from April 1, 1981. There being no contrary view expressed by any of the High Courts on the scope of section 80K, we are of the view that the attitude taken by the Government in making section 80AB prospective may be interpreted as meaning that Parliament and the Government did not want to unsettle the prior position. In fact, this was the understanding of the provision by the Department also, as seen by the circular by the Central Board of Revenue where in paragraph 15.7, the Central Board had stated: " The new section 80AB will take effect from I st April, 1981, and will accordingly apply in relation to the assessment year 1981-82, and subsequent years. It should be carefully noted that the new section 80AB, unlike section 80AA, will not have any retrospective operation." The learned counsel for the Revenue contended .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ich has to be proved aliunde, that is to say, apart from the fact that statement about it was made in the course of proceedings in Parliament (see Jerold Lord Strickland v. Carmelo Mifsud Bonnici, AIR 1935 PC 34 and Englishman Ltd. v Lajpat Rai [1910] ILR 37 Cal 760). In the case before us, a reference was made merely to the fact that certain reason was given by the Finance Minister, who proposed an amendment, for making the amendment. What we can take judicial notice of is the fact that such a statement of the reason was given in the course of such a speech. The question whether the object stated was properly expressed by the language of section 2(15) of the Act is a matter which we have to decide for ourselves as a question of law. Interpretation of a statutory provision is always a question of law on which the reasons stated by the mover of the amendment can only be used as an aid in interpretation if we think, as I do in the instant case, that it helps us considerably in understanding the meaning of the amended law, We find no bar against such a use of the speech." In the foregoing circumstances, we have to answer the first part of the first question relating to the benefit .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates