1994 (2) TMI 14 - HC - Income Tax

Court clarifies deduction computation under tax law, emphasizes no double relief, ruling in favor of Revenue.

The court held that for computing deductions under section 80M(1), the net dividend income should be reduced by the deductions allowable under section ... Income Tax Act, Intercorporate Dividends, Special Deduction Issues Involved:1. Whether the assessee is entitled to relief under section 80M(1) of the Income-tax Act, 1961, on the net dividend income after or before deduction of the amount admissible under section 80K of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Entitlement to Relief under Section 80M(1) on Net Dividend Income:The primary question is whether the deduction under section 80M(1) should be computed before or after the deduction allowed under section 80K. The Tribunal initially held that while computing relief under section 80M(1), the net dividend income should not be reduced by the deduction allowed under section 80K. However, a Special Bench of the Bombay Tribunal later took a contrary view, stating that deduction under section 80M should be allowed on the basis of the net dividend income included in the gross total income and not the gross dividend income.2. Relevant Provisions of Sections 80AA, 80M, and 80K:- Section 80AA: States that the deduction under section 80M should be computed with reference to the income by way of dividends as computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A.- Section 80M: Provides for a deduction from the income by way of dividends included in the gross total income of a domestic company. Sub-section (2) specifies that if a company is entitled to deductions under both section 80K and section 80M(1), the income by way of dividends should be reduced by the amount of the deduction under section 80K.- Section 80K: Allows for a 100% deduction on income by way of dividends received from certain specified sources.3. Interpretation of Sections 80AA and 80M:The court clarified that section 80AA is an explanatory section, ensuring that deductions under section 80M are computed with reference to the net dividend income included in the gross total income, not the gross dividend income. The non obstante clause in section 80AA does not affect the provisions of sub-section (2) of section 80M, which mandates reducing the dividend income by the amount of deduction under section 80K before computing the deduction under section 80M(1).4. Supreme Court Precedents:- In the case of Distributors (Baroda) P. Ltd. v. Union of India, the Supreme Court held that the deduction under section 80M should be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act, not the full amount received from the paying company.- In CIT v. P. K. Jhaveri, the Supreme Court affirmed that for working out relief under section 80K, the net dividend income should be considered, not the gross dividend.5. Legislative Intent and Double Relief:The court emphasized that the Legislature did not intend to grant double relief under sections 80K and 80M(1). Accepting the assessee's contention would result in double deductions on the same amount of dividend income, which is not the legislative intent.Conclusion:The court concluded that for computing deductions under section 80M(1), the net dividend income should be reduced by the deductions allowable under section 80K, as mandated by section 80M(2). The questions in all references were answered in favor of the Revenue, holding that the net dividend income must be considered after reducing the quantum of dividend income by the relief under section 80K. The references were disposed of accordingly with no order as to costs.