TMI Blog1981 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains of business' or a part thereof should be apportioned and allowed against the income assessable as dividend under the head 'Other sources'? (2) Whether the relief under section 80M is to be granted on the gross amount of dividend received by the assessee or on the net amount as reduced by the interest attributable thereof ? " The facts leading to this reference are as follows : We are concerned with the assessment year 1969-70. The assessee is a private limited company and carries on business as a dealer in shares. In the relevant previous year in connection with assessment year 1969-70, the ITO separately computed income from dividends chargeable under the head " Other sources " and set off against the same interest amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in appeal to the Tribunal and the Tribunal upheld the order of the AAC as in its view the decision of the Gujarat High Court in Addl. CIT v. Cloth Traders (P.) Ltd. [1974] 97 ITR 140 was applicable. The Tribunal considered that the dispute really was whether in computing the assessee's income under the head " Profits and gains " the interest claimed had to be set off in toto or a part thereof should be apportioned to the income as dividend under the head " Other sources ", and, ultimately, the Tribunal having dismissed the appeal of the revenue on these two points, at the instance of the revenue the two questions hereinabove set out have been referred to us for our opinion. Under s. 80M deduction in respect of certain inter-corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the deductions provided under the Act. Thus, according to the Supreme Court, the deduction under s. 80M was to be made with reference to the gross dividend income of the assessee concerned and not with reference to the net dividend income. After this decision of the Supreme Court the Legislature by the Finance (No. 2) Act of 1980 inserted s. 80AA with retrospective effect from April 1, 1968. Section 80AA provides: " Where any deduction is required 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income, particularly in the context of the words " such income ", which is dealt with in s. 80M. Therefore, it is clear that by enacting s. 80AA the Legislature has brought in the concept of quantum of income which is included in the gross total income of an assesseecompany. Under s. 80B, sub-s. (5), " Gross total income " means the total income computed in accordance with the provisions of the I.T. Act, before making any deduction under Chapter VI-A or under s. 280-0. We are concerned with s. 280-0 in this case and, therefore, before making any deduction under s. 80M, total income has to be computed in accordance with all the provisions of the Act. It is very clear that while computing income under the Act whatever dividend income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for the purpose of the business of the company, then, interest has not to be apportioned as between the business requirements and the moneys borrowed for the purpose of investment in shares. No such apportionment is possible if shares are held by the assessee concerned for the purpose of its business. That was question No. 2 before the Division Bench in Laxmi Agents P. Ltd.'s case [1980] 125 ITR 227 (Guj) and from p. 235 onwards of the report the second question before the Division Bench has been dealt with. In that particular case, the facts were that borrowings were made only for the purpose of the assessee's business of managing a company. The assessee invested in the shares of the managed company with a view to protect its managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36 of the I.T. Act, interest paid by an assessee for the purpose of carrying on its business is deducted in its entirety while computing profits and gains of the business and, therefore, it is not possible to allocate a portion of that interest as against income from dividends by stating that that interest had to be paid for the purpose of investing in shares held by the assessee. It is clear, therefore, that reading the scheme of s. 80AA and the specific emphasis now on the words " in connection with that income which goes to form a component of the total income of the assessee computed in accordance with the provisions of the Act ", the real answer to the problem posed by the revenue is that, when the income from other sources is comput ..... X X X X Extracts X X X X X X X X Extracts X X X X
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