Section 80M deduction applies only to dividend income computed under the Act, not gross dividends claimed outright.

Deduction under Section 80M of the Income-tax Act must be computed on dividend income as determined under the Act, not on the gross dividend amount claimed by the assessee. Section 80AA requires the relevant dividend income to be first computed in accordance with statutory provisions before any Chapter VI-A deduction is allowed. If the gross and net amounts happen to be the same on proper computation, deduction may follow that figure, but a deduction on gross dividends as a matter of course is inconsistent with Section 80AA. The legal position stated is therefore that Section 80M relief is confined to dividend income computed under the Act.

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Issues: Whether deduction under Section 80M of the Income-tax Act, 1961 was allowable on gross dividends or had to be computed on the income by way of dividend as determined under the Act.

Analysis: The deduction under Section 80M is to be worked out with reference to the dividend income computed in accordance with the provisions of the Act and not with reference to the gross amount of dividend. Section 80AA governs the manner of computation and requires the relevant income to be determined before allowing the deduction under Chapter VI-A. Where, on such computation, the gross and net amounts are the same, deduction may follow that computed amount; however, the claim for deduction on gross dividends as a matter of course is inconsistent with Section 80AA.

Conclusion: Deduction under Section 80M is not allowable on gross dividends as claimed by the assessee and must be computed in accordance with Section 80AA. The issue is decided in favour of the Revenue.

Ratio Decidendi: A deduction under Section 80M must be allowed only on dividend income computed in accordance with the Act, and not on the gross dividend amount irrespective of the statutory computation under Section 80AA.

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